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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER: 333-40478
AES RED OAK, L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1889658
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 522-1315
Securities Registered Pursuant To Section 12(b) of The Act: NONE
Securities Registered Pursuant To Section 12(g) of The Act: NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and 2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [X]
As of March 26, 2001, there was one membership interest outstanding, which was
held by AES Red Oak, Inc., the Company's parent and a wholly-owned subsidiary of
The AES Corporation.
ALL OF THE REGISTRANT'S EQUITY SECURITIES ARE INDIRECTLY OWNED BY THE AES
CORPORATION. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE
REDUCED DISCLOSURE FORMAT AUTHORIZED BY GENERAL INSTRUCTION I OF THE FORM 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.....................................................2
PART I ............................................................................................3
ITEM 1. Business...........................................................................3
ITEM 2. Properties........................................................................36
ITEM 3. Legal Proceedings.................................................................36
ITEM 4. Submission of Matters to a Vote of Security Holders...............................36
PART II ...........................................................................................37
ITEM 5. Market For Registrant's Common Equity and Related Stockholder Matters.............37
ITEM 6. Selected Financial Data...........................................................37
ITEM 7. Management's Discussion and Analysis Of Financial Condition and Results of
Operations........................................................................37
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.........................39
ITEM 8. Financial Statements and Supplemental Data........................................40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure........................................................................53
PART III ..........................................................................................54
ITEM 10. Directors and Executive Officers of the Registrant................................54
ITEM 11. Executive Compensation............................................................55
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....................55
ITEM 13. Certain Relationships and Related Transactions....................................55
PART IV ...........................................................................................56
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................56
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-K, as well as statements made by us in
periodic press releases and other public communications, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "estimates," "plans," "projects," "expects,"
"may," "will," "should," "approximately," or "anticipates" or the negative
thereof or other variations thereof or comparable terminology, or by discussion
of strategies, each of which involves risks and uncertainties. We have based
these forward-looking statements on our current expectations and projections
about future events based upon our knowledge of facts as of the date of this
Form 10-K and our assumptions about future events.
All statements other than of historical facts included herein, including those
regarding market trends, our financial position, business strategy, projected
plans and objectives of management for future operations and the anticipated
commercial operation date of the facility, are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors outside of our control that may cause our actual results or
performance to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. These
risks, uncertainties and other factors include, among others, the following:
- - unexpected construction delays,
- - unexpected problems relating to the start-up, commissioning and
performance of the facility,
- - the financial condition of third parties on which we depend,
- - an adequate merchant market after the expiration of the power purchase
agreement,
- - capital shortfalls and access to additional capital on reasonable
terms,
- - inadequate insurance coverage,
- - unexpected expenses or lower than expected revenues once commercial
operations have begun,
- - environmental and regulatory compliance, and
- - the additional factors that are unknown to us or beyond our control.
We have no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a Delaware limited liability company formed on September 13,
1998 to develop, construct, own, lease, operate and maintain a gas-fired
electric generating power plant in the Borough of Sayreville, Middlesex County,
New Jersey and manage the production of electric generating capacity, ancillary
services and energy at our facility. We are a development stage company and
currently have no operating revenues. While there can be no assurances, we
expect to become commercially operational by approximately December 31, 2001.
However, under the construction agreement, the guaranteed provisional acceptance
date, subject to adjustment, is February 14, 2002, and the guaranteed final
acceptance date is 13.5 months after the provisional acceptance date. After our
commercial operation date, our sole business will be the ownership, leasing and
operation of the project. Our facility will be designed, engineered, procured
and constructed for us by Washington Group International, Inc. (formerly
Raytheon Engineers & Constructors, Inc.) on a fixed-price, turnkey basis under
the construction agreement. Siemens Westinghouse Power Corporation will provide
combustion turbine maintenance services and spare parts with respect to the
turbines for our facility under the maintenance services agreement for an
initial term of 16 years from the date of execution of the agreement or after
the twelfth scheduled outage for a turbine, whichever occurs first, unless we
exercise our right to cancel the agreement after the first major outage of the
turbines at approximately the sixth year of operation of the facility. AES
Sayreville, a wholly owned subsidiary of AES, will provide development,
construction management and operations and maintenance services for the project
under the operations agreement. We will act as construction agent for our
affiliate, AES URC, for the development and construction of part of the facility
under the construction agency agreement. We own the land on which our facility
will be located, and we will lease part of the facility from AES URC with an
option to purchase.
We have entered into a power purchase agreement for a term of 20 years
under which Williams Energy, Inc. has committed to purchase all of the net
capacity, fuel conversion and ancillary services of our facility. Net capacity
is the maximum amount of electricity generated by our facility net of
electricity used at our facility. Fuel conversion services consist of the
combustion of natural gas in order to generate electric energy. Ancillary
services consist of services necessary to support the transmission of capacity
and energy. Williams Energy is obligated to supply us with all natural gas
necessary to provide net capacity, fuel conversion services and ancillary
services under the power purchase agreement. We anticipate that during the term
of the power purchase agreement substantially all of our revenues will be
derived from payments made under the power purchase agreement.
ORGANIZATIONAL STRUCTURE
All of the equity interests in our company are owned by AES Red Oak,
Inc., a wholly owned subsidiary of The AES Corporation. The AES Corporation will
provide funds to AES Red Oak, Inc. so that AES Red Oak, Inc. can make an equity
contribution to us to fund our project costs. AES Red Oak, Inc. currently has no
operations outside of its activities in connection with our project and does not
anticipate undertaking any unrelated operations. AES Red Oak, Inc. also owns all
of the equity interest in AES Sayreville, L.L.C., which will provide
development, construction management, and operations and maintenance services to
us. AES Sayreville has no operations outside of its activities in connection
with our project. AES Red Oak, Inc. has no assets other than its membership
interests in us and AES Sayreville. The AES Corporation will supply AES
Sayreville with personnel and services necessary to carry out its obligations to
us.
We also own all of the equity interests in AES Red Oak Urban Renewal
Corporation, or AES URC, which was organized as an urban renewal corporation
under New Jersey law so that portions of our project can be designated as
redevelopment areas or projects in order to provide real estate tax and
development benefits for our project. AES URC has no operations outside of its
activities in connection with our project.
The AES Corporation is a leading global power company committed to
supplying electricity in a socially responsible way. The AES Corporation
currently has assets of approximately $31 billion and employs approximately
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27,000 people around the world. The AES Corporation is a public company and is
subject to the informational requirements of the Securities Exchange Act of 1934
and, in accordance therewith, files reports, proxy statements and other
information, including financial reports, with the SEC.
The following organizational chart illustrates the relationship among
us, AES Red Oak, Inc., AES Sayreville, The AES Corporation, and AES URC:
The AES Corporation
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AES Red Oak, Inc.
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AES Red Oak, L.L.C. AES Sayreville, L.L.C.
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AES Red Oak Urban Renewal Corporation
Our principal executive offices are located at 1001 North 19th Street,
Arlington, Virginia, 22209, c/o The AES Corporation. Our telephone number is
(703) 522-1315.
RECENT DEVELOPMENTS
In documents filed with the Securities & Exchange Commission on March
2, 2001, Washington Group publicly announced that it was facing "severe
near-term liquidity problems." Washington Group stated that it was in default
under its senior credit facilities and that it was in discussions with the
lenders under its credit facilities and other parties to attempt to solve its
near-term liquidity problems. Washington Group stated that if it is unable to
resolve its current financial situation, it may seek protection from its
creditors under the United States Bankruptcy Code. Under the Agreement for
Engineering, Procurement and Construction Services dated as of October 15, 1999,
or the construction agreement, a bankruptcy filing by Washington Group
constitutes an event of default.
In response to these announcements, we requested and received from
Washington Group (as successor in interest to Raytheon Engineers &
Constructors), adequate assurances of their performance under the construction
agreement with respect to the completion of our facility. Washington Group in
response stated that it (1) intends to meet all of its obligations under the
construction agreement, (2) plans to pay all subcontractors and suppliers on the
project in accordance with the terms of their subcontracts and purchase orders,
and (3) provided further assurance to a critical supplier by means of a $5
million contract payment to such supplier.
As discussed in greater detail under "--Summary of Principal Project
Contracts," the performance of all Washington Group's obligations under the
construction agreement is secured by a letter of credit issued October 11, 2000
by Bank of America in our favor. The letter of credit represents the value of
all unperformed work to date, and as of March 26, 2001, was $124.8 million.
Additionally, under a Guaranty in our favor, effective as of October 15, 1999,
all of Washington Group's obligations under the construction agreement are
irrevocably and unconditionally guaranteed by the Raytheon Company.
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We are carefully monitoring the progress of construction at our
facility for any work slowdowns or stoppages, neither of which has been noted to
date. Although there can be no guarantees, based upon the letter of assurance we
received from Washington Group, our current assessment of progress at the
construction site, and the existence of both the letter of credit and the
performance guaranty from Raytheon Company, we currently believe that our
facility will become commercially operational as originally scheduled, by
approximately December 31, 2001.
Notwithstanding our current belief, if it becomes necessary to replace
Washington Group under the construction agreement, we may experience significant
construction delays. Additionally, we may not be able to find a replacement on
favorable or reasonable terms. In the event the commercial operation date of our
facility is significantly delayed or if we cannot find a replacement on
favorable or reasonable terms, we may not have financial resources sufficient to
meet our financial and contractual obligations, including the timely payment of
principal and interest on our senior secured bonds.
COMPETITION
Under the power purchase agreement, Williams Energy will be required to
purchase all of our facility's capacity and energy. Therefore, during the term
of the power purchase agreement, competition from other capacity and energy
providers will become an issue only if the power purchase agreement is
terminated or not performed in accordance with its terms. Following the term of
the power purchase agreement, we anticipate selling facility capacity, ancillary
services and energy under a new power purchase agreement or into the
Pennsylvania-New Jersey-Maryland ("PJM") power pool market. At that time, we
will face competition from other generating facilities selling into the PJM
power pool market including, possibly, other facilities owned by The AES
Corporation or its affiliates.
EMPLOYEES
Other than the officers listed under "Directors and Executive Officers
of the Registrant" section of this From 10-K, we have no employees and do not
anticipate having any employees in the future. Under the operations agreement,
AES Sayreville will manage the development and construction of and the operation
and maintenance of our facility. The direct labor personnel and the plant
operations management will be employees of The AES Corporation provided to AES
Sayreville under a services agreement.
INSURANCE
As owner of our site and lessee and owner of the facility, we will
maintain a comprehensive insurance program as required under our various project
contracts and the indenture governing our senior secured bonds and underwritten
by recognized insurance companies. Among other insurance policies, we will
maintain commercial general liability insurance, permanent property insurance
for full replacement value of the facility and business interruption insurance
covering at least 18 months of gross revenues less variable operating expenses.
We have obtained title insurance in an amount equal to the principal amount of
the bonds.
AES Sayreville, as operator of our facility, will maintain, among other
insurance policies, workers' compensation insurance (or evidence of
self-insurance), if required, and comprehensive automobile bodily injury and
property damage liability insurance.
PERMITS AND REGULATORY APPROVALS
AES Sayreville, as operator of our facility, and us, as owner and
lessee of our facility, must comply with numerous federal, state and local
regulatory requirements including environmental requirements in the operation of
our facility.
On November 4, 1999, we received a certification from the Federal
Energy Regulatory Commission ("FERC") that we are an exempt wholesale generator.
Certification as an exempt wholesale generator exempts us from regulation under
the Public Utility Holding Company Act of 1935. We will maintain this status so
long as we continue to make only wholesale sales of electricity, which we intend
to do. Prior to commercial operation, we will be required to file the
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power purchase agreement with FERC and obtain approval for the rates contained
therein. We may also need to obtain FERC approval for sales of electricity at
market-based rates after the power purchase agreement is no longer in effect.
On January 28, 2000, we received our Prevention of Significant
Deterioration Permit, or "air permit," from the New Jersey Department of
Environmental Protection. The appeal period in respect of the air permit expired
on February 28, 2000 and no appeal was filed. The air permit requires that our
facility be constructed in a manner that will allow it to meet specified
limitations on emissions of air pollutants. Under the construction agreement,
Washington Group is required to construct our facility to meet these
requirements.
We are subject to a number of statutory and regulatory standards and
required approvals relating to energy, labor and environmental laws. Although
the necessary environmental permits for the commencement of construction of our
facility have been obtained, we are required to comply with the terms of our
environmental permits and to obtain other permits for the construction and
operation of our facility. Several of the permits have not yet been obtained,
and some cannot be obtained until operation of our facility has commenced. Under
specific circumstances, delay in receipt of or failure to obtain the permits
could delay completion of the construction of our facility or prevent the
operation of our facility.
Some permits that we have obtained in connection with our facility will
require amendment prior to commercial operation of our facility and others will
require renewal or reissuance during the life of our facility. While we have no
reason to believe that the permits cannot be amended or will not be renewed or
reissued, our inability to amend, renew or obtain reissuance of these permits in
the future could cause the suspension of construction or operation of our
facility.
The permits that have been obtained and that will be obtained contain
and will contain ongoing requirements. Failure to satisfy and maintain any
permit conditions or other applicable requirements could delay or prevent
completion of the construction of our facility, prevent the operation of our
facility and result in additional costs.
SUMMARY OF PRINCIPAL PROJECT CONTRACTS
While the Company believes that the following summaries contain the
material terms of the principal project contracts, such summaries may not
include all of the provisions of each agreement that each individual investor
may feel is important. These summaries do not restate each agreement discussed
herein and exclude certain definitions and complex legal terminology that may be
contained in each relevant agreement. You should carefully read each agreement
discussed herein, each of which is filed as an exhibit to this Form 10-K.
POWER PURCHASE AGREEMENT
We have entered into a Fuel Conversion Services, Capacity and Ancillary
Services Purchase Agreement, dated as of September 17, 1999 with Williams
Energy, for the sale to Williams Energy of all of the electric energy and
unforced capacity produced by our facility as well as ancillary services and
fuel conversion services.
TERM
The term of the power purchase agreement extends for 20 years after the
first contract anniversary date, which is the last day of the month in which the
commercial operation date occurs. The commercial operation date occurs when:
- the initial start-up testing of our facility has been
successfully completed;
- we have received all approvals necessary to make the
contemplated sales; and
- we have obtained all required permits and authorizations for
the operation of our facility.
The term may be extended by Williams Energy for up to a total of 24
months for each hour during the initial term for which we are unable to deliver
energy or ancillary services because of an event of force majeure.
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If the commercial operation date has not occurred by December 31, 2001
for any reason, including the continued existence of or delay caused by a force
majeure event affecting us, other than any delay caused by any act or failure to
act by Williams Energy or any of its affiliates where the action is required
under the power purchase agreement, Williams Energy will have the right to
terminate the power purchase agreement. We, however, can extend the commercial
operation date to June 30, 2002 (i) if we provide an opinion from a third-party
engineer that the commercial operation date will occur no later than June 30,
2002 (the "Free Extension Option"), or (ii) by giving Williams Energy written
notice of the extension no later than November 30, 2001, and paying to Williams
Energy a specified amount, for which we believe we have made adequate provision
in our project budget, by no later than January 31, 2002 (the "First Paid
Extension Option").
If we qualify for the Free Extension Option or elect the First Paid
Extension Option, if the commercial operation date has not occurred by June 30,
2002 for any reason, including, without limitation, the continued existence of
or delay caused by a force majeure event affecting us, other than any delay
caused by any act or failure to act by Williams Energy or any of its affiliates
where the action is required under the power purchase agreement, we may elect to
extend our obligation to achieve the commercial operation date up to and
including June 30, 2003 by giving Williams Energy written notice of the
estimated extension required no later than April 30, 2002 and paying to Williams
Energy specified amounts (the "Second Paid Extension Option").
If the commercial operation date does not occur by June 30, 2003 for
any reason including the continued existence of or delay caused by a force
majeure event affecting us, other than as a result of any act or failure to act
by Williams Energy or any of its affiliates, where the action is required under
the power purchase agreement, Williams Energy will have the absolute right to
terminate the power purchase agreement unless it fails to terminate the power
purchase agreement prior to the commercial operation date.
PURCHASE AND SALE OF CAPACITY AND FUEL CONVERSION SERVICES
During the term, commencing with the commercial operation date, we will
perform for Williams Energy on an exclusive basis, and Williams Energy will
purchase and pay for, fuel conversion services. Fuel conversion services include
the operation of our facility by us to combust natural gas delivered by Williams
Energy in order to generate and deliver energy or to provide ancillary services.
We will sell and make available to Williams Energy on an exclusive basis, and
Williams Energy will purchase and pay for, our facility's net capacity and
ability to generate electric energy. We may not sell, without the consent of
Williams Energy in its sole discretion, capacity generated on the site but not
from our facility.
As instructed by us, Williams Energy will deliver or cause to be
delivered to us at the natural gas delivery point on an exclusive basis all
quantities of natural gas required by us to:
- generate net electric energy and/or ancillary services;
- perform start-ups;
- perform shutdowns; and
- operate our facility during any period other than a start-up,
shutdown or dispatch period for any reason.
Williams Energy will at all times retain title to the natural gas
delivered to us except that when our facility is operated during any period
other than a start-up, shutdown or dispatch period title is transferred to us at
the natural gas delivery point.
Williams Energy will be solely responsible for all costs and expenses
related to the supply and transportation of natural gas to the natural gas
delivery point. We will be responsible for all costs and expenses related to the
transportation, gathering or taxation of natural gas or its use or possession at
and after the natural gas delivery point.
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Williams Energy will be responsible for the construction of all gas
interconnection facilities. If the gas interconnection facilities have not been
constructed and/or Williams Energy is unable for any reason to deliver natural
gas to our facility by the date that our facility would otherwise be prepared to
begin initial start-up testing, and but for the failure to provide the natural
gas our facility is otherwise ready, or would otherwise have been ready, to
begin testing, then Williams Energy will commence making payments to us for each
day of the delay beginning on the start-up testing date and continuing until the
date that natural gas is delivered to our facility for initial start-up testing,
in an amount for each day of delay which is equal to one-thirtieth of the
applicable total fixed payment. Upon the expiration of the power purchase
agreement or any termination of the power purchase agreement as the result of
Williams Energy's default thereunder, we will have the right to purchase the gas
interconnection facilities from Williams Energy, or if Williams Energy does not
own the gas interconnection facilities, Williams Energy will assign to us all of
its rights to transportation services using the gas interconnection facilities.
PRICING AND PAYMENTS
For each month of the term after the commercial operation date,
Williams Energy will pay us for our facility's net capacity, successful
start-ups and associated shutdowns, ancillary services and fuel conversion
services at the applicable rates set forth in the power purchase agreement. Each
monthly payment by Williams Energy will consist of a total fixed payment, a
variable operations and maintenance payment and an energy exercise fee. The
total fixed payment, which is payable regardless of facility dispatch by
Williams Energy but is subject to adjustment based on facility availability, is
calculated by multiplying an unforced capacity rate for each contract year by
the temperature adjusted unforced capacity in the billing month and adding to
that the product of the fuel conversion option demand charge and the average
facility capacity for that month. The total fixed payment is anticipated to be
sufficient to cover our debt service and fixed operating and maintenance costs
and to provide us a return on equity. The variable operations and maintenance
payment is intended to cover our variable operating and maintenance costs and
escalates annually based on an escalation index set forth in the power purchase
agreement. The energy exercise fee is intended to compensate us for each
successful start-up. We may receive heat rate bonuses or be required to pay heat
rate penalties.
Prior to the commercial operation date, and during some facility tests
thereafter, we will purchase natural gas from Williams Energy. Williams Energy
will sell to us the natural gas at prices specified in the power purchase
agreement, and we will sell to Williams Energy at the electric delivery point
any net electric energy produced during the periods at the hourly integrated
market clearing marginal price for electric energy at the location where it is
delivered or received, calculated pursuant to the terms of the operating
agreement of PJM Interconnection, LLC, which is the independent system operator
that operates the transmission system to which our facility will interconnect.
We will be solely responsible for any fines or penalties resulting from the
delivery of the net electric energy at the electric delivery point when the
delivery is made without the authorization of PJM, Jersey Central Power, which
is the host utility, or FERC.
Williams Energy will be entitled to an annual fuel conversion volume
rebate if its dispatch of our facility exceeds specified levels and monthly
non-dispatch payments if, under some circumstances, our facility does not
deliver, in whole or in part, the requested net electric energy requested by
Williams Energy. All fuel conversion volume rebate payments and non-dispatch
payments will be made to Williams Energy after debt service and certain other
payments but prior to any distribution to holders of equity interests in our
company. Fuel conversion volume rebate payments and any non-dispatch payments
owed to Williams Energy and not paid when due will be paid, together with
interest thereon, when funds become available to us at the priority level
described above. A separate reserve account must be maintained by us and our
lenders and we must deposit to that account on a monthly basis, from our cash
flow, any applicable and unpaid non-dispatch payment plus a ratable amount of
the maximum fuel conversion volume rebate amount that Williams Energy may have
earned. Amounts held in that reserve account will be used to pay, to the extent
owed, the fuel conversion volume rebate and non-dispatch payments.
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PROJECT DEVELOPMENT
We will provide to Williams Energy not later than 10 days after the
completion of initial start-up testing, pertinent written data substantiating
our facility's capability to provide net facility capacity and, no later than 30
days prior to the commercial operation date, pertinent written data depicting
our facility's temperature-adjusted net capacity and temperature-adjusted unit
capacity.
We will, at our own cost and expense, obtain as and when required all
approvals, permits, licenses and other authorizations from governmental
authorities as may be required for us to construct, operate and maintain our
facility, the interconnection facilities and protective gas apparatus and to
perform its obligations under the power purchase agreement, and during the term,
we will obtain all additional governmental approvals, permits, licenses and
authorizations as may be required with respect to our facility as soon as
practicable.
INITIAL START-UP TESTING; COMMERCIAL OPERATION
We will provide to Williams Energy (i) written notice, at least 30 days
in advance, of the expected commercial operation date and (ii) a copy of the
notice of commercial operation within 5 days after the commercial operation
date. Williams Energy will have the right to be present at initial start-up
testing of our facility. Costs and expenses incurred in connection with initial
start-up testing and any testing thereafter to demonstrate our net capacity will
be borne by us. The costs and expenses include the cost of natural gas and
transmission costs associated with the transmission of the electrical energy
produced. We will be solely responsible for any fines and penalties resulting
from the unauthorized delivery of net electric energy at the electric delivery
point.
INTERCONNECTION AND METERING EQUIPMENT
At our sole cost and expense, we will own and design, construct,
install and maintain, or be responsible for the design, construction,
installation and maintenance of our facility, the interconnection facilities and
protective gas apparatus needed to generate and deliver net electric energy
and/or ancillary services to the electric delivery point in order to fulfill our
obligations under the power purchase agreement, including all interconnection
facilities and protective gas apparatus that may be located at any switchyard
and/or substation to be built at our facility. Our facility, interconnection
facilities and protective gas apparatus will be designed, constructed and
completed in a good and workmanlike manner and in accordance with accepted
electrical practices (with respect to our facility and interconnection
facilities) or in accordance with standard gas industry practices (with respect
to protective gas apparatus), so that the expected useful life of our facility,
the interconnection facilities and protective gas apparatus will be not less
than the term of the power purchase agreement.
Williams Energy will be responsible for the installation, maintenance
and testing of the natural gas interconnection facilities and natural gas
metering equipment, to the extent not otherwise installed, maintained and tested
by the supplier of gas transportation services, as reasonably approved by us.
Except under limited circumstances, we will not enter into any modification or
amendment of the interconnection agreement with Jersey Central Power without the
prior written consent of Williams Energy.
All electric metering equipment and gas metering equipment, whether
owned by us or by a third party, will be operated, maintained and tested in
accordance with accepted electrical practices, in the case of the electric
metering equipment, and in accordance with applicable industry standards, in the
case of the gas metering equipment.
OPERATION AND DISPATCH
Our facility and the interconnection facilities will be operated in
accordance with accepted electrical practices and applicable requirements and
guidelines of Jersey Central Power pursuant to the interconnection agreement.
The protective gas apparatus will be operated in accordance with standard gas
industry practices. If there is a conflict between the terms and conditions of
the power purchase agreement and Jersey Central Power requirements, the Jersey
Central Power requirements will control.
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We will operate our facility in parallel with Jersey Central Power's
electrical system in accordance with the interconnection agreement. When
dispatched by Williams Energy, we will operate our facility and each unit
thereof with automatic regulation equipment in service.
The power purchase agreement acknowledges that Jersey Central Power has
the right to require us to disconnect our facility from its electrical system,
or otherwise curtail, interrupt or reduce deliveries of net electric energy, in
accordance with the terms of the interconnection agreement. If our facility has
been disconnected for these reasons, Williams Energy will continue to be
obligated to make total fixed payments for at least 24 hours after the
occurrence of disconnection of our facility by Jersey Central Power.
We will use commercially reasonable efforts to correct promptly any
condition at our facility which necessitates the disconnection of our facility
from Jersey Central Power's electrical system or the reduction, curtailment or
interruption of electrical output of our facility.
Williams Energy will have the exclusive right to use the net electric
energy and ancillary services and to schedule the operation of our facility or a
unit thereof in accordance with the provisions of the power purchase agreement;
however, the scheduling must be consistent with the design limitations of our
facility, applicable law, regulations and permits, and the agreements and the
manuals of PJM.
Williams Energy and our company will perform each of our respective
obligations in a manner that avoids the creation of cashout obligations or
imbalance penalties imposed by the natural gas transporter. Williams Energy will
try to minimize any imbalance charges under a transporter's tariff and
thereafter we will be responsible for imbalance charges levied by the natural
gas transporter to the extent that the charges result from: (i) an imbalance
caused by us greater than the allocable tolerance in the transporter's tariff or
(ii) our failure to promptly notify Williams Energy of a change in the operation
of our facility that would cause any imbalance.
If we or one of our affiliates does not directly operate our facility,
we will enter into an agreement with a reputable firm prior to the commercial
operation date for the operation and maintenance of our facility. The choice of
the firm will be subject to the prior review and approval of Williams Energy.
FORCE MAJEURE
A party will be excused from performing its obligations under the power
purchase agreement and will not be liable in damages or otherwise to the other
party if and to the extent the party declares that it is unable to perform or is
prevented from performing an obligation under the power purchase agreement by a
force majeure condition, except for any obligations and/or liabilities under the
power purchase agreement to pay money, which will not be excused, and except to
the extent an obligation accrues prior to the occurrence or existence of a force
majeure condition as long as:
- the party declaring its inability to perform by virtue of
force majeure, as promptly as practicable after the occurrence
of the force majeure condition, but in no event later than 5
days thereafter, gives the other party written notice
describing, in detail, the nature, extent and expected
duration of the force majeure condition;
- the suspension of performance is of no greater scope and of no
longer duration than is reasonably required by the force
majeure condition;
- the party declaring force majeure uses all commercially
reasonable efforts to remedy its inability to perform; and
- as soon as the party declaring force majeure is able to resume
performance of its obligations excused as a result of the
force majeure condition, it will give prompt written
notification thereof to the other party.
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Irrespective of whether the force majeure condition is declared by
Williams Energy or us, the time period of a force majeure will be excluded from
the calculation of all payments under the power purchase agreement and Williams
Energy will be under no obligation to pay us any of the payments described in
the power purchase agreement. If Williams Energy declares a force majeure,
however, it will continue to pay us only the applicable monthly total fixed
payment as described in the power purchase agreement until the earlier of (i)
the termination of the force majeure condition or (ii) the termination of the
power purchase agreement. Furthermore, if a force majeure declared by us due to
an action or inaction of Jersey Central Power that prevents us from delivering
net electric energy to the electric delivery point, Williams Energy will
continue to pay the applicable portion of the total fixed payment for the first
24 hours of the period.
Notwithstanding anything to the contrary contained in the power
purchase agreement, except as may expressly be provided in the power purchase
agreement, the term force majeure will not include or excuse a party's
performance in the following circumstances:
- Except as otherwise set forth in the power purchase agreement,
the failure to complete our facility by or to achieve the
commercial operation date as extended under the power purchase
agreement, which failure is caused by, arises out of or
results from our acts or omissions, and/or from the acts or
omissions of any third party, unless, and then only to the
extent that, any acts or omissions of the third party (i)
would itself be excused under the power purchase agreement by
virtue of a force majeure condition, or (ii) is the result of
a failure of Williams Energy to provide fuel to our facility
under the power purchase agreement;
- Any reduction, curtailment or interruption of generation or
operation of our facility, or of the ability of Williams
Energy to accept or transmit net electric energy, whether in
whole or in part, which reduction, curtailment or interruption
is caused by or arises from the acts or omissions of any third
party providing services or supplies to the party claiming
force majeure, including any vendor or supplier to either
party of materials, equipment, supplies or services, or any
inability of Jersey Central Power to deliver net electric
energy to Williams Energy, unless, and then only to the extent
that, any acts or omissions would itself be excused under the
power purchase agreement as a force majeure;
- Any outage, whether or not due to our fault or negligence
attributable to a defect or inadequacy in the manufacture,
design or installation of our facility that prevents,
curtails, interrupts or reduces the ability of our facility to
generate net electric energy or our ability to perform our
obligations under the power purchase agreement;
- To the extent that the party claiming force majeure failed to
prevent or remedy the force majeure condition by taking all
commercially reasonable acts (short of litigation, if the
remedy requires litigation) and, except as otherwise provided
in the power purchase agreement, failed to resume performance
under the power purchase agreement with reasonable dispatch
after the termination of the force majeure condition;
- To the extent that the claiming party's failure to perform was
caused by lack of funds;
- To the extent Williams Energy is unable to perform due to a
shortage of natural gas supply not caused by an event of force
majeure; or
- Because of an increase or decrease in the market price of
electric energy/capacity or natural gas or because it is
uneconomic for the party to perform its obligations under the
power purchase agreement.
Neither party will be required to settle any strike, walkout, lockout
or other labor dispute on terms which, in the sole judgment of the party
involved in the dispute, are contrary to its interest.
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Williams Energy will have the right to terminate the power purchase
agreement if we have declared a force majeure and the effect of said force
majeure has not been fully corrected or alleviated within 18 months after the
date said force majeure was declared. Williams Energy, however, will not have
the right to terminate the power purchase agreement if (i) the force majeure was
caused by Williams Energy or (ii) the force majeure event does not prevent or
materially limit Williams Energy's ability to sell our facility net capacity
into or through the PJM power pool market or to a third party.
EVENTS OF DEFAULT; TERMINATION; REMEDIES
The following will constitute events of default under the power
purchase agreement:
- breach of any term or condition of the power purchase
agreement, including, but not limited to, (i) any failure to
maintain or to renew any security, (ii) any breach of a
representation, warranty or covenant or (iii) failure of
either party to make a required payment to the other party;
- our facility is not available to provide fuel conversion
services or ancillary services to Williams Energy during any
period of 180 consecutive days after the occurrence of the
commercial operation date, except as may be excused by force
majeure or the absence of available natural gas, or if
non-availability is caused by act or failure by Williams
Energy where the action is required by the power purchase
agreement;
- we sell or supply net electric energy, ancillary services or
capacity from our facility, or agrees to do the same, to any
person or entity other than Williams Energy, without the prior
approval of Williams Energy;
- our failure for 30 consecutive days to perform regular and
required maintenance, testing or inspection of the
interconnection facilities, our facility and/or other electric
equipment and facilities where the failure is material;
- our failure for 30 consecutive days to correct or resolve a
material violation of any code, regulation and/or statute
applicable to the construction, installation, operation or
maintenance of our facility, the interconnection facilities,
protective gas apparatus or any other electric equipment and
facilities required to be constructed and operated under the
power purchase agreement when the violation impairs our
continued ability to perform its obligations under the power
purchase agreement;
- involuntary bankruptcy or insolvency of either party that
continues for more than 60 days;
- voluntary bankruptcy or insolvency by either party;
- any modifications, alterations or other changes to our
facility by or on our behalf which prevent us from fulfilling,
or materially diminish our ability to fulfill, its
obligations, duties, rights and responsibilities under the
power purchase agreement and which after reasonable notice and
opportunity to cure, are not corrected;
- there will be outstanding for more than 60 days any
unsatisfied final, non-appealable judgment against us in an
amount exceeding $500,000, unless the existence of the
unsatisfied judgment will not materially affect our ability to
perform its obligations under the power purchase agreement;
and
- The AES Corporation will cease to own, directly or indirectly,
beneficially and of record, at least 50 percent of the equity
interests in our company, or will cease to possess the power
to direct or cause the direction of our company's management
or policies, or any person, other than The AES Corporation or
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an affiliate, authorized to act as a power marketer by FERC or
any affiliate of the person will own, directly or indirectly,
beneficially or of record, any of the equity interests in our
company.
Upon the occurrence of any event of default, other than a
bankruptcy-related event of default, for which no notice will be required or
opportunity to cure permitted, the party not in default, to the extent the party
has actual knowledge of the occurrence of the event of default, will give prompt
written notice of the default to the defaulting party. The notice will set
forth, in reasonable detail, the nature of the default and, where known and
applicable, the steps necessary to cure the default. The defaulting party will
have 30 days, two business days in the case of a default related to the breach
of a representation, warranty or covenant, following receipt of the notice
either to cure the default or commence in good faith all the steps as are
necessary and appropriate to cure the default if the default cannot be
completely cured within the 30-day period.
If the defaulting party fails to cure the default or take the steps as
provided under the preceding paragraph, and immediately upon the occurrence
insolvency or the filing of a voluntary petition for bankruptcy, the power
purchase agreement may be terminated by the non-defaulting party, without any
liability or responsibility whatsoever, by written notice to the party in
default hereof. The power purchase agreement will then terminate and the
non-defaulting party may exercise all rights and remedies as are available to it
to recover damages caused by the default, seek specific performance or exercise
other rights and remedies that it may have in equity or at law.
SECURITY
We have agreed to compensate Williams Energy for any actual damages it
suffers or incurs as the result of Williams Energy's reliance upon the delivery
of our facility net capacity, ancillary services and fuel conversion services,
by December 31, 2001 as such date is extended in accordance with the terms of
the power purchase agreement to the extent said damages cannot be mitigated
fully. We further agree that the damages Williams Energy may suffer under these
circumstances will be any and all reasonable costs incurred by Williams Energy
in excess of costs that would have been incurred had the commercial operation
date occurred on or before December 31, 2001, as the date may be extended under
the power purchase agreement.
Under the power purchase agreement, we must provide financial security
to Williams Energy for our performance and payment obligations under the power
purchase agreement in the initial amount of $30 million, which will be reduced
to $10 million on the commercial operation date and will remain in effect during
the term. We may, at any time at our option, elect to either provide the
financial security in the form of a guaranty of The AES Corporation or in the
form of a single letter of credit, satisfactory to Williams Energy in form and
substance, upon which Williams Energy may draw if our facility does not achieve
the commercial operation date by the date specified in the power purchase
agreement, as the date may be extended, and after the commercial operation date
as specified in the power purchase agreement. If the financial security contains
an expiration date, either express or implied, we will renew the financial
security not later than 10 days prior to the expiration date and will provide
written notice of the renewal to Williams Energy at the same time. If we fail to
renew the financial security as set forth above, Williams Energy is entitled to
demand and receive payment thereunder on or after three days after written
notice of the failure is provided to us, and the amount drawn will be deposited
in an interest bearing escrow account and will be returned to us at the
commercial operation date unless otherwise drawn on by Williams Energy in
satisfaction of our obligations under the foregoing security provisions.
The letter of credit referred to above must be issued by a financial
institution that at all times during the term of the letter of credit meets and
maintains the following criteria: (i) a U.S. or foreign bank rated "C" or better
by Thompson Bankwatch; or (ii) a U.S. or foreign bank, surety company or
financial institution whose senior debt has the rating listed below by two of
the three rating agencies: Standard & Poor's: "A-" or better; Moody's: "A3" or
better; Duff & Phelps: "A-" or better.
If the bank, surety company or financial institution fails to maintain
the ratings criteria, then upon 30 days, written notice from Williams Energy, we
are required to obtain equivalent security from another bank, surety company or
financial institution meeting the above stated criteria.
13
No later than the closing on financing for our facility, Williams
Energy is required to provide to us a guarantee of Williams Energy's performance
and payment obligations under the power purchase agreement issued by The
Williams Companies, Inc. or its affiliate. If at any time Moody's or Standard &
Poor's rates the long term senior unsecured debt of The Williams Companies, Inc.
lower than investment grade and the rating agency does not reestablish within 60
days an investment grade rating for the debt, then Williams Energy will provide
alternative credit support reasonably acceptable to us within 90 days of the day
on which the debt was rated lower than investment grade.
CONSTRUCTION AGREEMENT
We have entered into an Agreement for Engineering, Procurement and
Construction Services, dated as of October 15, 1999, with Washington Group (as
successor contractor) under which Washington Group will perform services in
connection with the design, engineering, procurement, site preparation and
clearing, civil works, construction, start-up, training and testing and to
provide all materials and equipment (excluding operational spare parts),
machinery, tools, construction fuels, chemicals and utilities, labor,
transportation, administration and other services and items (collectively and
separately, the services) for our facility. Washington Group's obligations under
the construction agreement are guaranteed by Raytheon Company. SEE "--Recent
Developments" for further information regarding Washington Group.
WASHINGTON GROUP INTERNATIONAL SERVICES AND OTHER OBLIGATIONS
Washington Group will complete our project by performing or causing to
be performed all of the services. The services will include: engineering and
design; construction and construction management; providing us design documents,
instruction manuals, a project procedures manual and quality assurance plan;
procurement of all materials, equipment and supplies and all contractor and
subcontractor labor and manufacturing and related services; providing a spare
parts list; providing all labor and personnel; obtaining all applicable permits;
performing inspection, expediting, quality surveillance and traffic services;
transporting, shipping, receiving and marshaling all materials, equipment and
supplies and other items; providing storage for all materials, supplies and
equipment and procurement or disposal of all soil and gravel (including
remediation and disposal of specific hazardous materials); providing for design,
construction and installation of electrical interconnection facilities
(including electric metering equipment, automatic regulation equipment,
protective apparatus and control system equipment) and reviewing other utility
interconnections to our facility (including gas and water pipelines); performing
performance tests; providing for start-up and initial operation functions;
providing specified spare parts, waste disposal services, chemicals, consumables
and utilities.
The services will also include: training our personnel prior to
provisional acceptance; providing us and our designee with access to the site;
obtaining additional necessary real estate rights; cleaning-up and waste
disposal (including hazardous materials brought to the site by Washington Group
or the subcontractors); submitting a project schedule and progress reports;
paying of contractor taxes; making employee identification and security
arrangements; protecting adjoining utilities and public and private lands from
damage; paying appropriate royalties and license fees; providing final releases
and waivers to us; posting collateral or providing other assurances if major
subcontractors fail to furnish final waivers; maintaining labor relations and
project labor agreements; providing further assurances; coordinating with other
contractors; and causing Washington Group to execute and deliver the related
guaranty.
CONSTRUCTION AND START-UP
Washington Group will perform certain services in accordance with
prudent utility practices, generally accepted standards of professional care,
skill, diligence and competence applicable to engineering, construction and
project management practices, all applicable laws, all applicable permits, the
real estate rights, the quality assurance plan, the electrical interconnection
requirements, the environmental requirements and safety precautions set forth in
the construction agreement, and all of the requirements necessary to maintain
the warranties granted by the subcontractors under the construction agreement.
Washington Group will perform the services in accordance with our project
schedule and will cause:
14
- each construction progress milestone to be achieved on or
prior to the applicable construction progress milestone date;
- provisional acceptance of our facility to occur on or prior to
the guaranteed provisional acceptance date (February 14, 2002,
as may be adjusted under the construction agreement); and
- final acceptance of our facility to occur on or before the
guaranteed final acceptance date (13.5 months after the
guaranteed provisional acceptance date, as defined under the
construction agreement).
Washington Group will perform the services so that our facility, when
operated in accordance with the instruction manual and the power purchase
agreement operating requirements as of provisional acceptance and final
acceptance, will comply with all applicable laws and applicable permits, the
electrical interconnection requirements and the guaranteed emissions limits in
accordance with the completed performance test requirements.
CONTRACT PRICE AND PAYMENT
The adjusted contract price may either be paid in installments in
accordance with the payment and milestone schedule or be prepaid as described in
the collateral agency agreement. The adjusted contract price was prepaid in the
amount of $295.7 million ($288.6 million of which was paid at closing), which
included base scope changes through March 15, 2000. The contract price may be
adjusted as a result of scope changes. We will make scheduled reductions in the
amount available under the letter of credit posted by Washington Group upon
receipt of Washington Group request unless the independent engineer fails to
confirm the matters certified to by Washington Group in the request, in which
case we may defer the scheduled reductions in the amount available under the
letter of credit posted by Washington Group until the condition is satisfied. We
will withhold from each scheduled reduction in the amount available under the
letter of credit posted by Washington Group, other than our project completion
reduction, 10% of the requested reduction until after final acceptance. At final
acceptance, we will pay all retainage except for 150% of the cost of completing
all punch list items and the lesser of (i) 150% of the cost of repairing or
replacing any items that have already been repaired or replaced by Washington
Group and (ii) $1 million. We will pay our project completion payment, including
all remaining retainage, within 30 days after project completion. Within 30 days
of the first anniversary of the earlier of provisional acceptance or final
acceptance, we will, so long as project completion has occurred, pay all
remaining retainage. Upon the termination of the construction agreement,
Washington Group will be entitled to retain funds that were prepaid by us in the
amount of a termination payment equal to the scheduled payments due and owing,
retainage and termination costs incurred by Washington Group and subcontractors.
We are not obligated to make any payment to Washington Group at any time
Washington Group is in material breach of the construction agreement, unless
Washington Group is diligently pursuing a cure and instead, because the
construction contract was prepaid by us, will be able to receive funds under the
letter of credit posted by Washington Group.
OUR SERVICES
Our responsibilities include: designating a representative for our
project; furnishing Washington Group access to the site; securing specified real
estate rights; providing specified start-up personnel; furnishing specified
spare parts, water disposal services and consumables; providing permanent
utilities for the start-up, testing and operation of our facility; providing raw
and potable water arrangements; providing fuel supply arrangements; providing
electrical interconnection facilities arrangements; furnishing approvals;
administering third-party contracts; causing the AES Corporation to provide a
pre-financial closing guaranty.
If we fail to meet any of our obligations under the construction
agreement, then, to the extent that Washington Group was reasonably delayed in
the performance of the services as a direct result thereof, an equitable
adjustment to one or more of the contract price, the guaranteed completion
dates, the construction progress milestone dates, the payment and milestone
schedule and our project schedule, and, as appropriate, the other provisions of
the construction agreement that may be affected thereby, will be made by
agreement between us and Washington Group.
15
COMPLETION AND ACCEPTANCE OF OUR PROJECT
MECHANICAL COMPLETION
Mechanical completion will be achieved when:
- All equipment and facilities necessary for the full, safe and
reliable operation of our facility have been properly
constructed, installed, insulated and protected where
required, and correctly adjusted, and can be safely used for
their intended purposes in accordance with the instruction
manual and all applicable laws and applicable permits;
- The tests required for mechanical completion that are
identified in the construction agreement have been
successfully completed;
- Our facility is fully and properly interconnected and
synchronized with the electrical system of Jersey Central
Power in accordance with the electrical interconnection
requirements, and all features and equipment of our facility
are capable of operating simultaneously; and
- The complete performance by Washington Group of all the
services relating to our facility under the construction
agreement, except for any remaining punch list items,
performance tests, power purchase agreement output tests and
reliability run applicable thereto, in compliance with the
standards of performance set forth in the construction
agreement, so that our facility meets all of the requirements
set forth in the construction agreement applicable thereto but
excluding the achievement of the guaranteed emission limits
and the performance guarantees.
When Washington Group believes that it has achieved mechanical
completion, it will deliver to us the notice of mechanical completion. Within 5
days of receipt of the notice of mechanical completion, if we are satisfied that
the mechanical completion requirements have been met, we will deliver to
Washington Group a mechanical completion certificate. If reasonable cause exists
for doing so, we will notify Washington Group in writing that mechanical
completion has not been achieved, stating the reasons therefor. If mechanical
completion has not been achieved as so determined by us, Washington Group will
promptly take the action or perform the additional services as will achieve
mechanical completion of our facility and will issue to us another notice of
mechanical completion. The procedure will be repeated as necessary until
mechanical completion of our facility has been achieved.
PERFORMANCE TESTS AND POWER PURCHASE AGREEMENT OUTPUT TESTS
Once mechanical completion has been achieved, Washington Group will
perform the performance tests in accordance with criteria set forth in the
construction agreement. Washington Group will give us notice of the performance
tests. We will arrange for the disposition of output during start-up and
testing. Washington Group may declare the performance test to be a completed
performance test if during the tests the operation of our facility complies with
applicable laws, applicable permits, Guaranteed Emissions Limits and other
required standards.
PROVISIONAL ACCEPTANCE
Provisional acceptance will be achieved upon the earlier of final
acceptance or when:
- Washington Group has caused a completed performance test in
which our facility demonstrates an average net electrical
output of 95% (or higher) of the electrical output guarantee
and 105% (or lower) of the gas-based heat rate guarantee.
- Our facility has achieved, and continues to satisfy, the
requirements of mechanical completion.
When Washington Group believes that it has achieved provisional acceptance of
our facility, it will deliver to us a notice of provisional acceptance. The
guaranteed provisional acceptance date under the construction agreement is
February 14, 2002, as may be adjusted under the construction agreement. If it is
satisfied that the provisional acceptance
16
requirements have been met, we will deliver to Washington Group a provisional
acceptance certificate. If reasonable cause exists for doing so, we will notify
Washington Group writing that provisional acceptance of our facility has not
been achieved, stating the reasons therefor. If we determine that provisional
acceptance of our facility has not been achieved, Washington Group will promptly
take the action or perform the additional services as will achieve provisional
acceptance and, if Washington Group believes that provisional acceptance of our
facility has been achieved, will issue to us another notice of provisional
acceptance. Unless final acceptance of our facility will have previously
occurred, the procedure will be repeated as necessary until provisional
acceptance of our facility has been achieved. Upon the earliest to occur of
provisional acceptance and final acceptance of our facility, we will take
possession and control our facility and will thereafter be solely responsible
for the operation and maintenance thereof. After we take possession and control
of our facility, Washington Group will have reasonable access to our facility to
complete the services.
FINAL ACCEPTANCE
Final acceptance will be achieved when:
- Washington Group has caused a completed performance test in
accordance with the construction agreement to be concluded in
which our facility demonstrates during the performance test an
average net electrical output of 100% (or higher) of the
electrical output guarantee and 100% (or lower) of the heat
rate guarantee;
- our facility has achieved, and continues to satisfy the
requirements for the achievement of, mechanical completion;
- the reliability guarantee has been achieved under the
construction agreement; and
- Washington Group has completed performance of the services
except for (i) punch list items and (ii) services that are
required by the terms of the construction agreement to be
completed after the achievement of final acceptance, such as
Washington Groups' warranty obligations.
The reliability guarantee will have been achieved if and only if our
facility demonstrates an average equivalent availability of not less than 95%
while operating over a period of at least 30 consecutive days in accordance with
applicable laws, applicable permits, the electrical interconnection
requirements, the power purchase agreement operating requirements, the
guaranteed emissions limits, the instruction manual and the power purchase
agreement.
When Washington Group believes that it has achieved final acceptance of
our facility, it will deliver to us a notice of final acceptance. The guaranteed
final acceptance date under the construction agreement is 13.5 months after the
provisional acceptance date. If it is satisfied that the final acceptance
requirements have been met, we will deliver to Washington Group a final
acceptance certificate. If reasonable cause exists for doing so, we will notify
Washington Group in writing that final acceptance has not been achieved, stating
the reasons therefor. If we determine that final acceptance has not been
achieved, Washington Group will promptly take the action or perform the
additional services as will achieve final acceptance and will issue to us
another notice of final acceptance. The procedure will be repeated as necessary
until final acceptance has been achieved or deemed to have occurred.
At any time, by giving notice to Washington Group, we in our sole
discretion may elect to effect final acceptance, in which case final acceptance
will be deemed effective as of the date of the notice, and Washington Group will
have no liability to us for any amounts thereafter arising as performance
guarantee payments, other than any interim period rebates that arose prior to
the election by us, for failure of our facility to achieve any or all of the
performance guarantees applicable thereto.
At any time after provisional acceptance of our facility has been
achieved, Washington Group may, after exhausting all reasonable repair and
replacement alternatives in order to achieve the applicable performance
guarantees for final acceptance, and so long as that the reliability guarantee
will have been achieved, give to us notice of its intention to elect to declare
final acceptance. In that event, Washington Group may elect to use the results
of the most
17
recent eligible completed performance test for the purpose of determining our
facility's level of achievement of the performance guarantees. final acceptance
will be deemed effective as of the last to occur of (i) the date of our receipt
of the declaration and report of the final completed performance test, or, as
applicable, the most recent completed performance test and (ii) the effective
date of the achievement of the reliability guarantee.
If on or before the guaranteed final acceptance date (i) our facility
has achieved provisional acceptance and (ii) the reliability guarantee has been
achieved, then final acceptance of our facility will be deemed to occur on the
guaranteed final acceptance date.
PROJECT COMPLETION
Project completion will be achieved under the construction agreement
when:
- Final acceptance of our facility will have occurred and the
performance guarantees with respect to our facility will have
been achieved (or in lieu of achievement of the performance
guarantees, applicable rebates under the construction
agreement will have been paid, or we will have elected final
acceptance);
- The reliability guarantee will have been achieved;
- Washington Group will have demonstrated during the completed
performance test that the operation of our facility does not
exceed the guaranteed emissions limits;
- The requirements for achieving mechanical completion of our
facility will continue to be met;
- The punch list items will have been completed in accordance
with the construction agreement; and
- Washington Group will have performed all of the services,
other than those services, such as Washington Groups' warranty
obligations, which by their nature are intended to be
performed after project completion.
When Washington Group believes that it has achieved project completion,
it will deliver to us a notice of project completion. If it is satisfied that
the final acceptance requirements have been met, we will deliver to Washington
Group a project completion certificate. If reasonable cause exists for doing so,
we will notify Washington Group in writing that project completion has not been
achieved, stating the reasons therefor. If our project completion has not been
achieved as so determined by us, Washington Group will promptly take the action
or perform the additional services as will achieve project completion and will
issue to us another notice of project completion. The procedure will be repeated
as necessary until project completion is achieved.
Washington Group will be obligated to achieve project completion within
90 days after final acceptance of our facility. If Washington Group does not
achieve our project completion on or before our project completion deadline or
if we determine that Washington Group is not proceeding with all due diligence
to complete the services in order to achieve project completion by the deadline,
we may retain another contractor to complete the work at contractor's expense.
PRICE REBATE FOR FAILURE TO MEET GUARANTEES
COMPLETION DATES
Washington Group guarantees that (i) provisional acceptance or final
acceptance of our facility will be achieved on or before the guaranteed
provisional acceptance date and (ii) final acceptance of our facility will be
achieved on or before the guaranteed final acceptance date.
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If neither provisional acceptance nor final acceptance of our facility
occurs by the date that is 50 days after the guaranteed provisional acceptance
date, Washington Group will pay us $108,000 per day as provisional acceptance
late completion payments, for each day provisional acceptance or final
acceptance is later than the guaranteed provisional acceptance date, but in no
event will the aggregate amount of the payments be greater than 13% of the
adjusted contract price.
If neither provisional acceptance nor final acceptance of our facility
occurs on or before the date that is 90 days after the guaranteed provisional
acceptance date, Washington Group will, on that date, submit for approval by us
and the independent engineer a plan to accelerate the performance of the
services as necessary in order to achieve final acceptance of our facility by
the guaranteed final acceptance date. If the plan is not approved by us and the
independent engineer, Washington Group will revise the plan and resubmit a
revised plan for approval by us and the independent engineer.
If provisional acceptance or final acceptance, whichever is the earlier
to occur, of our facility occurs prior to the guaranteed provisional acceptance
date, we will pay Washington Group $56,000 per day for each day by which
provisional acceptance or final acceptance precedes the guaranteed provisional
acceptance date, but in no event will the aggregate amount of the bonus exceed
$2,520,000.
PERFORMANCE GUARANTEES
ELECTRICAL OUTPUT
If the average net electrical output of our facility at provisional
acceptance is less than the electrical output guarantee, then Washington Group
will pay us, as a rebate, for each day during the interim period, an amount
equal to $0.22 per day for each kilowatt by which the average net electrical
output is less than the electrical output guarantee.
Upon final acceptance, if the average net electrical output of our
facility during the completed performance test is less than the electrical
output guarantee, then Washington Group will pay us, as a rebate, an amount
equal to $520 for each kilowatt by which the average net electrical output is
less than the electrical output guarantee minus any interim period electrical
output rebates.
HEAT RATE GUARANTEES
If the average net heat rate of our facility at provisional acceptance,
if having occurred before final acceptance, exceeds the heat rate guarantee,
then Washington Group will pay us, as a rebate, for each day during the interim
period, an amount equal to $46 per day for each BTU/KwH by which the measured
net heat rate is greater than the heat rate guarantee.
Upon final acceptance, if the net heat rate of our facility during the
completed performance test exceeds the heat rate guarantee, then Washington
Group will pay us, as a rebate, an amount equal to $110,000 for each BTU/KwH by
which the measured heat rate is greater than the heat rate guarantee.
LIABILITY AND DAMAGES
LIMITATION OF LIABILITY
In no event will Washington Groups' liability (i) for provisional
acceptance late completion payments exceed an amount equal to 13% of the
contract price, (ii) for performance guarantee payments arising from the
electrical output guarantee exceed in the aggregate an amount equal to 10% of
the contract price, (iii) for performance guarantee payments arising from the
heat rate guarantee exceed in the aggregate 15% of the contract price and (iv)
for all provisional acceptance late completion payments and performance
guarantee payments exceed an amount equal to 34% of the contract price.
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CONSEQUENTIAL DAMAGES
Neither party nor any of its contractors, subcontractors or other
agents providing equipment, material or services for our project will be liable
for any indirect, incidental, special or consequential loss or damage of any
type.
AGGREGATE LIABILITY OF CONTRACTOR
The total aggregate liability of Washington Group and any of its
subcontractors, including, without limitation, liabilities described above, to
us will not in any event exceed an amount equal to the contract price for
liability due to events occurring before the provisional acceptance date or 40%
of the contract price for liability due to events occurring after the
provisional acceptance date; however, the limitation of liability will not apply
to obligations to remove liens or to make indemnification payments.
WARRANTIES AND GUARANTEES
Washington Group warrants and guarantees that during the applicable
warranty period
- all machinery, equipment, materials, systems, supplies and
other items comprising our project will be new and of
first-rate quality which satisfies utility-grade standards and
in accordance with prudent utility practices and the
specifications set forth in the construction agreement,
suitable for the use in generating electric energy and
capacity under the climatic and normal operating conditions
and free from defective workmanship or materials;
- it will perform all of its design, construction, engineering
and other Services in accordance with the construction
agreement;
- our project and its components will be free from all defects
caused by errors or omissions in engineering and design, as
determined by reference to prudent utility practices, and will
comply with all applicable laws, all applicable permits, the
electrical interconnection requirements, the power purchase
agreement operating requirements and the guaranteed emissions
limits; and
- the completed project will perform its intended functions of
generating electric energy and capacity as a complete,
integrated operating system as contemplated in the
construction agreement.
If we notify Washington Group within 30 days after the expiration of
the applicable warranty period of any defects or deficiencies discovered during
the applicable warranty period, Washington Group will promptly reperform any of
the services at its own expense to correct any errors, omissions, defects or
deficiencies and, in the case of defective or otherwise deficient machinery,
equipment, materials, systems supplies or other items, replace or repair the
same at its own expense. Washington Group warrants and guarantees that, to the
extent we have made all payments then due to Washington Group, title to our
facility and all work, materials, supplies and equipment will pass to us free
and clear of all liens, other than any permitted liens. Other than the
warranties and guarantees provided in the construction agreement there are no
other warranties of any kind, whether statutory, express or implied relating to
the services.
Upon notification from us no later than 30 days after the expiration of
the applicable warranty period of any defects or deficiencies in our project or
any component thereof, we will, subject to the provisions of the construction
agreement, make our facility or the subject equipment available to Washington
Group for Washington Group to re-perform, replace or, at Washington Groups'
option, repair the same at Washington Group expense so that it is in compliance
with the standards warranted and guaranteed, all in accordance with the
construction agreement.
FORCE MAJEURE
FORCE MAJEURE EVENT
A force majeure event will mean any act or event that prevents the
affected party from performing its obligations, other than the payment of money,
under the construction agreement or complying with any conditions
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required to be complied with under the construction agreement if the act or
event is beyond the reasonable control of and not the fault of the affected
party and the party has been unable by the exercise of due diligence to overcome
or mitigate the effects of the act or event. Force majeure events include, but
are not limited to, acts of declared or undeclared war, sabotage, landslides,
revolution, terrorism, flood, tidal wave, hurricane, lightning, earthquake,
fire, explosion, civil disturbance, insurrection or riot, act of God or the
public enemy, action, including unreasonable delay or failure to act, of a court
or public authority, or strikes or other labor disputes of a regional or
national character that are not limited to only the employees of Washington
Group or its subcontractors and that are not due to the breach of a labor
contract or applicable law by the party claiming force majeure or any of its
subcontractors. Force majeure events do not include (i) acts or omissions of
Washington Group or any subcontractors, except as expressly provided in the
foregoing sentence, (ii) late delivery of materials or equipment, except to the
extent caused by a force majeure event, and (iii) economic hardship.
EXCUSED PERFORMANCE
If either party is rendered wholly or partly unable to perform its
obligations because of a force majeure event, that party will be excused from
whatever performance is affected by the force majeure event to the extent so
affected so long as:
- the non-performing party gives the other party prompt notice
describing the particulars of the occurrence;
- the suspension of performance is of no greater scope and of no
longer duration than is reasonably required by the force
majeure event;
- the non-performing party exercises all reasonable efforts to
mitigate or limit damages to the other party;
- the non-performing party uses its best efforts to continue to
perform its obligations under the construction agreement and
to correct or cure the event or condition excusing
performance; and
- when the non-performing party is able to resume performance of
its obligations, that party will give the other party written
notice to that effect and will promptly resume performance
under the construction agreement.
SCOPE CHANGES
We may order scope changes to the services, in which event one or more
of the contract price, the construction progress milestone dates, the guaranteed
completion dates, the payment and milestone schedule, our project schedule and
the performance guarantees will be adjusted accordingly, if necessary. All scope
changes will be authorized by a scope change order and only we or our
representative may issue scope change orders.
As soon as Washington Group becomes aware of any circumstances which
Washington Group has reason to believe may necessitate a scope change,
Washington Group will issue to us a scope change order notice at Washington
Groups' expense. If we desire to make a scope change, in response to a scope
change order notice or otherwise, we will submit a scope change order request to
Washington Group. Washington Group will promptly review the scope change order
request and notify us in writing of the options for implementing the proposed
scope change and the effect, if any, each option would have on the contract
price, the guaranteed completion dates, the construction progress milestone
dates, the payment and milestone schedule, our project schedule and the
performance guarantees.
No scope change order will be issued and no adjustment of the contract
price, the guaranteed completion dates, the construction progress milestone
dates, the payment and milestone schedule, our project schedule or the
performance guarantees will be made in connection with any correction of errors,
omission, deficiencies, or improper or defective work on the part of Washington
Group or any subcontractors in the performance of the services. Changes due to
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changes in applicable laws or applicable permits occurring after the date of the
construction agreement will be treated as scope changes.
EFFECT OF FORCE MAJEURE EVENT
If and to the extent that any force majeure events affect Washington
Groups' ability to meet the guaranteed completion dates, or the construction
progress milestone dates, an equitable adjustment in one or more of the dates,
the payment and milestone schedule and our project schedule will be made by
agreement of us and Washington Group. No adjustment to the performance
guarantees and, except as otherwise expressly set forth below, the contract
price will be made as a result of a force majeure event. If Washington Group is
delayed in the performance of the services by a force majeure event, then:
- to the extent that the delay(s) are, in the aggregate, 60 days
or less, Washington Group will absorb all of its costs and
expenses resulting from said delay(s); and
- to the extent that the delay(s) are, in the aggregate, more
than 60 days, Washington Group will be reimbursed by us for
those incremental costs and expenses resulting from said
delay(s) which are incurred by Washington Group after said 60
day period.
PRICE CHANGE
An increase or decrease in the contract price, if any, resulting from a
scope change requested by us or made under the construction contract will be
determined by mutual agreement of the parties.
CONTINUED PERFORMANCE PENDING RESOLUTION OF DISPUTES
Notwithstanding any dispute regarding the amount of any increase or
decrease in Washington Groups' costs with respect to a scope change, Washington
Group will proceed with the performance of the scope change promptly following
our execution of the corresponding scope change order.
HAZARDOUS MATERIALS
If hazardous materials were not identified in an environmental site
assessment report delivered by us to Washington Group prior to the commencement
date and were not brought onto the site by Washington Group or any of its
subcontractors, then Washington Group will be entitled to a scope change under
the construction agreement.
RISK OF LOSS
With respect to our facility, until the risk transfer date, Washington
Group will bear the risk of loss and full responsibility for the costs of
replacement, repair or reconstruction resulting from any damage to or
destruction of our facility or any materials, equipment, tools and supplies that
are purchased for permanent installation in or for use during construction of
our facility.
After the risk transfer date with respect to our facility, we will bear
all risk of loss and full responsibility for repair, replacement or
reconstruction with respect to any loss, damage or destruction to our facility
which occurs after the risk transfer date.
TERMINATION
TERMINATION FOR OUR CONVENIENCE
We may for our convenience terminate any part of the services or all
remaining services at any time upon 30 days' prior written notice to Washington
Group specifying the part of the services to be terminated and the effective
date
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of termination. We may elect to suspend completion of all or any part of the
services upon 10 days' prior written notice to Washington Group, or, in
emergency situations, upon prior notice as circumstances permit.
TERMINATION BY CONTRACTOR
If we fail to pay to Washington Group any payment and the failure
continues for 30 days, then (i) Washington Group may suspend its performance of
the services upon 10 days' prior written notice to us, which suspension may
continue until the time as the payment, plus accrued interest thereon, is paid
to Washington Group, and/or (ii) if the payment has not been made prior to the
commencement of a suspension by Washington Group under clause (i) above,
Washington Group may terminate the construction agreement upon 60 days' prior
written notice to us, however, the termination will not become effective if the
payment, plus accrued interest thereon, is made to Washington Group prior to the
end of the notice period. If the suspension occurs, an equitable adjustment to
one or more of the contract price, the guaranteed completion dates, the
construction progress milestone dates, the payment and milestone schedule and
our project schedule, and, as appropriate, the other provisions of the
construction agreement that may be affected thereby, will be made by agreement
between us and Washington Group. If we have suspended completion of all or any
part of the services in accordance with the construction agreement for a period
in excess of 365 days in the aggregate, Washington Group may, at its option, at
any time thereafter so long as the suspension continues, give written notice to
us that Washington Group desires to terminate the construction agreement. Unless
we order Washington Group to resume performance of the suspended services within
15 days of the receipt of the notice from Washington Group, the suspended
services will be deemed to have been terminated by us for our convenience. If
the occurrence of one or more force majeure events prevents Washington Group
from performing the services for a period in the aggregate of 720 days, either
party may, at its option, give written notice to the other party of its desire
to terminate the construction agreement.
CONSEQUENCES OF TERMINATION
- Upon any termination, we may, so long as the termination is
pursuant to any default Washington Group will have been paid
all amounts due and owing to it under the construction
agreement, which will not be deemed to constitute a waiver by
Washington Group of any rights to payment it may have as a
result of a non-default related termination in the event of a
termination pursuant to a default, at our option elect to have
itself, or our designee, which may include any other affiliate
or any third-party purchaser, (i) assume responsibility for
and take title to and possession of our project and any or all
work, materials or equipment remaining at the site and (ii)
succeed automatically, without the necessity of any further
action by Washington Group, to the interests of Washington
Group in any or all items procured by Washington Group for our
project and in any and all contracts and subcontracts entered
into between Washington Group and any subcontractor with
respect to the equipment specified in the construction
agreement, and with respect to any or all other subcontractors
selected by us which are materially necessary to the timely
completion of our project, Washington Group will use all
reasonable efforts to enable us, or our designee, to succeed
to Washington Groups' interests thereunder.
- If any termination occurs, we may, without prejudice to any
other right or remedy it may have, at its option, finish the
services by whatever method we may deem expedient.
SURVIVING OBLIGATIONS
Termination of the construction agreement (i) will not relieve either
party of any obligation with respect to the confidentiality of the other party's
information, (ii) will not relieve either party of any obligation which
expressly or by implication survives termination of the construction agreement
and (iii) except as otherwise provided in any provision of the construction
agreement expressly limiting the liability of either party, will not relieve
either party of any obligations or liabilities for loss or damage to the other
party arising out of or caused by acts or omissions of the party prior to the
effectiveness of the termination or arising out of the termination, and will not
relieve Washington Group of its
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obligations as to portions of the services already performed or as to
obligations assumed by Washington Group or us prior to the date of termination.
DEFAULT AND REMEDIES
CONTRACTOR'S DEFAULT
Washington Groups' events of default include: voluntary bankruptcy or
insolvency; involuntary bankruptcy or insolvency; materially adverse misleading
or false representation or warranty; improper assignment; failure to maintain
required insurance; failure to comply with applicable laws or applicable
permits; cessation or abandonment of the performance of services; termination or
repudiation of, or default under the related construction contract guaranty;
failure to supply sufficient skilled workers or suitable material or equipment;
failure to make payment when due for labor, equipment or materials;
non-occurrence of either provisional acceptance or final acceptance within 90
days after the guaranteed provisional acceptance date, non-occurrence of
construction progress milestones and failure to be proceeding under a
remediation plan within 90 days after the non-occurrence; and failure to remedy
non-performance or non-observance of any provision in the construction
agreement.
COMPANY'S RIGHTS AND REMEDIES
If Washington Group is in default of its obligations, we will have any
or all of the following rights and remedies, in addition to any other rights and
remedies that may be available to us under the construction agreement or at law
or in equity, and Washington Group will have the following obligations:
- We may, without prejudice to any other right or remedy we may
have under the construction agreement or at law or in equity,
terminate the construction agreement in whole or in part
immediately upon delivery of notice to Washington Group. In
case of the partial termination, the parties will mutually
agree upon a scope change order to make equitable adjustments,
including the reduction and/or deletion of obligations of the
parties commensurate with the reduced scope Washington Group
will have after taking into account the partial termination,
to one or more of the guaranteed completion dates, the
construction progress milestone dates, the contract price, the
payment and milestone schedule, our project schedule, the
performance guarantees and the other provisions of the
construction agreement which may be affected thereby, as
appropriate. If the parties are unable to reach mutual
agreement as to said scope change order and the dispute
resolution procedures set forth in the construction agreement
are invoked, the procedures will give due consideration to
customary terms and conditions under which Washington Group
has entered subcontracts with third party prime contractors
covering services substantially similar to those services
which are not being terminated.
- If requested by us, Washington Group will withdraw from the
site, will assign to us such of contractor's subcontracts, to
the extent permitted therein, as we may request, and will
remove the materials, equipment, tools and instruments used
by, and any debris and waste materials generated by,
Washington Group in the performance of the Services as we may
direct, and we, without incurring any liability to Washington
Group, other than the obligation to return to Washington Group
at the completion of our project the materials that are not
consumed or incorporated into our project, solely on an "as
is, where is" basis without any representation or warranty of
any kind whatsoever, may take possession of any and all
designs, drawings, materials, equipment, tools, instruments,
purchase orders, schedules and facilities of Washington Group
at the site that we deem necessary to complete the services.
ASSIGNMENT
The parties shall have no right to assign or delegate any of their
respective rights or obligations under the construction agreement either
voluntarily or involuntarily or by operation of law, except that we may, without
Washington Groups' approval, assign any or all of its rights under the
construction agreement (a) as collateral security to
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the financing parties and (b) to any transferee of our project or a substantial
portion so long as such assignee has financial and operational capabilities that
are either substantially similar to those of ours at the time or otherwise are
such that the assignment could not reasonably be expected to have a material
adverse effect on Washington Groups' rights and obligations under the
construction agreement.
MAINTENANCE SERVICES AGREEMENT
We have entered into the Maintenance Program Parts, Shop Repairs and
Scheduled Outage TFA Services Contract, dated as of December 8, 1999, with
Siemens Westinghouse by which Siemens Westinghouse will provide us with, among
other things, combustion turbine parts, shop repairs and scheduled outage
technical field assistance services.
The maintenance services agreement became effective on the date of
execution and unless terminated early, will terminate upon completion of shop
repairs performed by Siemens Westinghouse following the twelfth scheduled outage
of the applicable combustion turbine or sixteen years from the date of
execution, whichever occurs first, unless we exercise our right to terminate the
agreement after the first major outage of the turbines, which will be
approximately the sixth year of operation of the facility.
SCOPE OF WORK
During the term of the maintenance services agreement, and in
accordance with the scheduled outage plan, Siemens Westinghouse is required to
do the following:
- deliver the type and quantity of new program parts for
installation of the combustion turbine;
- repair/refurbish program parts and equipment for the
combustion turbine;
- provide miscellaneous hardware;
- provide us with material safety data sheets for all hazardous
materials Siemens Westinghouse intends to bring/use on the
site;
- provide the services of a maintenance program engineer to
manage the combustion turbine maintenance program; and
- provide technical field assistance, or TFA Services, which
involves advice and consultation for the disassembly,
inspection and assembly of various equipment.
We are responsible for, among other things:
- storing and maintaining parts, materials and tools to be used
in or on the combustion turbine;
- maintaining and operating the combustion turbine consistently
with the warranty conditions;
- ensuring that our operator and maintenance personnel are
properly trained;
- transporting program parts in need of repair/refurbish; and
- providing Siemens Westinghouse, on a monthly basis, with the
number of equivalent starts and the number of equivalent base
load hours ("EBHs") incurred by each combustion turbine.
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We and Siemens Westinghouse will jointly develop the scheduled outage
plan. The scheduled outage plan will be consistent with the terms and conditions
of the power purchase agreement.
EARLY REPLACEMENT
If it is determined that due to normal wear and tear a program part(s)
for the combustion turbine has failed or will not last until the next scheduled
outage, and the part has to be repaired before the scheduled replacement period,
Siemens Westinghouse will replace the program part by moving up a new program
part which is otherwise scheduled to be delivered at a later date. The contract
price for the replacement will not be affected if the replacement date is less
than or equal to one year earlier than the scheduled outage during which the
program part was scheduled to be replaced. If the actual replacement date for a
program part is more than one year earlier than the scheduled outage at which
point the program part was scheduled to be replaced, the early replacement will
result in an adjustment to the payment schedule. Siemens Westinghouse has the
final decision with regard to the replacement or refurbishment associated with
any program part. If we dispute Siemens Westinghouse's decision, we may seek to
resolve the dispute in accordance with the dispute resolution procedures
discussed below.
PARTS LIFE CREDIT
After applicable warranty periods set forth in the maintenance services
agreement and the construction agreement, Siemens Westinghouse will provide a
parts life credit if a program part requires replacement due to normal wear and
tear prior to meeting its expected useful life. Siemens Westinghouse has the
final decision with regard to actual parts life and the degree of repair or
refurbishment associated with any program parts. The parts life credit will be
calculated in terms of EBHs and equivalent starts. The price of the replacement
part will be adjusted for inflation. If we dispute Siemens Westinghouse's
decision, we may seek to resolve the dispute in accordance with the dispute
resolution procedures discussed below.
CONTRACT PRICE AND PAYMENT TERMS
Siemens Westinghouse will invoice us monthly and payments are then due
within 25 days. The fees assessed by Siemens Westinghouse will be based on the
number of EBHs accumulated by the applicable combustion turbine as adjusted for
changes in the consumer price index. The contract price will be the aggregate
number of fees as adjusted plus any additional payment amount mutually agreed to
by the parties under a change order.
UNSCHEDULED OUTAGES AND UNSCHEDULED OUTAGE WORK
If during the term of the maintenance services agreement an unscheduled
outage occurs resulting from (i) the non-conformity of new program parts; (ii)
the failing of a shop repair; (iii) a program part requiring replacement due to
normal wear and tear prior to achieving its expected life in terms of EBHs or
equivalent starts; or (iv) the failure of a service, performed by Siemens
Westinghouse, we will hire Siemens Westinghouse, to the extent not supplied by
Siemens Westinghouse as a warranty remedy under Siemens Westinghouse's
warranties under the maintenance services agreement, to supply any additional
parts, miscellaneous hardware, shop repairs and TFA Services under a change
order. We will be entitled to any applicable parts life credit with respect to
program parts as well as a discount for TFA Services. If the unscheduled outage
occurs within a specified number of EBHs of a scheduled outage and it was
anticipated that the additional parts, miscellaneous hardware, shop repairs and
TFA Services to be used in the unscheduled outage were to be used during the
upcoming scheduled outage, the upcoming scheduled outage will be moved up in
time to become the unscheduled outage/moved-up scheduled outage. We will not be
required to pay any additional money for the program parts, miscellaneous
hardware, shop repairs and TFA Services.
If any program parts are delivered by Siemens Westinghouse within 15
days of receipt of the change order, we will pay to Siemens Westinghouse the
price for the program part set forth in the maintenance services agreement plus
a specified percentage. Any program part delivered after 30 days of the change
order will cost us the price set forth in the maintenance services agreement
minus a specified percentage.
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The remedies set forth in the maintenance services agreement, and
discounts on any TFA Services purchased by us from Siemens Westinghouse will
constitute Siemens Westinghouse's sole liability and our exclusive remedies for
unscheduled outages whether our claims are based in contract, in tort, or
otherwise. If Siemens Westinghouse fails to send a TFA Services representative
by the end of the second day following written receipt of the unscheduled
outage, we may hire another qualified person, at its cost, to perform the work.
If the hired party proceeds to disassemble the combustion turbine to determine
the case of the unscheduled outage and Siemens Westinghouse still has not
provided personnel to assist with the inspection, we can elect to terminate the
maintenance services agreement on the basis that Siemens Westinghouse has failed
to perform a material obligation.
CHANGES IN OPERATING RESTRICTIONS
The maintenance services agreement requires that each combustion
turbine will be operated in accordance with the requirements of the power
purchase agreement and prudent utility practices, with 8,000 EBH/year and 250
equivalent starts per year by using natural gas fuel or liquid fuel and water.
Should the actual operations differ from these operating parameters which causes
a scheduled outage to be planned/performed earlier or later than as expected,
then, under a change order, an adjustment in the scope, schedule, and price will
be made.
WARRANTIES
Siemens Westinghouse warrants that the new program parts, miscellaneous
hardware and any shop repairs will conform to standards of design, materials and
workmanship consistent with generally accepted practices of the electric utility
industry. The warranty period with respect to program parts, hardware and shop
repair is until the earlier of one year from the date of installation of the
original program part or hardware, a specific number of starts or fired hours
after installation of the program parts and hardware, or three years from the
date of delivery of the original program part, hardware, and in the case of shop
repair, three years from completion of the work. Warranties on the program parts
and hardware will not expire more than one year after the conclusion of the
maintenance services agreement. Siemens Westinghouse will repair or replace any
program part or hardware, at its cost, if notified of any failure or
non-conformity of the program part or hardware during the warranty period.
Siemens Westinghouse also warrants that the services of its personnel
and technical information transmitted will be competent and consistent with
prudent utility practices and the services will comply in all material respects
with laws and will be free from defects in workmanship for a period of one year
from the date of completion of that item of services. The warranties on the
services will expire no later than one year after the termination or end of the
term of the maintenance services agreement.
In addition, Siemens Westinghouse warrants any program part removed
during a scheduled outage and delivered by us to the designated facility for
repair will be repaired and delivered by Siemens Westinghouse within 26 weeks.
If Siemens Westinghouse does not deliver the program part within this time frame
or does not provide a new program part in lieu of the program part being shop
repaired and an outage occurs which requires such a program part, Siemens
Westinghouse will pay us liquidated damages for each day the program part is not
repaired and delivered the aggregate of which liquidated damage payments will
not exceed a maximum annual cap. If upon reaching the maximum cap on aggregate
liquidated damages, Siemens Westinghouse still has not repaired and delivered
the program part, we may elect to terminate the maintenance services agreement
because Siemens Westinghouse will be considered to have failed to perform its
material obligations.
Except for the express warranties set forth in the maintenance services
agreement, Siemens Westinghouse makes no other warranties or representations of
any kind. No implied statutory warranty of merchantability or fitness for a
particular purpose applies.
The warranties provided by Siemens Westinghouse are conditioned upon
(i) our receipt, handling, storage, operation and maintenance of our project,
including any program parts and miscellaneous hardware, being done in accordance
with the terms of the combustion turbine instruction manuals; (ii) operation of
the combustion turbine in accordance with the terms of the maintenance services
agreement; (iii) repair of accidental damage done consistently with the
equipment manufacturer's recommendations; (iv) us providing Siemens Westinghouse
with access to the site to
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perform its services under the maintenance services agreement; and (v) hiring
Siemens Westinghouse to provide TFA Services, program parts, shop repairs and
miscellaneous hardware required to dissemble, repair and reassemble the
combustion turbine.
TERMINATION
We may terminate the maintenance services agreement if (i) specific
bankruptcy events affecting Siemens Westinghouse occur; (ii) Siemens
Westinghouse fails to perform or observe in any material respect any provision
in the maintenance services agreement and fails to (a) promptly commence to cure
and diligently pursue the cure of the failure or (b) remedy the failure within
45 days after Siemens Westinghouse receives written notice of the failure; (iii)
we terminate the construction agreement due to Washington Groups' default
thereunder or due to our inability to obtain construction financing or
environmental operating permits; or (iv) Washington Group terminate the
construction agreement for any reason other than our default thereunder.
Notwithstanding the foregoing, we may terminate the maintenance services
agreement at any time for convenience following the completion of the first
major outage of both combustion turbine generators. In addition, the maintenance
services agreement will automatically terminate if (i) we terminate the
construction agreement for reasons other than (a) the default of Washington
Group and (b) our inability to obtain permits for our project or (ii) the
Washington Group terminates the construction agreement for our default
thereunder. If such termination, Siemens Westinghouse will discontinue any work
or services being performed and continue to protect our property. Siemens
Westinghouse will transfer title to and deliver any new program parts and
miscellaneous hardware already purchased by us. We will pay Siemens Westinghouse
those amounts owed at the time of termination.
Siemens Westinghouse may also terminate the maintenance services
agreement if: (i) we fail to make payments or (ii) specific bankruptcy events
affecting us occur. Siemens Westinghouse cannot terminate the maintenance
services agreement if we pay outstanding amounts due within 90 days. Upon
termination, Siemens Westinghouse will stop all work, place no additional
orders, protect our property and deliver the property to us upon our
instructions. Siemens Westinghouse will be entitled to payment for work
performed up until its termination of the maintenance services agreement, all
outstanding fees and reasonable costs associated with the termination.
LIMITATION OF LIABILITY
Each party agrees that, except to the extent liquidated damages
provided in the maintenance services agreement are so considered, neither
Siemens Westinghouse, nor its suppliers, nor will we under any circumstances be
liable for: any indirect, special, incidental or consequential loss or damage
whatsoever; damage to or loss of property or equipment; loss of profits or
revenues; loss of use of material, equipment or power system; increased costs of
any kind, including but not limited to capital cost, fuel cost and cost of
purchased or replacement power, or claims of our customers.
We agree that the remedies provided in the maintenance services
agreement are exclusive and that under no circumstances will the total aggregate
liability of Siemens Westinghouse during a given year exceed 100% of the
contract price payable to Siemens Westinghouse for that given year under the
maintenance services agreement. We further agree that under no circumstances
will the total aggregate liability of Siemens Westinghouse for liquidated
damages during a given year exceed a specified percentage of the contract price
payable to Siemens Westinghouse for that given year under the maintenance
services agreement. We further agree that under no circumstances will the total
aggregate liability of Siemens Westinghouse exceed a specified percentage of the
contract price payable to Siemens Westinghouse under the maintenance services
agreement.
FORCE MAJEURE
Neither party will be liable for failure to perform any obligation or
delay in performance, excluding payment, to the extent the failure or delay is
caused by any act or event beyond the reasonable control of the affected party
or Siemens Westinghouse's suppliers; so long as the act or event is deemed to be
a force majeure and is not the fault or the result of negligence of the affected
party and the party has been unable by exercise of reasonable diligence to
overcome or mitigate the effects of the act or event. Force majeure includes:
any act of God; act of civil or military authority; act of war whether declared
or undeclared; act, including delay, failure to act, or priority, of any
governmental authority;
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civil disturbance; insurrection or riot; sabotage; fire; inclement weather
conditions; earthquake; flood; strikes, work stoppages, or other labor
difficulties of a regional or national character which are not limited to only
the employees of Siemens Westinghouse or its subcontractors or suppliers and
which are not due to the breach of an applicable labor contract by the party
claiming force majeure; embargo; fuel or energy shortage; delay or accident in
shipping or transportation to the extent attributable to another force majeure;
changes in laws which substantially prevents a party from complying with its
obligations in conformity with its requirements under the maintenance services
agreement or failure or delay beyond its reasonable control in obtaining
necessary manufacturing facilities, labor, or materials from usual sources to
the extent attributable to another force majeure; or failure of any principal
contractor to provide equipment to the extent attributable to another force
majeure. Force majeure will not include: (i) economic hardship, (ii) changes in
market conditions or (iii) except due to an event of force majeure, late
delivery of program parts or other equipment.
If a delay in performance is excusable due to a force majeure, the date
of delivery or time for performance of the work will be extended by a period of
time reasonably necessary to overcome the effect of the force majeure and if the
force majeure lasts for a period longer than 30 days and the delay directly
increases Siemens Westinghouse's costs or expenses, we, after reviewing Siemens
Westinghouse's additional direct costs and expenses, will reimburse Siemens
Westinghouse for its reasonable additional direct costs and expenses incurred
after 30 days from the beginning of the force majeure resulting from said delay.
ENVIRONMENTAL COMPLIANCE
Siemens Westinghouse will indemnify us from any fines, penalties,
expense, loss or liability, including the costs of clean-up, incurred by us as a
result of (i) Siemens Westinghouse's failure to meet its obligations under the
maintenance services agreement or (ii) any spills of hazardous waste or oil,
petroleum or petroleum products to the environment which are attributable to and
occur during Siemens Westinghouse's performance, or the performance of its
contractors or subcontractors, of the workscope obligations at the site under
the maintenance services agreement.
We will indemnify Siemens Westinghouse from any fines, penalties,
expense, loss or liability incurred by Siemens Westinghouse as a result of our
failure to meet our obligations under the maintenance services agreement. We
will have no responsibility or liability with regard to any hazardous waste or
oil, petroleum or petroleum products which were spilled by Siemens Westinghouse,
or any other of its contractors or subcontractors performing workscope
obligations at the site.
FLEETWIDE ISSUE NOTIFICATION
During the term of this agreement, if Siemens Westinghouse becomes
aware of a fleetwide issue involving the Siemens Westinghouse 501F Combustion
Turbine which may have a deleterious effect on our combustion turbines, Siemens
Westinghouse will, within a reasonable time of becoming aware of the fleetwide
issues, notify us thereof, and if the fleetwide issue requires an additional
repair or replacement of a program part or miscellaneous hardware to be
performed, the additional repair or replacement will be performed in accordance
with the provisions of the maintenance services agreement.
INTERCONNECTION AGREEMENT
We have entered into a Generation Facility Transmission Interconnection
Agreement, dated as of April 27, 1999 with Jersey Central Power, for the
installation, operation and maintenance of the facilities necessary to
interconnect our facility to Jersey Central Power's transmission system. Under
the interconnection agreement, we and Jersey Central Power will construct, own,
operate and maintain the interconnection facilities. We are responsible for all
of the costs of construction, operation and maintenance of the interconnection
facilities, including those owned by Jersey Central Power.
SCOPE
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The interconnection agreement will become effective on the effective
date established by FERC and will continue in full force and effect until a
mutually agreeable termination date not to exceed the retirement date for our
facility.
JERSEY CENTRAL POWER'S OBLIGATIONS
We have entered into an interconnection installation agreement, by
which Jersey Central Power will install, at our cost and expense the Jersey
Central Power Interconnection Facilities. The Jersey Central Power
Interconnection Facilities, together with the facilities to be installed by us,
are necessary to allow the interconnection of our facility with the transmission
system of Jersey Central Power. After the installation is complete, Jersey
Central Power will own, maintain and operate, at the cost and expense of us, the
Jersey Central Power Interconnection Facilities which include, but are not
limited to, certain substation protective relaying equipment and two 230 kV
2-cycle circuit breakers. The remainder of the interconnection facilities will
be installed, owned, maintained and operated by us.
Jersey Central Power will complete the installation of the Jersey
Central Power Interconnection Facilities necessary to permit us to energize the
switch yard and commence commissioning of our facility by the scheduled
completion date, which is 540 days from the day on which we issued the notice to
proceed. If the Jersey Central Power Interconnection Facilities are completed
prior to the scheduled completion date, Jersey Central Power will be paid an
early completion bonus of $5,000 for each day of early completion up to and
including 30 days. If the Jersey Central Power Interconnection Facilities are
completed after the scheduled completion date, Jersey Central Power will pay
delay damages of $5,000 for each day of delay up to and including 45 days. We
will have the ability to take over the completion of these facilities if it
becomes apparent that Jersey Central Power will not be able to complete them
within the 45 day-period, Jersey Central Power has not proposed a reasonable
recovery plan, and we can demonstrate that it is able to complete the facilities
more quickly than Jersey Central Power.
COMPANY'S OBLIGATIONS
We will install, own, operate and maintain a portion of the
interconnection facilities, including, but not limited to, a 230 kV switchyard,
including generator step up transformers, instrument transformers, revenue
metering, power circuit breakers, control and protective relay panels,
supervisory control and data acquisition equipment, and protective relaying
equipment.
We will reimburse Jersey Central Power for its actual costs of
installing Jersey Central Power Interconnection Facilities. Our payments to
Jersey Central Power consist of advance payments of $100,000 on the execution
date of the interconnection installation agreement, $200,000 upon the issuance
of the notice to proceed, $1,700,000 at the closing for financing for our
facility and payments of monthly invoices for the work performed. The advance
payments by us to Jersey Central Power will be credited to offset invoices
during the later stages of completing the Jersey Central Power Interconnection
Facilities. We may assign to the purchaser of the output of our facility the
payment obligations to Jersey Central Power for installing the Interconnection
Facilities.
We are obligated to give prior notice to Jersey Central Power before
undertaking any additions, modifications or replacements to our facility or our
interconnection facilities that will increase the generating capacity of our
facility or could reasonably be expected to affect the transmission system, the
Jersey Central Power Interconnection Facilities or the operation of our
facility. We must reimburse Jersey Central Power for all costs incurred by
Jersey Central Power associated with any modifications, additions or
replacements that it must make to the transmission system or the Jersey Central
Power Interconnection Facilities, as reasonably required by Jersey Central
Power, in connection with our proposed addition, modification or replacement at
our facility. We are obligated to modify its portion of the interconnection
facilities as may be required to conform to changes in good utility practice or
as required by PJM Interconnection, L.L.C., which is the independent system
operator that operates the transmission system to which our facility will be
interconnected.
We are obligated to keep our facility insured against loss or damage in
accordance with the minimum coverages specified in the Interconnection
Agreement.
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OPERATION AND MAINTENANCE OF INTERCONNECTION FACILITIES
The parties are obligated to operate and maintain their respective
portions of the interconnection facilities in accordance with good utility
practices and the requirements and guidelines of PJM and Jersey Central Power.
Jersey Central Power will have the right to disconnect our facility
from its transmission system and/ or curtail, interrupt or reduce the output of
our facility when operation of our facility or the interconnection facilities
adversely affects the quality of service rendered by Jersey Central Power or
interferes with the safe and reliable operation of its transmission system or
the regional transmission system. Jersey Central Power, however, is obligated to
use reasonable efforts to minimize any disconnection, curtailment, interruption
or reduction in output.
In accordance with good utility practice, Jersey Central Power may
remove the interconnection facilities from service as necessary to perform
maintenance or testing or to install or replace equipment on the interconnection
facilities or the transmission system. Jersey Central Power is obligated to use
due diligence to restore the interconnection facilities to service as promptly
as practicable.
In addition, if we fail to operate, maintain, administer, or insure our
facility or its portion of the interconnection facilities, Jersey Central Power
may, following 30 days notice and opportunity to cure the failure, disconnect
our facility from the transmission system.
REVENUE METERING
Revenue meters, which are part of the interconnection facilities, will
be installed to measure the transfer of electrical energy between the parties at
the point of interconnection. The revenue meters will be installed, owned,
maintained and repaired by Jersey Central Power, at our expense. Jersey Central
Power will install, also at our expense, telemetering equipment or other
communications equipment, other than an operating telephone link, which will be
installed by us, to retrieve certain information. The revenue meters are to be
tested at least once every two years, or more frequently at our request. Any
revenue meter found to be inaccurate by greater than 1% is to be adjusted,
repaired or replaced.
LAND RIGHTS AND ACCESS
We have granted to Jersey Central Power the right of reasonable access
and all necessary rights of way, easements, and licenses as Jersey Central Power
may require to install, operate, maintain, replace and remove the revenue meters
and other portions of the Jersey Central Power Interconnection Facilities.
FORCE MAJEURE
If either party is delayed in or prevented from performing or carrying
out its obligations under the interconnection agreement by reason of force
majeure, the party will not be liable to the other party for or on account of
any loss, damage, injury or expense resulting from or arising out of the delay
or prevention, however, the party encountering the delay or prevention will use
due diligence to remove the cause or causes thereof.
DEFAULT
The events of default under the interconnection agreement are:
- breach of a material term or condition and uncured failure to
provide a required schedule, report or notice;
- failure or refusal of a party to permit the representatives of
the other party access to maintenance records, or its
interconnection facilities or protective apparatus;
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- appointment by a court of a receiver or liquidator or trustee
that is not discharged within 60 days, issuance by a court of
a decree adjudicating a party as bankrupt or insolvent or
sequestering a substantial part of its property that has not
been discharged within 60 days after its entry, or filing of a
petition to declare a party bankrupt or to reorganize a party
under the Federal Bankruptcy Code or similar state statute
that has not been dismissed within 60 days;
- voluntary filing by a party of a petition in bankruptcy or
consent to the filing of a bankruptcy or reorganization
petition, an assignment for the benefit of creditors, an
admission by a party in writing of its inability to pay its
debts as they come due, or consent to the appointment of a
receiver, trustee, or liquidator of a party or any part of its
property; and
- failure to provide the other party with reasonable written
assurance of the party's ability to perform any of the
material duties and responsibilities under the interconnection
agreement within 60 days of a reasonable request for the
assurance.
Upon an event of default, the non-defaulting party may give notice of
the event of default to the defaulting party. The defaulting party will have 60
days following the receipt of the notice to cure the default or to commence in
good faith the steps necessary to cure a default that cannot be cured within
that 60-day period. If the defaulting party fails to cure its default within 60
days or fails to take the steps necessary to cure a default that cannot be cured
within a 60-day period, the non-defaulting party will have the right to
terminate the interconnection agreement.
Jersey Central Power will have the right to operate and/or to purchase
specific equipment, facilities and appurtenances from us that are necessary for
Jersey Central Power to operate and maintain its transmission system if (i) we
commence bankruptcy proceedings or petitions for the appointment of a trustee or
other custodian, liquidator, or receiver; (ii) a court issues a decree for
relief of our company or appoints a trustee or other custodian, liquidator, or
receiver for our company or a substantial part of our assets and the decree is
not dismissed within 60 days or (iii) we cease operation for 30 consecutive days
without having an assignee, successor, or transferee in place.
OPERATIONS AGREEMENT AND SERVICES AGREEMENT
We have entered into a Development and Operations Services Agreement,
dated as of March 10, 2000, with AES Sayreville under which AES Sayreville will
provide development and construction management services and, after the
commercial operation date, operating and maintenance services for our facility
for a period of 32 years. Under the operations agreement, AES Sayreville will be
responsible for, among other things, preparing plans and budgets related to
start-up and commercial operation of our facility, providing qualified operating
personnel, making repairs, purchasing consumables and spare parts (not otherwise
provided under the maintenance services agreement) and providing other services
as needed according to industry standards.
AES Sayreville will be compensated for the services on a cost plus
fixed-fee basis.
Under a services agreement between AES Sayreville and The AES
Corporation, The AES Corporation will provide to AES Sayreville all of the
personnel and services necessary for AES Sayreville to comply with its
obligations under the operations agreement.
WATER SUPPLY AGREEMENT
We have entered into a Water Supply Agreement dated as of December 22,
1999 with the Borough of Sayreville under which the Borough will provide
untreated water to our facility.
SUPPLY OF UNTREATED WATER
UNTREATED WATER SUPPLY
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Subsequent to the completion of the Lagoon Pumping Station and the
Lagoon Water Pipeline, the Borough will make available to our facility a supply
of untreated water from the South River that is not less than 4.6 million
gallons per day and 1.53 billion gallons per year. The Borough will use
reasonable efforts to maintain the Lagoon's water level at an elevation of 29
feet, but during periods when water cannot be drawn from the South River, the
Lagoon's water level will be drawn to elevations below 29 feet. The Borough will
supply us with water drawn from the South River when the Lagoon's water level is
20 feet or higher. During periods when either the Lagoon's water level is below
20 feet and water cannot be drawn from the South River or when water from the
Lagoon is needed to ensure a supply of treated water to Borough treated water
customers, the Borough will supply our facility with water drawn from the
Duhernal acquifer and transported through the Duhernal water pipeline.
The Borough will use reasonable efforts to comply with our requests for
untreated water in excess of 4.6 million gallons per day and 1.533 billion
gallons per year.
COMPENSATION
We will pay the Borough an initial payment of $150,000 from the bond
proceeds, which will be credited to our account and will be used to offset the
cost of untreated water purchased during our project's start-up and testing
phase and during the first year of operation. If the Borough incurs additional
costs from Middlesex Water Company as a result of the Borough providing us with
Duhernal Water, we also will pay the Borough for those additional costs. We will
pay the Borough monthly for all untreated water delivered to the point of
delivery during the prior month. The base rate for untreated water supplied from
the South River is $216 per million gallons, which includes $53 per million
gallons to cover operations, maintenance and administrative costs and $163 per
million gallons to cover past infrastructure costs. The operations and
maintenance rate will be escalated in accordance with the percentage changes in
water rates that are applicable to other Borough water customers. The base rate
for untreated water delivered from the Duhernal acquifer is $932 per million
gallons which includes $785 to cover the operations, maintenance and
administrative costs and $147 to cover acquisition costs. The operations and
maintenance portion of the base rate for water delivered from the Duhernal
acquifer is also subject to escalation in accordance with the percentage changes
in water rates that are applicable to other Borough water customers.
With respect to each contract year there will be a minimum bill amount,
which will initially be $300,000 per year. One-twelfth of the minimum bill
amount will be paid each month. The minimum bill amount will be adjusted as
follows:
- For the first contract year it will be reduced by the amount
of the initial payment;
- It will be reduced by an amount equal to the product of (x)
the quantity of untreated water that would have been delivered
but for service interruptions by the Borough and (y) the rate
for untreated water delivered from the South River; and
- Starting with 8th contract year and with six months' prior
written notice, we have the right to reduce the minimum bill
amount for any contract year by reducing the annual quantity
of water to be provided by up to 15%. Starting with the 21st
contract year we may reduce the annual quantity to be
delivered without limit.
SERVICE INTERRUPTIONS
In the event that there is an interruption in the delivery of untreated
water attributable to a break in the infrastructure, the Borough will provide a
shortfall notice and the Borough and we will agree on the best way to repair the
infrastructure and restore service. If the Borough fails to restore service
within a reasonable period of time, we may, at our expense, contract with
contractors reasonably approved by the Borough to remedy the interruption.
INFRASTRUCTURE AND REAL ESTATE RIGHTS
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THE LAGOON WATER PIPELINE, LAGOON PUMPING STATION AND SAYREVILLE
INTERCONNECTION NUMBER 2
The Borough will design, at our expense, the Lagoon Water Pipeline,
Lagoon Pumping Station and Sayreville Interconnection Number 2 in conformance
with standard water system practice. The Borough is responsible for obtaining,
at our expense, all necessary government approvals. The Borough and we will
cooperate to obtain, at our expense, the real estate rights necessary for the
construction, operation and maintenance of the Lagoon Water Pipeline, Lagoon
Pumping Station and Sayreville Interconnection Number 2. If necessary, the
Borough will exercise its power of eminent domain to obtain the necessary real
estate rights. Upon completion of the Lagoon Water Pipeline, Lagoon Pumping
Station and Sayreville Interconnection Number 2, we will execute, without being
compensated by the Borough, the documents as are necessary to evidence the
Borough's ownership of those facilities. We are responsible for selecting a
contractor to construct the Lagoon Water Pipeline, Lagoon Pumping Station and
Sayreville Interconnection Number 2 and must pay for all costs associated with
the construction and construction inspection of those facilities.
OPERATION AND MAINTENANCE OF INFRASTRUCTURE
The Borough will operate and maintain all infrastructure necessary to
supply the untreated water to the project boundary. We will reimburse the
Borough for its associated maintenance and replacement costs.
We will own and maintain metering equipment to measure the delivery of
untreated water from each source to the point of delivery and will transmit a
signal of the measurements to the Borough, which will use the information to
compile billing invoices. At least once every five years, or more often if
requested by either party, we shall test the metering equipment. If the tests
reveal that the metering equipment is inaccurate, the equipment must be
recalibrated or replaced and a billing adjustment may be made.
The Borough will own and maintain metering equipment, which it may
elect to read monthly, to confirm the quantities of untreated water supplied
from each source. The equipment will be tested and recalibrated or replaced if
necessary in the same manner that our metering equipment is tested.
INFRASTRUCTURE STUDIES AND ADDITIONS
We will pay for the actual cost, subject to a mutually agreed upon cap,
of infrastructure studies to determine the costs and benefits of (i) installing
a new pipeline and (ii) improving the existing South River intake structure. We
will have the right to pay for the upgrades, improvements and/or new
infrastructure that may be identified as necessary or desirable by the studies
in exchange for the benefits allowed with their implementation. Other water
users that benefit from the improvements will pay a pro-rata portion of the
costs of the improvements.
If the Borough or we reasonably determines that capital improvements to
the infrastructure are required, the party will notify the other party and the
parties will meet in good faith to determine the scope of the capital
improvements. We will pay for our costs and expenses arising from the capital
improvements as well as those of the Borough. If we damage either infrastructure
or capital improvements, we will restore the damaged portions thereof or pay the
Borough to restore the damaged portions.
ADDITIONAL OBLIGATIONS OF THE PARTIES
ADDITIONAL OBLIGATIONS OF THE BOROUGH
The Borough will use its best efforts to either (i) amend its existing
permit, which limits pumping from the Lagoons to 1,000,000 gallons of water per
day or (ii) obtain or change any other permits necessary to allow it to meet its
obligations under the water supply agreement. The Borough will provide us with
written invoices by not later than the 15th of each month. The amounts due under
the invoices will be due within 30 days of receipt. The Borough will provide us
and the financing parties with escorted access to any infrastructure or other
property owned by the Borough to which we or the financing parties reasonably
request access.
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OUR ADDITIONAL OBLIGATIONS
We will provide the Borough with notice of any violation by the Borough
of applicable government approvals related to the delivery of untreated water.
Not later than the 15th day of each month, we will provide the Borough with a
detailed invoice listing any amounts due to us under the water supply agreement.
FORCE MAJEURE
If either party is unable to carry out any obligation under the water
supply agreement due to an event of force majeure, the water supply agreement
will remain in effect but the obligation will be suspended for the period
necessitated by the force majeure, as long as:
- the affected party gives the other party written notice within
48 hours of the occurrence of the force majeure;
- the suspension of performance is of no greater scope and no
longer than required by the force majeure; and
- the non-performing party uses its best efforts to remedy its
inability to perform.
TERM
The water supply agreement has a term of 30 years with an option to
extend for up to four additional five year terms. The agreement may be
terminated by us and by the Borough under some circumstances including; (i) our
failure to deliver a commencement notice on or prior to December 31, 2003; (ii)
the occurrence of a bankruptcy event affecting the other party; and (iii)
failure of a party to perform a material obligation within the time contemplated
and the continuation of the failure for a period of 30 days or more.
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ITEM 2. PROPERTIES
Since we are a development stage company, our principal property is the
project site, which we own and the construction in progress. We will lease our
site for a 25 year term to AES URC, who will construct and own part of the
facility on the site. AES URC will lease to us the site and that part of the
facility owned by AES URC and at the end of the lease term we will have an
option to purchase that part of the facility so that we will own all of the site
and facility. The site is located in the Borough of Sayreville, Middlesex
County, New Jersey on an approximately 62-acre parcel of land. We have access,
utility and construction easements and licenses across neighboring property. We
have title insurance in connection with our property rights.
Under certain financing documents, our rights and interests in our
property, are encumbered by mortgages, security agreements, collateral
assignments and pledges for the benefit of the bondholders and other senior
creditors.
Upon completion of construction, our facility will consist of an
approximately 830 megawatt (net) gas-fired combined cycle electric generating
facility. We expect our facility to become operational on or about December 31,
2001, although we cannot assure you of this. We will sell all of our facility's
capacity, and provide fuel conversion and ancillary services, to Williams Energy
under a long-term power purchase agreement. We will not receive material
revenues under the power purchase agreement or otherwise before our facility
becomes operational.
Our facility will be located on property that we own in the Borough of
Sayreville, Middlesex County, New Jersey. Our facility will be designed,
engineered, procured and constructed for us by Washington Group under a
fixed-price, turnkey construction agreement. Among other components, our
facility will use three Siemens Westinghouse model 501F combustion turbines,
three heat recovery steam generators and one multicylinder steam turbine. Under
a maintenance services agreement, Siemens Westinghouse will provide us with
specific combustion turbine maintenance services and spare parts in respect of
each combustion turbine until sixteen years after execution of the agreement or
the twelfth planned outage of the combustion turbine, whichever is earlier,
unless we exercise our right to cancel the agreement after the first major
outage of the combustion turbines which will be after approximately the sixth
year of operation of the facility. Under the power purchase agreement, Williams
Energy or its affiliates will supply fuel necessary to allow us to provide
capacity, fuel conversion and ancillary services to Williams Energy. AES
Sayreville will provide development, construction management, and operations and
maintenance services for our facility under an operations agreement. We will
provide installation, operation and maintenance of facilities necessary to
interconnect our facility to Jersey Central Power's transmission system under an
interconnection agreement.
ITEM 3. LEGAL PROCEEDINGS
Neither we nor AES URC is party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable pursuant to General Instruction I of the Form 10-K.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no market for our equity interests. All of our member
interests are owned by our parent, AES Red Oak, Inc., a subsidiary of The AES
Corporation.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable pursuant to General Instruction I of the Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with our financial statements and the notes thereto included elsewhere in this
annual report. The following discussion involves forward-looking statements. Our
actual results may differ significantly from the results suggested by these
forward-looking statements.
GENERAL
We were formed on September 13, 1998 to develop, construct, own,
operate and maintain our facility. We are in the development stage and have no
operating revenues. We were dormant until March 15, 2000, the date of the sale
of our senior secured bonds. We obtained $384.0 million of project financing
from the sale of the senior secured bonds. The total cost of the construction of
our facility is estimated to be approximately $439.8 million, which will be
financed by the proceeds from our sale of the senior secured bonds and an equity
contribution described below. In late September 2000, we consummated an exchange
offer whereby the holders of our senior secured bonds exchanged their privately
placed senior secured bonds for registered senior secured bonds.
Our facility is still under construction and is expected to be
completed and operational by approximately December 31, 2001. We cannot assure
that these expectations will be met. See "Cautionary Note Regarding
Forward-Looking Statements."
The following discussion presents certain financial information as of
December 31, 2000, and for the period from March 15, 2000 (inception) through
December 31, 2000.
EQUITY CONTRIBUTIONS
Under an equity subscription agreement, AES Red Oak, Inc. is obligated
to contribute up to approximately $55.7 million to us to fund project costs. AES
Red Oak Inc.'s obligation to make the contributions is, and will be, supported
by an acceptable letter of credit or an acceptable bond.
RESULTS OF OPERATIONS
As of December 31, 2000, Construction in Progress, which includes
capitalized facility construction costs and capitalized interest costs, was
$117.0 million. For the period ended December 31, 2000, capitalized facility
construction costs were $92.8 million. As discussed in greater detail below,
Construction in Progress also includes the capitalization of construction
related interest cost incurred on the portion of the bond proceeds expended
during the construction period. These capitalized costs are included in
Construction in Progress as assets on the Balance Sheet.
We prepaid the construction contract in the amount of $288.6 million.
In consideration of our prepayment,
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Washington Group issued in favor of us a letter of credit for an initial amount
of $237.7 million. As of December 31, 2000, the letter of credit had been
reduced by $60.2 million to $177.5, the result of the completion of certain
construction milestones. Prepaid construction costs in the amount of $227.6
million are included as assets on the Balance Sheet. The cost of purchasing land
for construction of our facility has been separately identified on the Balance
Sheet.
For the period ended December 31, 2000 , general and administrative
costs of $201,000 were incurred. These costs did not directly relate to
construction and are included as expenses in the Statement of Operations.
A portion of the proceeds from the sale of the senior secured bonds
have not yet been expended on construction and were invested by the trustee. For
the period ended December 31, 2000, the interest income earned on these invested
funds was approximately $1.9 million, and is included in the Statement of
Operations.
As noted above, construction related interest costs incurred on the
portion of the bond proceeds expended during the construction period is
capitalized to Construction in Progress. For the period ended December 31, 2000,
capitalized construction related interest costs were approximately $24.2 million
and are included on the Balance Sheet. For the period ended December 31, 2000,
interest cost incurred on the bond proceeds not spent on construction of our
facility was approximately $2.6 million and is included as interest expense in
the Statement of Operations.
For the period ended December 31, 2000, non-capitalizable costs less
net interest expense resulted in a net loss of approximately $948,000. This net
loss resulted in a deficiency of earnings to fixed charges for the period ended
December 31, 2000 of approximately $25.9 million. The results of operations may
not be comparable with the results of operations during future periods,
especially when our facility commences commercial operations.
LIQUIDITY AND CAPITAL RESOURCES
We believe that the net proceeds from the sale of the senior secured
bonds, together with the equity contribution, will be sufficient to (1) fund the
engineering, procurement, construction, testing and commissioning of our
facility until it is placed in commercial operation, (2) pay certain fees and
expenses in connection with the financing and development of our project and (3)
pay project costs, including interest on the senior secured bonds. After our
facility is placed in commercial operation, we will depend on revenues under the
power purchase agreement, and after the power purchase agreement expires, we
will depend revenues generated from market sales of electricity.
In order to provide liquidity in the event of cash flow shortfalls, a
debt service reserve account will contain an amount equal to the debt service
reserve account required balance through cash funding, issuance of the debt
service reserve letter of credit or a combination of the two.
As of December 31, 2000, apart from commitments totaling $541,000
arising from the construction of the facility, we have committed to three
additional capital expenditures totaling approximately $3.2 million. These
expenditures include approximately $341,000 for road modifications, $774,000
for a water pipeline, and $2.0 million for a water pumping station. As of the
date hereof, the road modifications and their related expenditures have been
substantially completed. We expect to pay the remaining balance of the
pipeline, approximately $100,000, and the entire cost of the water pumping
station in fiscal year 2001 from the proceeds of the sale of the senior
secured bonds issued on March 15, 2000.
BUSINESS STRATEGY AND OUTLOOK
Our overall business strategy is to market and sell all of our net
capacity, fuel conversion and ancillary services to Williams Energy during the
20-year term of the power purchase agreement. After expiration of the power
purchase agreement, we anticipate selling our facility's capacity, ancillary
services and energy under a power purchase agreement or into the PJM power pool
market. We intend to cause our facility to be managed, operated and maintained
in compliance with the project contracts and all applicable legal requirements.
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have issued and outstanding two series of bonds, registered under
the Securities Act of 1933, for an aggregate amount of $384 million. Our Series
A Bonds are for $224 million and bear interest at 8.54%. Our Series B Bonds are
for $160 million and bear interest at 9.20%. Interest on the bonds is payable on
each February 28, May 31, August 31, and November 30, commenced on May 31, 2000.
Principal of the Series A Bonds will be payable on the same dates as interest,
beginning August 31, 2002. Principal of the Series B Bonds will be payable on
the same dates as interest, beginning February 28, 2019. The bonds are secured
ratably by a lien on and security interest in shared collateral, which consists
of substantially all of our assets. In addition, the indenture accounts, the
debt service reserve account and the debt service reserve letter of credit
(other than to the extent of the debt service reserve letter of credit
provider's right to specific proceeds thereunder) are separate collateral solely
for the benefit of the holders of the bonds. The fair value of these bonds at
December 31, 2000 was approximately $413 million. We are not subject to interest
rate risk as the interest rates associated with our outstanding indebtedness are
fixed over the life of the bonds. We currently have no other financial or
derivative financial instruments. We do not believe that we face other material
risks requiring disclosure pursuant to Item 305 of Regulation S-K.
39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
AES RED OAK L.L.C.
(A DEVELOPMENT STAGE ENTERPRISE, AND AN INDIRECT WHOLLY OWNED
SUBSIDIARY OF THE AES CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report.........................................................................................41
Consolidated Balance Sheet...........................................................................................42
Consolidated Statement of Operations.................................................................................43
Consolidated Statement of Changes in Member's Deficit................................................................44
Consolidated Statement of Cash Flows.................................................................................45
Notes to Consolidated Financial Statements...........................................................................46
40
INDEPENDENT AUDITORS' REPORT
To the Member of
AES Red Oak, L.L.C.:
We have audited the accompanying consolidated balance sheet of AES Red
Oak, L.L.C. (an indirect wholly owned subsidiary of The AES Corporation and a
development stage enterprise) (the Company) as of December 31, 2000, and the
related consolidated statements of operations, changes in member's deficit and
cash flows for the period from March 15, 2000 (inception) through December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of AES Red Oak, L.L.C., as of December
31, 2000, and the results of its operations and its cash flows for the period
from March 15, 2000 (inception) through December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
McLean, Virginia
January 29, 2001
(March 28, 2001 as to Note 10)
41
AES RED OAK, L.L.C. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 15
Restricted investments-- at cost, which approximates market value 21,795
Receivables 21
-----------
Total current assets 21,831
PREPAID CONSTRUCTION COSTS 227,609
LAND 4,240
CONSTRUCTION IN PROGRESS 117,033
DEFERRED FINANCING COSTS-- Net of accumulated amortization of $646 18,059
-----------
TOTAL ASSETS $ 388,772
===========
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 304
Accrued liabilities 90
Accrued interest 2,821
Payable to affiliates 2,505
-----------
Total current liabilities 5,720
BONDS PAYABLE 384,000
-----------
Total liabilities 389,720
-----------
COMMITMENTS (Notes 4, 5, 6, and 7)
MEMBER'S DEFICIT:
Common stock, $1 par value-- 10 shares authorized, none issued or outstanding ---
Deficit accumulated during the development stage (948)
-----------
Total member's deficit (948)
-----------
TOTAL LIABILITIES AND MEMBER'S DEFICIT $ 388,772
===========
See notes to consolidated financial statements.
42
AES RED OAK, L.L.C. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM MARCH 15, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
General and administrative costs $ (201)
-------
Operating loss
(201)
OTHER INCOME/EXPENSE:
Interest income
1,852
Interest expense
(2,599)
NET LOSS $ (948)
=======
See notes to consolidated financial statements.
43
AES RED OAK, L.L.C. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S DEFICIT
PERIOD FROM MARCH 15, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE
---------------------------------- DEVELOPMENT
SHARES AMOUNT STAGE TOTAL
----------- ---------- ---------- -----------
BALANCE, MARCH 15, 2000 (Inception) --- $ --- $ --- $ ---
Net loss (948) (948)
----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 2000 $ $ (948) $ (948)
=========== ========== ========== ===========
See notes to consolidated financial statements.
44
AES RED OAK, L.L.C. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 15, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss $ (948)
Amortization of deferred financing costs 646
Change in:
Accounts receivable (21)
Accounts payable 304
Accrued liabilites 90
Payable to affiliates 2,505
Accrued interest 2,821
----------
Net cash provided by operating activities 5,397
----------
INVESTING ACTIVITIES:
Prepaid construction costs (288,573)
Payments for construction in progress (56,069)
Payments for land (4,240)
Payments to restricted account (21,795)
----------
Net cash used in financing activities (370,677)
----------
FINANCING ACTIVITIES:
Proceeds from project debt issuance 384,000
Payments for deferred financing costs (18,705)
----------
Net cash provided by financing activities 365,295
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15
==========
SUPPLEMENTAL DISCLOSURE OF OTHER ACTIVITIES:
Interest paid (net of amounts capitalized) $ 2,325
==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Transfer of prepaid construction costs to construction in progress $ 60,964
==========
See notes to consolidated financial statements.
45
AES RED OAK L.L.C. (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM MARCH 15, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION
AES, Red Oak, L.L.C. (the Company) was formed on September 13,
1998, in the State of Delaware, to develop, construct, own and operate
a 830-megawatt (MW) gas-fired, combined cycle electric generating
facility in the Borough of Sayreville, Middlesex County, New Jersey
(the Plant). The Company was considered dormant until March 15, 2000
(hereinafter, inception), at which time the Project Financing and
certain related agreements were consummated. The Plant, currently under
construction, will consist of three Westinghouse 501 FD combustion
turbines, three unfired heat recovery steam generators, and one
multicylinder steam turbine. The Plant will produce and sell
electricity, as well as provide fuel conversion and ancillary services,
solely to Williams Energy Marketing and Trading Company (Williams)
under a power purchase agreement (the PPA) with a term of 20 years that
will commence on the Plant's anticipated commercial operation date,
December 31, 2001 (see Note 5).
The Company is in the development stage and is not expected to
generate any operating revenues until the Plant achieves commercial
operations. As with any new business venture of this size and nature,
operation of the Plant could be affected by many factors. Management of
the Company believes that the assets of the Company are realizable.
The Company is a wholly owned subsidiary of AES Red Oak, Inc.
(Red Oak), which is a wholly owned subsidiary of The AES Corporation
(AES). Red Oak has no assets other than its ownership interests in the
Company and AES Sayreville, L.L.C. (see Note 7). Red Oak has no
operations and is not expected to have any operations. Its only income,
if any, will be from distributions it receives from the Company and AES
Sayreville, L.L.C., once the Company achieves commercial operation. The
equity that Red Oak is to provide to the Company will be provided to
Red Oak by AES, which owns all of the stock of Red Oak (see Note 4).
AES files quarterly and annual audited reports with the Securities and
Exchange Commission under the 1934 Exchange Act, which are publicly
available. Red Oak's equity contribution obligations are required to be
supported by either an insurance bond or letter of credit. Currently
those obligations are supported by an insurance bond issued to the
collateral agent (see Note 4).
The Company owns all of the equity interests in AES Red Oak
Urban Renewal Corporation (URC), which was organized as an urban
renewal corporation under New Jersey Law. As an urban renewal
corporation under New Jersey law, portions of the Plant can be
designated as redevelopment areas in order to provide real estate tax
and development benefits to the Plant. URC has no operations outside of
its activities in connection with the Plant.
On March 15, 2000, the Company issued $384 million in senior
secured bonds (see Note 4) for the purpose of providing financing for
the construction of the Plant and to fund, through the construction
period, interest payments to the bondholders. In late September 2000,
the Company consummated an exchange offer whereby the holders of the
senior secured bonds exchanged their privately placed senior secured
bonds for registered senior secure bonds.
Pursuant to an Equity Subscription Agreement, Red Oak has
agreed to contribute up to approximately $55.7 million to the Company
to fund construction after the bond proceeds have been fully utilized
(see Note 4).
46
On July 7, 2000, Morrison Knudsen Corporation completed its
acquisition of Raytheon Engineers & Constructors, Inc. (the Original
Contractor) and formed Washington Group International, Inc. (the
Contractor). The Contractor is comprised of Morrison Knudsen
Corporation, Raytheon Engineers & Constructors, Inc. and Westinghouse
Government Services Group. The terms and conditions under the
Engineering, Procurement and Construction Contract (the EPC) and the
letter-of-credit obligation remain unchanged (see Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and AES URC, its wholly
owned subsidiary. All intercompany transactions and balances have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers unrestricted
cash on hand, deposits in banks, and investments with original
maturities of three months or less to be cash and cash equivalents for
the purpose of the statement of cash flows.
INVESTMENTS HELD BY TRUSTEE - The Company is required to
maintain a construction funding account for the payment of certain
qualifying construction costs and a construction interest account from
which quarterly interest payments are to be made. As of December 31,
2000, these amounts were fully invested in money market accounts. The
balances in the construction funding account and the construction
interest account were approximately $17.3 million and $4.5 million,
respectively, as of December 31, 2000.
CONSTRUCTION IN PROGRESS - Costs incurred in developing the
Plant, including progress payments, engineering costs, management and
development fees, interest, and other costs related to construction are
capitalized. Total interest capitalized on the project financing debt
was approximately $24.2 million as of December 31, 2000. Certain costs
related to construction activities were paid by AES prior to the
issuance of the bonds. These amounts of approximately $12.4 million,
are reflected within construction in progress, and were reimbursed to
AES out of the bond proceeds.
PREPAYMENT OF CONSTRUCTION CONTRACT - The Company prepaid a
portion of the EPC in the amount of $288.6 million on March 15, 2000.
The Contractor provided the Company with a letter of credit that will
be reduced as work under the EPC is completed. As of December 31, 2000,
the amount of the letter of credit was $177.5 million.
The Company reclassifies amounts from the prepaid construction
account to the construction in progress as the letter of credit is
reduced.
DEFERRED FINANCING COSTS - Financing costs are deferred and
are being amortized using the straight-line method over the life of the
bonds, which does not differ materially from the effective interest
method of amortization.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires the Company to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INCOME TAXES - The Company is a limited liability corporation
and is treated as a partnership for tax purposes. Therefore, it does
not pay income taxes, and no provision for income taxes has been
reflected in the accompanying financial statements.
47
COMPREHENSIVE INCOME - The Company follows Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME
(SFAS 130) which establishes rules for the reporting of comprehensive
income and its components. SFAS 130 had no impact on the Company's
financial statements as the Company had no items of other comprehensive
income.
START-UP COSTS - The Company follows AICPA Statement of
Position (SOP) 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES,
which requires that start-up and organizational costs be expensed as
incurred. As such, no costs to which SOP 98-5 applies have been
capitalized in the accompanying balance sheet.
3. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which, as
amended, established new accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives (including derivatives
embedded in other contracts) as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Changes in
the derivative's fair value are to be recognized currently in earnings
unless specific hedge accounting criteria are met. Hedge accounting
allows a derivative's gains or losses in fair value to offset related
results of a hedged item in the statement of operations and requires
that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 allows hedge accounting for fair value and cash
flow hedges. SFAS No. 133 provides that the gain or loss on a
derivative instrument designated and qualifying as a fair value hedge,
as well as the offsetting gain or loss on the hedged item attributable
to the hedged risk, be recognized currently in earnings in the same
accounting period. SFAS No. 133 provides that the effective portion of
the gain or loss on a derivative instrument designated and qualifying
as a cash flow hedge be reported as a component of other comprehensive
income in stockholder's equity and be reclassified into earnings in the
same period or periods during which the hedged transaction affects
earnings. The remaining loss on the derivative, if any, must be
recognized currently in earnings.
As explained in Note 1, the Company will produce and sell
electricity, as well as provide fuel conversion and ancillary services,
solely to Williams under the PPA. The Company believes the PPA,
although meeting the definition of a derivative under SFAS No. 133,
qualifies for the normal purchase and sales exception and thus is not
required to be accounted for as a derivative. The Derivatives
Implementation Group (DIG) of the Financial Accounting Standards Board
is currently discussing the accounting treatment under SFAS No. 133 for
contracts similar to the PPA. The DIG may conclude that such contracts
are required to be accounted for as derivatives. The Company has no
other contracts that meet the definition of a derivative or an embedded
derivative under SFAS No. 133. Therefore, there is no significant
impact on the Company's financial statements as of December 31, 2000.
4. BONDS PAYABLE
On March 15, 2000, the Company issued $224 million of 8.54%
senior secured bonds due 2019 and $160 million of 9.20% senior secured
bonds due 2029 (collectively, the Bonds) to qualified institutional
buyers and/or institutional accredited investors, pursuant to a
transaction exempt from registration under the Securities and Exchange
Act of 1933 (the Act) in accordance with Rule 144A of the Act. In late
September 2000, the Company consummated an exchange offer whereby the
holders of the bonds exchanged their privately placed bonds for
registered bonds. The net proceeds of the bonds (after deferred
financing costs), approximately $365 million, were used to prepay the
Contractor and other construction costs of the Plant and will be used,
during the construction period, primarily for interest payments to
bondholders.
FUTURE MATURITIES OF DEBT - Principal on the Bonds is payable
quarterly in arrears, commencing on August 31, 2002. The final maturity
date for the 2019 Bonds and the 2029 Bonds is November 30, 2019
48
and November 30, 2029, respectively.
PRINCIPAL & INTEREST REPAYMENT SCHEDULE (IN THOUSANDS):
YEAR INTEREST PRINCIPAL
2001 $ 33,850 $ -
2002 33,824 2,419
2003 33,536 6,219
2004 33,113 5,230
2005 32,579 5,071
2006 and thereafter 412,194 365,061
------------- -----------
Total payments $ 579,096 $ 384,000
============= ===========
OPTIONAL REDEMPTION - The Bonds are subject to optional
redemption, in whole or in part, at any time at a redemption price
equal to 100% of the principal amount plus accrued interest, together
with a premium calculated using a discount rate equal to the interest
rate on comparable U.S. Treasury securities plus 50 basis points.
MANDATORY REDEMPTION - The Bonds are subject to mandatory
redemption, in whole or in part, at a redemption price equivalent to
100% of the principal amount plus accrued interest under certain
situations pursuant to receiving insurance proceeds, eminent domain
proceeds, liquidated damages under the EPC, or in certain instances in
which payments are received under the PPA if the Company terminates the
PPA as a result of a default by Williams.
INDENTURE - The Indenture contains limitations on the Company
incurring additional indebtedness, granting liens on the Company's
property, distributing equity and paying subordinated indebtedness
issued by affiliates of the Company, entering into transactions with
affiliates, amending, terminating or assigning any of the Company's
contracts and fundamental changes or disposition of assets.
Collateral for the Bonds consists of the Plant and related
facilities, all agreements relating to the operation of the project,
the bank and investment accounts of the Company, and all ownership
interests in the Company, as prescribed under the trust indenture
agency (the Indenture). The Company is also bound by a collateral
agency agreement (the Collateral Agency Agreement) and an equity
subscription agreement (the Equity Subscription Agreement).
COLLATERAL AGENCY AGREEMENT - The Collateral Agency Agreement
requires the Company to fund or provide the funding or a letter of
credit for a debt service reserve fund, which is expected to commence
on February 14, 2002. The amount required for funding the debt service
reserve fund is equal to six months scheduled payments of principal and
interest on the bonds.
EQUITY SUBSCRIPTION AGREEMENT - The Company, along with Red
Oak, has entered into an Equity Subscription Agreement, pursuant to
which Red Oak has agreed to contribute up to approximately $55.7
million to the Company to fund project costs. This amount is secured by
an insurance bond obtained by Red Oak. Red Oak will fund these amounts
as they come due upon the earlier of (a) expenditure of all funds that
have been established for construction or (b) the occurrence and during
the continuation of an event of default, as defined under the
Indenture. A portion of this equity requirement may be made in the form
of affiliate debt between Red Oak and the Company, which is subordinate
to the Bonds.
COVENANTS - The Indenture, Collateral Agency Agreement and
Equity Subscription Agreement, contain specific covenants and
requirements to be met by the Company.
49
5. POWER PURCHASE AGREEMENT
The Company and Williams have entered into a PPA for the sale
of all electric energy and capacity produced by the Plant, as well as
ancillary services and fuel conversion services. The term of the PPA is
20 years, commencing on the Commercial Operation Date (COD) defined in
the PPA as the day the initial start up testing procedures have been
successfully completed and notified to Williams by the Company. The PPA
provides for an anticipated COD on or before December 31, 2001.
However, if the COD does not occur as of that date, the Company has the
right to extend the COD to June 30, 2002 by paying to Williams an
amount of $2.5 million. Beyond that first extension, the latest
possible extension of COD that may be requested by the Company is on
June 30, 2003 through the payment of daily fees aggregating to a
maximum of $14.2 million.
Payment obligations to the Company are guaranteed by The
Williams Companies, Inc. Such payment obligations under the guarantee
are capped at an amount equal to 125% of the sum of the principal
amounts of the bonds plus the maximum debt service reserve account
required balance.
The Company has provided Williams a guaranty issued by AES of
specific payment obligations should the Plant not achieve commercial
operation by December 31, 2001. AES's commitment under the guaranty is
capped at $30 million. The Company has the option, and may be required
under specific conditions described in the PPA, to replace the guaranty
issued by AES with a letter of credit issued by a commercial bank. In
such case, the repayment obligations with respect to drawings under the
letter of credit are to be a senior debt obligation of the Company.
FUEL CONVERSION AND OTHER SERVICES - As instructed by the
Company, Williams has the obligation to deliver, on an exclusive basis,
all quantities of natural gas and fuel oil required by the Plant to
generate electricity or ancillary services, to start-up or shut-down
the plant, and to operate the Plant during any period other than a
start-up, shut-down, or required dispatch by Williams for any reason.
6. COMMITMENTS
EPC - The Company has entered into a fixed-price turnkey
agreement with the Contractor for the design, engineering, procurement
and construction of the Plant for a total adjusted contract price of
$295.7 million. As explained in Note 2, the Company prepaid a portion
of the EPC in the amount of $288.6 million on March 15, 2000. In
consideration of the prepayment the Contractor issued in favor of the
Company a letter of credit with an initial amount of $237.7 million to
be reduced over the construction period. As of December 31, 2000, the
amount of the letter of credit was $177.5 million.
MAINTENANCE SERVICES AGREEMENT - The Company has entered into
an agreement with Siemens Westinghouse Power Corporation (Siemens).
Siemens will provide the Company with specific combustion turbine
maintenance services and spare parts for an initial term of between six
and sixteen years. For the first six years of operation, the Company is
committed to pay $306 per kilowatt-hour of service. The value of this
commitment is not determinable at this time because the operational
mode Williams will require from the Company is unknown.
WATER SUPPLY - The Company has entered into a contract with
the Borough of Sayreville (the Borough) by which the Borough will
provide untreated water to the Company. The contract has a term of 30
years with an option to extend for up to four additional five-year
terms. The Company is contractually committed to a minimum annual
payment of $300,000. Based on estimated maximum usage, the Company
believes that its annual payment will not exceed approximately
$400,000.
50
INTERCONNECTION AGREEMENT - The Company has entered into an
interconnection agreement with Jersey Central Power & Light Company
d/b/a GPU Energy (GPU) to transmit the electricity generated by the
Plant to the transmission grid so that it may be sold as prescribed
under the Company's PPA. The Agreement is in effect for the life of the
Plant, yet may be terminated by mutual consent of both GPU and the
Company under certain circumstances as detailed in the agreement. Costs
associated with the agreement are based on electricity transmitted via
GPU at a variable price, the PJM (Pennsylvania/New Jersey/Maryland)
Tariff, as charged by GPU to the Company, which is comprised of both
service cost and asset recovery cost, as determined by GPU and approved
by the Federal Energy Regulatory Committee.
WATER SUPPLY PIPELINE - The Borough will design the Lagoon
Water Pipeline, Lagoon Pumping Station and Sayreville Interconnection
Number 2 in conformance with standard water system practice. The
Company is responsible for selection of a contractor and for payment of
all costs. The pipeline engineering and routing has been finalized. The
construction contract has been awarded, pipeline materials have been
procured, and the construction has commenced. The value of the pipeline
contract is approximately $1 million, none of which has been paid as of
December 31, 2000. The construction contract for the Pumping Station
has not been awarded. The value of the project is estimated to be
approximately $2.0 million.
7. RELATED PARTY TRANSACTIONS
Effective March 2000, the Company entered into a 32-year
development and construction management agreement with AES Sayreville,
L.L.C. (Sayreville), another wholly owned subsidiary of Red Oak, to
provide certain support services required by the Company for the
development and construction of the Plant. Under this agreement
Sayreville will also provide operations management services for the
Plant once commercial operation is attained. Minimum amounts payable
under the contract during the construction period are $125,000 per
month. Once commercial operation is achieved, payments for operations
management services will be approximately $400,000 per quarter.
During the construction period, the construction management
fees will be paid to Sayreville from the investment balances or from
equity funding. Through December 31, 2000, $1,250,000 in construction
management fees were incurred and charged to construction in progress.
As of December 31, 2000, $125,000 was payable to Sayreville. AES will
supply Sayreville with the personnel and services necessary to carry
out its obligations.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial
instruments have been determined using available market information.
The estimates are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The fair value of the Company's restricted investments
approximates their carrying value. The Bonds had a carrying amount of
$384 million with a fair value of approximately $413 million at
December 31, 2000.
9. SEGMENT INFORMATION
Under the provisions of Statement of Financial Accounting
Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, the Company's business is expected to be operated
as one reportable segment, with operating income or loss being the
measure of performance evaluated by the chief operating decision maker.
As described in Notes 1 and 5, the Company's primary customer will be
Williams, which is expected to provide all of the revenues of the
Company during the term of the PPA.
51
10. SUBSEQUENT EVENT
As discussed in Note 6, the Company has entered into a fixed-price turnkey
agreement with Washington Group International, Inc. (the Contractor) for the
design, engineering, procurement, and construction of the Plant.
On March 2, 2001, the Contractor filed documents with the Securities and
Exchange Commission publicly announcing that it was facing "severe near-term
liquidity problems." The Contractor stated in those documents that if it is
unable to resolve its current financial situation, it might seek protection from
its creditors under the United States Bankruptcy Code. Under the EPC agreement,
a bankruptcy filing by the Contractor constitutes an event of default.
Subsequent to March 2, 2001, the Company requested and the Contractor provided
assurances with respect to the completion of the Company's facility. In
addition, as discussed in Note 6, the Contractor has obtained a letter of credit
on behalf of the Company, which as of December 31, 2000, was approximately
$177.5 million. Furthermore, Raytheon Company, the parent of the Original
Contractor, has issued a Guaranty, effective as of October 15, 1999 in the
Company's favor that irrevocably and unconditionally guarantees the Contractor's
obligations under the EPC agreement.
If it becomes necessary to replace the Contractor, the Company may experience
significant construction delays that could extend the expected commercial
operation date beyond December 31, 2001.
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We are a Delaware limited liability company and have no employees other
than our officers. Our officers receive no compensation for the services they
provide to us or for any transaction between us and any of our affiliates. We
are managed by our board of directors under the terms of our the Amended and
Restated Limited Liability Company Agreement, dated as of November 23, 1999. The
following table sets forth the names, ages and positions of our directors and
executive officers. Our directors are elected annually and each elected director
holds office until the director's successor is elected and qualified or the
director resigns or is removed. Our officers are elected from time to time by
vote of the board of directors.
NAME AGE POSITIONS
- --------- --- ---------
John R. Ruggirello 50 President and Director
Barry J. Sharp 41 Director and Chief Financial Officer
Charles B. Falter 36 Vice President
Patricia L. Rollin 40 Vice President
Bart R. Rossi 52 Vice President
Joel Abramsom 30 Vice President
Edward C. Hall, III 41 Vice President
Kevin Polchow 39 Vice President
Michael Romaniw 31 Vice President and Treasurer
Maureen B. Shearer 36 Secretary
Roger Naill 53 Director
JOHN RUGGIRELLO has served as our Director and President since 1998.
Mr. Ruggirello is Senior Vice President of The AES Corporation. Mr. Ruggirello
also serves as the President of AES Enterprise, a business development and plant
operations division serving the Mid-Atlantic United States since 1994. Prior to
his current position, Mr. Ruggirello was plant manager of AES Beaver Valley. Mr.
Ruggirello spends approximately 20% of his time in his capacity as Senior Vice
President of The AES Corporation.
BARRY SHARP has served as our Director and Chief Financial Officer
since 1998. Mr. Sharp is currently Senior Vice President and Chief Financial
Officer of The AES Corporation. He joined The AES Corporation as Director of
Finance and Administration in 1986. Prior to The AES Corporation, he held
various positions with Arthur Anderson & Company and Marriott. Mr. Sharp spends
approximately 95% of his time in his capacity as Senior Vice President and Chief
Financial Officer of The AES Corporation.
CHARLES FALTER has served as our Vice President since 1998. Mr. Falter
was the Project Director for our project through March 15, 2000 and now works as
a Project Director on other AES projects. He joined The AES Corporation as a
Project Engineer in 1988.
PATRICIA ROLLIN has served as our Vice President since 1998. Ms. Rollin
is also a Vice President of AES Enterprise. She served as Director of Investor
Relations of The AES Corporation from 1994 through 1995. She joined The AES
Corporation Corporate Strategic Planning Group in 1984.
54
BART ROSSI has served as our Vice President since 1998. Mr. Rossi is
currently a project Engineering Director at The AES Corporation. He assumed that
position in 1996. Prior to joining The AES Corporation, Mr. Rossi served as a
Chief Engineer for Ebasco Services, Inc.
JOEL ABRAMSOM has served as our Vice President since 1998. Mr. Abramson
is currently a Project Manager of The AES Corporation and has held that position
since 1995.
EDWARD HALL, III has served as our Vice President since 1998. Mr. Hall
is currently Executive Vice President of AES Endeavor, focused on business
development in New York, New England and Canada. He joined The AES Corporation
in 1988.
KEVIN POLCHOW has served as our Vice President since 1998. Mr. Polchow
is currently the Tax Director of The AES Corporation. He assumed that position
in 1994. Prior to joining The AES Corporation, Mr. Polchow served as a Senior
Manager at Deloitte & Touche LLP.
MICHAEL ROMANIW has served as our Vice President and Treasurer since
2000. Mr. Romaniw is currently Tax Manager of The AES Corporation and has held
that position since 1999. Prior to joining The AES Corporation, Mr. Romaniw was
with Ernst & Young LLP.
MAUREEN B. SHEARER has served as our Secretary since 1999. She is
currently Corporate Paralegal of The AES Corporation and has held that position
since 1995. She joined The AES Corporation as an Executive Assistant in 1989.
Prior to joining The AES Corporation, Ms. Shearer was on active duty with the
U.S. Coast Guard.
ROGER F. NAILL has served as our Director since 1999. Mr. Naill is
Senior Vice President of The AES Corporation and heads The AES Corporation
Corporate Strategic Planning Group. He assumed that position in 1981. Mr. Naill
spends approximately 95% of his time in his capacity as Senior Vice President of
The AES Corporation.
ITEM 11. EXECUTIVE COMPENSATION
Not applicable pursuant to General Instruction I of the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable pursuant to General Instruction I of the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable pursuant to General Instruction I of the Form 10-K.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) The following documents are filed as part of this report:
1. Consolidated Financial Statements Filed: Please refer to Item
8 - Consolidated Financial Statement and Supplementary Data.
2. Consolidated Financial Statement Scheduled Filed: Please refer
to Item 8 - Consolidated Financial Statement and Supplementary
Data.
3. Exhibits Filed:
UNLESS OTHERWISE INDICATED, ALL EXHIBITS TO THIS FORM 10-K ARE INCORPORATED
HEREIN BY REFERENCE FROM THE IDENTICALLY NUMBERED EXHIBIT OF AES RED OAK,
L.L.C.'S REGISTRATION STATEMENT OF FORM S-4 (333-40478).
EXHIBIT NUMBER DESCRIPTION
3 Amended and Restated Limited Liability Company Agreement, dated as of November
23, 1999 of AES Red Oak, L.L.C.
4.1(a) Trust Indenture, dated as of March 1, 2000, by and among AES Red Oak, L.L.C.,
the Trustee and the Depositary Bank.
4.1(b) First Supplemental Indenture, dated as of March 1, 2000, by and among AES Red
Oak, L.L.C., the Trustee and the Depositary Bank.
4.2 Collateral Agency and Intercreditor Agreement, dated as of March 1, 2000, by
and among AES Red Oak, L.L.C., the Trustee, the Collateral Agent, the Debt
Service Reserve Letter of Credit Provider, the Power Purchase Agreement Letter
of Credit Provider, the Working Capital Provider and the Depositary Bank.
4.3 Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of
March 1, 2000, by and among AES Red Oak, L.L.C., the Debt Service Reserve
Letter of Credit Provider and the Banks named therein.
4.4 Power Purchase Agreement Letter of Credit and Reimbursement Agreement, dated as
of March 1, 2000, by and among AES Red Oak, L.L.C., the Power Purchase
Agreement Letter of Credit Provider and the Banks named therein.
4.5 Global Bond, dated March 15, 2000, evidencing 8.54% Senior Secured Bonds of AES
Red Oak, L.L.C., Series A due 2019 in the principal amount of $224,000,000.
4.6 Global Bond, dated March 15, 2000, evidencing 9.20% Senior Secured Bonds of AES
Red Oak, L.L.C., Series B due 2029 in the principal amount of $160,000,000.
4.7 Equity Subscription Agreement, dated as of March 1, 2000, by and among AES Red
Oak, L.L.C., AES Red Oak, Inc. and the Collateral Agent.
4.8 Working Capital Agreement, dated as of March 1, 2000, by and among AES Red Oak,
L.L.C., Working Capital Provider, and the Banks named therein.
56
EXHIBIT NUMBER DESCRIPTION
4.9 Security Agreement, dated as of March 1, 2000, by and between AES Red Oak,
L.L.C. and the Collateral Agent.
4.10 Pledge and Security Agreement, dated as of March 1, 2000, by and between AES
Red Oak, Inc. and the Collateral Agent.
4.11 Pledge and Security Agreement, dated as of March 1, 2000, by and between AES
Red Oak, L.L.C. and the Collateral Agent.
4.12 Consent to Assignment, dated as of March 1, 2000, by and between Williams
Energy Marketing & Trading Company and the Collateral Agent, and consented to
by AES Red Oak, L.L.C. (with respect to the Power Purchase Agreement).
4.13 Consent to Assignment, dated as of March 1, 2000, by and between The Williams
Companies, Inc. and the Collateral Agent, and consented to by AES Red Oak,
L.L.C. (with respect to the PPA Guaranty)
4.14 Consent to Assignment, dated as of March 1, 2000, by and between Raytheon
Engineers & Constructors, Inc. and the Collateral Agent, and consented to by
AES Red Oak, L.L.C. (with respect to the EPC Contract).
4.15 Consent to Assignment, dated as of March 1, 2000, by and between Raytheon
Company and the Collateral Agent, and consented to by AES Red Oak, L.L.C. (with
respect to the EPC Guaranty).
4.16 Consent to Assignment, dated as of March 1, 2000, by and between Siemens
Westinghouse Power Corporation and the Collateral Agent, and consented to by
AES Red Oak, L.L.C. (with respect to the Maintenance Services Agreement).
4.17 Consent to Assignment, dated as of March 1, 2000, by and between AES
Sayreville, L.L.C. and the Collateral Agent, and consented to by AES Red Oak,
L.L.C. (with respect to the Development and Operations Services Agreement).
4.18 Consent to Assignment, dated as of March 1, 2000, by and between Jersey Central
Power and Light Company d/b/a GPU Energy and the Collateral Agent, and
consented to by AES Red Oak, L.L.C. (with respect to the Interconnection
Agreement).
4.19 Consent to Assignment, dated as of March 1, 2000, by and between the Borough of
Sayreville and the Collateral Agent, and consented to by AES Red Oak, L.L.C.
(with respect to the Water Supply Agreement).
10.1 Fuel Conversion Services, Capacity and Ancillary Services Purchase Agreement,
dated as of September 17, 1999, and Amendment No. 1, dated as of February 21,
2000, by and between AES Red Oak, L.L.C. and Williams Energy Marketing &
Trading Company. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment.)
10.2(a) Agreement for Engineering, Procurement and Construction Services, dated as of
October 15, 1999, and Amendment No. 1, dated as of February 23, 2000, by and
between AES Red Oak, L.L.C. and Raytheon Engineers & Constructors, Inc.
(Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.)
10.2(b) EPC Contract Prepayment Coordination Agreement, dated as of March 14, 2000,
between AES Red Oak, L.L.C. and Raytheon Engineers and Constructors, Inc.
(Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.)
57
EXHIBIT NUMBER DESCRIPTION
10.3 Guaranty, dated as of October 15, 1999, by Raytheon Company in favor of AES Red
Oak, L.L.C. (Portions of this exhibit have been omitted pursuant to a request
for confidential treatment.)
10.4 Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services
Contract, dated as of December 8, 1999, and Amendment No. 1, dated February 15,
2000, by and between AES Red Oak, L.L.C. and Siemens Westinghouse Power
Corporation. (Portions of this exhibit have been omitted pursuant to a request
for confidential treatment.)
10.5 Development and Operations Services Agreement, dated as of March 1, 2000, by
and between AES Sayreville, L.L.C. and AES Red Oak, L.L.C.
10.7 Water Supply Agreement, dated as of December 22, 1999, by and between AES Red
Oak, L.L.C. and the Borough of Sayreville.
10.8 General Facility Transmission Interconnection Agreement, dated as of April 27,
1999, by and between Jersey Central Power & Light Company d/b/a GPU Energy and
AES Red Oak, L.L.C.
10.9 Mortgage, Security Agreement and Assignment of Leases and Income, dated as of
March 1, 2000, by and between AES Red Oak, L.L.C. and the Mortgagee.
10.10 Assignment of Leases and Income, dated as of March 1, 2000, by and between AES
Red Oak, L.L.C. and the Collateral Agent.
10.11 Financial Agreement, dated as of December 3, 1999, by and between AES Red Oak
Urban Renewal Corporation and the Borough of Sayreville.
10.12 Promissory Note, dated as of March 15, 2000, of AES Red Oak Urban Renewal
Corporation to AES Red Oak, L.L.C.
10.13 Ground Lease Agreement, dated as of March 1, 2000, by and between AES Red Oak,
L.L.C. and AES Red Oak Urban Renewal Corporation.
10.14 Sublease Agreement, dated as of March 1, 2000, by and between AES Red Oak Urban
Renewal Corporation and AES Red Oak, L.L.C.
10.15 Memorandum of Ground Lease, dated as of March 1, 2000, by and between AES Red
Oak, L.L.C. and AES Red Oak Urban Renewal Corporation.
10.16 Memorandum of Sublease, dated as of March 1, 2000, by and between AES Red Oak
Urban Renewal Corporation and AES Red Oak, L.L.C.
10.17 Construction Agency Agreement, dated as of March 1, 2000, by and between AES
Red Oak Urban Renewal Corporation and AES Red Oak, L.L.C.
10.18 Leasehold Mortgage, Security Agreement and Assignment of Leases and Income,
dated as of March 1, 2000, by and between AES Red Oak Urban Renewal Corporation
and AES Red Oak, L.L.C.
10.19 Assignment of Mortgage, dated as of March 1, 2000, by AES Red Oak, L.L.C. in
favor of the Collateral Agent.
10.20 URC Security Agreement, dated as of March 1, 2000, by and between AES Red Oak
Urban Renewal Corporation and AES Red Oak, L.L.C.
10.21 Assignment of Leases and Income, dated as of March 1, 2000, by and between AES
Red Oak Urban Renewal Corporation and AES Red Oak, L.L.C.
58
EXHIBIT NUMBER DESCRIPTION
10.22 Assignment of Assignment of Leases and Income, dated as of March 1, 2000, by
AES Red Oak, L.L.C. in favor of the Collateral Agent.
10.23 Guaranty, dated as of March 1, 2000, by The Williams Companies, Inc. in favor
of AES Red Oak, L.L.C. (PPA Guaranty). (Portions of this exhibit have been
omitted pursuant to a request for confidential treatment.)
12* Computation of Ratios of Earnings (Deficiency) to Fixed Charges
21* Subsidiaries of the Registrant
- ------------------
* Filed herewith.
b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the registrant
during the fourth quarter of the fiscal year ended
December 31, 2000.
59
SUPPLEMENTARY INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy materials have been sent to security holders
during the fiscal year ended December 31, 2000. No annual report or proxy
materials will be sent to security holders subsequent to the filing of this
annual report on Form 10-K.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AES RED OAK, L.L.C.
/s/ BARRY SHARP
--------------------------------
By: Barry Sharp
Title: Chief Financial Officer
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ BARRY SHARP Chief Financial Officer and March 28, 2001
- --------------- Director (and principal accounting
Barry Sharp officer)
/s/ JOHN RUGGIERELLO President and Director March 28, 2001
- --------------------
John Ruggierello
/s/ ROGER NAILL Director March 28, 2001
- ---------------
Roger Naill
61