Exhibit 10.23.11
EIGHTY-FIRST AGREEMENT AMENDING
NEW ENGLAND POWER POOL AGREEMENT
(RESTATEMENT OF FINANCIAL ASSURANCE POLICIES)
THIS EIGHTY-FIRST AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT,
dated as of December 7, 2001 (the "Eighty-First Agreement"), amends the New
England Power Pool Agreement (the "NEPOOL Agreement"), as amended.
WHEREAS, the NEPOOL Agreement as in effect on December 1, 1996 was amended
and restated by the Thirty-Third Agreement Amending New England Power Pool
Agreement dated as of December 1, 1996 (the "Thirty-Third Agreement") in the
form of the Restated New England Power Pool Agreement ("Restated NEPOOL
Agreement") attached to the Thirty-Third Agreement as Exhibit A thereto, and the
Thirty-Third Agreement also provided for the NEPOOL Open Access Transmission
Tariff (the "NEPOOL Tariff") which is Attachment B to the Restated NEPOOL
Agreement; and
WHEREAS, the Restated NEPOOL Agreement and the NEPOOL Tariff have
subsequently been amended numerous times, the most recent amendment dated as of
October 12, 2001; and
WHEREAS, the Participants desire to amend the NEPOOL Agreement, including
the NEPOOL Tariff, as heretofore amended, to reflect the revisions detailed
herein.
NOW, THEREFORE, upon approval of this Eighty-First Agreement by the NEPOOL
Participants Committee in accordance with the procedures set forth in the NEPOOL
Agreement, the Participants agree as follows:
SECTION 1
AMENDMENTS TO NEPOOL AGREEMENT
1.1 Amendment to Section 21.2(d). The following sentence is added at the
end of Section 21.2(d) of the Restated NEPOOL Agreement:
Nothing set forth in this Section 21.2 is intended to limit the
additional provisions of the Member Financial Assurance Policy
relating to notices and suspensions thereunder.
SECTION 2
AMENDMENTS TO NEPOOL TARIFF
2.1 Amendment to Attachment L to NEPOOL Tariff. The Financial Assurance Policy
for NEPOOL Members included as Attachment L to the NEPOOL Tariff is
deleted in its entirety and replaced with Attachment 1 hereto.
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2.2 Amendment to Attachment M to NEPOOL Tariff. The Financial Assurance Policy
for NEPOOL Non-Participant Transmission Customers included as Attachment M
to the NEPOOL Tariff is deleted in its entirety and replaced with
Attachment 2 hereto.
SECTION 3
MISCELLANEOUS
3.1 The Eighty-First Agreement shall become effective on the Policy Effective
Date (as defined in Attachments 1 and 2 to the Eighty-First Agreement) or
on such other date as the Commission shall provide that the amendments
reflected herein shall become effective.
3.2 Terms used in this Eighty-First Agreement that are not defined herein
shall have the meanings ascribed to them in the NEPOOL Agreement.
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ATTACHMENT L
FINANCIAL ASSURANCE POLICY FOR NEPOOL MEMBERS
In accordance with Sections 3.5 and 7.5 of the Restated NEPOOL Agreement,
the procedures and requirements set forth in this NEPOOL Financial Assurance
Policy (this "Policy") shall govern all applicants for membership in NEPOOL
("Applicants") and NEPOOL Participants.(1) This Policy shall become effective
and shall supersede existing Attachment L to the Tariff in its entirety on the
Policy Effective Date (as hereinafter defined). The "Policy Effective Date"
shall be 10 days after the date on which the NEPOOL Participants Committee
receives a notice from the System Operator stating that the System Operator is
able to fully implement the provisions of this Policy.
The purpose of this Policy is (i) to establish a financial assurance
policy for Participants that includes commercially reasonable credit review
procedures to assess the financial ability of an Applicant or of a Participant
to pay for service transactions under the Restated NEPOOL Agreement and the
Tariff and to pay its share of NEPOOL expenses, including amounts owed to the
System Operator under its tariff;(2) (ii) to set forth the requirements for
alternative forms of security that will be deemed acceptable to NEPOOL and
consistent with commercial practices
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1 Capitalized terms used but not defined in this Policy are intended to
have the meanings given to such terms in Section 1 of the Restated NEPOOL
Agreement or Section 1 of the Restated NEPOOL Open Access Transmission Tariff
(the "Tariff").
2 For purposes of this Policy, including all attachments hereto, the
"tariff" of the System Operator includes any and all tariffs of ISO New England
Inc., including without limitation its Tariff for Transmission Dispatch and
Power Administration Services and its Tariff for Capital Funding.
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established by the Uniform Commercial Code that protect the Participants against
the risk of non-payment by other, defaulting Participants; (iii) to set forth
the conditions under which NEPOOL will conduct business so as to avoid the
possibility of failure of payment for services rendered under the Tariff, the
Restated NEPOOL Agreement and the System Operator's tariff; and (iv) to collect
amounts past due, collect amounts payable upon billing adjustments, make up
shortfalls in payments, and terminate membership of defaulting Participants.(3)
I. LIABILITY AND TREATMENT OF GROUPS REGARDED AS SINGLE PARTICIPANTS
In the case of a group of members that are treated as a single Participant
pursuant to Section 4.1 of the Restated NEPOOL Agreement, the group members
shall be deemed to have elected to be jointly and severally liable for all debts
to NEPOOL of any of the group members unless: (i) charges of an individual
member can be tracked and allocated to the member incurring such charges by the
System Operator utilizing all information available to the System Operator
determined by it to be reliable, including information from Participants or from
a single Participant's representative; (ii) an alternate form of financial
assurance is provided as set forth below; (iii) the group members agree to
allocate amongst themselves responsibility for payment of group member charges
on a percentage basis in a manner acceptable to NEPOOL, with each member
providing the financial assurance, if any, required to be provided by it
hereunder when treated separately from the remainder of the group; or (iv) the
group members when evaluated as
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(3) The System Operator will act as NEPOOL's agent in managing and
enforcing this Policy with the exception of termination of membership issues,
which are specifically reserved to the NEPOOL Participants and will be addressed
by the NEPOOL Participants Committee Membership Subcommittee. Accordingly, all
financial information required pursuant to this Policy is to be provided to the
System Operator, which will keep all such information confidential in accordance
with the provisions of the NEPOOL Information Policy.
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a whole (at their expense) achieve the requirements applicable to such members
in order to avoid providing additional financial assurance and, in addition,
provide a corporate guaranty from a parent or other responsible affiliate
satisfying all of the requirements hereof for such guaranties. For the fourth
type of consolidated Participant identified in subsection (iv) of the
immediately preceding sentence, the System Operator shall conduct a financial
assurances review based on only the rated members of the group.
For the purposes of this Policy, the term "Participant" shall, in the case
of a group of members that are treated as a single Participant pursuant to
Section 4.1 of the Restated NEPOOL Agreement, be deemed to refer to the group of
members as a whole unless the group members have affirmatively indicated to
NEPOOL, and NEPOOL has agreed, that they are to be treated pursuant to
subsections (i) or (iii) of the immediately preceding paragraph, in which case
the term "Participant" shall be deemed to refer to each individual group member
and not to the aggregate of such group; and the terms "charges" and "fees"
shall, likewise, be deemed to refer to the charges and fees allocable to the
individual group member as opposed to the aggregate of such group.
II. FINANCIAL ASSURANCE PROVISIONS FOR NON-MUNICIPAL APPLICANTS AND
NON-MUNICIPAL PARTICIPANTS
Section II of the Policy contains the requirements and procedures
governing Applicants and Participants that are not Publicly Owned Entities other
than electric cooperatives or organizations including electric cooperatives
(such Publicly Owned Entities being referred to herein as "Municipal Applicants"
or "Municipal Participants"). For purposes of this Policy, such Participants and
Applicants that are not Municipal Participants or Municipal Applicants are
referred to as "Non-Municipal Participants" and "Non-Municipal Applicants." A
Non-
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Municipal Participant's failure to meet the requirements of this section may
result in termination proceedings by NEPOOL.
A. PROOF OF FINANCIAL VIABILITY.
1. PROCESS FOR INVESTIGATING CREDITWORTHINESS OF A NON-MUNICIPAL
APPLICANT.
Each Non-Municipal Applicant must, with its membership application and at
its own expense, submit proof of financial viability, as described below,
satisfying NEPOOL requirements to demonstrate the Non-Municipal Applicant's
ability to meet its obligations. Each Non-Municipal Applicant must submit to the
System Operator: (i) all current rating agency reports from Standard and Poors
("S&P"), Moody's, Duff & Phelps, and/or Fitch (collectively, the "Rating
Agencies"); (ii) audited financial statements for at least the immediately
preceding three (3) years, or the period of its existence, if shorter,
including, but not limited to, the following information: balance sheets, income
statements, statements of cash flows and notes to financial statements, annual
and quarterly reports, and 10-K, 10-Q and 8-K Reports;(4) (iii) at least one
bank reference and three (3) utility company credit references, or in those
cases where a Non-Municipal Applicant does not have three (3) utility company
credit references, three (3) trade payable vendor references may be substituted;
(iv) relevant information as to any known or anticipated material lawsuits, as
well as any prior bankruptcy declarations by the Non-Municipal Applicant, or by
its predecessor(s), if any; and (v) a list of the officers and principal
management of the Non-Municipal Applicant. In the case of certain Non-Municipal
Applicants, some of the
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(4) If any of the above-mentioned financial statements are available on
the Internet, the Non-Municipal Applicant may provide instead a letter to NEPOOL
stating where such statements may be located and retrieved by NEPOOL or its
designee.
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information and documentation described in the immediately preceding sentence
may not be applicable or available, and alternate requirements may be specified
by NEPOOL or its designee in its sole discretion.
The System Operator shall prepare a report, or cause a report to be
prepared, concerning the financial viability of such Non-Municipal Applicant. In
its review of each Non-Municipal Applicant, the System Operator or its designee
shall consider all of the information and documentation described in subsections
(i) through (v) of the immediately preceding paragraph as well as a lien search
for such Non-Municipal Applicant. All costs incurred by the System Operator in
its review of the financial viability of a Non-Municipal Applicant shall be
borne by such Non-Municipal Applicant and paid at the time that such
Non-Municipal Applicant is required to pay its first annual fee under Section
19.1 of the Restated NEPOOL Agreement. The report for each Non-Municipal
Applicant shall be completed within three (3) weeks of the System Operator's
receipt of that Non-Municipal Applicant's completed application and shall be
provided to the Membership Subcommittee of the Participants Committee and the
affected Non-Municipal Applicant.
2. PROCESS FOR INVESTIGATING FINANCIAL VIABILITY OF A
NON-MUNICIPAL PARTICIPANT.
Each Non-Municipal Participant shall provide the System Operator with all
current Rating Agency reports for it, if available, and a list of its officers
and principal management upon the effective date of this Policy. Using this
information, the System Operator shall initiate a limited investigation
concerning the financial viability of all Non-Municipal Participants. With
respect to each Non-Municipal Participant, the System Operator shall
investigate: (i) the background of the Non-Municipal Participant's officers and
principal management; and (ii)
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whether any judgments, fines, liens, assessments or other encumbrances have been
imposed or levied on the Non-Municipal Participant within 12 months prior to the
date of such investigation. All costs incurred by the System Operator in its
review of the financial viability of the Non-Municipal Participants shall be
borne by NEPOOL under Section 19.2 of the Restated NEPOOL Agreement. The System
Operator shall complete its investigation of all Non-Municipal Participants and
issue a report thereon to NEPOOL no later than 60 days after the effective date
of this Policy.
B. ONGOING FINANCIAL REVIEW.
1. PROVISION OF FINANCIAL ASSURANCES.
A Non-Municipal Participant or Non-Municipal Applicant that receives a
credit rating from one or more of the Rating Agencies, or, if such Non-Municipal
Participant or Non-Municipal Applicant itself is not rated by one of the Rating
Agencies, then a Non-Municipal Participant or Non-Municipal Applicant that has
outstanding debt rated by one or more of the Rating Agencies, is referred to
herein as a "Rated Non-Municipal Participant" or a "Rated Non-Municipal
Applicant," as appropriate. A Non-Municipal Participant or Non-Municipal
Applicant that is not a Rated Non-Municipal Participant or a Rated Non-Municipal
Applicant is referred to herein as an "Unrated Non-Municipal Participant" or an
"Unrated Non-Municipal Applicant," as appropriate.
a. RATED NON-MUNICIPAL APPLICANTS AND RATED NON-MUNICIPAL
PARTICIPANTS.
Any Rated Non-Municipal Participant or Rated Non-Municipal Applicant that
does not have an investment grade rating by one of the Rating Agencies (either
for itself or, if it is not rated by one of the Rating Agencies, then for its
outstanding debt) must provide an appropriate
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cash deposit, letter of credit, payment bond or guaranty as described in this
Policy. For all purposes of this Policy, if ratings from two or more of the
Rating Agencies are available then: (i) if there are two such ratings available,
the lower rating shall govern; (ii) if there are three or more such ratings
available and two of such ratings are at a comparable level and only one other
such rating is lower than those two ratings, the two comparable ratings shall
govern; (iii) if there are three such ratings available and none are at
comparable levels, the rating that is higher than one and lower than another
shall govern; and (iv) if there are four such ratings available and none are at
a comparable level or two are at a comparable level and two are at a lower level
(either comparable or not), then the third highest such rating shall govern.
b. UNRATED NON-MUNICIPAL PARTICIPANTS.
Any Unrated Non-Municipal Participant that (i) has not been a Participant
in NEPOOL for at least the immediately preceding 12 months; or (ii) has
defaulted on any of its obligations under the Restated NEPOOL Agreement, the
Tariff or the System Operator's tariff (including without limitation its
obligations hereunder and under the NEPOOL Billing Policy) during such 12-month
period; or (iii) does not have a Current Ratio (as hereinafter defined) of at
least 1.0, a Debt-to-Total Capitalization Ratio (as hereinafter defined) of 0.6
or less, and an EBITDA-to-Interest Expense Ratio (as hereinafter defined) of at
least 2.0 must provide an appropriate cash deposit, letter of credit, payment
bond or guaranty as described in this Policy.
For purposes of this Policy, "Current Ratio" on any date is all of a
Non-Municipal Participant's current assets divided by all of its current
liabilities, in each case as shown on the most recent financial statements
provided by such Non-Municipal Participant to the System Operator;
"Debt-to-Total Capitalization Ratio" on any date is a Non-Municipal
Participant's total debt (including all current borrowings) divided by its total
shareholders' equity plus total debt, in each case as shown on the most recent
financial statements provided by such Non-Municipal
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Participant to the System Operator; and "EBITDA-to-Interest Expense Ratio" on
any date is a Non-Municipal Participant's earnings before interest, taxes,
depreciation and amortization in the most recent fiscal quarter divided by that
Non-Municipal Participant's expense for interest in that fiscal quarter, in each
case as shown on the most recent financial statements provided by such
Non-Municipal Participant to the System Operator. Each of the ratios described
in this paragraph shall be determined in accordance with generally accepted
accounting principles in the United States at the time of determination
consistently applied. Achieving each of the Current Ratio, Debt-to-Total
Capitalization Ratio and EBITDA-to-Interest Expense Ratio tests described in
this subsection is referred to herein as satisfying the "Credit Threshold."
c. GOVERNANCE ONLY MEMBERS AND NON-MUNICIPAL PARTICIPANTS
WITH AVERAGE INDIVIDUAL MONTHLY NEPOOL CHARGES OF
$15,000 OR LESS.
Notwithstanding any provision of this Policy to the contrary, Governance
Only Members and Non-Municipal Participants with average individual monthly
NEPOOL Charges (as hereinafter defined) of $15,000 or less shall not be required
to provide a cash deposit, letter of credit, payment bond or guaranty under this
Policy.
2. CREDIT LIMIT FOR NON-MUNICIPAL PARTICIPANTS.
A credit limit ("Credit Limit") shall be established for each Rated
Non-Municipal Participant in accordance with subsection (a) below, and a Credit
Limit shall be established for each Unrated Non-Municipal Participant in
accordance with subsection (b) below.
a. CREDIT LIMIT FOR RATED NON-MUNICIPAL PARTICIPANTS.
As reflected in the following table, the Credit Limit of each Rated
Non-Municipal Participant shall at any time be equal to the lesser of: (i) the
applicable percentage of such Rated
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Non-Municipal Participant's Tangible Net Worth (as hereinafter defined) as
listed in the following table, (ii) $125 million, or (iii) 20 percent (20%) of
the total amount due and owing at such time to the System Operator, the
Participants and the Non-Participant Transmission Customers by all Participants
and Non-Participant Transmission Customers.
INVESTMENT RATING PERCENTAGE OF TANGIBLE
(COMPARABLE RATINGS TO BE USED FOR DUFF & PHELPS AND NET WORTH FOR PURPOSES
FITCH) OF CREDIT LIMIT
S&P MOODY'S
AAA Aaa 5.50%
AA+ Aa1 5.50%
AA Aa2 4.50%
AA- Aa3 4.00%
A+ A1 3.05%
A A2 2.85%
A- A3 2.60%
BBB+ Baa1 2.30%
BBB Baa2 1.90%
BBB- Baa3 1.20%
Below BBB- Below Baa3 0.00%
For purposes of this Policy, an entity's "Tangible Net Worth" on any date is the
value, determined in accordance with generally accepted accounting principles in
the United States, of all of that entity's assets less both (i) the amount at
which the liabilities of the entity would be shown on a balance sheet in
accordance with generally accepted accounting principles in the United States
and (ii) all of that entity's intangible assets (e.g., patents, trademarks,
franchises, intellectual property, goodwill and any other assets not having a
physical existence), in each case as shown on the most recent financial
statements provided by such entity to the System Operator.
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The System Operator shall update and monitor the Credit Limit for each Rated
Non-Municipal Participant on a daily basis.
b. CREDIT LIMIT FOR UNRATED NON-MUNICIPAL PARTICIPANTS.
The Credit Limit of each Unrated Non-Municipal Participant that satisfies
the Credit Threshold shall at any time be equal to the lesser of: (i) 0.50
percent (0.50%) of such Unrated Non-Municipal Participant's Tangible Net Worth,
(ii) $125 million, or (iii) 20 percent (20%) of the total amount due and owing
at such time to the System Operator, the Participants and the Non-Participant
Transmission Customers by all Participants and Non-Participant Transmission
Customers. The System Operator shall update and monitor the Credit Limit for
each Unrated Non-Municipal Participant that satisfies the Credit Threshold on a
quarterly basis. The Credit Limit of each Unrated Non-Municipal Participant that
does not satisfy the Credit Threshold shall be $0.
3. INFORMATION REPORTING OBLIGATIONS FOR NON-MUNICIPAL
PARTICIPANTS.
In order for the System Operator to update and monitor the Credit Limit of
each Rated Non-Municipal Participant that has an investment grade rating by one
of the Rating Agencies (either for itself or, if it is not rated by one of the
Rating Agencies, then for its outstanding debt) and each Unrated Non-Municipal
Participant that satisfies the Credit Threshold, (i) each such Rated
Non-Municipal Participant shall submit to the System Operator, on a quarterly
basis within 10 days of its becoming available and within 55 days after the end
of the applicable fiscal quarter of such Rated Non-Municipal Participant, its
balance sheet, which shall have been compiled by certified public accountants
showing sufficient detail for the System Operator to calculate its Tangible Net
Worth; and (ii) each such Unrated Non-Municipal Participant shall
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submit to the System Operator, on a quarterly basis, within 10 days of their
becoming available and within 55 days after the end of the applicable fiscal
quarter of such Unrated Non-Municipal Participant, its balance sheet and
additional financial statements, which shall have been compiled by certified
public accountants showing sufficient detail for the System Operator to
calculate such Unrated Non-Municipal Participant's Current Ratio, Debt-to-Total
Capitalization Ratio and EBITDA-to-Interest Expense Ratio. In addition, each
such Rated Non-Municipal Participant and Unrated Non-Municipal Participant shall
submit to the System Operator, annually within 10 days of their becoming
available and within 100 days after the end of the fiscal year of such
Non-Municipal Participant, the following audited financial statements: balance
sheets, income statements, statements of cash flows, and notes to financial
statements, as well as copies of that Non-Municipal Participant's annual report.
Each such Non-Municipal Participant shall also provide to the System Operator,
within 10 days of their filing with the Securities and Exchange Commission
("SEC"), a copy of each Form 10-K Report, Form 10-Q Report and Form 8-K Report
for that Non-Municipal Participant.(5)
Each Rated Non-Municipal Participant that does not have an investment
grade rating by one of the Rating Agencies (either for itself or, if it is not
rated by one of the Rating Agencies, then for its outstanding debt) and each
Unrated Non-Municipal Participant that does not satisfy the Credit Threshold
must submit the annual and quarterly financial statements and SEC filings
described in this subsection if and as requested by the System Operator within
10 days of such request.
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(5) Where any of the above financial information is available on the
Internet, the Non-Municipal Participant may instead provide the System Operator
with a letter stating where such information may be located and retrieved.
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4. CONSEQUENCES UPON REACHING 80%, 90% AND 100% OF CREDIT TEST
AMOUNT.
When a Non-Municipal Participant's aggregate outstanding obligations to
NEPOOL and the System Operator equal 80 percent (80%) of the sum of (i) that
Non-Municipal Participant's then-effective Credit Limit or (ii) the available
amount of the additional financial assurance provided by that Non-Municipal
Participant divided by three and one-half (3.5) (the sum of item (i) and item
(ii) being referred to herein as the "Credit Test Amount"), the System Operator
shall issue notice thereof to such Non-Municipal Participant, such notice to be
given in the manner provided in Section 21 of the Restated NEPOOL Agreement.
When a Non-Municipal Participant's aggregate outstanding obligations to NEPOOL
and the System Operator equal 90 percent (90%) of that Non-Municipal
Participant's Credit Test Amount, (i) the System Operator shall issue notice
thereof to such Non-Municipal Participant, such notice to be given in the manner
provided in Section 21 of the Restated NEPOOL Agreement; and (ii) if such
condition continues to exist 10 Business Days after the date of such notice, the
System Operator shall issue notice thereof to all members and alternates of the
NEPOOL Participants Committee.
When a Non-Municipal Participant's aggregate outstanding obligations to
NEPOOL and the System Operator equal 100 percent (100%) of that Non-Municipal
Participant's Credit Test Amount, (i) the System Operator shall issue notice
thereof to such Non-Municipal Participant, all members and alternates of the
NEPOOL Participants Committee and the New England governors and utility
regulatory agencies, such notice to be given in the manner provided in Section
21 of the Restated NEPOOL Agreement, and (ii) such Non-Municipal Participant
shall be suspended from (a) making any purchases of Market Products in the
NEPOOL Market; (b) scheduling any future transmission service under the Tariff;
and (c) voting on matters before the Participants
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Committee or any Technical Committee, in each case until either (x) in the case
of purchases of Market Products and the scheduling of transmission service, such
Non-Municipal Participant's outstanding obligations to NEPOOL and the System
Operator fall below 100 percent (100%) of its Credit Test Amount and, in the
case of voting on matters before the Participants Committee or any Technical
Committee, such Non-Municipal Participant's outstanding obligations to NEPOOL
and the System Operator fall and remain below 100 percent (100%) of its Credit
Test Amount at least three (3) Business Days prior to any such vote, or (y) in
the case of purchases of Market Products and the scheduling of transmission
service, such Non-Municipal Participant has provided additional financial
assurance (in addition to any other financial assurance required of such
Non-Municipal Participant hereunder) equal to three and one-half (3.5) times the
amount by which such Non-Municipal Participant's outstanding obligations to
NEPOOL and the System Operator exceed 100 percent (100%) of its Credit Test
Amount (the "Excess Financial Assurance") and, in the case of voting on matters
before the Participants Committee or any Technical Committee, such Non-Municipal
Participant has provided Excess Financial Assurance at least three (3) Business
Days prior to any such vote; provided, however, (i) any suspension of a
Non-Municipal Participant's authority to vote on matters before the Participants
Committee or any Technical Committee hereunder shall not be effective while an
appeal of such suspension is pending; (ii) if any Non-Municipal Participant
reaches 100 percent (100%) of its Credit Test Amount solely because its rating,
the rating of its outstanding debt or the rating of its Guarantor (as
hereinafter defined) or its Guarantor's outstanding debt is downgraded by one
grade, then (x) for 10 Business Days after such downgrade, such Non-Municipal
Participant's Credit Test Amount shall remain the same as it was immediately
preceding such downgrade and (y) no notice shall be sent and no suspension shall
occur with respect to such downgrade if such Non-
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Municipal Participant cures such default within such 10 Business Day period; and
(iii) if any Non-Municipal Participant reaches 100 percent (100%) of its Credit
Test Amount solely because the rating of the bank issuing a letter of credit on
its behalf hereunder is downgraded below the requisite corporate debt rating,
then (x) for 10 Business Days after such downgrade, such Non-Municipal
Participant's Credit Test Amount shall remain the same as it was immediately
preceding such downgrade, and (y) no notice shall be sent and no suspension
shall occur with respect to such downgrade if such Non-Municipal Participant
cures such default within such 10 Business Day period. The suspension of a
Non-Municipal Participant's ability to purchase Market Products in the NEPOOL
Market shall not limit, in any way, NEPOOL's or the System Operator's right to
invoice or collect payment for any amounts owed (whether such amounts are due or
becoming due) by such suspended Non-Municipal Participant under the Agreement,
the Tariff or the System Operator's tariff.
Each notice issued by the System Operator when a Non-Municipal
Participant's aggregate outstanding obligations to NEPOOL and the System
Operator equal 90 percent (90%) and 100 percent (100%) of that Non-Municipal
Participant's Credit Test Amount shall indicate whether such Non-Municipal
Participant has a registered load asset. If the System Operator has issued a
notice that a Non-Municipal Participant's aggregate outstanding obligations to
NEPOOL and the System Operator equal 90 percent (90%) or 100 percent (100%) of
that Non-Municipal Participant's Credit Test Amount and subsequently such
Non-Municipal Participant's aggregate outstanding obligations fall below the
applicable percentage of its Credit Test Amount, such Non-Municipal Participant
may request the System Operator to issue a notice stating such fact; provided,
however, that the System Operator shall not be obligated to issue such notice
unless, in its sole discretion, the System Operator concludes that such
Non-Municipal
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Participant's aggregate outstanding obligations have in fact fallen below the
applicable percentage of its Credit Test Amount.
C. THIRD-PARTY CREDIT PROTECTION POLICY.
The System Operator shall obtain third-party credit protection, in the
form of credit insurance coverage, a performance or surety bond, or a
combination thereof ("Non-Municipal Credit Coverage"), on terms acceptable to
the System Operator in its reasonable discretion covering the group of Rated
Non-Municipal Participants with an investment grade rating from the Rating
Agencies and the group of Unrated Non-Municipal Participants that satisfy the
Credit Threshold (collectively, the "Qualifying Non-Municipal Participants").
The Non-Municipal Credit Coverage shall be equal to three and one-half (3.5)
times the average NEPOOL Charges (as hereinafter defined) of the Qualifying
Non-Municipal Participant with the greatest NEPOOL Charges from time-to-time.
The Non-Municipal Credit Coverage shall be provided by an insurance company
rated "A-" or better by A.M. Best & Co. or "AA" or better by S&P. The cost of
the Non-Municipal Credit Coverage obtained for each calendar year shall be
allocated to all Participants pro rata based, for each Participant, on (a) the
sum of all charges under the Agreement, Tariff and System Operator's tariff owed
in the preceding calendar year by such Participant and (b) all amounts owed to
such Participant under the Agreement, Tariff and System Operator's tariff in the
preceding calendar year. Each Qualifying Non-Municipal Participant shall provide
the System Operator with such information as may be reasonably necessary for the
System Operator to obtain the Credit Coverage at the lowest possible cost.
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D. FINANCIAL ASSURANCES.
All Non-Municipal Applicants and Non-Municipal Participants that must
provide (or choose to provide) additional financial assurance pursuant to this
Section II, must provide NEPOOL with financial assurance in the form and in the
amount described in Sections II and IV hereof. Each financial assurance for
monthly charges, unless replaced in accordance with the terms hereof or no
longer required pursuant to the terms hereof, shall remain in effect for 120
days after termination of the Non-Municipal Participant's membership; provided,
however that financial assurances required by this Policy related to potential
billing adjustments chargeable to a terminated Non-Municipal Participant shall
remain in effect until such billing adjustment request is finally resolved in
accordance with the provisions of the NEPOOL Billing Policy.
A Non-Municipal Participant or a Non-Municipal Applicant's additional
financial assurance hereunder shall be in an amount (the "Non-Municipal
Financial Assurance Requirement") at least equal to its Excess Financial
Assurance Requirement or three and one-half (3.5) times the average or expected
average net monthly charges of such Non-Municipal Participant or Non-Municipal
Applicant under the Tariff, any effective tariff of the System Operator and the
Restated NEPOOL Agreement (which would include Energy and other services
received through NEPOOL), averaged over the most recent three-month period
(collectively, such charges are referred to herein as "NEPOOL Charges"), as
appropriate.(6) The three and one-half month period is based on the time
required for a Commission filing made by NEPOOL to terminate service to a
Participant to become effective. For example, a Rated Non-Municipal
- -----------------
6 In the case of new Non-Municipal Participants, the Non-Municipal
Financial Assurance Requirement will be based on estimated monthly NEPOOL
Charges, which estimate NEPOOL has the right to adjust in light of subsequent
experience as to actual monthly NEPOOL Charges.
-18-
Participant with $32,000 in monthly NEPOOL Charges that does not have an
investment grade credit rating must provide NEPOOL with additional financial
assurance hereunder in the amount of $112,000. Similarly, an Unrated
Non-Municipal Participant with $32,000 in monthly NEPOOL Charges that does not
satisfy the Credit Threshold must provide NEPOOL with additional financial
assurance hereunder in the amount of $112,000.
Furthermore and without limiting the generality of the foregoing, if a
Non-Municipal Participant that has received from one or more other Participants
or Non-Participant Transmission Customers an amount the payment of which is the
subject of a dispute, an amount equal to 100% of such amount in dispute shall be
added to that Non-Municipal Participant's overall Non-Municipal Financial
Assurance Requirement. Any additional financial assurance provided under this
paragraph shall not be terminated or returned prior to the resolution of the
dispute requiring such additional financial assurance, even if the Non-Municipal
Participant providing such additional financial assurance is terminated or
withdraws from NEPOOL and otherwise satisfies all of its obligations to NEPOOL.
The term "Non-Municipal Financial Assurance Requirement" shall include 100% of
such amount in dispute.
In addition, and without limiting the generality of the foregoing, (i) any
Non-Municipal Participant that is required hereunder to provide NEPOOL with
additional financial assurance (other than a Non-Municipal Participant that is
providing only Excess Financial Assurance) shall not at any time have NEPOOL
Charges (regardless of whether such charges have actually become due and owing
or not) in excess of the amount of the additional financial assurance provided
by such Non-Municipal Participant; and (ii) any Non-Municipal Participant
without an investment grade rating that is exempt from providing additional
financial assurance hereunder
-19-
by virtue of having monthly NEPOOL charges of $15,000 or less or by virtue of
being a Governance Only Member shall not at any time have net NEPOOL Charges
(regardless of whether such charges have actually become due and owing or not)
in excess of $15,000 unless such Non-Municipal Participant provides the
additional financial assurance described herein. If a Non-Municipal Participant
that is required hereunder to provide additional financial assurance exceeds the
limit for net NEPOOL Charges set forth above, NEPOOL may initiate termination
proceedings. A Non-Municipal Participant that is required hereunder to provide
additional financial assurance and knows or reasonably should know that it has
exceeded the limits for NEPOOL Charges set forth for it in this paragraph or 80
percent (80%) of its Credit Test Amount shall notify the System Operator
immediately that it has exceeded such limits.
III. FINANCIAL ASSURANCE PROVISIONS FOR MUNICIPAL APPLICANTS AND MUNICIPAL
PARTICIPANTS
Section III of this Policy contains the requirements and procedures
governing Municipal Applicants and Municipal Participants. A Municipal Applicant
or Municipal Participant that does not have an investment grade rating by one of
the Rating Agencies (or in the case of Municipal Applicants or Municipal
Participants that are not rated themselves, any Municipal Applicant or Municipal
Participant that does not have outstanding debt with such a rating) shall be
required to provide additional financial assurance in the form and amount
described below. A Municipal Participant's failure to meet the requirements of
this section may result in termination proceedings by NEPOOL.
-20-
A. PROOF OF FINANCIAL VIABILITY.
1. MUNICIPAL APPLICANTS.
Each Municipal Applicant must with its application submit proof of
financial viability, as described below, satisfying NEPOOL requirements to
demonstrate the Municipal Applicant's ability to meet its obligations, or must
provide prior to its membership becoming effective financial assurance in the
form of a cash deposit, letter of credit, payment bond or guaranty as set forth
in this Policy. A Municipal Applicant that chooses to provide a cash deposit,
letter of credit, payment bond or guaranty will not be required to provide
financial information to NEPOOL.
Generally, each Municipal Applicant must submit to the System Operator all
current reports from the Rating Agencies and each report from the Rating
Agencies must indicate an investment grade rating for the Municipal Applicant
or, if the Municipal Applicant itself is not rated, for the Municipal
Applicant's outstanding rated debt, in order for the Municipal Applicant to be
considered as a candidate for NEPOOL membership without furnishing additional
financial assurances as described below.
2. MUNICIPAL PARTICIPANTS.
All Municipal Participants must provide the financial statements and
information set forth below if and as requested by NEPOOL within 10 days of such
request. If a Municipal Participant does not receive an investment grade rating
by one of the Rating Agencies, it must provide financial assurance in the form
and amount required by this Policy.
-21-
B. FINANCIAL STATEMENTS.
Each Municipal Applicant must submit, if and as requested by the System
Operator and within 10 days of such request, audited financial statements for at
least the immediately preceding three (3) years, or the period of its existence,
if shorter, including, but not limited to, the following information: balance
sheets, income statements, statements of cash flows and notes to financial
statements. Additionally, annual and quarterly reports for at least the
immediately preceding three (3) years, if available, must be submitted if and as
requested by the System Operator and within 10 days of such request.(7)
Each Municipal Applicant shall also be required to provide at least one
bank reference and three (3) utility credit references. In those cases where a
Municipal Applicant does not have three (3) utility credit references, three (3)
trade payable vendor references shall be substituted. Each Municipal Applicant
shall also be required to include information as to any known or anticipated
material lawsuits, as well as any prior bankruptcy declarations by the Municipal
Applicant, or by its predecessor(s), if any. In the case of certain Municipal
Applicants, some of the above financial submittals may not be applicable, and
alternate requirements shall be specified by NEPOOL.
C. ONGOING FINANCIAL REVIEW.
Each Municipal Participant that has not provided a cash deposit, letter of
credit, payment bond or guaranty as described herein must submit all of its
current Rating Agency reports
- -------------------
7 Where the above financial statements are available on the Internet, the
Municipal Applicant may provide instead a letter to the System Operator stating
where such statements may be located and retrieved by the System Operator.
-22-
promptly upon the request of NEPOOL. Any Municipal Participant that has not
provided a cash deposit, letter of credit, payment bond or guaranty as described
herein shall not undertake any transaction involving transmission or Market
Products that such Municipal Participant is not authorized to undertake pursuant
to its organizational documents.
D. OTHER FINANCIAL ASSURANCES.
Municipal Applicants or Municipal Participants that do not satisfy the
rating requirement must provide financial assurance in the form and amount
required by this Policy. Each financial assurance for NEPOOL Charges, unless
replaced in accordance with the terms hereof or no longer required pursuant to
the terms hereof, shall remain in effect for 120 days after termination of the
Municipal Participant's membership; provided, however that financial assurances
required by this Policy related to potential billing adjustments chargeable to a
terminated Municipal Participant shall remain in effect until such billing
adjustment request is finally resolved in accordance with the provisions of the
NEPOOL Billing Policy.
In general, Municipal Participants must provide additional financial
assurance in the following amounts (the "Municipal Financial Assurance
Requirement"):(8)
- ---------------
8 In the case of new Municipal Participants, the Municipal Financial
Assurance Requirement will be based on estimated monthly NEPOOL Charges, which
estimate the System Operator has the right to adjust in light of subsequent
experience as to actual monthly NEPOOL Charges.
-23-
Monthly NEPOOL Expenses Required Financial Assurance
----------------------- ----------------------------
$0 - $15,000 0 months' NEPOOL Charges
$15,001 - $30,000 1 month's NEPOOL Charges
$30,001 - $50,000 2 months' NEPOOL Charges
$50,001 or more 3-1/2 months' NEPOOL Charges
The three and one-half months is based on the time required for a Commission
filing made by NEPOOL to suspend service to a Municipal Participant to become
effective. Therefore, a Municipal Participant with $32,000 in monthly NEPOOL
Charges that does not satisfy the rating requirement must provide additional
financial assurances in the amount of $64,000 to NEPOOL.
Furthermore and without limiting the generality of the foregoing, if a
Municipal Participant that has received from one or more other Participants or
Non-Participant Transmission Customers an amount the payment of which is the
subject of a dispute, an amount equal to 100 percent (100%) of such amount in
dispute shall be included in determining that Municipal Participant's overall
Municipal Financial Assurance Requirement. Any additional financial assurance
provided under this paragraph shall not be terminated or returned prior to the
resolution of the dispute requiring such additional financial assurance, even if
the Municipal Participant providing such additional financial assurance is
terminated or withdraws from NEPOOL and otherwise satisfies all of its
obligations to NEPOOL. The term "Municipal Financial Assurance Requirement" for
each Municipal Participant shall include 100 percent (100%) of such amount in
dispute applicable to such Municipal Participant. (The Non-Municipal Financial
Assurance Requirement and the Municipal Financial Assurance Requirement are
collectively referred to herein as the "Financial Assurance Requirement.") In
-24-
addition, and without limiting the generality of the foregoing, any Municipal
Participant that is required hereunder to provide additional financial assurance
(determined as set forth above) shall not at any time have NEPOOL Charges
(regardless of whether such charges have actually become due and owing or not)
in excess of the amount of the additional financial assurance provided by such
Municipal Participant. Any Municipal Participant that does not satisfy the
rating requirement but is exempt from providing additional financial assurance
hereunder by virtue of having monthly NEPOOL charges of $15,000 or less shall
not at any time have net NEPOOL Charges (regardless of whether such charges have
actually become due and owing or not) in excess of $15,000 unless such Municipal
Participant provides the additional financial assurance described herein. Any
Municipal Participant that is not required to provide additional financial
assurance hereunder because it has an investment grade rating (or in the case of
a Municipal Participant that is not rated itself, any Municipal Participant that
has outstanding debt with such a rating) (a "Qualifying Municipal Participant")
shall not at any time have net NEPOOL Charges (regardless of whether such
charges have actually become due and owing or not) in excess of the lesser of
(i) $125 million or (ii) 20 percent (20%) of the total amount due and owing at
such time to the System Operator, the Participants and Non-Participant
Transmission Customers by all Participants and Non-Participant Transmission
Customers. A Municipal Participant that knows or reasonably should know that it
has exceeded the limits for NEPOOL Charges set forth for it in this paragraph
shall notify the System Operator immediately that it has exceeded such limits.
-25-
E. THIRD-PARTY CREDIT PROTECTION POLICY.
The System Operator shall obtain third-party credit protection, in the
form of credit insurance coverage, a performance or surety bond, or a
combination thereof (" Municipal Credit Coverage"), on terms acceptable to the
System Operator in its reasonable discretion covering the group of Qualifying
Municipal Participants. The Municipal Credit Coverage shall be equal to three
and one-half (3.5) times the average NEPOOL Charges of the Qualifying Municipal
Participant with the greatest NEPOOL Charges from time-to-time. The Municipal
Credit Coverage shall be provided by an insurance company rated "A-" or better
by A.M. Best & Co. or "AA" or better by S&P. The cost of the Municipal Credit
Coverage obtained for each calendar year shall be allocated to all Participants
pro rata based, for each Participant, on (a) the sum of all charges under the
Agreement, Tariff and System Operator's tariff owed in the preceding calendar
year by such Participant and (b) all amounts owed to such Participant under the
Agreement, Tariff and System Operator's tariff in the preceding calendar year.
Each Qualifying Municipal Participant shall provide the System Operator with
such information as may be reasonably necessary for the System Operator to
obtain the Municipal Credit Coverage at the lowest possible cost.
IV. ACCEPTABLE FORMS OF ADDITIONAL FINANCIAL ASSURANCE
A. CASH DEPOSIT.
A cash deposit for the full value of the Financial Assurance Requirement,
as determined by NEPOOL, provides an acceptable form of financial assurance to
NEPOOL. If the amount of the deposit is below the required level, the
Participant shall immediately replenish or increase the deposit to the required
level; otherwise, NEPOOL may initiate termination proceedings. In the
-26-
event that actual NEPOOL Charges exceed those anticipated, the anticipated
charges will be increased accordingly and the Participant must augment its cash
deposit to reach the required level.
The cash deposit will be invested by the System Operator in direct
obligations of the United States or its agencies and interest earned will be
paid to the Participant. The System Operator may sell or otherwise liquidate
such investments at its discretion to meet the Participant's obligations to
NEPOOL.
B. LETTER OF CREDIT.
An irrevocable standby letter of credit for the full value of the
Financial Assurance Requirement, as determined by NEPOOL, provides an acceptable
form of financial assurance to NEPOOL. The letter of credit shall be valued as
zero dollars ($0.00) 30 days prior to the termination of such letter of credit.
If the letter of credit amount is below the required level, the
Participant shall immediately replenish or increase the letter of credit amount;
otherwise, NEPOOL may initiate termination proceedings. If actual NEPOOL Charges
exceed those anticipated, the Participant must obtain a substitute letter of
credit in the required amount based on the actual NEPOOL Charges.
The form, substance and provider of the letter of credit must all be
acceptable to NEPOOL. The letter of credit should clearly state the full names
of the "Issuer," "Account Party" and "Beneficiary," the dollar amount available
for drawings, and should include a statement required on the drawing certificate
and other terms and conditions that should apply. It should also specify that
funds will be disbursed, in accordance with the instructions, within one
-27-
Business Day after due presentation of the drawing certificate. The bank issuing
the letter of credit must (i) have a minimum corporate debt rating of an "A-" by
S&P, or "A3" by Moody's, or "A-" by Duff & Phelps, or "A-" by Fitch, or an
equivalent short-term debt rating by one of these agencies, and (ii) be
organized under the laws of the United States or any state thereof or be the
United States branch of a foreign bank. The System Operator will confirm no less
frequently than quarterly that each bank providing a letter of credit hereunder
satisfies the preceding sentence.
Attachment 1 provides a generally acceptable sample "clean" letter of
credit, and all letters of credit provided by Participants and Applicants shall
be in this form (with only minor, non-material changes), unless a variation
therefrom is approved by the Budget and Finance Subcommittee of the Participants
Committee. All costs associated with obtaining financial security and meeting
the provisions of this Policy are the responsibility of the Applicant or
Participant.
C. PAYMENT BOND.
A payment bond complying with the requirements set forth herein provides
an acceptable form of financial assurance to NEPOOL. The penal sum of such
payment bond shall be in an amount equal to the full value of the Financial
Assurance Requirement, as determined by NEPOOL. The bond shall permit suit
thereunder until two (2) years after the date that all of the Applicant's or
Participant's obligations to NEPOOL expire.
If the amount of the penal sum of the payment bond available to NEPOOL is
below the required level, the Participant shall immediately replenish or
increase the amount of the penal
-28-
sum; otherwise, NEPOOL may initiate termination proceedings. If actual NEPOOL
Charges exceed those anticipated, the Participant must either cause the penal
sum of such payment bond to be increased accordingly or must obtain a substitute
payment bond in the appropriate amount.
The form, substance and provider of the payment bond must be acceptable to
NEPOOL. The payment bond should clearly state the full names of the "Principal,"
the "Surety" and the "Obligee" (NEPOOL) and the penal sum and should include a
clear statement that the surety will promptly and faithfully pay the
Participant's obligations to NEPOOL if the Participant fails to do so. The
insurance company issuing the payment bond must be rated "A" or better by A.M.
Best & Co.
Attachment 2 provides an example of a generally acceptable sample payment
bond. All costs associated with obtaining financial security and meeting the
Policy provisions, including without limitation the cost of the premiums for
such payment bond, are the responsibility of the Applicant or Participant.
If, prior to the effective date of this Policy, a Participant or Applicant
has obtained a performance bond and NEPOOL or the System Operator has determined
that the form, substance and provider of such performance bond were acceptable
at the time such performance bond was obtained, such performance bond shall be
deemed to be in compliance with this Policy until such performance bond
terminates or is to be renewed by its own terms; provided, however, that no
performance bond that does not otherwise satisfy the terms of the Policy without
giving effect to this paragraph shall be acceptable one year after the effective
date of this Policy.
-29-
D. CORPORATE GUARANTY.
A corporate guaranty obtained from a Participant's affiliated company
("Guarantor") for the full value of the Financial Assurance Requirement, as
determined by NEPOOL (a "Corporate Guaranty"), may provide an acceptable form of
financial assurance to NEPOOL. If a Guarantor is not itself a Participant (a
"Non-Participant Guarantor"), the aggregate obligations such Guarantor may
guarantee hereunder at any time shall not exceed the lesser of (i) $125 million,
(ii) 20 percent (20%) of the total amount due and owing at such time to the
System Operator, the Participants and the Non-Participant Transmission Customers
by all Participants and Non-Participant Transmission Customers, or (iii) if the
Participant for whom such Corporate Guaranty is provided is a Non-Municipal
Participant, the applicable percentage of such Guarantor's Tangible Net Worth as
listed in the following table (the "Guaranty Limit"), and such Guaranty Limit
shall be deemed to be the available amount of additional financial assurance
under such Guarantor's Corporate Guaranty.
CREDIT RATING(9) PERCENTAGE OF TANGIBLE
(COMPARABLE RATINGS TO BE USED FOR DUFF & PHELPS AND NET WORTH FOR PURPOSES
FITCH) OF NON-PARTICIPANT
GUARANTOR'S GUARANTY
LIMIT
S&P MOODY'S
AAA Aaa 5.00%
AA+ Aa1 5.00%
AA Aa2 4.00%
AA- Aa3 3.50%
A+ A1 2.55%
- -------------------
9 This is the credit rating for the Non-Participant Guarantor from one or
more of the Rating Agencies or, if such Non-Participant Guarantor itself is not
rated by one of the Rating Agencies, then this is the credit rating for the
Non-Participant Guarantor's long-term debt from one or more of the Rating
Agencies.
-30-
A A2 2.35%
A- A3 2.10%
BBB+ Baa1 1.80%
BBB Baa2 1.20%
BBB- Baa3 0.70%
Below BBB- Below Baa3 0.00%
The System Operator shall update and monitor the Guaranty Limit for each
Non-Participant Guarantor on a daily basis. In order for the System Operator to
update and monitor the Guaranty Limit of each Non-Participant Guarantor, each
such Non-Participant Guarantor that is providing a Corporate Guaranty for a
Non-Municipal Participant shall submit to the System Operator, on a quarterly
basis within 10 days of its becoming available and within 55 days after the end
of the applicable fiscal quarter of such Non-Participant Guarantor, its balance
sheet, which shall have been compiled by certified public accountants showing
sufficient detail for the System Operator to calculate its Tangible Net Worth.
In addition, each Non-Participant Guarantor shall submit to the System Operator,
annually within 10 days of their becoming available and within 100 days after
the end of the fiscal year of such Non-Participant Guarantor, the following
audited financial statements: balance sheets, income statements, statements of
cash flows, and notes to financial statements, as well as copies of that
Non-Participant Guarantor's annual report. Each such Non-Participant Guarantor
shall also provide to the System Operator, within 10 days of their filing with
the SEC, a copy of each Form 10-K Report, Form 10-Q Report and Form 8-K Report
for that Non-Participant Guarantor.(10)
- ---------------------
10 Where any of the above financial information is available on the
Internet, the Non- Participant Guarantor may instead provide the System Operator
with a letter stating where such information may be located and retrieved.
-31-
The amount guaranteed from time to time under such a Corporate Guaranty,
regardless of whether such amount is past due, shall be included in the NEPOOL
Charges of both such Participant and its affiliated Guarantor for all purposes
of this Policy if the Guarantor is itself a Participant.
The following conditions must be met for a Corporate Guaranty to be
accepted as an acceptable form of Financial Assurance:
1. NEPOOL determines that each of the Participant and the
Guarantor has satisfactorily met its payment obligations in
NEPOOL for at least six (6) months, which six-month period may
in whole or in part pre-date the effective date of this
Policy;
2. NEPOOL determines that the financial condition of the
Guarantor meets the requirements of this Policy;
3. The Corporate Guaranty shall authorize the System Operator to
recover sums owed by the Participant obligor directly from the
Guarantor; and
4. The form and substance of the Corporate Guaranty shall be
otherwise acceptable to NEPOOL.
Upon NEPOOL's written authorization, the Participant may substitute a
Corporate Guaranty that is issued by the Guarantor for a cash deposit, letter of
credit or payment bond when the Participant has satisfied each of the four (4)
conditions stipulated above. The Corporate Guaranty is considered to be a lesser
form of financial assurance than a cash deposit, letter of credit or payment
bond, and therefore is allowed as an acceptable form of financial
-32-
assurance only to those Participants and Guarantors that have satisfied each of
the four (4) conditions stipulated above.
The Corporate Guaranty should clearly state the identities of the
"Guarantor," "Beneficiary" and "Obligor," and the relationship between the
Guarantor and the Participant Obligor. The Corporate Guaranty must be duly
authorized by the Guarantor, must be signed by an officer of the Guarantor, and
must be furnished with either an opinion satisfactory to the System Operator of
the Guarantor's counsel with respect to the enforceability of the Corporate
Guaranty or accompanied by a certificate of corporate guarantee that includes a
seal of the corporation with the signature of the corporate secretary.
Additionally, adequate documentation regarding the signature authority of the
person signing the Corporate Guaranty must be provided with the Corporate
Guaranty.
A Guarantor's failure to timely disclose a Material Change (as hereinafter
defined) in its financial status may result in proceedings by NEPOOL to
terminate the Participant Obligor. If there is an adverse Material Change in the
financial condition of the Guarantor, NEPOOL may require the Participant Obligor
to provide another form of financial assurance, either a cash deposit, letter of
credit or payment bond.
Attachment 3 provides a generally acceptable sample of a Corporate
Guaranty, and all Corporate Guaranties provided by Participants shall be in this
form (with only minor, non-material changes), unless a variation therefrom is
approved by the Budget and Finance Subcommittee of the Participants Committee.
-33-
V. MISCELLANEOUS PROVISIONS
A. OBLIGATION TO REPORT MATERIAL CHANGES.
Each Participant and each Guarantor is responsible for informing NEPOOL in
writing within 10 Business Days of any Material Change (as hereinafter defined)
in its financial status. A "Material Change" in financial status includes, but
is not limited to, the following: a downgrade to a below investment grade rating
of senior long-term debt by a major rating agency, being placed on credit watch
with negative implication by a major rating agency if senior long- term debt
does not have an investment grade rating, a bankruptcy filing, insolvency, a
report of a significant quarterly loss or decline of earnings, the resignation
of key officer(s), or the filing of a material lawsuit that could materially
adversely impact current or future financial results. A Participant's or
Guarantor's failure to timely disclose a Material Change in its financial status
may result in termination proceedings by NEPOOL. If there is a Material Change
in the financial condition of the Participant or the Participant's Guarantor,
NEPOOL may require the Participant to provide one of the forms of financial
assurance described in this Policy. If the Participant fails to do so, NEPOOL
may initiate termination proceedings in accordance with the procedure set forth
in Section 21.2(d) of the Restated NEPOOL Agreement.
B. WEEKLY PAYMENTS.
A Participant that does not satisfy the rating requirement or, if such
Participant is an Unrated Non-Municipal Participant, the Credit Threshold may
request that, in lieu of providing one of the additional financial assurances
set forth above, a weekly billing schedule be implemented for it. NEPOOL may, in
its discretion, agree to such a request; provided, however, that any weekly
billing arrangement will terminate no more than six (6) months after the date on
-34-
which such arrangement begins unless the Participant requests an extension of
such arrangement and demonstrates to NEPOOL's satisfaction in its sole
discretion that the termination of such arrangement and compliance with the
other provisions of this Policy (including providing another form of financial
assurance, if required) will impose a substantial hardship on the Participant.
Such demonstration of a substantial hardship shall be made every six (6) months
after the initial demonstration, and a Participant's weekly billing arrangement
will be terminated if it fails to demonstrate to NEPOOL's satisfaction in its
sole discretion at any such six (6) month interval that compliance with the
other provisions of this Policy will impose a substantial hardship on it.
If NEPOOL agrees to implement a weekly billing schedule for a Participant,
the Participant shall be billed weekly in arrears on an estimated basis for all
amounts owed to NEPOOL and the System Operator for the week, with an adjustment
for each month as part of the regular NEPOOL monthly billing to reflect any
under or over collection for the month. The Participant shall be obligated to
pay each such weekly bill within five (5) Business Days after it is received.
The Participant shall pay with respect to each weekly bill an administrative
fee, determined by the System Operator, to reimburse the System Operator for the
costs it incurs as a result of that Participant's weekly billing arrangement.
If a weekly billing schedule is implemented for a Participant in lieu of
requiring the Participant to provide an additional financial assurance
hereunder, the Participant may be required to provide an additional financial
assurance in the form and in the amount required hereunder at any time if the
Participant fails to pay when due any weekly bill. In addition, upon the
termination of a Participant's weekly billing arrangement, the Participant shall
either satisfy
-35-
the applicable rating requirements set forth herein, satisfy the Credit
Threshold (if such Participant is an Unrated Non-Municipal Participant), or
provide one of the other forms of financial assurance set forth herein.
C. USE OF TRANSACTION SETOFFS.
Under certain conditions, NEPOOL or the System Operator may be obligated
to make payments to a Participant. In this event, the amount of the cash
deposit, letter of credit, payment bond or Corporate Guaranty required for
financial assurance for the contemplated transactions will be reduced ("setoff")
by an amount equal to NEPOOL's or the System Operator's unpaid balance or
expected billing under the other transactions. The terms and the amount of the
setoff must be approved by NEPOOL.
D. NON-PAYMENT OF AMOUNTS DUE.
If a Participant does not pay amounts billed when due and as a result a
letter of credit or cash deposit is drawn down or a payment bond or Corporate
Guaranty is paid on, then the Participant must immediately replenish the letter
of credit or cash deposit or cause the payment bond or Corporate Guaranty to be
restored, in each case to the required amount. If a Participant fails to do so,
NEPOOL may initiate termination proceedings against the Participant in
accordance with the procedure set forth in Section 21.2(d) of the Restated
NEPOOL Agreement. In order to encourage prompt payment by Participants of
amounts owed to NEPOOL, if a Participant is delinquent two (2) or more times
within any period of 12 months in paying on time its NEPOOL Charges, the
Participant shall pay, in addition to interest on each late payment, a late
payment charge for its second failure to pay on time, and for each subsequent
failure to pay
-36-
on time within the same 12 month period (a "Late Payment Charge") in an amount
equal to the greater of (i) two percent (2%) of the total amount of such late
payment or (ii) $250.00. In addition, if a Participant fails to pay any NEPOOL
Charges within 10 days of the date such payment is due, such Participant shall
not be entitled to vote on matters before the Participants Committee or any
Technical Committee unless the full amount of such late payment (including
interest thereon and the Late Payment Charge) is submitted to the System
Operator at least three (3) Business Days prior to any such vote.
In the case of a former Participant that applies again for membership in
NEPOOL, a determination of delinquency shall be based on the Participant's
history of payment of its NEPOOL Charges in its last 12 months of membership.
Interest collected on late payments shall be allocated and paid to the
Participants to whom such late payments are due, pro rata in accordance with the
amount due to each such Participant. Late Payment Charges that are collected and
not distributed to the Participants under the NEPOOL Billing Policy shall be
deposited by the System Operator into a segregated interest-bearing account (the
"Late Payment Account") for disbursement in accordance with the NEPOOL Billing
Policy as in effect from time to time; provided, however, that in no event shall
the amount in the Late Payment Account, including interest accrued thereon, at
any time exceed $500,000 or other amount determined from time to time by the
Participants Committee (the "Late Payment Account Limit"). Any Late Payment
Charges and interest thereon in excess of the Late Payment Account Limit shall
be distributed to the Participants pro rata based on their charges under the
System Operator's Tariff for Transmission Dispatch and Power
-37-
Administration Services in the month preceding the month in which such
distribution is to be made.
E. FINANCIAL ASSURANCE UPON TERMINATION OF MEMBERSHIP.
Upon termination of membership in NEPOOL, a Participant must provide
financial assurance in the amount of all potential billing adjustments
chargeable to such Participant for all unresolved billing disputes in existence
on the date of termination of such Participant's membership. Such financial
assurance must be in the form of a cash deposit, letter of credit, payment bond
or Corporate Guaranty meeting the requirements of this Policy. The amount of
such financial assurance shall be reduced to the extent any billing dispute is
resolved and the former Participant pays the billing adjustments or no billing
adjustment is chargeable to the former Participant.
F. NOTIFICATION OF DEFAULT.
In the event that a Participant fails to comply with this Policy (a
"Financial Assurance Default") and such failure continues for at least 10 days,
NEPOOL may (but shall not be required to) notify such Participant in writing,
electronically and by first class mail sent in each case to such Participant's
member or alternate on the NEPOOL Participants Committee or billing contact (it
being understood that NEPOOL will use reasonable efforts to contact all three),
of such Financial Assurance Default. Either simultaneously with the giving of
the notice described in the preceding sentence or within 10 days thereafter
(unless the Financial Assurance Default is cured during such period), NEPOOL
shall notify each other member and alternate on the NEPOOL Participants
Committee and each Participant's billing contact of the identity of the
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Participant receiving such notice, whether such notice relates to a Financial
Assurance Default, and the actions NEPOOL plans to take and/or has taken in
response to such Financial Assurance Default.
No remedy for a Financial Assurance Default is or shall be deemed to be
exclusive of any other available remedy or remedies. Each such remedy shall be
distinct, separate and cumulative, shall not be deemed inconsistent with or in
exclusion of any other available remedy, and shall be in addition to and
separate and distinct from every other remedy.
G. ENFORCEMENT OF PAYMENT OBLIGATIONS AGAINST DEFAULTING PARTICIPANTS.
Each Participant that shares in any shortfall in payments under the NEPOOL
Billing Policy shall have an independent right to seek and obtain payment and
recovery of the amount of its share of such shortfall (the "Allocated
Assessment") from the defaulting Participant. Any Participant that recovers any
portion of its Allocated Assessment from a defaulting Participant shall promptly
so notify the System Operator, and the Participant's Allocated Assessment shall
be reduced by the amount of such recovery. In addition to any amounts in
default, the defaulting Participant shall be liable to NEPOOL and each other
Participant for all reasonable costs incurred in enforcing the defaulting
Participant's obligations.
-39-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
ATTACHMENT 1
SAMPLE LETTER OF CREDIT
[DATE PROVIDED]
IRREVOCABLE STANDBY LETTER OF CREDIT NO.
[EXPIRATION DATE] AT OUR COUNTERS
WE DO HEREBY ISSUE AN IRREVOCABLE NON-TRANSFERABLE STANDBY LETTER OF
CREDIT BY ORDER OF AND FOR THE ACCOUNT OF ON BEHALF OF [PARTICIPANT]
("ACCOUNT PARTY") IN FAVOR OF THE PARTICIPANTS IN THE NEW ENGLAND POWER
POOL ("NEPOOL") IN AN AMOUNT NOT EXCEEDING US$ ______.00 (UNITED STATES
DOLLARS ____________ AND 00/100) AGAINST PRESENTATION TO US OF A DRAWING
CERTIFICATE SIGNED BY A PURPORTED OFFICER OR AUTHORIZED AGENT OF NEPOOL
AND DATED THE DATE OF PRESENTATION CONTAINING THE FOLLOWING STATEMENT:
"THE UNDERSIGNED HEREBY CERTIFIES TO [BANK] ("BANK"), WITH REFERENCE
TO IRREVOCABLE NON-TRANSFERABLE STANDBY LETTER OF CREDIT NO. ISSUED
BY [BANK] IN FAVOR OF THE PARTICIPANTS IN THE NEW ENGLAND POWER POOL
("NEPOOL"), THAT [PARTICIPANT] HAS FAILED TO PAY NEPOOL AND/OR ISO
NEW ENGLAND IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THE
RESTATED NEPOOL AGREEMENT BETWEEN [PARTICIPANT] AND THE OTHER NEPOOL
MEMBERS, AND THUS NEPOOL IS DRAWING
-1-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
UPON THE LETTER OF CREDIT IN AN AMOUNT EQUAL TO
$_______________."
IF PRESENTATION OF ANY DRAWING CERTIFICATE IS MADE ON A BUSINESS DAY AND
SUCH PRESENTATION IS MADE AT OUR COUNTERS ON OR BEFORE 10:00 A.M.
_________TIME, WE SHALL SATISFY SUCH DRAWING REQUEST ON THE SAME BUSINESS
DAY. IF THE DRAWING CERTIFICATE IS RECEIVED AT OUR COUNTERS AFTER 10:00
A.M. ___________ TIME, WE WILL SATISFY SUCH DRAWING REQUEST ON THE NEXT
BUSINESS DAY, FOR THE PURPOSES OF THIS SECTION, A BUSINESS DAY MEANS A
DAY, OTHER THAN A SATURDAY OR SUNDAY, ON WHICH COMMERCIAL BANKS ARE NOT
AUTHORIZED OR REQUIRED TO BE CLOSED IN NEW YORK, NEW YORK. DISBURSEMENTS
SHALL BE IN ACCORDANCE WITH THE INSTRUCTIONS OF NEPOOL.
THE FOLLOWING TERMS AND CONDITIONS APPLY:
THIS LETTER OF CREDIT SHALL EXPIRE AT THE CLOSE OF BUSINESS [DATE].
THE AMOUNT WHICH MAY BE DRAWN BY YOU UNDER THIS LETTER OF CREDIT
SHALL BE AUTOMATICALLY REDUCED BY THE AMOUNT OF ANY UNREIMBURSED
DRAWINGS HEREUNDER AT OUR COUNTERS. ANY NUMBER OF PARTIAL DRAWINGS
ARE PERMITTED FROM TIME TO TIME HEREUNDER.
ALL COMMISSIONS AND CHARGES WILL BE BORNE BY THE ACCOUNT PARTY.
-2-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
THIS LETTER OF CREDIT IS NOT TRANSFERABLE OR ASSIGNABLE. THIS LETTER
OF CREDIT DOES NOT INCORPORATE AND SHALL NOT BE DEEMED MODIFIED,
AMENDED OR AMPLIFIED BY REFERENCE TO ANY DOCUMENT, INSTRUMENT OR
AGREEMENT (A) THAT IS REFERRED TO HEREIN (EXCEPT FOR THE UCP, AS
DEFINED BELOW) OR (B) IN WHICH THIS LETTER OF CREDIT IS REFERRED TO
OR TO WHICH THIS LETTER OF CREDIT RELATES.
THIS LETTER OF CREDIT SHALL BE GOVERNED BY THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, INTERNATIONAL
CHAMBER OF COMMERCE PUBLICATION NO. 500 (THE "UCP"), EXCEPT TO THE
EXTENT THAT TERMS HEREOF ARE INCONSISTENT WITH THE PROVISIONS OF THE
UCP, INCLUDING BUT NOT LIMITED TO ARTICLES 13(b) AND 17 OF THE UCP,
IN WHICH CASE THE TERMS OF THE LETTER OF CREDIT SHALL GOVERN.
THIS LETTER OF CREDIT MAY NOT BE AMENDED, CHANGED OR MODIFIED
WITHOUT THE EXPRESS WRITTEN CONSENT OF NEPOOL AND US.
WE HEREBY ENGAGE WITH YOU THAT DOCUMENTS DRAWN UNDER AND IN COMPLIANCE
WITH THE TERMS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON
PRESENTATION AS SPECIFIED.
PRESENTATION OF ANY DRAWING CERTIFICATE UNDER THIS STANDBY LETTER OF
CREDIT MAY BE SENT TO US BY COURIER, CERTIFIED MAIL, REGISTERED MAIL,
TELEGRAM, TELEX TO THE ADDRESS SET FORTH
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
BELOW, OR SUCH OTHER ADDRESS AS MAY HEREAFTER BE FURNISHED BY US. OTHER
NOTICES CONCERNING THIS STANDBY LETTER OF CREDIT MAY BE SENT BY FACSIMILE
OR SIMILAR COMMUNICATIONS FACILITY TO THE RESPECTIVE ADDRESSES SET FORTH
BELOW. ALL SUCH NOTICES AND COMMUNICATIONS SHALL BE EFFECTIVE WHEN
ACTUALLY RECEIVED BY THE INTENDED RECIPIENT PARTY.
IF TO THE BENEFICIARY OF THIS LETTER OF CREDIT:
IF TO THE ACCOUNT PARTY:
IF TO US:
- ----------------------------------- ----------------------------------------
[signature] [signature]
-4-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
ATTACHMENT 2
SAMPLE PAYMENT BOND
[INSURANCE COMPANY]
Bond No.
KNOW ALL MEN BY THESE PRESENTS, That the undersigned [participant], of
[participant's address] hereinafter referred to as the Principal, and
[insurance company], a corporation organized and existing under the laws
of the State of [insurance company's state of incorporation], as Surety,
are held and firmly bound unto the Participants in the New England Power
Pool as obligees, hereinafter referred to collectively as the Obligee, in
the sum of __________________, lawful money of the United States of
America for the payment of which sum, well and truly to be made, we bind
ourselves, our executors, administrators, successors, and assigns, jointly
and severally, firmly by these presents.
WHEREAS, the Principal has entered into agreements for the purchase and
sale of electric services and the payment of amounts owed to ISO New
England Inc. and its share of the expenses of the New England Power Pool
under the Restated NEPOOL Agreement, the Restated NEPOOL Open Access
Transmission Tariff, ISO New England Inc.'s Tariff for Transmission
Dispatch and Power Administration Services and ISO New England Inc.'s
Tariff for Capital Funding, each as amended from time to time
(collectively referred to as the "Agreements"), and in strict accordance
with their respective terms.
NOW, THEREFORE, the condition of this obligation is such, that if the
Principal shall promptly and faithfully make the payments required by, and
comply with terms of, the
-5-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Agreements which have been or may hereafter be in force and shall save and
keep harmless the Obligee from all loss or damage which it may sustain or
for which it may become liable on account of the issuance of said
Agreements to the Principal, then this obligation shall be void;
otherwise, it shall remain in full force and effect.
Upon notice from ISO New England Inc. of nonpayment by the Principal,
Surety shall immediately pay to ISO New England Inc., as agent for the
Obligee, the amounts owed by the Principal under the Agreements. Surety
shall also be responsible for all reasonable fees and costs, including but
not limited to reasonable attorneys' fees, incurred by ISO New England
Inc. or Obligee to enforce this instrument and collect any amounts owed to
Obligee hereunder.
The Surety hereby waives notice of any alteration or extension of time
made by the Obligee. This instrument shall be a continuing, absolute,
unconditional and irrevocable obligation of Surety.
Any suit on this bond must be instituted before the expiration of two (2)
years from the date on which the Principal's obligations under the
Agreements expire.
This instrument shall be effective upon execution and shall continue in
effect until terminated by the Obligee or Surety upon thirty (30) days
prior written notice to the non-terminating party.
SIGNED, SEALED AND DATED this day of , 20__.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
[Participant]
Principal
[Seal]
By:_____________________________________
[Insurance Company]
Surety
[Seal]
By:_____________________________________
-7-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
ATTACHMENT 3
CORPORATE GUARANTY
For and in consideration of the credit advance or sale of products on open
account by the New England Power Pool Participants from time to time
("Participants") to [Participant] ("Company"), the undersigned guarantor
("Guarantor"), the [parent/subsidiary/affiliate] of Company, hereby
unconditionally and irrevocably guarantees the prompt and complete payment
of all amounts that Company now or hereafter owes to Participants and ISO
New England, Inc. (the "System Operator") under the Restated NEPOOL
Agreement, Restated NEPOOL Open Access Transmission Tariff and the System
Operator's tariffs that are in effect from time to time (collectively
referred to as the "Agreements"), in strict accordance with their
respective terms.
1. If Company does not perform its obligations in strict accordance
with the Agreements, Guarantor shall immediately pay all amounts now
or hereafter owed thereunder (including, without limitation, all
principal, interest, and fees) by Company under the Agreements. This
Guaranty may be satisfied by Guarantor paying Company's obligations
or by Guarantor causing Company's obligations to be paid; provided,
however, that Guarantor shall at all times remain fully responsible
and liable for its obligations hereunder notwithstanding any such
payment (or failure thereof) by any third party. Participants will
undertake commercially reasonable efforts to notify Guarantor of a
failure by Company to make a payment under the Agreements; provided,
however, that failure by Participants to so notify Guarantor shall
not defeat, limit or otherwise affect the rights and obligations of
Participants, Company or Guarantor. Subject to the
-8-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
terms and conditions set forth herein, Guarantor's obligations
hereunder shall not exceed the complete payment of all amounts that
Company now or hereafter owes to Participants and the System
Operator under the Agreements in strict accordance with their
respective terms. [Notwithstanding anything to the contrary in this
Guaranty, the aggregate liability of Guarantor hereunder shall not
exceed U.S. $________.]
2. This Guaranty is an absolute, unconditional and continuing guaranty
of the full and punctual payment by Company of each of its
obligations under the Agreements, and not of collectibility only,
and is in no way conditioned upon any requirement that Participants
or the System Operator first attempt to collect payment from Company
or any other guarantor or surety or resort to any security or other
means of obtaining payment of all or any part of Company's
obligations or upon any other contingency. This is a continuing
guaranty and, subject to the terms and conditions hereof, shall be
binding upon Guarantor until the full, final and irrevocable payment
of all of Company's obligations under the Agreements, regardless of
(i) how long after the date hereof any part of the obligations under
the Agreements is incurred by Company and (ii) the amount of the
obligations under the Agreements at any time outstanding. This
Guaranty may be enforced by Participants or the System Operator from
time to time and as often as occasion for such enforcement may
arise.
3. The obligations hereunder are independent of the obligations of
Company, and a separate action or actions may be brought and
prosecuted against Guarantor
-9-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
whether action is brought against Company or whether Company be
joined in any such action or actions. Guarantor's liability under
this Guaranty is not conditioned or contingent upon genuineness,
validity, regularity or enforceability of the Agreements.
4. Guarantor authorizes Participants and the System Operator without
notice or demand and without affecting its liability hereunder, from
time to time to (a) renew, extend, or otherwise change the terms of
the Agreements or any part thereof; (b) take and hold security for
the payment of the Agreements, and exchange, enforce, waive and
release any such security; and (c) apply such security and direct
the order or manner of sale thereof as Participants and the System
Operator in their sole discretion may determine. The obligations and
liabilities of Guarantor hereunder shall be absolute and
unconditional, shall not be subject to any counterclaim, setoff,
deduction or defense based upon any claim Guarantor may have against
Company, any other guarantor, or any other person or entity, and
shall remain in full force and effect until all of the obligations
hereunder have been fully satisfied, without regard to, or release
or discharge by, any event, circumstance or condition (whether or
not Guarantor shall have knowledge or notice thereof) which but for
the provisions of this Section might constitute a legal or equitable
defense or discharge of a guarantor or surety or which might in any
way limit recourse against Guarantor, including without limitation:
(a) any amendment or modification of, or supplement to, the terms of
the Agreements; (b) any waiver, consent or indulgence by
Participants or the System Operator, or any exercise or non-exercise
by Participants or the System
-10-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Operator of any right, power or remedy, under or in respect of this
Guaranty or the Agreements (whether or not Guarantor or Company has
or have notice or knowledge of any such action or inaction); (c) the
invalidity or unenforceability, in whole or in part, of the
Agreements, or the termination (except pursuant to its terms or by
written agreement between Participants and Company), cancellation or
frustration of any thereof, or any limitation or cessation of
Company's liability under any thereof (other than any limitation or
cessation expressly provided for therein), including without
limitation any invalidity, unenforceability or impaired liability
resulting from Company's lack of capacity, power and/or authority to
enter into the Agreements and/or to incur any or all of the
obligations thereunder, or from the execution and delivery of any
Agreement by any person acting for Company without or in excess of
authority (except to the extent the same would limit or cease
Company's liability under the Agreements); (d) any actual, purported
or attempted sale, assignment or other transfer by Participants or
the System Operator of any Agreement or of any of its rights,
interests or obligations thereunder; (e) the taking or holding by
Participants or the System Operator of a security interest, lien or
other encumbrance in or on any property as security for any or all
of the obligations of Company under the Agreements or any exchange,
release, non-perfection, loss or alteration of, or any other dealing
with, any such security; (f) the addition of any party as a
guarantor or surety of all or any part of the obligations of Company
under the Agreements; (g) any merger, amalgamation or consolidation
of Company into or with any other entity, or any sale, lease,
transfer or other disposition of any or all of Company's assets or
any sale, transfer
-11-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
or other disposition of any or all of the shares of capital stock or
other securities of Company to any other person or entity; (h) any
change in the financial condition of Company or (as applicable) of
any subsidiary, affiliate, partner or controlling shareholder
thereof, or Company's entry into an assignment for the benefit of
creditors, an arrangement or any other agreement or procedure for
the restructuring of its liabilities, or Company's insolvency,
bankruptcy, reorganization, dissolution, liquidation or any similar
action by or occurrence with respect to Company.
5. Guarantor unconditionally waives, to the fullest extent permitted by
law: (a) notice of any of the matters referred to in Section 4
hereof; (b) any right to the enforcement, assertion or exercise by
Participants or the System Operator of any of their rights, powers
or remedies under, against or with respect to (i) any of the
Agreements, (ii) any other guarantor or surety, or (iii) any
security for all or any part of the obligations of Company under the
Agreements or obligations of Guarantor hereunder; (c) any
requirement of diligence and any defense based on a claim of laches;
(d) all defenses which may now or hereafter exist by virtue of any
statute of limitations, or of any stay, valuation, exemption,
moratorium or similar law, except the sole defense of full and
indefeasible payment; (e) any requirement that Guarantor be joined
as a party in any action or proceeding against Company to enforce
any of the provisions of the Agreements; (f) any requirement that
Participants or the System Operator mitigate or attempt to mitigate
damages resulting from a default by Guarantor hereunder or from a
default by Company under any of the Agreements; (g) acceptance of
this Guaranty by Participants and
-12-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
the System Operator; and (h) all presentments, protests, notices of
dishonor, demands for payment and any and all other demands upon and
notices to Company, and any and all other formalities of any kind,
the omission of or delay in performance of which might but for the
provisions of this section constitute legal or equitable grounds for
relieving or discharging Guarantor in whole or in part from its
irrevocable, absolute and continuing obligations hereunder, it being
the intention of Guarantor that its obligations hereunder shall not
be discharged except by payment and then only to the extent thereof.
6. Guarantor waives any right to require Participants or the System
Operator to (a) proceed against Company; (b) proceed against or
exhaust any security held from Company; or (c) pursue any other
remedy in Participants' or the System Operator's power whatsoever.
So long as any obligations remain outstanding under this Guaranty,
Guarantor shall not exercise any rights against Company arising as a
result of payment by Guarantor hereunder, by way of subrogation or
otherwise, and will not prove any claim in competition with
Participants or the System Operator or their affiliates in respect
of any payment under the Agreements in bankruptcy or insolvency
proceedings of any nature; Guarantor will not claim any setoff or
counterclaim against Company in respect of any liability of
Guarantor to Company and Guarantor waives any benefit of any right
to participate in any collateral which may be held by Participants
or the System Operator or any of their affiliates. Guarantor shall
have no right of subrogation or reimbursement, contribution or other
rights against Company.
-13-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
7. If after receipt of any payment of, or the proceeds of any
collateral for, all or any part of the obligations of Company under
the Agreements, Participants or the System Operator are compelled to
surrender or voluntarily surrender such payment or proceeds to any
person because such payment or application of proceeds is or may be
avoided, invalidated, recaptured, or set aside as a preference,
fraudulent conveyance, impermissible setoff or for any other reason,
whether or not such surrender is the result of (i) any judgment,
decree or order of any court or administrative body having
jurisdiction over Participants or the System Operator, or (ii) any
settlement or compromise by Participants or the System Operator of
any claim as to any of the foregoing with any person (including
Company), then the obligations of Company under the Agreements, or
part thereof affected, shall be reinstated and continue and this
Guaranty shall be reinstated and continue in full force as to such
obligations or part thereof as if such payment or proceeds had not
been received, notwithstanding any previous cancellation of any
instrument evidencing any such obligation or any previous instrument
delivered to evidence the satisfaction thereof. The provisions of
this Section shall survive the termination of this Guaranty and any
satisfaction and discharge of Company by virtue of any payment,
court order or any federal or state law until the full, final and
irrevocable satisfaction of all of Company's obligations under the
Agreements.
8. Any indebtedness of Company now or hereafter held by Guarantor
(including indebtedness, if any, related to Guarantor's status as a
Participant) is hereby subordinated to any indebtedness of Company
to Participants and the System
-14-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Operator; and such indebtedness of Company to Guarantor shall be
collected, enforced and received by Guarantor as trustee for
Participants and the System Operator and be paid over to
Participants or the System Operator on account of the indebtedness
of Company due and owing at any time to Participants and the System
Operator but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
9. Guarantor represents and warrants to Participants and the System
Operator, as an inducement to Participants and the System Operator
to make the credit advances or sales of products on open account to
Company, that:
a. the execution, delivery and performance by Guarantor of this
Guaranty (i) are within Guarantor's powers and have been duly
authorized by all necessary action; (ii) do not contravene
Guarantor's charter documents or any law or any material
contractual restrictions binding on or affecting Guarantor or
by which Guarantor's property may be affected; and (iii) do
not require any authorization or approval or other action by,
or any notice to or filing with, any public authority or any
other person except such as have been obtained or made;
b. this Guaranty constitutes the legal, valid and binding
obligation of Guarantor, enforceable in accordance with its
terms, except as the enforceability thereof may be subject to
or limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws
-15-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
relating to or affecting the rights of creditors generally and
by general principles of equity; and
c. there is no action, suit or proceeding affecting Guarantor
pending or threatened before any court, arbitrator, or public
authority that may materially adversely affect Guarantor's
ability to perform its obligations under this Guaranty, except
as set forth in writing to the Participants and the System
Operator prior to Participants' written authorization of this
Guaranty.
10. Guarantor agrees to pay on demand all reasonable attorneys' fees and
all other reasonable costs and expenses which may be incurred by
Participants and the System Operator in the enforcement of this
Guaranty, and the obligation to pay such fees, costs and expenses
shall be in addition to Guarantor's other payment obligations
hereunder. No terms or provisions of this Guaranty may be changed,
waived, revoked or amended without Participants' prior written
consent. Should any provision of this Guaranty be determined by a
court of competent jurisdiction to be unenforceable, all of the
other provisions shall remain effective. This Guaranty embodies the
entire agreement among the parties hereto with respect to the
matters set forth herein, and supersedes all prior agreements among
the parties with respect to the matters set forth herein. No course
of prior dealing among the parties, no usage of trade, and no parol
or extrinsic evidence of any nature shall be used to supplement,
modify or vary any of the terms hereof. There are no conditions to
the full effectiveness of this Guaranty. Participants and the System
Operator may assign this Guaranty without in any way affecting
Guarantor's
-16-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
liability under it, except that Guarantor shall be provided
reasonable notice of any such assignment. This Guaranty shall inure
to the benefit of Participants, the System Operator and their
successors and assigns. This Guaranty is in addition to the
guaranties of any other guarantors and any and all other guaranties
of Company's indebtedness or liabilities to Participants and the
System Operator.
11. This Guaranty shall terminate on [___________], but Guarantor may
terminate it earlier by providing 30 days prior written notice
thereof to the Participants and System Operator. In either event,
this Guaranty shall remain in effect after its termination until
Company has satisfied all of its obligations under the Agreements
arising prior to the date of such termination.
12. This Guaranty shall be governed by the laws of the State of
Connecticut, without regard to conflicts of laws principles.
Guarantor hereby irrevocably submits to the jurisdiction of any
Connecticut State or United States Federal court sitting in
Connecticut over any action or proceeding arising out of or relating
to this Guaranty or any of the Agreements, and Guarantor hereby
irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such Connecticut State or
Federal court. Guarantor irrevocably consents to the service of any
and all process in any such action or proceeding by the mailing of
copies of such process to Guarantor at its address set forth below
its signature. Guarantor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. Guarantor further waives any objection to
-17-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
venue in such State and any objection to an action or proceeding in
such State on the basis of forum non conveniens. Guarantor further
agrees that any action or proceeding brought against Participants or
the System Operator shall be brought only in Connecticut State or
United States Federal courts sitting in Connecticut. Nothing herein
shall affect the right of Participants or the System Operator to
bring any action or proceeding against the Guarantor or its property
in the courts of any other jurisdictions.
13. GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS
CHOICE WITH RESPECT TO THIS GUARANTY AND THAT IT MAKES THE FOLLOWING
WAIVERS KNOWINGLY AND VOLUNTARILY:
a. GUARANTOR IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS GUARANTY, THE AGREEMENTS OR ANY DOCUMENTS
RELATED THERETO (INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS) AND THE ENFORCEMENT OF ANY OF PARTICIPANTS' OR THE
SYSTEM OPERATOR'S RIGHTS AND REMEDIES; AND
-18-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
b. GUARANTOR EXPRESSLY ACKNOWLEDGES THAT THE OBLIGATIONS
GUARANTEED HEREBY ARE PART OF A COMMERCIAL TRANSACTION AS SUCH
TERM IS USED AND DEFINED IN CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES AND VOLUNTARILY AND KNOWINGLY WAIVES ANY AND
ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON IT UNDER CHAPTER
903a OF SAID STATUTES (OR ANY OTHER STATUTE AFFECTING
PREJUDGMENT REMEDIES) TO ANY NOTICE OR HEARING OR PRIOR COURT
ORDER OR THE POSTING OF ANY BOND PRIOR TO ANY PREJUDGMENT
REMEDY WHICH PARTICIPANTS MAY USE.
14. Any demand, notice, request, instruction or other communication to
be given hereunder by any party to another party shall be in writing
and delivered personally, by nationally recognized overnight
courier, by certified mail, postage prepaid and return receipt
requested, by telegram, or by telecopier, as follows: If to
Guarantor, at:
If to Participants or the System Operator, at:
Communications given by personal delivery or mail shall be effective
upon actual receipt. Communications given by telegram or telecopier
shall be effective upon actual receipt during the recipient's normal
business hours, or at the beginning of the next business day after
receipt if not received during the recipient's normal business
hours. All communications by telegram or telecopier shall be
confirmed
-19-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
promptly in writing by certified mail or personal delivery. Any
party may change any address to which communications are to be given
by giving notice as provided above of such change of address.
-20-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
IN WITNESS WHEREOF, the undersigned Guarantor has executed this
Guaranty as of this ____ day of [month], 200_.
[GUARANTOR]
By:_____________________________________
Title:__________________________________
Corporate Officer
Address:________________________________
________________________________________
________________________________________
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
ATTACHMENT M
FINANCIAL ASSURANCE POLICY FOR NEPOOL NON-PARTICIPANT TRANSMISSION
CUSTOMERS
In accordance with Section 11 of the Restated NEPOOL Open Access Transmission
Tariff (the "Tariff"), the procedures and requirements set forth in this NEPOOL
Financial Assurance Policy (this "Policy") shall govern all Non-Participant(11)
applicants for transmission service under the Tariff and/or the System
Operator's tariff(12) ("Non-Participant Applicants") and Non-Participant
Transmission Customers. This Policy shall become effective and shall supersede
existing Attachment M to the Tariff in its entirety on the Policy Effective Date
(as hereinafter defined). The "Policy Effective Date" shall be 10 days after the
date on which the NEPOOL Participants Committee receives a notice from the
System Operator stating that the System Operator is able to fully implement the
provisions of this Policy.
The purpose of this Policy is (i) to establish a financial assurance policy for
Non-Participant Applicants and Non-Participant Transmission Customers that
includes commercially reasonable credit review procedures to assess the
financial ability of a Non-Participant Applicant or of a Non-Participant
Transmission Customer to pay for service transactions under the Tariff and the
System Operator's tariff; (ii) to set forth the requirements for alternative
forms of security that will be deemed acceptable to NEPOOL and consistent with
commercial practices
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11 Capitalized terms used but not defined in this Policy are intended to have
the meanings given to such terms in Section 1 of the Tariff.
12 For purposes of this Policy, including all attachments hereto, the "tariff"
of the System Operator includes any and all tariffs of ISO New England
Inc., including without limitation its Tariff for Transmission Dispatch and
Power Administration Services and its Tariff for Capital Funding.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
established by the Uniform Commercial Code that protect NEPOOL and the System
Operator against the risk of non-payment by defaulting Non-Participant
Transmission Customers; (iii) to set forth the conditions under which NEPOOL
will conduct business so as to avoid the possibility of failure of payment for
services rendered under the Tariff and the System Operator's tariff; and (iv) to
collect amounts past due and make up shortfalls in payments and terminate
service to defaulting Non-Participant Transmission Customers.(13) A
Non-Participant Transmission Customer's failure to meet the requirements of this
Policy may result in termination of service by NEPOOL in accordance with Section
8.4 of the Tariff.
VI. FINANCIAL ASSURANCE PROVISIONS FOR NON-PARTICIPANT APPLICANTS AND
NON-PARTICIPANT TRANSMISSION CUSTOMERS
F. PROOF OF FINANCIAL VIABILITY.
3. PROCESS FOR INVESTIGATING CREDITWORTHINESS OF A
NON-PARTICIPANT APPLICANT.
Each Non-Participant Applicant must, with its application for transmission
service and at its own expense, submit proof of financial viability, as
described below, satisfying NEPOOL requirements to demonstrate the
Non-Participant Applicant's ability to meet its obligations. Each
Non-Participant Applicant must submit to the System Operator: (i) all current
rating agency reports from Standard and Poors ("S&P"), Moody's, Duff & Phelps,
and/or Fitch (collectively, the "Rating Agencies"); (ii) audited financial
statements for at least the immediately preceding
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13 The System Operator will act as NEPOOL's agent in managing and enforcing
this Policy with the exception of termination of service issues, which are
specifically reserved to the NEPOOL Participants and will be addressed by
the NEPOOL Participants Committee. Accordingly, all financial information
required pursuant to this Policy is to be provided to the System Operator,
which will keep all such information confidential in accordance with the
provisions of the NEPOOL Information Policy.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
three (3) years, or the period of its existence, if shorter, including, but not
limited to, the following information: balance sheets, income statements,
statements of cash flows and notes to financial statements, annual and quarterly
reports, and 10-K, 10-Q and 8-K Reports;(14) (iii) at least one bank reference
and three (3) utility company credit references, or in those cases where a
Non-Participant Applicant does not have three (3) utility company credit
references, three (3) trade payable vendor references may be substituted; (iv)
relevant information as to any known or anticipated material lawsuits, as well
as any prior bankruptcy declarations by the Non-Participant Applicant, or by its
predecessor(s), if any; and (v) a list of the officers and principal management
of the Non-Participant Applicant. In the case of certain Non-Participant
Applicants, some of the information and documentation described in the
immediately preceding sentence may not be applicable or available, and alternate
requirements may be specified by NEPOOL or its designee in its sole discretion.
The System Operator shall prepare a report, or cause a report to be
prepared, concerning the financial viability of such Non-Participant Applicant.
In its review of each Non-Participant Applicant, the System Operator or its
designee shall consider all of the information and documentation described in
subsections (i) through (v) of the immediately preceding paragraph as well as a
lien search for such Non-Participant Applicant. All costs incurred by the System
Operator in its review of the financial viability of a Non-Participant Applicant
shall be borne by such Non-Participant Applicant and paid prior to NEPOOL's
filing of a Service Agreement for the Non-Participant Applicant. The report for
each Non-Participant Applicant shall be
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14 If any of the above-mentioned financial statements are available on the
Internet, the Non-Participant Applicant may provide instead a letter to
NEPOOL stating where such statements may be located and retrieved by NEPOOL
or its designee.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
completed within three (3) weeks of the System Operator's receipt of that
Non-Participant Applicant's completed application and shall be provided to the
Budget and Finance Subcommittee of the Participants Committee and the affected
Non-Participant Applicant.
4. PROCESS FOR INVESTIGATING FINANCIAL VIABILITY OF
NON-PARTICIPANT TRANSMISSION CUSTOMERS.
Each Non-Participant Transmission Customer shall provide the System
Operator with all current Rating Agency reports for it, if available, and a list
of its officers and principal management upon the effective date of this Policy.
Using this information, the System Operator shall initiate a limited
investigation concerning the financial viability of all Non-Participant
Transmission Customers receiving service on such date. With respect to each
Non-Participant Transmission Customer, the System Operator shall investigate:
(i) the background of the Non-Participant Transmission Customer's officers and
principal management; and (ii) whether any judgments, fines, liens, assessments
or other encumbrances have been imposed or levied on the Non-Participant
Transmission Customer within 12 months prior to the date of such investigation.
All costs incurred by the System Operator in its review of the financial
viability of a Non-Participant Transmission Customer shall be borne by such
Non-Participant Transmission Customer. The System Operator shall complete its
investigation of all Non-Participant Transmission Customers and issue a report
thereon to NEPOOL no later than 60 days after the effective date of this Policy.
G. ONGOING FINANCIAL REVIEW.
A Non-Participant Transmission Customer or Non-Participant Applicant that
receives a credit rating from one or more of the Rating Agencies, or, if such
Non-Participant Transmission
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Customer or Non-Participant Applicant itself is not rated by one of the Rating
Agencies, then a Non-Participant Transmission Customer or Non-Participant
Applicant that has outstanding debt rated by one or more of the Rating Agencies,
is referred to herein as a "Rated Non-Participant Transmission Customer" or a
"Rated Non-Participant Applicant," as appropriate. A Non-Participant
Transmission Customer or Non-Participant Applicant that is not a Rated
Non-Participant Transmission Customer or a Rated Non-Participant Applicant is
referred to herein as an "Unrated Non-Participant Transmission Customer" or an
"Unrated Non-Participant Applicant," as appropriate.
1. RATED NON-PARTICIPANT APPLICANTS AND RATED NON-PARTICIPANT
TRANSMISSION CUSTOMERS.
Any Rated Non-Participant Transmission Customer or Rated Non-Participant
Applicant that does not have an investment grade rating by one of the Rating
Agencies (either for itself or, if it is not rated by one of the Rating
Agencies, then for its outstanding debt) must provide an appropriate cash
deposit, letter of credit, payment bond or guaranty as described in this Policy.
For all purposes of this Policy, if ratings from two or more of the Rating
Agencies are available then: (i) if there are two such ratings available, the
lower rating shall govern; (ii) if there are three or more such ratings
available and two of such ratings are at a comparable level and only one other
such rating is lower than those two ratings, the two comparable ratings shall
govern; (iii) if there are three such ratings available and none are at
comparable levels, the rating that is higher than one and lower than another
shall govern; and (iv) if there are four such ratings available and none are at
a comparable level or two are at a comparable level and two are at a lower level
(either comparable or not), then the third highest such rating shall govern.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
2. UNRATED NON-PARTICIPANT TRANSMISSION CUSTOMERS.
Any Unrated Non-Participant Transmission Customer that (i) has defaulted
on any of its obligations under the Tariff or the System Operator's tariff
(including without limitation its obligations hereunder and under the NEPOOL
Billing Policy) during the immediately preceding 12 month period; or (ii) does
not have a Current Ratio (as hereinafter defined) of at least 1.0, a
Debt-to-Total Capitalization Ratio (as hereinafter defined) of 0.6 or less, and
an EBITDA-to-Interest Expense Ratio (as hereinafter defined) of at least 2.0
must provide an appropriate cash deposit, letter of credit, payment bond or
guaranty as described in this Policy.
For purposes of this Policy, "Current Ratio" on any date is all of a
Non-Participant Transmission Customer's current assets divided by all of its
current liabilities, in each case as shown on the most recent financial
statements provided by such Non-Participant Transmission Customer to the System
Operator; "Debt-to-Total Capitalization Ratio" on any date is a Non-Participant
Transmission Customer's total debt (including all current borrowings) divided by
its total shareholders' equity plus total debt, in each case as shown on the
most recent financial statements provided by such Non-Participant Transmission
Customer to the System Operator; and "EBITDA-to-Interest Expense Ratio" on any
date is a Non-Participant Transmission Customer's earnings before interest,
taxes, depreciation and amortization in the most recent fiscal quarter divided
by that Non-Participant Transmission Customer's expense for interest in that
fiscal quarter, in each case as shown on the most recent financial statements
provided by such Non-Participant Transmission Customer to the System Operator.
Each of the ratios described in this paragraph shall be determined in accordance
with generally accepted accounting principles in the United States at the time
of determination consistently applied. Achieving each of the Current Ratio,
Debt-to-Total Capitalization Ratio and EBITDA-to-Interest
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Expense Ratio tests described in this subsection is referred to herein as
satisfying the "Credit Threshold."
3. NON-PARTICIPANT TRANSMISSION CUSTOMERS WITH AVERAGE INDIVIDUAL
MONTHLY NEPOOL CHARGES OF $15,000 OR LESS.
Notwithstanding any provision of this Policy to the contrary,
Non-Participant Transmission Customers with average individual monthly NEPOOL
Charges (as hereinafter defined) of $15,000 or less shall not be required to
provide a cash deposit, letter of credit, payment bond or guaranty under this
Policy.
H. INFORMATION REPORTING OBLIGATIONS.
In order for the System Operator to update and monitor the status of each
Unrated Non-Participant Transmission Customer that satisfies the Credit
Threshold, each such Unrated Non-Participant Transmission Customer shall submit
to the System Operator, on a quarterly basis, within 10 days of their becoming
available and within 55 days after the end of the applicable fiscal quarter of
such Unrated Non-Participant Transmission Customer, its balance sheet and
additional financial statements, which shall have been compiled by certified
public accountants showing sufficient detail for the System Operator to
calculate such Unrated Non-Participant Transmission Customer's Current Ratio,
Debt-to-Total Capitalization Ratio and EBITDA-to-Interest Expense Ratio. In
addition, each such Unrated Non-Participant Transmission Customer shall submit
to the System Operator, annually within 10 days of their becoming available and
within 100 days after the end of the fiscal year of such Unrated Non-Participant
Transmission Customer, the following audited financial statements: balance
sheets, income statements,
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statements of cash flows, and notes to financial statements, as well as copies
of that Non-Participant Transmission Customer's annual report.(15)
Each Rated Non-Participant Transmission Customer and each Unrated
Non-Participant Transmission Customer that does not satisfy the Credit Threshold
must submit the annual and quarterly financial statements and SEC filings
described in this subsection if and as requested by the System Operator within
10 days of such request.
I. FINANCIAL ASSURANCES.
All Non-Participant Applicants and Non-Participant Transmission Customers
that must provide additional financial assurance pursuant to this Policy, must
provide NEPOOL with financial assurance in the form and in the amount described
in this Policy.
A Non-Participant Transmission Customer or a Non-Participant Applicant's
additional financial assurance hereunder shall be in an amount (the "Financial
Assurance Requirement") at least equal to three and one-half (3.5) times the
average or expected average net monthly charges of such Non-Participant
Transmission Customer or Non-Participant Applicant under the Tariff and the
System Operator's tariff, averaged over the most recent three-month period
(collectively, such charges are referred to herein as "NEPOOL Charges").(16) The
three and one-half month period is based on the time required for a Commission
filing made by NEPOOL to terminate
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15 Where any of the above financial information is available on the Internet,
the Non-Participant Transmission Customer may instead provide the System
Operator with a letter stating where such information may be located and
retrieved.
16 In the case of new Non-Participant Transmission Customers, the Financial
Assurance Requirement will be based on estimated monthly NEPOOL Charges,
which estimate NEPOOL has the right to adjust in light of subsequent
experience as to actual monthly NEPOOL Charges.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
service to become effective. For example, a Rated Non-Participant Transmission
Customer with $32,000 in monthly NEPOOL Charges that does not have an investment
grade rating must provide NEPOOL with additional financial assurance hereunder
in the amount of $112,000. Similarly, an Unrated Non-Participant Transmission
Customer with $32,000 in monthly NEPOOL Charges that does not satisfy the Credit
Threshold must provide NEPOOL with additional financial assurance hereunder in
the amount of $112,000.
VII. ACCEPTABLE FORMS OF ADDITIONAL FINANCIAL ASSURANCE
E. CASH DEPOSIT.
A cash deposit for the full value of the Financial Assurance Requirement,
as determined by NEPOOL, provides an acceptable form of financial assurance to
NEPOOL. A cash deposit greater than or equal to one month's NEPOOL Charges of a
Non-Participant Transmission Customer shall also serve as that Non-Participant
Transmission Customer's deposit under Sections 31.3 and 41.2 of the Tariff. If
the amount of the deposit is below the required level, the Non-Participant
Transmission Customer shall immediately replenish or increase the deposit to the
required level; otherwise, NEPOOL may initiate proceedings to terminate service
to such Non-Participant Transmission Customer in accordance with Section 8.4 of
the Tariff. In the event that actual NEPOOL Charges exceed those anticipated,
the anticipated charges will be increased accordingly and the Non-Participant
Transmission Customer must augment its cash deposit to reach the required level.
The cash deposit will be invested by the System Operator in direct
obligations of the United States or its agencies and interest earned will be
paid to the Non-Participant Transmission
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Customer. The System Operator may sell or otherwise liquidate such investments
at its discretion to meet the Non-Participant Transmission Customer's
obligations to NEPOOL.
F. LETTER OF CREDIT.
An irrevocable standby letter of credit for the full value of the
Financial Assurance Requirement, as determined by NEPOOL, provides an acceptable
form of financial assurance to NEPOOL. The letter of credit shall be valued as
zero dollars ($0.00) 30 days prior to the termination of such letter of credit.
If the letter of credit amount is below the required level, the
Non-Participant Transmission Customer shall immediately replenish or increase
the letter of credit amount; otherwise, NEPOOL may initiate proceedings to
terminate service to such Non-Participant Transmission Customer. If actual
NEPOOL Charges exceed those anticipated, the Non-Participant Transmission
Customer must obtain a substitute letter of credit in the required amount based
on the actual NEPOOL Charges.
The form, substance and provider of the letter of credit must all be
acceptable to NEPOOL. The letter of credit should clearly state the full names
of the "Issuer," "Account Party" and "Beneficiary," the dollar amount available
for drawings, and should include a statement required on the drawing certificate
and other terms and conditions that should apply. It should also specify that
funds will be disbursed, in accordance with the instructions, within one
Business Day after due presentation of the drawing certificate. The bank issuing
the letter of credit must (i) have a minimum corporate debt rating of an "A-" by
S&P, or "A3" by Moody's, or "A-" by Duff & Phelps, or "A-" by Fitch, or an
equivalent short-term debt rating by one of
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
these agencies, and (ii) be organized under the laws of the United States or any
state thereof or be the United States branch of a foreign bank. The System
Operator will confirm no less frequently than quarterly that each bank providing
a letter of credit hereunder satisfies the preceding sentence.
Attachment 1 provides a generally acceptable sample "clean" letter of
credit, and all letters of credit provided by Non-Participant Transmission
Customers and Non-Participant Applicants shall be in this form (with only minor,
non-material changes), unless a variation therefrom is approved by the Budget
and Finance Subcommittee of the Participants Committee. All costs associated
with obtaining financial security and meeting the provisions of this Policy are
the responsibility of the Non-Participant Applicant or Non-Participant
Transmission Customer.
G. PAYMENT BOND.
A payment bond complying with the requirements set forth herein provides
an acceptable form of financial assurance to NEPOOL. The penal sum of such
payment bond shall be in an amount equal to the full value of the Financial
Assurance Requirement, as determined by NEPOOL. The bond shall permit suit
thereunder until two (2) years after the date that all of the Non-Participant
Transmission Customer's obligations to NEPOOL expire.
If the amount of the penal sum of the payment bond available to NEPOOL is
below the required level, the Non-Participant Transmission Customer shall
immediately replenish or increase the amount of the penal sum; otherwise, NEPOOL
may initiate termination proceedings. If actual NEPOOL Charges exceed those
anticipated, the Non-Participant Transmission
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Customer must either cause the penal sum of such payment bond to be increased
accordingly or must obtain a substitute payment bond in the appropriate amount.
The form, substance and provider of the payment bond must be acceptable to
NEPOOL. The payment bond should clearly state the full names of the "Principal,"
the "Surety" and the "Obligee" (NEPOOL) and the penal sum and should include a
clear statement that the surety will promptly and faithfully pay the
Non-Participant Applicant's or Non-Participant Transmission Customer's
obligations to NEPOOL if the Non-Participant Applicant or Non-Participant
Transmission Customer fails to do so. The insurance company issuing the payment
bond must be rated "A" or better by A.M. Best & Co.
Attachment 2 provides an example of a generally acceptable sample payment
bond. All costs associated with obtaining financial security and meeting the
Policy provisions, including without limitation the cost of the premiums for
such payment bond, are the responsibility of the Non-Participant Applicant or
Non-Participant Transmission Customer.
If, prior to the effective date of this Policy, a Non-Participant
Applicant or Non-Participant Transmission Customer has obtained a performance
bond and NEPOOL or the System Operator has determined that the form, substance
and provider of such performance bond were acceptable at the time such
performance bond was obtained, such performance bond shall be deemed to be in
compliance with this Policy until such performance bond terminates or is to be
renewed by its own terms; provided, however, that no performance bond that does
not otherwise satisfy the terms of the Policy without giving effect to this
paragraph shall be acceptable one year after the effective date of this Policy.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
H. CORPORATE GUARANTY.
A corporate guaranty obtained from a Non-Participant Applicant's or
Non-Participant Transmission Customer's affiliated company ("Guarantor") for the
full value of the Financial Assurance Requirement, as determined by NEPOOL (a
"Corporate Guaranty"), may provide an acceptable form of financial assurance to
NEPOOL. If a Guarantor is not itself a Participant (a "Non-Participant
Guarantor"), the aggregate obligations such Guarantor may guarantee hereunder at
any time shall not exceed the lesser of (i) the applicable percentage of such
Guarantor's Tangible Net Worth(17) as listed in the following table, (ii) $125
million, or (iii) 20 percent (20%) of the total amount due and owing at such
time to the System Operator, the Participants and the Non-Participant
Transmission Customers by all Participants and Non-Participant Transmission
Customers (the "Guaranty Limit"), and such Guaranty Limit shall be deemed to be
the available amount of additional financial assurance under such Guarantor's
Corporate Guaranty.
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17 For purposes of this Policy, an entity's "Tangible Net Worth" on any date
is the value, determined in accordance with generally accepted accounting
principles in the United States, of all of that entity's assets less both
(i) the amount at which the liabilities of the entity would be shown on a
balance sheet in accordance with generally accepted accounting principles
in the United States and (ii) all of that entity's intangible assets (e.g.,
patents, trademarks, franchises, intellectual property, goodwill and any
other assets not having a physical existence), in each case as shown on the
most recent financial statements provided by such entity to the System
Operator.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
CREDIT RATING(18) PERCENTAGE OF TANGIBLE
(COMPARABLE RATINGS TO BE USED FOR DUFF & PHELPS AND NET WORTH FOR PURPOSES
FITCH) OF NON-PARTICIPANT
GUARANTOR'S GUARANTY
LIMIT
S&P MOODY'S
AAA Aaa 5.00%
AA+ Aa1 5.00%
AA Aa2 4.00%
AA- Aa3 3.50%
A+ A1 2.55%
A A2 2.35%
A- A3 2.10%
BBB+ Baa1 1.80%
BBB Baa2 1.20%
BBB- Baa3 0.70%
Below BBB- Below Baa3 0.00%
The System Operator shall update and monitor the Guaranty Limit for each
Non-Participant Guarantor on a daily basis. In order for the System Operator to
update and monitor the Guaranty Limit of each Non-Participant Guarantor, each
such Non-Participant Guarantor shall submit to the System Operator, on a
quarterly basis within 10 days of its becoming available and within 55 days
after the end of the applicable fiscal quarter of such Non-Participant
Guarantor, its balance sheet, which shall have been compiled by certified public
accountants showing sufficient detail for the System Operator to calculate its
Tangible Net Worth. In addition, each such Non-Participant Guarantor shall
submit to the System Operator, annually
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18 This is the credit rating for the Guarantor from one or more of the Rating
Agencies or, if such Guarantor itself is not rated by one of the Rating
Agencies, then this is the credit rating for the Non-Participant
Guarantor's long-term debt from one or more of the Rating Agencies.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
within 10 days of their becoming available and within 100 days after the end of
the fiscal year of such Non-Participant Guarantor, the following audited
financial statements: balance sheets, income statements, statements of cash
flows, and notes to financial statements, as well as copies of that
Non-Participant Guarantor's annual report. Each such Non-Participant Guarantor
shall also provide to the System Operator, within 10 days of their filing with
the SEC, a copy of each Form 10-K Report, Form 10-Q Report and Form 8-K Report
for that Non-Participant Guarantor.(19)
The amount guaranteed from time to time under such a Corporate Guaranty,
regardless of whether such amount is past due, shall be included in the NEPOOL
Charges of both such Non-Participant Transmission Customer and its affiliated
Guarantor for all purposes of this Policy if a Guarantor is itself a
Participant. If a Guarantor is itself a Participant, the maximum amount
available under its Corporate Guaranty shall be determined in accordance with
the Financial Assurance Policy for NEPOOL Members as applied to such Guarantor.
The following conditions must be met for a Corporate Guaranty to be
accepted as an acceptable form of Financial Assurance:
5. NEPOOL determines that each of the Non-Participant
Transmission Customer and Guarantor has satisfactorily met its
payment obligations in NEPOOL for at least six (6) months,
which six-month period may in whole or in part pre-date the
effective date of this Policy;
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19 Where any of the above financial information is available on the Internet,
the Non- Participant Guarantor may instead provide the System Operator with
a letter stating where such information may be located and retrieved.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
6. NEPOOL determines that the financial condition of the
Guarantor meets the requirements of this Policy;
7. The Corporate Guaranty shall authorize the System Operator to
recover sums owed by the Non-Participant Transmission Customer
obligor directly from the Guarantor; and
8. The form and substance of the Corporate Guaranty shall be
otherwise acceptable to NEPOOL.
Upon NEPOOL's written authorization, the Non-Participant Transmission
Customer may substitute a Corporate Guaranty that is issued by the Guarantor for
a cash deposit, letter of credit or payment bond when the Non-Participant
Transmission Customer has satisfied each of the four (4) conditions stipulated
above. The Corporate Guaranty is considered to be a lesser form of financial
assurance than a cash deposit, letter of credit or payment bond, and therefore
is allowed as an acceptable form of financial assurance only to those
Non-Participant Transmission Customers and Guarantors that have satisfied each
of the four (4) conditions stipulated above.
The Corporate Guaranty should clearly state the identities of the
"Guarantor," "Beneficiary" and "Obligor," and the relationship between the
Guarantor and the Non-Participant Transmission Customer Obligor. The Corporate
Guaranty must be duly authorized by the Guarantor, must be signed by an officer
of the Guarantor, and must be furnished with either an opinion satisfactory to
the System Operator of the Guarantor's counsel with respect to the
enforceability of the Corporate Guaranty or accompanied by a certificate of
corporate guarantee that includes a seal of the corporation with the signature
of the corporate secretary. Additionally, adequate documentation regarding the
signature authority of the person signing the Corporate Guaranty must be
provided with the Corporate Guaranty.
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
A Guarantor's failure to timely disclose a Material Change (as hereinafter
defined) in its financial status may result in proceedings by NEPOOL to
terminate service to the Non-Participant Transmission Customer Obligor. If there
is an adverse Material Change in the financial condition of the Guarantor,
NEPOOL may require the Non-Participant Transmission Customer Obligor to provide
another form of financial assurance, either a cash deposit, letter of credit or
payment bond.
Attachment 3 provides a generally acceptable sample of a Corporate
Guaranty, and all Corporate Guaranties provided by Non-Participant Transmission
Customers shall be in this form (with only minor, non-material changes), unless
a variation therefrom is approved by the Budget and Finance Subcommittee of the
Participants Committee.
VIII. MISCELLANEOUS PROVISIONS
H. OBLIGATION TO REPORT MATERIAL ADVERSE CHANGES.
Each Non-Participant Transmission Customer and each Guarantor is
responsible for informing NEPOOL in writing within 10 Business Days of any
Material Change (as hereinafter defined) in its financial status. A "Material
Change" in financial status includes, but is not limited to, the following: a
downgrade to a below investment grade rating of senior long-term debt by a major
rating agency, being placed on credit watch with negative implication by a major
rating agency if senior long-term debt does not have an investment grade rating,
a bankruptcy filing, insolvency, a report of a significant quarterly loss or
decline of earnings, the resignation of key officer(s), or the filing of a
material lawsuit that could materially adversely impact current or future
financial results. A Non-Participant Transmission Customer's or Guarantor's
failure to
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
timely disclose a Material Change in its financial status may result in
termination of service proceedings by NEPOOL in accordance with Section 8.4 of
the Tariff. If there is a Material Change in the financial condition of the
Non-Participant Transmission Customer or the Non-Participant Transmission
Customer's Guarantor, NEPOOL may require the Non-Participant Transmission
Customer to provide one of the forms of financial assurance described in this
Policy. If the Non-Participant Transmission Customer fails to do so, NEPOOL may
initiate proceedings to terminate service in accordance with Section 8.4 of the
Tariff.
I. WEEKLY PAYMENTS.
A Non-Participant Transmission Customer that does not satisfy the rating
requirement or, if such Non-Participant Transmission Customer is an Unrated
Non-Participant Transmission Customer, the Credit Threshold may request that, in
lieu of providing one of the additional financial assurances set forth above, a
weekly billing schedule be implemented for it. NEPOOL may, in its discretion,
agree to such a request; provided, however, that any weekly billing arrangement
will terminate no more than six (6) months after the date on which such
arrangement begins unless the Non-Participant Transmission Customer requests an
extension of such arrangement and demonstrates to NEPOOL's satisfaction in its
sole discretion that the termination of such arrangement and compliance with the
other provisions of this Policy (including providing another form of financial
assurance, if required) will impose a substantial hardship on the
Non-Participant Transmission Customer. Such demonstration of a substantial
hardship shall be made every six (6) months after the initial demonstration, and
a Non-Participant Transmission Customer's weekly billing arrangement will be
terminated if it fails to
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
demonstrate to NEPOOL's satisfaction in its sole discretion at any such six (6)
month interval that compliance with the other provisions of this Policy will
impose a substantial hardship on it.
If NEPOOL agrees to implement a weekly billing schedule for a
Non-Participant Transmission Customer, the Non-Participant Transmission Customer
shall be billed weekly in arrears on an estimated basis for all amounts owed to
NEPOOL and the System Operator for the week, with an adjustment for each month
as part of the regular NEPOOL monthly billing to reflect any under or over
collection for the month. The Non-Participant Transmission Customer shall be
obligated to pay each such weekly bill within five (5) Business Days after it is
received. The Non-Participant Transmission Customer shall pay with respect to
each weekly bill an administrative fee, determined by the System Operator, to
reimburse the System Operator for the costs it incurs as a result of that
Non-Participant Transmission Customer's weekly billing arrangement.
If a weekly billing schedule is implemented for a Non-Participant
Transmission Customer in lieu of requiring the Non-Participant Transmission
Customer to provide an additional financial assurance hereunder, the
Non-Participant Transmission Customer may be required to provide an additional
financial assurance in the form and in the amount required hereunder at any time
if the Non-Participant Transmission Customer fails to pay when due any weekly
bill or, in its sole discretion, NEPOOL may initiate proceedings to terminate
service in accordance with Section 8.4 of the Tariff. In addition, upon the
termination of a Non-Participant Transmission Customer's weekly billing
arrangement, the Non-Participant Transmission Customer shall either satisfy the
applicable rating requirements set forth herein, satisfy the Credit Threshold
(if such Non-Participant Transmission Customer is an Unrated Non-Participant
-40-
ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Transmission Customer), or provide one of the other forms of financial assurance
set forth herein.
J. USE OF TRANSACTION SETOFFS.
Under certain conditions, NEPOOL or the System Operator may be involved in
other transactions with a Non-Participant Transmission Customer in which NEPOOL
is the buyer. In this event, the amount of the cash deposit, letter of credit,
payment bond or Corporate Guaranty required for financial assurance for the
contemplated transactions will be reduced ("setoff") by an amount equal to
NEPOOL's or the System Operator's unpaid balance or expected billing under the
other transactions. The terms and the amount of the setoff must be approved by
the System Operator. The System Operator is responsible for monitoring the
status of the setoff and ensuring that an adequate financial assurance balance
is maintained at all times until the transaction is settled.
K. NON-PAYMENT OF AMOUNTS DUE.
If a Non-Participant Transmission Customer does not pay amounts billed
when due and as a result a letter of credit or cash deposit is drawn down or a
payment bond or Corporate Guaranty is paid on, then the Non-Participant
Transmission Customer must immediately replenish the letter of credit or cash
deposit or cause the payment bond or Corporate Guaranty to be restored, in each
case to the required amount. If a Non-Participant Transmission Customer fails to
do so, NEPOOL may initiate proceedings to terminate service to the
Non-Participant Transmission Customer in accordance with Section 8.4 of the
Tariff. In order to encourage prompt payment of NEPOOL Charges by
Non-Participant Transmission Customers, the Non-
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ATTACHMENT 1 TO THE EIGHTY-FIRST AGREEMENT
Participant Transmission Customer shall pay interest on any unpaid amount as
provided in Section 8.3 of the Tariff.
L. ENFORCEMENT OF PAYMENT OBLIGATIONS AGAINST DEFAULTING
NON-PARTICIPANT TRANSMISSION CUSTOMERS.
Each Participant that shares in any shortfall in payments under the New
England Power Pool Billing Policy shall have an independent right to seek and
obtain payment and recovery of the amount of its share of such shortfall (the
"Allocated Assessment") from the defaulting Non-Participant Transmission
Customer. Any Participant that recovers any portion of its Allocated Assessment
from a defaulting Non-Participant Transmission Customer shall promptly so notify
the System Operator, and the Participant's Allocated Assessment shall be reduced
by the amount of such recovery. In addition to any amounts in default, the
defaulting Non-Participant Transmission Customer shall be liable to NEPOOL and
each Participant for all reasonable costs incurred in enforcing the defaulting
Non-Participant Transmission Customer's obligations.
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ATTACHMENT 1
SAMPLE LETTER OF CREDIT
[DATE PROVIDED]
IRREVOCABLE STANDBY LETTER OF CREDIT NO.
[EXPIRATION DATE] AT OUR COUNTERS
WE DO HEREBY ISSUE AN IRREVOCABLE NON-TRANSFERABLE STANDBY LETTER OF
CREDIT BY ORDER OF AND FOR THE ACCOUNT OF ON BEHALF OF [NON-PARTICIPANT
TRANSMISSION CUSTOMER] ("ACCOUNT PARTY") IN FAVOR OF THE PARTICIPANTS IN
THE NEW ENGLAND POWER POOL ("NEPOOL") IN AN AMOUNT NOT EXCEEDING US$
______.00 (UNITED STATES DOLLARS ____________ AND 00/100) AGAINST
PRESENTATION TO US OF A DRAWING CERTIFICATE SIGNED BY A PURPORTED OFFICER
OR AUTHORIZED AGENT OF NEPOOL AND DATED THE DATE OF PRESENTATION
CONTAINING THE FOLLOWING STATEMENT:
"THE UNDERSIGNED HEREBY CERTIFIES TO [BANK] ("BANK"), WITH REFERENCE
TO IRREVOCABLE NON-TRANSFERABLE STANDBY LETTER OF CREDIT NO. ISSUED
BY [BANK] IN FAVOR OF THE PARTICIPANTS IN THE NEW ENGLAND POWER POOL
("NEPOOL"), THAT [NON-PARTICIPANT TRANSMISSION CUSTOMER] HAS FAILED
TO PAY AMOUNTS DUE UNDER THE RESTATED NEPOOL OPEN ACCESS
TRANSMISSION TARIFF OR THE ISO NEW ENGLAND INC. TARIFF FOR
TRANSMISSION DISPATCH AND POWER
ADMINISTRATION SERVICES, AND THUS NEPOOL IS DRAWING UPON THE LETTER
OF CREDIT IN AN AMOUNT EQUAL TO $_______________."
IF PRESENTATION OF ANY DRAWING CERTIFICATE IS MADE ON A BUSINESS DAY AND
SUCH PRESENTATION IS MADE AT OUR COUNTERS ON OR BEFORE 10:00 A.M.
_________TIME, WE SHALL SATISFY SUCH DRAWING REQUEST ON THE SAME BUSINESS
DAY. IF THE DRAWING CERTIFICATE IS RECEIVED AT OUR COUNTERS AFTER 10:00
A.M. ___________ TIME, WE WILL SATISFY SUCH DRAWING REQUEST ON THE NEXT
BUSINESS DAY, FOR THE PURPOSES OF THIS SECTION, A BUSINESS DAY MEANS A
DAY, OTHER THAN A SATURDAY OR SUNDAY, ON WHICH COMMERCIAL BANKS ARE NOT
AUTHORIZED OR REQUIRED TO BE CLOSED IN NEW YORK, NEW YORK.
DISBURSEMENTS SHALL BE IN ACCORDANCE WITH THE INSTRUCTIONS OF NEPOOL.
THE FOLLOWING TERMS AND CONDITIONS APPLY:
THIS LETTER OF CREDIT SHALL EXPIRE AT THE CLOSE OF BUSINESS [DATE].
THE AMOUNT WHICH MAY BE DRAWN BY YOU UNDER THIS LETTER OF CREDIT
SHALL BE AUTOMATICALLY REDUCED BY THE AMOUNT OF ANY UNREIMBURSED
DRAWINGS HEREUNDER AT OUR COUNTERS. ANY NUMBER OF PARTIAL DRAWINGS
ARE PERMITTED FROM TIME TO TIME HEREUNDER.
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ALL COMMISSIONS AND CHARGES WILL BE BORNE BY THE ACCOUNT PARTY.
THIS LETTER OF CREDIT IS NOT TRANSFERABLE OR ASSIGNABLE. THIS LETTER
OF CREDIT DOES NOT INCORPORATE AND SHALL NOT BE DEEMED MODIFIED,
AMENDED OR AMPLIFIED BY REFERENCE TO ANY DOCUMENT, INSTRUMENT OR
AGREEMENT (A) THAT IS REFERRED TO HEREIN (EXCEPT FOR THE UCP, AS
DEFINED BELOW) OR (B) IN WHICH THIS LETTER OF CREDIT IS REFERRED TO
OR TO WHICH THIS LETTER OF CREDIT RELATES.
THIS LETTER OF CREDIT SHALL BE GOVERNED BY THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, INTERNATIONAL
CHAMBER OF COMMERCE PUBLICATION NO.500 (THE "UCP"), EXCEPT TO THE
EXTENT THAT TERMS HEREOF ARE INCONSISTENT WITH THE PROVISIONS OF THE
UCP, INCLUDING BUT NOT LIMITED TO ARTICLES 13(b) AND 17 OF THE UCP,
IN WHICH CASE THE TERMS OF THE LETTER OF CREDIT SHALL GOVERN. THIS
LETTER OF CREDIT MAY NOT BE AMENDED, CHANGED OR MODIFIED WITHOUT THE
EXPRESS WRITTEN CONSENT OF NEPOOL AND US.
WE HEREBY ENGAGE WITH YOU THAT DOCUMENTS DRAWN UNDER AND IN COMPLIANCE
WITH THE TERMS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON
PRESENTATION AS SPECIFIED.
-45-
PRESENTATION OF ANY DRAWING CERTIFICATE UNDER THIS STANDBY LETTER OF
CREDIT MAY BE SENT TO US BY COURIER, CERTIFIED MAIL, REGISTERED MAIL,
TELEGRAM, TELEX TO THE ADDRESS SET FORTH BELOW, OR SUCH OTHER ADDRESS AS
MAY HEREAFTER BE FURNISHED BY US. OTHER NOTICES CONCERNING THIS STANDBY
LETTER OF CREDIT MAY BE SENT BY FACSIMILE OR SIMILAR COMMUNICATIONS
FACILITY TO THE RESPECTIVE ADDRESSES SET FORTH BELOW. ALL SUCH NOTICES AND
COMMUNICATIONS SHALL BE EFFECTIVE WHEN ACTUALLY RECEIVED BY THE INTENDED
RECIPIENT PARTY.
IF TO THE BENEFICIARY OF THIS LETTER OF CREDIT:
IF TO THE ACCOUNT PARTY:
IF TO US:
- ------------------------------------- -------------------------------------
[signature] [signature]
-46-
ATTACHMENT 2
SAMPLE PAYMENT BOND
[INSURANCE COMPANY]
Bond No.
KNOW ALL MEN BY THESE PRESENTS, That the undersigned [Non-Participant
Transmission Customer], of [Non-Participant Transmission Customer's
address] hereinafter referred to as the Principal, and [insurance
company], a corporation organized and existing under the laws of the State
of [insurance company's state of incorporation], as Surety, are held and
firmly bound unto the Participants in the New England Power Pool as
obligees, hereinafter referred to collectively as the Obligee, in the sum
of __________________, lawful money of the United States of America for
the payment of which sum, well and truly to be made, we bind ourselves,
our executors, administrators, successors, and assigns, jointly and
severally, firmly by these presents.
WHEREAS, the Principal has entered into agreements for the purchase and
sale of electric services and the payment of amounts owed to ISO New
England Inc. under the Restated NEPOOL Open Access Transmission Tariff and
ISO New England Inc.'s Tariff for Transmission Dispatch and Power
Administration Services, each as amended from time to time (collectively
referred to as the "Agreements"), and in strict accordance with their
respective terms.
NOW, THEREFORE, the condition of this obligation is such, that if the
Principal shall promptly and faithfully make the payments required by, and
comply with terms of, the
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Agreements which have been or may hereafter be in force and shall save and
keep harmless the Obligee from all loss or damage which it may sustain or
for which it may become liable on account of the issuance of said
Agreements to the Principal, then this obligation shall be void;
otherwise, it shall remain in full force and effect.
Upon notice from ISO New England Inc. of nonpayment by the Principal,
Surety shall immediately pay to ISO New England Inc., as agent for the
Obligee, the amounts owed by the Principal under the Agreements. Surety
shall also be responsible for all reasonable fees and costs, including but
not limited to reasonable attorneys' fees, incurred by ISO New England
Inc. or Obligee to enforce this instrument and collect any amounts owed to
Obligee hereunder.
The Surety hereby waives notice of any alteration or extension of time
made by the Obligee. This instrument shall be a continuing, absolute,
unconditional and irrevocable obligation of Surety.
Any suit on this bond must be instituted before the expiration of two (2)
years from the date on which the Principal's obligations under the
Agreements expire. This instrument shall be effective upon execution and
shall continue in effect until terminated by the Obligee or Surety upon
thirty (30) days prior written notice to the non-terminating party.
SIGNED, SEALED AND DATED this day of , 20__.
-48-
[Non-Participant Transmission
Customer]
Principal
[Seal]
By:___________________________________
[Insurance Company]
Surety
[Seal]
By:___________________________________
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ATTACHMENT 3
CORPORATE GUARANTY
For and in consideration of the credit advance or sale of products on open
account by the New England Power Pool Participants from time to time
("Participants") to [Non-Participant Transmission Customer] ("Company"),
the undersigned guarantor ("Guarantor"), the [parent/subsidiary/affiliate]
of Company, hereby unconditionally and irrevocably guarantees the prompt
and complete payment of all amounts that Company now or hereafter owes to
Participants and ISO New England, Inc. (the "System Operator") under the
Restated NEPOOL Open Access Transmission Tariff and the System Operator's
tariffs that are in effect from time to time (collectively referred to as
the "Agreements"), in strict accordance with their respective terms.
1. If Company does not perform its obligations in strict accordance
with the Agreements, Guarantor shall immediately pay all amounts now
or hereafter owed (including, without limitation, all principal,
interest, and fees) by Company under the Agreements. This Guaranty
may be satisfied by Guarantor paying Company's obligations or by
Guarantor causing Company's obligations to be paid; provided,
however, that Guarantor shall at all times remain fully responsible
and liable for its obligations hereunder notwithstanding any such
payment (or failure thereof) by any third party. Participants will
undertake commercially reasonable efforts to notify Guarantor of a
failure by Company to make a payment under the Agreements; provided,
however, that failure by Participants to so notify Guarantor shall
not defeat, limit or otherwise affect the rights and obligations of
Participants, Company or Guarantor. Subject to the terms and
conditions set forth
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herein, Guarantor's obligations hereunder shall not exceed the
complete payment of all amounts that Company now or hereafter owes
to Participants and the System Operator under the Agreements in
strict accordance with their respective terms. [Notwithstanding
anything to the contrary in this Guaranty, the aggregate liability
of Guarantor hereunder shall not exceed U.S. $________.]
2. This Guaranty is an absolute, unconditional and continuing
guaranty of the full and punctual payment by Company of each
of its obligations under the Agreements, and not of
collectibility only, and is in no way conditioned upon any
requirement that Participants or the System Operator first
attempt to collect payment from Company or any other guarantor
or surety or resort to any security or other means of
obtaining payment of all or any part of Company's obligations
or upon any other contingency. This is a continuing guaranty
and, subject to the terms and conditions hereof, shall be
binding upon Guarantor until the full, final and irrevocable
payment of all of Company's obligations under the Agreements,
regardless of (i) how long after the date hereof any part of
the obligations under the Agreements is incurred by Company
and (ii) the amount of the obligations under the Agreements at
any time outstanding. This Guaranty may be enforced by
Participants or the System Operator from time to time and as
often as occasion for such enforcement may arise.
3. The obligations hereunder are independent of the obligations of
Company, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against
Company or whether Company be joined in any such action or actions.
Guarantor's liability under this Guaranty is not
-51-
conditioned or contingent upon genuineness, validity, regularity or
enforceability of the Agreements.
4. Guarantor authorizes Participants and the System Operator, without
notice or demand and without affecting its liability hereunder, from
time to time to (a) renew, extend, or otherwise change the terms of
the Agreements or any part thereof; (b) take and hold security for
the payment of the Agreements, and exchange, enforce, waive and
release any such security; and (c) apply such security and direct
the order or manner of sale thereof as Participants and the System
Operator in their sole discretion may determine. The obligations
and liabilities of Guarantor hereunder shall be absolute and
unconditional, shall not be subject to any counterclaim, setoff,
deduction or defense based upon any claim Guarantor may have against
Company, any other guarantor, or any other person or entity, and
shall remain in full force and effect until all of the obligations
hereunder have been fully satisfied, without regard to, or release
or discharge by, any event, circumstance or condition (whether or
not Guarantor shall have knowledge or notice thereof) which but for
the provisions of this Section might constitute a legal or equitable
defense or discharge of a guarantor or surety or which might in any
way limit recourse against Guarantor, including without limitation:
(a) any amendment or modification of, or supplement to, the terms of
the Agreements; (b) any waiver, consent or indulgence by
Participants or the System Operator, or any exercise or non-exercise
by Participants or the System Operator of any right, power or
remedy, under or in respect of this Guaranty or the Agreements
(whether or not Guarantor or Company has or have notice or
-52-
knowledge of any such action or inaction); (c) the invalidity or
unenforceability, in whole or in part, of the Agreements, or the
termination (except pursuant to its terms or by written agreement
between Participants and Company), cancellation or frustration of
any thereof, or any limitation or cessation of Company's liability
under any thereof (other than any limitation or cessation expressly
provided for therein), including without limitation any invalidity,
unenforceability or impaired liability resulting from Company's lack
of capacity, power and/or authority to enter into the Agreements
and/or to incur any or all of the obligations thereunder, or from
the execution and delivery of any Agreement by any person acting for
Company without or in excess of authority (except to the extent the
same would limit or cease Company's liability under the Agreements);
(d) any actual, purported or attempted sale, assignment or other
transfer by Participants or the System Operator of any Agreement or
of any of its rights, interests or obligations thereunder; (e) the
taking or holding by Participants or the System Operator of a
security interest, lien or other encumbrance in or on any property
as security for any or all of the obligations of Company under the
Agreements or any exchange, release, non-perfection, loss or
alteration of, or any other dealing with, any such security; (f) the
addition of any party as a guarantor or surety of all or any part of
the obligations of Company under the Agreements; (g) any merger,
amalgamation or consolidation of Company into or with any other
entity, or any sale, lease, transfer or other disposition of any or
all of Company's assets or any sale, transfer or other disposition
of any or all of the shares of capital stock or other securities of
Company to any other person or entity; (h) any change in the
financial
-53-
condition of Company or (as applicable) of any subsidiary,
affiliate, partner or controlling shareholder thereof, or Company's
entry into an assignment for the benefit of creditors, an
arrangement or any other agreement or procedure for the
restructuring of its liabilities, or Company's insolvency,
bankruptcy, reorganization, dissolution, liquidation or any similar
action by or occurrence with respect to Company.
5. Guarantor unconditionally waives, to the fullest extent permitted by
law: (a) notice of any of the matters referred to in Section 4
hereof; (b) any right to the enforcement, assertion or exercise by
Participants or the System Operator of any of their rights, powers
or remedies under, against or with respect to (i) any of the
Agreements, (ii) any other guarantor or surety, or (iii) any
security for all or any part of the obligations of Company under the
Agreements or obligations of Guarantor hereunder; (c) any
requirement of diligence and any defense based on a claim of laches;
(d) all defenses which may now or hereafter exist by virtue of any
statute of limitations, or of any stay, valuation, exemption,
moratorium or similar law, except the sole defense of full and
indefeasible payment; (e) any requirement that Guarantor be joined
as a party in any action or proceeding against Company to enforce
any of the provisions of the Agreements; (f) any requirement that
Participants or the System Operator mitigate or attempt to mitigate
damages resulting from a default by Guarantor hereunder or from a
default by Company under any of the Agreements; (g) acceptance of
this Guaranty by Participants and the System Operator; and (h) all
presentments, protests, notices of dishonor, demands for payment and
any and all other demands upon and notices to
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Company, and any and all other formalities of any kind, the
omission of or delay in performance of which might but for the
provisions of this section constitute legal or equitable
grounds for relieving or discharging Guarantor in whole or in
part from its irrevocable, absolute and continuing obligations
hereunder, it being the intention of Guarantor that its
obligations hereunder shall not be discharged except by
payment and then only to the extent thereof.
6. Guarantor waives any right to require Participants or the
System Operator to (a) proceed against Company; (b) proceed
against or exhaust any security held from Company; or (c)
pursue any other remedy in Participants' or the System
Operator's power whatsoever. So long as any obligations
remain outstanding under this Guaranty, Guarantor shall not
exercise any rights against Company arising as a result of
payment by Guarantor hereunder, by way of subrogation or
otherwise, and will not prove any claim in competition with
Participants or the System Operator or their affiliates in
respect of any payment under the Agreements in bankruptcy or
insolvency proceedings of any nature; Guarantor will not claim
any setoff or counterclaim against Company in respect of any
liability of Guarantor to Company and Guarantor waives any
benefit of any right to participate in any collateral which
may be held by Participants or the System Operator or any of
their affiliates. Guarantor shall have no right of
subrogation or reimbursement, contribution or other rights
against Company.
7. If after receipt of any payment of, or the proceeds of any
collateral for, all or any part of the obligations of Company
under the Agreements, Participants or the System Operator are
compelled to surrender or voluntarily surrender such
-55-
payment or proceeds to any person because such payment or
application of proceeds is or may be avoided, invalidated,
recaptured, or set aside as a preference, fraudulent conveyance,
impermissible setoff or for any other reason, whether or not such
surrender is the result of (i) any judgment, decree or order of any
court or administrative body having jurisdiction over Participants
or the System Operator, or (ii) any settlement or compromise by
Participants or the System Operator of any claim as to any of the
foregoing with any person (including Company), then the obligations
of Company under the Agreements, or part thereof affected, shall be
reinstated and continue and this Guaranty shall be reinstated and
continue in full force as to such obligations or part thereof as if
such payment or proceeds had not been received, notwithstanding any
previous cancellation of any instrument evidencing any such
obligation or any previous instrument delivered to evidence the
satisfaction thereof. The provisions of this Section shall survive
the termination of this Guaranty and any satisfaction and discharge
of Company by virtue of any payment, court order or any federal or
state law until the full, final and irrevocable satisfaction of all
of Company's obligations under the Agreements.
8. Any indebtedness of Company now or hereafter held by Guarantor
(including indebtedness, if any, related to Guarantor's status as a
Participant) is hereby subordinated to any indebtedness of Company
to Participants and the System Operator; and such indebtedness of
Company to Guarantor shall be collected, enforced and received by
Guarantor as trustee for Participants and the System Operator and be
paid over to Participants or the System Operator on account of
-56-
the indebtedness of Company due and owing at any time to
Participants and the System Operator but without reducing or
affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.
9. Guarantor represents and warrants to Participants and the System
Operator, as an inducement to Participants and the System Operator
to make the credit advances or sales of products on open account to
Company, that:
a. the execution, delivery and performance by Guarantor of
this Guaranty (i) are within Guarantor's powers and have
been duly authorized by all necessary action; (ii) do
not contravene Guarantor's charter documents or any law
or any material contractual restrictions binding on or
affecting Guarantor or by which Guarantor's property may
be affected; and (iii) do not require any authorization
or approval or other action by, or any notice to or
filing with, any public authority or any other person
except such as have been obtained or made;
b. this Guaranty constitutes the legal, valid and binding
obligation of Guarantor, enforceable in accordance with its
terms, except as the enforceability thereof may be subject to
or limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally and by general
principles of equity; and
c. there is no action, suit or proceeding affecting
Guarantor pending or threatened before any court,
arbitrator, or public authority that may materially
adversely affect Guarantor's ability to perform its
obligations
-57-
under this Guaranty, except as set forth in writing to the
Participants and the System Operator prior to Participants'
written authorization of this Guaranty.
10. Guarantor agrees to pay on demand all reasonable attorneys'
fees and all other reasonable costs and expenses which may be
incurred by Participants and the System Operator in the
enforcement of this Guaranty, and the obligation to pay such
fees, costs and expenses shall be in addition to Guarantor's
other payment obligations hereunder. No terms or provisions
of this Guaranty may be changed, waived, revoked or amended
without Participants' prior written consent. Should any
provision of this Guaranty be determined by a court of
competent jurisdiction to be unenforceable, all of the other
provisions shall remain effective. This Guaranty embodies the
entire agreement among the parties hereto with respect to the
matters set forth herein, and supersedes all prior agreements
among the parties with respect to the matters set forth
herein. No course of prior dealing among the parties, no
usage of trade, and no parol or extrinsic evidence of any
nature shall be used to supplement, modify or vary any of the
terms hereof. There are no conditions to the full
effectiveness of this Guaranty. Participants and the System
Operator may assign this Guaranty without in any way affecting
Guarantor's liability under it, except that Guarantor shall be
provided reasonable notice of any such assignment. This
Guaranty shall inure to the benefit of Participants, the
System Operator and their successors and assigns. This
Guaranty is in addition to the guaranties of any other
guarantors and any and all other guaranties of Company's
indebtedness or liabilities to Participants and the System
Operator.
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11. This Guaranty shall terminate on [___________], but Guarantor may
terminate it earlier by providing 30 days prior written notice
thereof to the Participants and System Operator. In either event,
this Guaranty shall remain in effect after its termination until
Company has satisfied all of its obligations under the Agreements
arising prior to the date of such termination.
12. This Guaranty shall be governed by the laws of the State of
Connecticut, without regard to conflicts of laws principles.
Guarantor hereby irrevocably submits to the jurisdiction of
any Connecticut State or United States Federal court sitting
in Connecticut over any action or proceeding arising out of or
relating to this Guaranty or any of the Agreements, and
Guarantor hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in
such Connecticut State or Federal court. Guarantor
irrevocably consents to the service of any and all process in
any such action or proceeding by the mailing of copies of such
process to Guarantor at its address set forth below its
signature. Guarantor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law. Guarantor further waives any
objection to venue in such State and any objection to an
action or proceeding in such State on the basis of forum non
conveniens. Guarantor further agrees that any action or
proceeding brought against Participants or the System Operator
shall be brought only in Connecticut State or United States
Federal courts sitting in Connecticut. Nothing herein shall
affect the right of Participants or the System Operator to
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bring any action or proceeding against the Guarantor or its
property in the courts of any other jurisdictions.
13. GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF
ITS CHOICE WITH RESPECT TO THIS GUARANTY AND THAT IT MAKES THE
FOLLOWING WAIVERS KNOWINGLY AND VOLUNTARILY:
a. GUARANTOR IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT
AND IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS GUARANTY, THE AGREEMENTS OR ANY DOCUMENTS
RELATED THERETO (INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS) AND THE ENFORCEMENT OF ANY OF PARTICIPANTS' OR THE
SYSTEM OPERATOR'S RIGHTS AND REMEDIES; AND
b. GUARANTOR EXPRESSLY ACKNOWLEDGES THAT THE OBLIGATIONS
GUARANTEED HEREBY ARE PART OF A COMMERCIAL TRANSACTION
AS SUCH TERM IS USED AND DEFINED IN CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES AND VOLUNTARILY AND
KNOWINGLY WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE
CONFERRED UPON IT UNDER CHAPTER 903a OF SAID STATUTES
(OR ANY
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OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO ANY NOTICE OR
HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR
TO ANY PREJUDGMENT REMEDY WHICH PARTICIPANTS MAY USE.
14. Any demand, notice, request, instruction or other communication to
be given hereunder by any party to another party shall be in writing
and delivered personally, by nationally recognized overnight
courier, by certified mail, postage prepaid and return receipt
requested, by telegram, or by telecopier, as follows:
If to Guarantor, at:
If to Participants or the System Operator, at:
Communications given by personal delivery or mail shall be effective
upon actual receipt. Communications given by telegram or telecopier
shall be effective upon actual receipt during the recipient's normal
business hours, or at the beginning of the next business day after
receipt if not received during the recipient's normal business
hours. All communications by telegram or telecopier shall be
confirmed promptly in writing by certified mail or personal
delivery. Any party may change any address to which communications
are to be given by giving notice as provided above of such change of
address.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this
Guaranty as of this day of [month], 200_.
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[GUARANTOR]
By:_____________________________________
Title:__________________________________
Corporate Officer
Address:________________________________
________________________________________
________________________________________
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