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EXHIBIT 10.34
DATE: June 11, 1999
TO: NRG POWER MARKETING INC.
ATTENTION:
FAX NO:
FROM: NIAGARA MOHAWK POWER CORPORATION
RE: SWAP TRANSACTION
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Dear Ladies and Gentlemen:
The purpose of this letter agreement (this "Confirmation") is to
confirm the terms and conditions of the Transaction entered into between us on
the Trade Date specified below (the "Transaction").
This Confirmation constitutes a "Confirmation" as referred to herein,
and supplements, forms a part of and is subject to, the ISDA Master Agreement,
dated as of June 11, 1999 as amended and supplemented from time to time (the
"Agreement"), between NRG Power Marketing Inc. ("PRODUCER") and Niagara Mohawk
Power Corporation ("NIAGARA MOHAWK"). All provisions contained in the Agreement
govern this Confirmation except as expressly modified below.
The terms of the Transaction to which this Confirmation relates are as
follows:
THE OBLIGATIONS INCURRED PURSUANT TO THIS TRANSACTION SHALL REQUIRE CASH
PAYMENTS AND SHALL IN NO EVENT BE INTERPRETED TO REQUIRE THE PURCHASE OR SALE OF
ELECTRICITY.
1. General Terms:
Trade Date: June 11, 1999
Effective Date: The later of (i) the Closing Date, as such term is
defined in the Asset Sales agreement between Niagara
Mohawk and NRG Energy, Inc., or (ii) first day of the
month following the month in which the later of (i)
the NYISO goes into operation, or (ii) Niagara
Mohawk's senior notes of the series having the
longest maturity then outstanding have been rated
investment grade by (a) S&P and Moody's or (b) S&P or
Moody's and at least one other rating
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agency.
Termination Date: The fourth anniversary of the Closing Date.
Business Day: Any day other than Saturday, Sunday and any day
which is a legal holiday or a day on which banking
institutions in New York City are authorized by law
or other governmental action to close; and a
Business Day shall open at 8:00 a.m. and close at
5:00 p.m. Eastern Standard (or Daylight) time.
Calculation Agent: NIAGARA MOHAWK.
2. Payments:
Settlement Dates: The last day of each calendar month during the Term
of this Transaction.
Settlement Periods: With respect to each Settlement Date means the
period from (but excluding) the immediately
preceding Settlement Date (or, in the case of the
first Settlement Date, from and including the
Effective Date) to (and including) such Settlement
Date (or, in the case of the last Settlement Date,
to and including the Termination Date).
Payment Dates: With respect to each Settlement Date or Settlement
Period means the 25th day of the calendar month
immediately after such Settlement Date or Settlement
Period, as the case may be, subject to adjustment in
accordance with the Following Business Day
Convention.
Payment Calculations: Not less than 5 Business Days prior to each
Payment Date, the Calculation Agent shall calculate
the amounts payable by each party on such Payment
Date and shall notify the other party thereof
(including reasonable detail with respect to such
calculation).
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Payment Amounts: On each Payment Date: (i) NIAGARA MOHAWK shall pay
to PRODUCER one-twelfth of the Call Fee - Stage 1 for
the preceding Settlement Period, and (ii) PRODUCER
shall pay to NIAGARA MOHAWK an amount equal to the
sum of (A) the aggregate Capacity Payment for each
Interval during such Settlement Period and (B) the
Ancillary Services Payment for such Settlement
Period.
In addition to the foregoing, if NIAGARA MOHAWK has
exercised the Call Option with respect to any
Interval during a Settlement Period, then on the
Payment Date immediately after such Settlement Period
(i) NIAGARA MOHAWK shall pay to PRODUCER the sum of
(A) the aggregate Call Fee-Stage 2 for each such
Interval, and (B) the aggregate NIAGARA MOHAWK Call
Amount for each such Interval, and (ii) PRODUCER
shall pay to NIAGARA MOHAWK the aggregate PRODUCER
Call Amount for each such Interval.
3. Call Option Exercise:
Call Option: With respect to each Interval, NIAGARA MOHAWK shall
have the right, but not the obligation, to specify a
quantity of electricity (the "Call Quantity") as to
which the PRODUCER Call Amount and the NIAGARA Call
Amount will be calculated and will become due in
accordance with this Transaction. Notwithstanding
the foregoing, PRODUCER shall retain the right to
refuse the portion of a Call Quantity for a Unit if
the Unit is unexpectedly forced off-line or derated
sufficiently to be unable to fulfill the portion of
the Call Quantity. Any such refusal with respect to
a Call Quantity, for each Settlement Period, shall
be limited to the Decline Quantity Cap. In the
event the Decline Quantity Cap is reached, the
Interval Call Quantity schedule shall immediately
become effective in full force, PRODUCER shall
immediately notify NIAGARA MOHAWK of any such
refusal, the reason for such refusal and the Call
Quantity refused. In the event of refusal due to
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unavailability NIAGARA Mohawk shall not be required
to take the Minimum Capacity quantity. At the request
of NIAGARA MOHAWK, PRODUCER shall provide evidence of
such Unit unavailability or derate. Any exercise
which is refused in accordance herewith shall be
deemed not to have been exercised to the extent of
the Call Quantity so refused.
Call Quantities shall be subject to the following
limitations: (i) no individual Unit Call Quantity
nomination schedule can change by more than its
response rate (set forth in Schedule A hereto); (ii)
Minimum Capacity and Minimum Down Time Times (set
forth in Schedule A hereto), must be adhered to in
the nomination for Call Quantities (e.g. to adhere to
the Minimum Down Time, if a Call Quantity is
scheduled to zero, the Call Quantity cannot exceed
zero again until the Minimum Down Time is met, (iii)
the Call Quantity for an Interval is limited to the
Maximum Capacity set forth in Schedule A hereto, (iv)
the aggregate calendar year Call Quantity limit
cannot exceed the amount set forth in Schedule B.
Call Option
Exercise Procedure:
Schedule D shall be deemed to be the Call Quantity.
For Settlement Periods beyond September 2001, NIAGARA
MOHAWK shall have the right to amend Schedule D for
each Capability Period with a written notice one
month prior to each Capability Period. Such Schedule
D amendment shall not change the aggregate Call
Quantity for (i) any Capability Period (ii) any
calendar year.
For any Call Quantity refused by producer NIAGARA
MOHAWK shall have the right to make up such
quantities by the following procedure. NIAGARA MOHAWK
may exercise the Call Option with respect to any
Interval by delivery of an exercise notice to
PRODUCER (which may be delivered orally, including by
telephone). Any such notice shall specify the
relevant Interval and Call Quantity (in MWh), and
shall be given prior to 5:00 PM (New York time) on
the Friday preceding the
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week in which such Interval occurs. A week shall
consist of the period commencing with the hour ending
at 0100 on Monday, New York time and ending with the
hour ending at 2400 on Sunday, New York time.
If any notice is delivered orally, NIAGARA MOHAWK
will execute and deliver a written confirmation
confirming the substance of that notice within two
Business Days of that notice. Failure to provide
that written confirmation will not affect the
validity of that oral notice.
4. Definitions:
"Ancillary Services Payment": For each Settlement Period means an
amount equal to a Portion (as defined below) of the payments which NIAGARA
MOHAWK makes to the NYISO during such Settlement Period for Ancillary services
(including, specifically, reactive supply and voltage support, regulation and
frequency response, and operating reserves). The Portion of such payments for
each Settlement Period shall be equal to the product of (X) the ratio of the
Call Quantity during such Settlement Period divided by the public sales of
NIAGARA MOHAWK times (Y) the payments which NIAGARA MOHAWK makes to the NYISO
for such ancillary services.
"Call Amount": Shall have the meaning defined in PRODUCER Call Amount
and NIAGARA Call Amount.
"Call Fee - Stage 1": For each Settlement Period means an amount for
the applicable Unit and Settlement Period determined by the Calculation Agent
based on Schedule C hereto.
"Call Fee - Stage 2": For each Interval during which the Call Option is
exercised, an amount for the applicable Unit and Interval determined by the
Calculation Agent based on Schedule C hereto; provided that (i) a warm start
Call Fee - Stage 2 shall apply, and a cold start Call Fee shall not apply, with
respect to an Interval if the Call Option has been exercised and the Call
Quantity was zero for the preceding Intervals but was greater than zero for any
Interval during the preceding 10 Intervals, and (ii) a cold start Call Fee -
Stage 2 shall apply, and warm start Call Fee - Stage 2 shall not apply, if the
Call Option has been exercised and the Call Quantity was zero for the
preceding 10 Intervals. Notwithstanding the above, a Call Fee - Stage 2 shall
not apply if the Call Option was exercised in the preceding interval.
"Call Quantity": Shall have the meaning described in Article 3 on page
3.
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"Capability Period": Shall mean each of two six-month intervals whereby
the winter capability period includes the calendar months of November through
April and the summer capability period includes the calendar months of May
through October.
"Capacity": For each Interval means the amount of capacity set forth in
Schedule A hereto under the column entitled Max Capacity.
"Capacity Payment": For each Interval means the Market Capacity Price
in $/MW multiplied by the Capacity for such Interval.
"Decline Quantity Cap": For each Settlement Period, the PRODUCER's
right to decline the Call Quantity due to unexpected forced outage or derate
shall be limited on a previous six-Scheduled Quantity Month basis. The Decline
Quantity Cap is defined as the Maximum Capacity set forth in Schedule A times
the Intervals that make up the previous six Scheduled Quantity Months (adjusted
for leap year) times the Equivalent Forced Outage Rate ("EFOR") set forth in
Schedule A. The declined quantity shall be calculated on a rolling Interval
basis during the previous six-Scheduled Quantity Months (for example, hour
ending 1400 on February 15, last year through hour ending 1300 February 15, this
year including all of the Scheduled Quantity Months). Furthermore, it is
understood that on the Closing Date, it shall be deemed that the previous
six-Scheduled Quantity Months have an EFOR as listed in Schedule A.
"Interval": one hour.
"Market Capacity Price": Shall equal zero at any time when (i) no
separate market for capacity exists, or (ii) capacity obligations for load
serving entities cease to exist in the NYISO Tariff. Commencing on the first
day of the month following the calendar month in which the NYISO is initially
established and operating and only if there then exists a separate market for
capacity, the Market Capacity Price shall mean the price paid to producers or
by load serving entities for capacity at the respective generator plant bus-
bar location, established by the most recent NYISO capacity auction.
N
E [P(i) * V(i))/H(i)]
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$/MWh(1) = ___________
_________________________
(1) As an example, consider three tranches: (1) 2,100 MW at $1,000/MW
per month, (2) 2,000 MW at $2,700/MW per 3-month, (3) 6,000 MW at $6,600/MW per
6-month. The resultant price is equal to the following:
$/MWh = { ($1,000/MW*2,100 MW)/720 hr =$1.43/MWh
+ ($2,700/MW*2,000 MW)/2,160 hr
+ ($6,600/MW*6,000 MW)/4,380 hr}
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N
E [V(i)]
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where:
"N" is the number of individual Capacity Tranches sold at auction;
"P(i)", is the sales price (in S/MW) of the ith Capacity Tranche sold
at auction;
"H(i)", is the capacity entitlement (in hours) corresponding to the
ith Capacity Tranche sold at auction;
"V(i)", is volume of Capacity (in MW) in the Capacity Tranche sold at
auction; and
"Capacity Tranche" means an individual block of auction dates and hours
of capacity entitlement.
Prior to the establishment of the Market Capacity Price, and if
capacity obligations for load serving entities exist in the NYISO Tariff then
NIAGARA MOHAWK shall retain the right to claim the Capacity, and PRODUCER must
provide such Capacity, for NIAGARA MOHAWK's capacity requirements to the NYISO.
In the event the PRODUCER is unable to provide Capacity acceptable to the NYISO
in the amount claimed by NIAGARA MOHAWK from its own sources, the PRODUCER must
procure the CAPACITY from the market and provide it to NIAGARA MOHAWK at no cost
to NIAGARA MOHAWK. In the event the PRODUCER fails to provide such Capacity,
PRODUCER shall be charged a penalty equivalent to the greater of (i) the penalty
rate assessed by the NYISO, or (ii) the capacity rate component of NIAGARA
MOHAWK's Service Classification Number 6 Tariff.
"Market Price": Means for any Interval commencing on the first day of
the month following the calendar month in which the NYISO Establishment Date
occurs, the day ahead locational based market price ("LBMP") paid to producers
for energy, at the Unit's bus bar or the region in which the Unit's bus bar is
located, specified and published by the NYISO.
"NIAGARA MOHAWK Call Amount": For each Interval during which the Call
Option is exercised, an amount equal to the product of the Call Quantity for
such Interval multiplied by the Fixed Price ("P") for such Interval set forth in
Schedule C hereto.
"NYISO" is the New York Independent System Operator which operates the
bulk power electric system pursuant to the FERC approved tariff which was filed
by the
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(2,100 MW + 2,000 MW + 6,000 MW)
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members of the New York Power Pool on December 19, 1998.
"PRODUCER Call Amount": For any Interval during which the Call Option
is exercised, an amount equal to the product of the Call Quantity for such
Interval multiplied by the Market Price for such Interval.
"PSC": Shall mean the New York Public Service Commission.
"Scheduled Quantity Month": Shall mean any calendar month in which a
Call Quantity is pre-scheduled pursuant to Schedule D; specifically the calendar
months of June, July, August, December, January, February, and the month of
March during the year 1999, and 2000 for Huntley, but excluding the month of
December during the year 2002 for Dunkirk.
"Unit": Shall be PRODUCER's electric generating units as shown in
Schedule A.
5. Further Assurances
Subject to the terms and conditions contained herein, upon the request
from time to time of either party hereto, the other party shall promptly execute
and deliver or use its reasonable best efforts to cause to be executed and
delivered, such consents, approvals and other instruments, including, without
limitation, assignments of this Transaction as collateral, estoppel certificates
and utility certificates, in form and substance reasonably satisfactory to both
parties and their respective counsel to implement any financing or other
material business transaction undertaken by the requesting party.
6. Account Details:
Account Details of NIAGARA MOHAWK:
Bank name: Citibank
Address: 399 Park Avenue
New York, New York 10022
ABA #:
Account name: Niagara Mohawk Power Corporation
Account #:
Account Details of PRODUCER:
Bank name: LaSalle National Bank
Address: Chicago, IL
ABA #:
Account name: NNRG Power Marketing Inc.
Account #:
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Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us or by sending to us.
Yours sincerely,
NIAGARA MOHAWK POWER CORPORATION
By: Clement Nadeau
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Name: CLEMENT NADEAU
Title: Vice President
Confirmed as of the
date first above written:
NRG POWER MARKETING INC.
By: James J. Bender
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Name: James J. Bender
Title: Vice President
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