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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Numbers 333-84609 and 333-84609-01
LSP ENERGY LIMITED PARTNERSHIP
LSP BATESVILLE FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3422042
Delaware 22-3615403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, 20th Floor East Brunswick, N.J. 08816 (732) 249-6750
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes No X
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LSP ENERGY LIMITED PARTNERSHIP
LSP BATESVILLE FUNDING CORPORATION
FORM 10-Q INDEX
PAGE
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PART I
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 2
Item 3. Qualitative and Quantitative Disclosures about Market Risk 11
PART II
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Financial Statement Index F-1
Exhibits Index EI-1
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PART I/ITEM 1. FINANCIAL STATEMENTS
See financial statements commencing at F-1. These unaudited financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. While LSP Energy Limited Partnership, (the "Partnership") and LSP
Batesville Funding Corporation ("Funding") believe that the disclosures made are
adequate to make the information presented not misleading, these financial
statements should be read in conjunction with the audited financial statements
included in the Form S-4 as of December 31, 1999 and 1998 and for each of the
three years in the three year period ended December 31, 1999, filed with the
Commission by the Partnership and Funding.
PART I/ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Partnership is a Delaware limited partnership formed in February
1996 to develop, construct, own and operate a gas-fired electric generating
facility with a design capacity of approximately 837 megawatts to be located in
Batesville, Mississippi (the "Facility"). The 1% general partner of the
Partnership is LSP Energy, Inc. ("Energy"). The 99% limited partner of the
Partnership is LSP Batesville Holding, LLC ("Holding"), a Delaware limited
liability company established on July 29, 1998. Granite Power Partners II, L.P.
("Granite"), a Delaware limited partnership, holds a 48.63% membership interest
in Holding and Cogentrix/Batesville, LLC ("Cogentrix"), a Delaware limited
liability company, holds a 52.15% membership interest in Holding.
LSP Batesville Funding Corporation ("Funding") was established on
August 3, 1998. Funding's business purpose is limited to maintaining its
organization and activities necessary to facilitate the acquisition of financing
by the Partnership from the institutional debt market and to offer debt
securities. Funding is wholly owned by Holding.
Since its formation in 1996, the Partnership has been developing and
constructing the Facility. In addition, up until November 1999, the Partnership
was developing and constructing the Panola County gas and water infrastructure
that the Facility will use under contracts with three construction contractors.
In November 1999, the Partnership transferred to Panola County those
construction contracts, all of the completed portions of the Panola County
infrastructure, all of the Panola County infrastructure work in progress, real
estate rights related to the Panola County infrastructure and permits related to
the Panola County infrastructure. In exchange for that transfer, the State of
Mississippi agreed to reimburse the Partnership for the amounts that it spent on
(1) the development of the Panola County infrastructure, (2) the acquisition of
Panola County infrastructure related easements and (3) construction of the
Panola County infrastructure from April 11, 1999 until the Partnership
transferred the Panola County infrastructure to Panola County. In addition,
Panola County is now obligated to pay the Panola County infrastructure
construction contractors the amounts still due to those contractors under their
contracts.
The Facility has not yet generated any operating revenues. The
Partnership expects that the total cost of developing, constructing and
financing the Facility and the Panola County infrastructure will be
approximately $396,406,000. The Partnership capitalized the costs pertaining to
the construction of the Facility and the Panola County infrastructure, net of
the Panola County infrastructure reimbursement funds of $14,278,000 as property
and construction in progress and the costs pertaining to the financing of the
Facility and the Panola County infrastructure as debt issuance and financing
costs, and the Partnership has included these items as assets on its balance
sheets.
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RESULTS OF OPERATIONS
The Partnership expensed the project development costs not directly
related to the construction and financing of the Facility. For the three months
ended March 31, 2000 project development expenses not directly related to the
construction, financing and operations and maintenance of the Facility
approximated $176,000 which amount consisted primarily of approximately $100,000
of management fees and approximately $62,000 of labor charges, related benefits
and taxes and other management expenses incurred under the management services
agreement with LS Power Management, LLC ("LSP Management").
For the three months ended March 31, 1999 project development expenses
not directly related to the construction, financing and operations and
maintenance of the Facility approximated $83,000, which amount consisted
primarily of legal fees of approximately $54,000 pertaining to contract
negotiations and regulatory matters and approximately $29,000 of labor charges,
related benefits and taxes and other management expenses incurred under the
management services agreement with LSP Management.
Operations and maintenance expenses for the three months ended March
31, 2000 approximated $466,000, which amount consisted primarily of costs
incurred under the operations and maintenance agreement with Cogentrix
Batesville Operations, LLC ("Cogentrix Batesville Operations"). These costs
consist primarily of approximately $243,000 of Cogentrix Batesville Operations
labor charges, related taxes and benefits and $117,000 of precommencement
services fees.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership is using the net proceeds from the issuance of the two
series of Senior Secured Bonds (the "Bonds"), $54,000,000 of equity
contributions that the Partnership will receive from Holding from time to time,
and the reimbursement payments that the Partnership has and will receive from
the State of Mississippi to pay the costs of developing, constructing and
financing the Facility and the Panola County infrastructure.
As of March 31, 2000, the Partnership's principal sources of liquidity
were approximately $5,084,000 of remaining proceeds from the issuance of the
Bonds, $14,278,000 of Panola County infrastructure reimbursement funds received
from the State of Mississippi, plus investment earnings on such funds of
approximately $3,645,000, and $54,000,000 of equity contributions that the
Partnership will receive from Holding from time to time after the Partnership
has spent all of the proceeds of the Bonds. The remaining proceeds from the
issuance of the Bonds and the Panola County infrastructure reimbursement funds
and related interest are held by the trustee in a construction account and are
invested primarily in short term commercial paper rated at least A-1 by Standard
& Poor's Rating Group or at least P-1 by Moody's Investors Service, Inc.
Holding's obligation to contribute equity under its equity contribution
agreement is supported by a letter of credit naming Cogentrix Energy, Inc. as
the account party. This letter of credit has been issued by a bank rated at
least A-2 by Moody's Investors Service, Inc. and at least A by Standard & Poor's
Rating Group.
Total estimated cost of the Facility and Panola County infrastructure
costs, and the Facility and Panola County infrastructure costs incurred as of
March 31, 2000, by major category are as follows:
<TABLE>
<CAPTION>
COSTS INCURRED
TOTAL ESTIMATED AS OF
COSTS MARCH 31, 2000
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<S> <C> <C>
Construction of plant ................................ $245,148,000 $235,105,000
Electrical and gas interconnection costs ............. 22,340,000 19,042,000
Electrical facilities ................................ 9,250,000 9,224,000
Infrastructure costs ................................. 18,618,000 17,338,000
Interest expense during construction ................. 27,943,000 22,590,000
Debt service reserve ................................. 12,551,000 --
Contingency .......................................... 17,265,000 631,000
Development fees and financing costs ................. 28,500,000 28,468,000
Spare parts, equipment and material .................. 3,623,000 2,987,000
Construction management .............................. 1,987,000 1,723,000
Operations and maintenance ........................... 1,900,000 1,715,000
Casualty risk insurance .............................. 1,406,000 1,406,000
All other costs ...................................... 5,875,000 3,261,000
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Total ........................................... $396,406,000 $343,490,000
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</TABLE>
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As of March 31, 2000, costs incurred on the Facility and the Panola
County infrastructure were approximately $343,490,000. Included in this amount
is approximately $314,944,000, net of the Panola County infrastructure
reimbursement funds of approximately $14,278,000, of property and construction
in progress, approximately $10,302,000 of debt issuance and financing costs and
approximately $1,366,000 of inventory and other current assets. In addition,
$2,600,000 of costs incurred has been expensed as of March 31, 2000. As of March
31, 2000, the Partnership has expended approximately $320,333,000 of cash.
Costs expensed from inception through March 31, 2000 are comprised
primarily of $671,000, $1,239,000 and $507,000 of costs incurred for the
management services agreement with LSP Management, the operations and
maintenance agreement with Cogentrix Batesville Operations and legal fees
pertaining to contract negotiations and regulatory matters, respectively. Costs
incurred under the management services agreement with LSP Management and the
operations and maintenance agreement with Cogentrix Batesville Operations are
components of the construction management and operations and maintenance
categories, respectively, in the table above. Legal fees are a component of the
all other costs category. Other components of the all other costs category
include expenses related to land and easements and consultant fees.
BVZ Power Partners-Batesville ("BVZ Power Partners") anticipates that
construction of the Facility will be completed during the second or third
quarter of 2000.
FACILITY CONSTRUCTION COSTS
BVZ Power Partners is constructing the Facility under a $240,357,000
construction contract, excluding sales and use tax. BVZ Power Partners has
committed to completing the construction and start-up to specified performance
levels of the two VEPCO generating units and the Aquila generating unit on or
prior to July 16, 2000, July 26, 2000, and July 31, 2000, respectively, unless
these dates are adjusted in accordance with the construction contract. During
the three months ended March 31, 2000, the Partnership incurred approximately
$7,769,000 of costs under the construction contract with BVZ Power Partners. As
of March 31, 2000, BVZ Power Partners estimated that its engineering,
procurement and construction of the Facility was about 96% complete, and total
costs incurred were approximately $230,433,000, including approximately
$11,393,000 of retainage. Retainage is that contractually specified percentage
of the contract value that is withheld from the current payment due to the
construction contractor until the construction contractor completes its work
under the construction contract.
Lauren Constructors, Inc. ("Lauren Constructors") is constructing the
Facility's water pretreatment system. The water pretreatment system is designed
to ensure that water supplied to the Facility is of the quality specified in the
construction contract with BVZ Power Partners. The lump sum price for this
contract is approximately $1,755,000, including change orders. During the three
months ended March 31, 2000, the Partnership incurred approximately $807,000 of
costs under the water pretreatment system contract with Lauren Constructors. As
of March 31, 2000, approximately $1,014,000 of the contract has been completed
and invoiced to the Partnership, including approximately $87,700 of retainage.
The water pretreatment system became operational during April 2000 and Lauren
Constructors anticipates construction of the water pretreatment system will be
completed prior to the end of May 2000.
Kruger, Inc. ("Kruger") is the supplier of the water pretreatment
system equipment. The lump sum price for this contract is about $415,000, which
includes all costs associated with the engineering, manufacturing and delivery
of the water pretreatment system equipment. The water pretreatment equipment was
delivered to the Facility during January 2000. During the three months ended
March 31, 2000, the Partnership incurred approximately $209,000 of costs under
the contract with Kruger. As of March 31, 2000, approximately $375,000 of the
contract had been completed and invoiced to the Partnership, including
approximately $19,700 of retainage.
At March 31, 2000 and December 31, 1999, the Partnership had
approximately $19,088,000 and $16,299,000, respectively, of outstanding
invoices, including retainage, under these Facility construction contracts.
ELECTRICAL AND GAS INTERCONNECTION COSTS
The Partnership is paying the costs of the interconnection facilities
and system upgrades that are being constructed by the Tennessee Valley Authority
and Entergy Mississippi, Inc.
The costs of the Tennessee Valley Authority interconnection facilities
and system upgrades are approximately $4,000,000 and $9,500,000 respectively. As
of March 31, 2000 and December 31, 1999, approximately $12,556,000 of these
costs had been invoiced to the Partnership by the Tennessee Valley Authority.
The costs of the Entergy
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interconnection facilities and system upgrades are approximately $1,100,000 and
$7,100,000, respectively. As of March 31, 2000 and December 31, 1999
approximately $6,286,000 of these costs had been invoiced to the Partnership by
Entergy.
At March 31, 2000 there were no outstanding invoices under these
contracts. At December 31, 1999, the Partnership had approximately $3,757,000 of
outstanding invoices, respectively, under these contracts.
The Partnership is entitled to receive system upgrade credits in the
amount of the incremental revenue received by the Tennessee Valley Authority and
Entergy for future transmission services procured for the delivery of energy
from the Facility. The amount of these credits, if any, may not exceed the total
costs of the system upgrades paid for by the Partnership.
ELECTRICAL FACILITIES COSTS
Lauren Constructors, Inc. constructed the Partnership's electrical
substation and transmission lines that interconnect with the Tennessee Valley
Authority and Entergy transmission systems. The lump sum price of this contract
is approximately $4,760,000, including change orders. As of March 31, 2000, the
total contract value was invoiced to the Partnership. As of April 30, 2000, this
construction contract was completed.
North American Transformer, Inc. supplied four single-phase
transformers that are incorporated into the Partnership's electrical substation.
The lump sum price of this contract is approximately $3,683,000. As of March 31,
2000, the total contract value was invoiced to the Partnership. All four
transformers have been installed, tested and energized.
Siemens Power Transmission and Distribution, LLC supplied thirteen
circuit breakers that are incorporated into the Partnership's electrical
substation. The lump sum price of this contract is approximately $722,000. As of
March 31, 2000, the total contract value was invoiced to the Partnership. All
the circuit breakers have been delivered and installed within the electrical
substation.
At March 31, 2000 and December 31, 1999 the Partnership had
approximately $56,600 and $782,000 of outstanding invoices, respectively, under
these contracts.
PANOLA COUNTY INFRASTRUCTURE COSTS
WATER
Robinson Mechanical Contractors, Inc. is constructing the intake
facilities that will draw water from Enid Lake and pump it to the Facility. The
lump sum price of this contract is approximately $5,256,000, including change
orders. As of December 31, 1999 total costs incurred by the Partnership were
approximately $4,080,000. As of March 31, 2000 and December 31, 1999, the
Partnership had approximately $150,000 of outstanding retainage invoices under
this contract. The Partnership transferred this contract to Panola County in
November 1999.
Garney Companies, Inc. has constructed a water supply pipeline to
transport water from Lake Enid to the Facility and a wastewater discharge
pipeline to transport wastewater from the Facility to the Little Tallahatchie
River. The lump sum price of this contract is approximately $4,528,000,
including change orders. The water supply and wastewater discharge pipelines
were tested and declared complete on August 5, 1999. As December 31, 1999 the
total contract value had been invoiced to the Partnership. As of March 31, 2000
and December 31, 1999, the Partnership had approximately $20,000 of outstanding
retainge invoices under this contract. The Partnership transferred this contract
to Panola County in November 1999. As of April 30, 2000, this construction
contract was completed.
GAS
Big Warrior Corporation is constructing a lateral gas pipeline and
related facilities to transport natural gas from two interstate gas pipelines to
the Facility. The lump sum price of this contract is approximately $8,565,000,
including change orders. Construction of the pipeline has been sufficiently
completed to allow delivery of fuel gas to the Facility as necessary to support
equipment testing and startup. As of December 31, 1999 total costs incurred by
the Partnership were approximately $8,450,000. As of March 31, 2000 and December
31, 1999, the Partnership had no outstanding invoices payable to Big Warrior
under this contract. The Partnership transferred this contract to Panola County
in November 1999.
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INTEREST COSTS
During construction, the Partnership capitalizes interest costs net of
interest income on excess proceeds from loans and Bonds. As of March 31, 2000
and December 31, 1999, capitalized interest was approximately $22,590,000 and
$16,777,000, respectively. Cash paid for interest was approximately $16,352,000,
$1,664,000 and $3,172,000 for the three months ended March 31, 2000, 1999 and
for the year ended December 31, 1999, respectively, and approximately
$20,950,000 for the period February 7, 1996 (inception) to March 31, 2000.
Accrued interest payable as of December 31, 1999 was approximately $15,345,000.
This amount plus interest through January 15, 2000 of approximately $975,000 was
paid on January 15, 2000. These amounts were paid from the net proceeds of the
Bonds and the Panola County infrastructure reimbursement funds, which are on
deposit in the Partnership's construction account. The bondholders and the
Partnership's other senior secured lenders have a security interest in the
construction account.
SPARE PARTS, EQUIPMENT AND MATERIALS
Through a letter agreement dated July 20, 1998, the Partnership has
committed to purchase and Westinghouse Power Generation has agreed to sell to
the Partnership combustion turbine parts for the Facility. The price for the
initial order of parts is approximately $2,096,000. The Partnership will receive
a 20% discount from the original agreement price adjusted for inflation for any
subsequent orders. As of March 31, 2000 and December 31, 1999 the Partnership
has purchased and received approximately $970,000 and $734,000, respectively, of
spare parts under this agreement.
CONSTRUCTION MANAGEMENT
LSP Management provides management services to the Partnership under a
management services agreement. Under this management services agreement, LSP
Management manages the Partnership's business affairs during the construction
and operation of the Facility. LSP Management is reimbursed for its reasonable
and necessary expenses incurred in performing its services and also receives a
monthly management fee of approximately $33,300 during the construction and
operation of the Facility. As of March 31, 2000, LSP Management had billed the
Partnership approximately $1,723,000 under the management services agreement
since inception. Management service costs not directly associated with the
construction of the Facility of approximately $671,000 have been expensed.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under a long-term operations
and maintenance agreement with Cogentrix Batesville Operations. The initial term
of the operations and maintenance agreement is 27 years. Under the terms of the
agreement the Partnership is required to pay Cogentrix Batesville Operations a
fixed fee of $390,000, payable in ten monthly installments, for services
provided during the construction of the Facility and a fixed monthly fee of
approximately $42,000 during the operation of the Facility. The Partnership also
is required to reimburse Cogentrix Batesville Operations for all labor costs,
including payroll and taxes, subcontractor costs and other costs deemed
reimbursable by the Partnership. As of March 31, 2000, Cogentrix Batesville
Operations had billed the Partnership approximately $1,716,000 under the
operations and maintenance agreement since inception. Costs incurred under this
agreement not directly associated with the construction of the Facility of
approximately $1,239,000 have been expensed.
CONTINGENCY
The Partnership's original project budget included a line item, which
the Partnership refers to as "contingency", of approximately $10,649,000 that is
designed to cover things like change orders under the various construction
contracts, the cost of fuel consumed by the Facility during testing in excess of
the revenue received from the sale of test energy (see below) and other
increased costs due to force majeure and other events that may increase the
Partnership's expenses. As of March 31, 2000, the Partnership had reduced its
available contingency budget amount by approximately $1,421,000 for change
orders under the Partnership's various construction contracts, by approximately
$2,330,000 for the cost of the water pretreatment contract, by $1,500,000 for
the Partnership's future payment to Yalobusha County under the Partnership's
contract with it, and by approximately $4,539,000 for budget overruns.
Offsetting these reductions is an increase to the contingency budget amount of
approximately $16,406,000 as a result of (1) the Panola County infrastructure
reimbursement payments that have and will be made to the Partnership by the
State of Mississippi under the previously described arrangements and (2) the
Partnership's reallocation of the amounts that the Partnership had previously
allocated to the Panola County infrastructure construction line item of the
Partnership's budget and have not yet spent, because Panola County is now
obligated to pay amounts due under the Panola County infrastructure construction
contracts.
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Under the terms of the Power Purchase Agreement ("VEPCO PPA") with
Virginia Electric and Power Company ("VEPCO"), VEPCO can be obligated to provide
natural gas for the startup and commissioning of each of its generating units.
The Partnership is in turn obligated to reimburse VEPCO for the delivered cost
of such natural gas. As of March 31, 2000, the Partnership has purchased
approximately $871,000 of natural gas from VEPCO for the start-up and
commissioning of each of its generating units. This amount has been recorded as
a component of construction in progress in the accompanying March 31, 2000
balance sheet.
Effective February 25, 2000, the Partnership entered into a power
purchase agreement with Tennessee Valley Authority ("TVA") for the sale of test
energy generated during startup and commissioning of the Facility ("Test Energy
Agreement"). Under the terms of the Test Energy Agreement, TVA will purchase all
test energy generated by the Facility at a cost equal to the lower of (a)
$21.29/MWh during on peak hours, $16.74/MWh during off peak hours, and (b) 90%
of TVA's decremental system cost. The Test Energy Agreement will remain in
effect until the Partnership declares that testing of the generating units has
been completed. As of March 31, 2000, the Partnership has recorded approximately
$240,000 in revenue from the sale of test energy to TVA. This amount has been
recorded as a component of construction in progress in the accompanying March
31, 2000 balance sheet.
If cost overruns are less than the amount of the contingency, the
Partnership will be able to distribute unused contingency if the Partnership
satisfies the distribution conditions contained in the financing documents.
INSURANCE
The Partnership is required to maintain casualty risk insurance during
the construction period, including delayed opening insurance covering a period
of approximately 18 months with a 30-day deductible per occurrence. The cost of
this insurance was approximately $1,406,000.
As with any power generation facility, the construction of the Facility
involves certain risks, including shortages of labor, work stoppages, labor
disputes, weather interference, engineering, environmental, permitting and
unanticipated cost increases for reasons beyond the Partnership's and its
construction contractors' control. The occurrence of one or more of these events
could significantly increase the Partnership's expenses, which could adversely
impact the Partnership's ability to make payments of principal and interest on
the Bonds and other debt when due. Not all risks are insured and the proceeds
from insurance applicable to covered risks may not be adequate to cover the
Partnership's increased expenses.
POST-COMPLETION LIQUIDITY
Subsequent to the completion of the Facility, the Partnership's primary
sources of liquidity will be two long-term power purchase agreements for the
sale of the capacity of and electric energy from the facility and any remaining
amounts in the Partnership's contingency. One of these power purchase agreements
is with VEPCO and covers the sale of the capacity of and electric energy from
two of the Partnership's generating units for an initial term of 13 years, which
VEPCO can extend at its option for an additional 12 years. The other agreement
is with Aquila Power Corporation ("Aquila") and UtiliCorp United, Inc.
("Utilicorp") and covers the sale of the capacity of and electric energy from
the Partnership's other generating unit for an initial term of 15 years and
seven months, which Aquila can extend at its option for an additional five
years.
Both of these power purchase agreements allow the power purchasers to
dispatch the generating units the Partnership has dedicated to them, meaning
that the power purchasers have the right to control how much electricity they
want their dedicated units to produce. However, even if the Facility is not
dispatched at all by Virginia Power and Aquila, they will still have to pay us
the reservation payment as provided under the power purchase agreements.
The Partnership has agreed with VEPCO and Aquila that their respective
generating units will be able to begin delivering power to them by June 1, 2000,
which date may be extended as a result of certain excused delays. However, BVZ
Power Partners has not guaranteed that it will substantially complete the
Facility by this date. Instead, BVZ Power Partners has guaranteed to
substantially complete the two units that will provide power to VEPCO by July
16, 2000 and July 26, 2000 and to substantially complete the unit that will
provide power to Aquila by July 31, 2000. Each of these dates may be extended
under the construction contract in some circumstances to give BVZ Power Partners
more time to substantially complete the units.
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The Partnership has received a force majeure notice from BVZ Power
Partners and ABB Power Generation the steam turbine generator manufacturer, with
respect to transportation delays incurred during the delivery of one of the
VEPCO unit's steam turbine generators to the Facility. The Partnership has
requested that ABB Power Generation provide additional information to support
the claim of force majeure. In response to the Partnership's request ABB Power
Generation has recently provided information indicating a total of 21 days of
delay and an 18 day claim of force majeure for delay in the delivery of the
steam turbine generator. BVZ Power Partners has stated that it is working extra
hours, multiple shifts and weekends in an attempt to meet its originally
projected target completion dates. If it is determined that the delay in the
delivery of the steam turbine constitutes a force majeure event under the BVZ
Power Partners contract, BVZ Power Partners would be entitled to a day for day
extension of the guaranteed completion date with respect to that VEPCO unit. The
Partnership has informed VEPCO of the occurrence of a potential force majeure
event as a result of a delay in the delivery of the VEPCO unit's steam turbine
generator that was beyond the Partnership's reasonable control and without the
Partnership's fault or negligence. If it is determined that any portion of the
delay in the delivery of the steam turbine constitutes a force majeure event
under the VEPCO power purchase agreement, the date that the Partnership is
required to deliver power under the VEPCO power purchase agreement would be
extended day for day for the number of days of the force majeure event. The
Partnership is currently evaluating all information relative to this claim of
force majeure to determine if force majeure relief is warranted. A final
resolution of the issue has not yet occurred.
On April 1, 2000, BVZ Power Partners curtailed start-up and
commissioning on one of the VEPCO units as a result of a water chemistry
excursion, which occurred during operations to establish steam purity.
Subsequently, BVZ Power Partners determined that the Facility water treatment
system required maintenance due to water treatment system degradation. Following
a three-week outage to perform maintenance on several plant systems, the VEPCO
unit was restarted and steam purity was established. At the conclusion of the
outage, BVZ Power Partners issued a contract change notification requesting a
21-day schedule extension for the VEPCO unit, a three-day schedule extension for
the other VEPCO unit, and reimbursement for approximately $200,000 in costs. The
Partnership does not feel that the request for a schedule modification or a
contract price change is warranted. The Partnership is currently investigating
the claim and will issue a formal response to the request.
During a routine inspection of the second VEPCO unit combustion
turbine, damage to the row one compressor blades was discovered. The combustion
turbine manufacturer was notified and additional technical support has been
dispatched to the Facility to determine the cause and extent of the damage and
assist in repairs. At this time, the impact on the construction schedule for the
second VEPCO unit has not been determined.
A gap of 46 to 61 days currently exists between the guaranteed
completion dates under the BVZ Power Partners construction contract and the
guaranteed power delivery dates under the power purchase agreements. This gap
may be increased if BVZ Power Partners is successful in its claim that the steam
turbine delay constitutes a force majeure event under the BVZ Power Partners
construction contract and the Partnership is unsuccessful in its claim that the
steam turbine delay constitutes a force majeure event under the VEPCO power
purchase agreement. This gap may also be increased if the Partnership determines
that any portion of BVZ's requested schedule extensions for the VEPCO units is
warranted. This gap, and any further delay in construction and start-up of the
Facility beyond June 1, 2000, may obligate the Partnership to:
(1)provide replacement power to VEPCO or reimburse VEPCO for any
incremental replacement power costs during the period of delay, up to a maximum
of $11,320,000 and
(2)provide replacement power to Aquila, reimburse Aquila for any
incremental replacement power cost during the period of delay, or incur an
adjustment to the reservation payment payable to us under the Aquila power
purchase agreement.
The current construction schedule provided to us by BVZ Power Partners
anticipates that the construction and start-up of the two VEPCO units and the
Aquila unit will occur on May 31, 2000, June 14, 2000 and June 29, 2000,
respectively. The Partnership has notified both VEPCO and Aquila of these
revised dates. Based upon the estimated completion date of June 14, 2000 for one
of the VEPCO Units the Partnership will be obligated for the cost of replacement
power for the period of delay from June 1, 2000 to the actual completion date of
the VEPCO unit. The Partnership has notified VEPCO that the Partnership will
elect to reimburse VEPCO for any incremental replacement power costs during the
period of delay from June 1, 2000 to the actual completion date of the VEPCO
unit. The Partnership has also notified Aquila that it will elect to incur an
adjustment to the reservation payment to be received for the period of delay
from June 1, 2000 to the actual completion date of the Aquila unit under the
Aquila PPA. The estimated liability that may result from this period of delay,
if any, cannot presently be determined.
8
<PAGE>
The Partnership and BVZ Power Partners executed a change order to the
construction contract to provide additional incentives to BVZ Power Partners for
accelerating the substantial completion of each of the three generating units at
the Facility. The maximum cost of this change order is capped at $1,500,000,
that is $500,000 for each generating unit to achieve substantial completion on
or before June 1, 2000 or $25,000 for each day of schedule improvement from
June 6, 2000 for one of the VEPCO units, June 16, 2000 for the second VEPCO unit
and June 21, 2000 for the Aquila unit up to June 1, 2000.
While BVZ Power Partners will be obligated to pay the Partnership
liquidated damages for any failure to complete the construction and start-up of
the Facility on or prior to one day after the guaranteed completion dates, no
delay damages will be due from BVZ Power Partners with respect to any unit
during the respective gap periods described above. In addition, because the
delay liquidated damages are limited, the Partnership cannot be assured that the
delay liquidated damages will fully compensate the Partnership for replacement
power costs or other costs associated with delays for which BVZ Power Partners
is responsible.
The Partnership is required to provide security to support the
Partnership's obligations under the VEPCO power purchase agreement. The
Partnership has satisfied this requirement by providing letters of credit for
the benefit of VEPCO. The VEPCO letters of credit have an initial face amount
of $5,660,000. This amount will increase to a maximum of $11,320,000 if the
Partnership fails to meet certain milestones under the VEPCO power purchase
agreement. Prior to the commercial operation date for the VEPCO dedicated
units, the VEPCO letters of credit will not be replenished if they are drawn
upon. However, the Partnership will be required to reimburse the issuing bank
if these letters of credit are drawn. Upon the commercial operation date for
the VEPCO dedicated units, the VEPCO letters of credit will be adjusted to a
face amount of $5,660,000 and will be subject to replenishment if drawn.
Again, the Partnership will be required to reimburse the issuing bank if
these letters of credit are drawn.
The Partnership also may be required to provide security to support the
Partnership's obligations under the Aquila power purchase agreement. This
security would be in the form of cash, a surety bond, or a letter of credit or
guarantee from an investment grade entity. If the Partnership's debt service
coverage ratio for each of the previous four consecutive calendar quarters is
less than 1.25 to 1.00 then the Partnership must provide Aquila, upon their
request, reasonable security for the Partnership's obligations. The security
must be in an amount equal to $5.00 per kilowatt of the contract capacity or
approximately $1,300,000. The Partnership must maintain this security until the
earlier of the date on which (1) the Partnership provides Aquila documentation
that the Partnership's debt service coverage ratio was 1.25 to 1.00 or greater
for a period of four consecutive calendar quarters and (2) the Aquila power
purchase agreement terminates, and the Partnership has paid in full to Aquila
the amounts that the Partnership owes Aquila.
The Partnership's obligation to pay for or provide replacement power to
VEPCO during a delay in the commercial operation of the VEPCO units is limited
to the amount of the VEPCO letter of credit, which is a maximum of $11,320,000.
Because summer power prices have experienced significant volatility, it is
difficult to project the cost of replacing power from the VEPCO units. However,
it is possible that in the event of a delay in the commercial operation of the
VEPCO units the full amount of the VEPCO letter of credit may be drawn. In the
event of a drawing under the VEPCO letter of credit, the drawn amount converts
into a five year amortizing loan payable by the Partnership. Consequently, a
drawing under the VEPCO letter of credit could increase the Partnership's debt
service obligation by up to approximately $3,500,000 per annum. In the event of
a commercial operation delay of the Aquila unit, the delivery delay adjustment
under the Aquila power purchase agreement could result in a reduction in the
reservation payments due from Aquila to the Partnership until the amount of the
reduction in reservation payments equals the amount of the delivery delay
adjustment. The amount of the delivery delay adjustment is based on the
commercial operation date of the Aquila unit.
The Partnership is dependent on the fixed reservation payments and
other fixed payments under the VEPCO and Aquila power purchase agreements to
meet the Partnership's fixed obligations, including debt service under the
exchange bonds. The Partnership's power purchasers' obligations to pay the
Partnership these fixed payments are dependent upon the Facility operating at
minimum capacity and availability levels. The Partnership expects to achieve the
minimum capacity and availability levels; however, any material shortfall in
tested capacity or availability over a significant period could impact the
Partnership's ability to make payments of principal and interest on the Bonds
and the Partnership's other debt when due.
9
<PAGE>
As with any power generation facility, operation of the Facility will
involve risk, including performance of the Facility below expected levels of
output and efficiency, shut-downs due to the breakdown or failure of equipment
or processes, violations of permit requirements, operator error, labor disputes,
or catastrophic events such as fires, earthquakes, explosions, floods or other
similar occurrences affecting a power generation facility or its power
purchasers. The occurrence of any of these events could significantly reduce or
eliminate revenues generated by the Facility or significantly increase the
expenses of the Facility, adversely impacting the Partnership's ability to make
payments of principal and interest on the Bonds and the Partnership's other debt
when due.
YEAR 2000 ISSUES
No disruptions in the construction or systems of the Facility and the
Panola County infrastructure, or to the operations of any of the Partnership's
significant third parties, have occurred since the new year as a result of Year
2000 related issues. We do not expect Year 2000 realized issues and consequences
to have a material effect on the Partnership's business, results of operations
or financial condition in the future.
10
<PAGE>
PART I/ITEM 3. QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARLET RISK
The Partnership uses fixed rate debt as a source of capital. At
March 31, 2000 and December 31, 1999 the Partnership had $326,000,000 of
outstanding bonds at an average fixed interest rate of 7.70%.
PART II/ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 2000, Funding and the Partnership have not
been parties to any material legal proceedings.
PART II/ITEM 2. CHANGES IN SECURITIES
None.
PART II/ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
PART II/ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II/ITEM 5. OTHER INFORMATION
None.
PART II/ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See the Exhibits Index at EI-1.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
11
<PAGE>
SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
LSP ENERGY LIMITED PARTNERSHIP
By: LSP-Energy, Inc.
Its: General Partner
By: /s/ Mikhail Segal
------------------------------
Name: Mikhail Segal
Title: President
Date: May 15, 2000
By: /s/ Mark Brennan
------------------------------
Name: Mark Brennan
Title: Treasurer
Date: May 15, 2000
LSP BATESVILLE FUNDING CORPORATION
By: /s/ Mikhail Segal
------------------------------
Name: Mikhail Segal
Title: President
Date: May 15, 2000
By: /s/ Mark Brennan
------------------------------
Name: Mark Brennan
Title: Treasurer
Date: May 15, 2000
12
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
LS POWER FUNDING CORPORATION
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LSP ENERGY LIMITED PARTNERSHIP
Balance Sheets as of March 31, 2000 and December 31, 1999...................................F-2
Statements of Operations for the three months ended March 31, 2000
and 1999 and the period from Inception (February 7, 1996) to March 31, 2000..............F-3
Statements of Changes in Partner's Capital (Deficit) for the three months
ended March 31, 2000 and 1999, and the period from Inception (February 7, 1996)
to March 31, 2000........................................................................F-4
Statements of Cash Flows for the three months ended March 31, 2000
and 1999, and the period from Inception (February 7, 1996) to March 31, 2000.............F-5
Notes to financial statements...............................................................F-6
LSP BATESVILLE FUNDING CORPORATION
Balance Sheets as of March 31, 2000 and December 31, 1999..................................F-16
Statements of Operations for the three months ended March 31, 2000 and 1999................F-17
Statements of Changes in Stockholder's Equity (Deficit) for the three months
ended March 31, 2000 and 1999...........................................................F-18
Statements of Cash Flows for the three months ended March 31, 2000 and 1999................F-19
Notes to financial statements..............................................................F-20
</TABLE>
F-1
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 216,633 $ 202,924
Investments held by Trustee, at amortized cost
which approximates fair value 23,007,423 53,547,410
Spare parts inventory 1,309,977 733,462
Other current assets 432,656 174,174
------------- -------------
Total Current Assets 24,966,689 54,657,970
Property and construction in progress 314,944,202 296,509,139
Debt issuance and financing costs, net of accumulated
amortization of $4,166,238 and $4,046,139 at March 31, 2000
and December 31, 1999, respectively 10,301,959 10,099,017
------------- -------------
Total Assets $ 350,212,850 $ 361,266,126
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable $ 9,790,472 $ 9,923,894
Contract retainage payable 11,708,223 11,944,208
Accrued interest payable 5,303,082 15,345,443
------------- -------------
Total Current Liabilities 26,801,777 37,213,545
Bonds payable 326,000,000 326,000,000
------------- -------------
Total Liabilities 352,801,777 363,213,545
Commitments and contingencies
PARTNERS' CAPITAL (DEFICIT) (2,588,927) (1,947,419)
------------- -------------
Total Liabilities and Partners' Capital (Deficit) $ 350,212,850 $ 361,266,126
============= =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
THREE MONTHS ENDED (FEBRUARY 7, 1996)
MARCH 31, TO MARCH 31,
2000 1999 2000
--------- -------- ------------------
<S> <C> <C> <C>
Revenues $ -- $ -- $5,382,289
Operations and maintenance expenses 465,987 -- 1,384,769
Project management expenses 161,874 82,885 671,273
General and administrative expenses 13,647 -- 541,834
--------- -------- ----------
Total expenses 641,508 82,885 2,597,876
--------- -------- ----------
Net income (loss) $(641,508) $(82,885) $2,784,413
========= ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND
PERIOD FROM INCEPTION (FEBRUARY 7, 1996)
TO MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED PARTNER GENERAL PARTNER
------------------------------------ ----------------
LSP BATESVILLE GRANITE POWER
HOLDING, LLC PARTNERS II, L.P. LSP ENERGY, INC. TOTAL
-------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $(1,927,945) $ -- $(19,474) $(1,947,419)
Net loss (635,093) -- (6,415) (641,508)
----------- ----------- -------- -----------
Balance at March 31, 2000 $(2,563,038) $ -- $(25,889) $(2,588,927)
=========== =========== ======== ===========
Balance at December 31, 1998 $ (438,298) $ -- $ (4,427) $ (442,725)
Net loss (82,056) -- (829) (82,885)
----------- ----------- -------- -----------
Balance at March 31, 1999 $ (520,354) $ -- $ (5,256) $ (525,610)
=========== =========== ======== ===========
Balance at inception $ -- $ -- $ -- $ --
Capital contributions -- 990 10 1,000
Transfer of partnership interests 990 (990) -- --
Net income (2,564,028) 5,320,597 27,844 2,784,413
Distributions to partners -- (5,320,597) (53,743) (5,374,340
----------- ----------- -------- -----------
Balance at March 31, 2000 $(2,563,038) $ -- $(25,889) $(2,588,927)
=========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS INCEPTION
ENDED (FEBRUARY 7, 1996)
MARCH 31, TO MARCH 31,
2000 1999 2000
------------ ------------ -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (641,508) $ (82,885) $ 2,784,413
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Increase in spare parts inventory (576,515) -- (1,309,977)
Increase in other current assets (258,482) -- (432,656)
Increase (decrease) in accounts payable (133,422) 303,599 9,790,472
Increase in accrued interest on loans payable -- 58,556 --
------------ ------------ -------------
Cash provided by (used in) operating activities (1,609,927) 279,270 10,832,252
------------ ------------ -------------
Cash Flows from Investing Activities:
Investments held by Trustee -- -- (183,648,081)
Investments drawn for project costs 31,036,737 -- 178,563,611
Payments on property and construction in progress (29,090,060) (42,453,649) (311,689,612)
------------ ------------ -------------
Cash provided by (used in) investing activities 1,946,677 (42,453,649) (316,774,082)
------------ ------------ -------------
Cash Flows from Financing Activities:
Debt issuance and financing costs (323,041) (15,077) (14,468,197)
Proceeds from issuance of loans -- 42,900,000 136,600,000
Repayments of loans -- -- (136,600,000)
Proceeds from issuance of bonds -- -- 326,000,000
Capital contributions -- -- 1,000
Distributions to partners -- -- (5,374,340)
------------ ------------ -------------
Cash provided by (used in) financing activities (323,041) 42,884,923 306,158,463
------------ ------------ -------------
Increase in cash 13,709 710,544 216,633
Cash, beginning of period 202,924 83,866 --
------------ ------------ -------------
Cash, end of period $ 216,633 $ 794,410 $ 216,633
============ ============ =============
RECONCILIATION OF CHANGES IN PROPERTY AND
CONSTRUCTION IN PROGRESS:
Increase in property and construction in progress $(18,435,063) $(45,471,583) $(314,944,202)
Increase (decrease) in contract retainage (235,985) 2,236,677 11,708,223
Investment income on investments held by Trustee (496,750) -- (3,645,194)
Reimbursement received from the State of Mississippi -- -- (14,277,759)
Amortization of debt issuance and financing costs 120,099 781,257 4,166,238
Increase (decrease) in accrued interest payable on bonds (10,042,361) -- 5,303,082
------------ ------------ -------------
Payments on property and construction in progress $(29,090,060) $(42,453,649) $(311,689,612)
============ ============ =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS
LSP Energy Limited Partnership (the "Partnership") is a Delaware
limited partnership formed in February 1996 to develop, construct, own and
operate a gas-fired electric generating facility with a design capacity of
approximately 837 megawatts to be located in Batesville, Mississippi (the
"Facility"). The 1% general partner of the Partnership is LSP Energy, Inc.
("Energy"). Granite Power Partners II, L.P. ("Granite") was the original 99%
limited partner of the Partnership. The current 99% limited partner of the
Partnership is LSP Batesville Holding, LLC ("Holding"), a Delaware limited
liability company established on July 29, 1998. Granite is a Delaware limited
partnership formed to develop independent power projects throughout the United
States. The general partner of Granite is LS Power, LLC ("LS Power"), a Delaware
limited liability company.
Granite and Cogentrix/Batesville, LLC ("Cogentrix"), a Delaware limited
liability company, entered into an operating agreement dated August 28, 1998
which was amended and restated on both December 15, 1998 and May 19, 1999 (as
amended, the "Operating Agreement"). Pursuant to the Operating Agreement,
Granite contributed to Holding its 99% limited partnership interest in the
Partnership and all of the common stock of Energy, and Cogentrix agreed to
contribute to Holding $54,000,000 of equity. Granite received an initial 47.85%
membership interest in Holding and Cogentrix received an initial 52.15%
membership interest in Holding.
Under the terms of the Operating Agreement, the issuance of two series
of Senior Secured Bonds by the Partnership and LSP Batesville Funding
Corporation on May 21, 1999 (see Note 5) resulted in a recalculation of the
Granite and Cogentrix membership interests in Holding. Effective May 21, 1999,
the revised Granite and Cogentrix membership interests were adjusted to 48.63%
and 51.37%, respectively.
Cogentrix's equity contribution to Holding will be contributed to the
Partnership and used for the development and construction of the Facility.
During April 2000, Cogentrix made an equity contribution to Holding in the
amount of $5,000,000, which contribution was contributed to the Partnership by
Holding. Cogentrix's equity contribution commitment is supported by an
irrevocable letter of credit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The financial statements, included herein, have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, the information contained
herein reflects all adjustments, including normal recurring accruals, necessary
to present fairly the financial condition, results of operations and cash flows
for the periods disclosed. Operating results for the three months ended March
31, 2000 are not necessarily indicative of the results anticipated for the year
ending December 31, 2000.
These financial statements should be read in conjunction with the
audited financial statements, and footnotes thereto, included in the Form S-4
for the year ending December 31, 1999.
BASIS OF PRESENTATION
The Partnership has been in the development stage since its inception
and is not expected to generate any operating revenues until the Facility
achieves commercial operations.
(continued)
F-6
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
As with any new business venture of this size and nature, the ultimate operation
of the Facility could be affected by many factors. Construction of the Facility
is expected to be completed during the second or third quarter of 2000.
INVESTMENTS HELD BY TRUSTEE
At March 31, 2000 and December 31, 1999, Investments Held by Trustee
consist of commercial paper with original maturities primarily of 90 days or
less. The Partnership acquired and classified these debt securities as
held-to-maturity because of its intent and ability to hold them to maturity. At
March 31, 2000 and December 31, 1999, the fair value of each of these investment
securities approximated its amortized cost. Maturities of investment securities
are reflected as investments drawn for property and construction in progress on
the statement of cash flows.
A trustee holds all of these investments and the use of the proceeds
from maturities is restricted to payment of project costs.
CONSTRUCTION IN PROGRESS
All costs directly related to the acquisition and construction of
long-lived assets are capitalized. Interest costs (including amortization of
debt issuance and financing costs), net of interest income on excess proceeds
from loans and bonds, is capitalized during construction. As of March 31, 2000
and December 31, 1999, capitalized interest since inception including
amortization of debt issuance and financing costs was approximately $26,756,000
and $20,823,000, respectively, ($22,590,000 and $16,777,000, respectively,
before amortization). Cash paid for interest was approximately $16,352,000,
$1,664,000 and $3,172,000 for the three months ended March 31, 2000, 1999 and
for the year ended December 31, 1999, respectively, and approximately
$20,950,000 for the period February 7, 1996 (inception) to March 31, 2000.
All start-up costs not directly related to the acquisition or
construction of long-lived tangible assets are expensed as incurred.
3. PROPERTY AND CONSTRUCTION IN PROGRESS
Property and construction in progress consist of the following at:
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
Land and easements $ 673,558 $ 673,558
Construction in progress 314,270,644 295,835,581
------------ ------------
$314,944,202 $296,509,139
------------ ------------
------------ ------------
4. FACILITY CONTRACTS
On May 18, 1998, the Partnership entered into a Power Purchase
Agreement ("VEPCO PPA") with Virginia Electric and Power Company ("VEPCO").
Under the terms of the VEPCO PPA, the Partnership is obligated to sell and VEPCO
is obligated to purchase approximately 558 megawatts of electrical capacity and
dispatchable energy to be generated from two of the three Combined Cycle Units
("Unit" or "Units") at the Facility at prices set forth in the VEPCO PPA. The
initial term of the VEPCO PPA is thirteen years, beginning on the earlier of
commencement of commercial operations or June 1, 2000, which date may be
extended by a force majeure event or a delivery excuse. VEPCO has the option of
extending the term of the VEPCO PPA for an additional twelve years by providing
the Partnership written notice at least two years prior to the expiration of the
initial term. The extended term may be terminated at any time by VEPCO with 18
months prior notice to the Partnership.
(continued)
F-7
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The VEPCO PPA is subject to specified construction and energy delivery
milestone deadlines, including achieving commercial operations of the VEPCO
Units by June 1, 2000, which date may be extended by a force majeure event or a
delivery excuse. In the event the commercial operation date of the VEPCO units
is delayed beyond June 1, 2000, which date may be extended by a force majeure
event or delivery excuse, the Partnership may be responsible for replacement
power during the period of delay, subject to a maximum of $20 per kilowatt of
committed capacity from each VEPCO Unit. VEPCO may terminate the VEPCO PPA if
the commercial operation date is not achieved by June 1, 2001, which date may be
extended by a force majeure event or a delivery excuse.
The terms of the VEPCO PPA require VEPCO to make payments to the
Partnership including a reservation payment, an energy payment, a start-up
payment, system upgrade payments and a guaranteed heat rate payment. Under the
VEPCO PPA either party is excused from performing its obligations due to force
majeure events or events that are not in its reasonable control. The Partnership
is not liable for or deemed in breach of the VEPCO PPA to the extent performance
of its obligations is delayed or prevented by circumstances due to the
non-performance of VEPCO. The VEPCO PPA is a tolling arrangement, whereby VEPCO
is obligated to supply natural gas to each VEPCO Unit. VEPCO is obligated to
arrange, procure, nominate, balance, transport and deliver to the Facility's
lateral pipeline the amount of fuel necessary for each VEPCO Unit to generate
its net electrical output.
Under the terms of the VEPCO PPA, VEPCO can be obligated to provide
natural gas for the startup and commissioning of each of its Units. The
Partnership is in turn obligated to reimburse VEPCO for the delivered cost of
such natural gas. As of March 31, 2000, the Partnership has purchased
approximately $871,000 of natural gas from VEPCO for the start-up and
commissioning of each of its Units. This amount has been recorded as a component
of construction in progress in the accompanying March 31, 2000 balance sheet.
On May 21, 1998, the Partnership entered into a Power Purchase
Agreement ("Aquila PPA") with Aquila Power Corporation ("Aquila") and UtiliCorp
United, Inc. ("Utilicorp"). Under the terms of the Aquila PPA, the Partnership
is obligated to sell and Aquila is obligated to purchase approximately 279
megawatts of electrical capacity and dispatchable energy to be generated from
one of the three Units at the Facility at prices set forth in the Aquila PPA.
UtiliCorp has appointed Aquila as its agent under the Aquila PPA. The initial
term of the Aquila PPA is fifteen years and seven months, beginning on June 1,
2000, which date may be extended by a force majeure event or a delivery excuse.
Aquila has the option of extending the term of the Aquila PPA for an additional
five years by providing the Partnership written notice by the later of July 2013
or twenty-nine months prior to the expiration of the initial term.
The Aquila PPA is subject to an energy delivery milestone deadline of
June 1, 2000, which deadline may be extended by a force majeure event or a
delivery excuse. In the event that commercial operation of the Aquila Unit is
not achieved by such deadline, the Partnership may elect to incur an adjustment
to the reservation payment to be received under the Aquila PPA or to be
responsible for replacement power during the period of delay. Aquila may
terminate the Aquila PPA if commercial operations of the Aquila Unit is not
achieved by the first anniversary of the energy delivery milestone deadline,
which deadline may be extended for up to one year by a force majeure event or
delivery excuse.
The terms of the Aquila PPA require Aquila to make payments to the
Partnership including a reservation payment, an energy payment, a start-up
payment, system upgrade payments and a guaranteed heat rate payment.
Under the Aquila PPA either party is excused from performing its
obligations due to force majeure events or events that are not in its reasonable
control. The Partnership is not liable for or deemed in breach of the Aquila PPA
to the extent performance of its obligations is delayed or prevented by
circumstances due to the non-performance of Aquila. The Aquila PPA is a tolling
arrangement, whereby Aquila is obligated to supply natural gas to the Aquila
Unit. Aquila is obligated to arrange, procure, nominate, balance, transport and
deliver to the Facility's lateral pipeline the amount of fuel necessary for the
Aquila Unit to generate its net electrical output.
(continued)
F-8
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Aquila PPA requires that the Partnership provide access to
transportation through the Trunkline Gas Company pipeline if such access is
requested by Aquila. Such a request by Aquila shall not impose any costs on the
Partnership and shall not affect the schedule for construction of the Facility.
Aquila has formally requested access to Trunkline Gas Company. In response to
this request, the Partnership has entered into an interconnection agreement with
Trunkline Gas Company and construction of the interconnection facilities is in
progress. In connection with this interconnection agreement, the Partnership
entered into a consent and agreement with Aquila and Utilicorp. The consent and
agreement provides for all costs incurred by the Partnership under the
interconnection agreement with Trunkline Gas Company to be paid by Aquila and
Utilicorp.
The Partnership is obligated to administer gas imbalances on the
Facility's lateral pipeline among all parties using the Facility's lateral
pipeline. In support of this obligation, the Partnership has selected Aquila
Energy Management Services ("Aquila Management") to serve as the fuel manager
for the Facility's gas lateral pipeline. The Partnership pays Aquila Management
a monthly fee of $10,000 for its services as fuel manager.
Effective February 25, 2000, the Partnership entered into a power
purchase agreement with Tennessee Valley Authority ("TVA") for the sale of test
energy generated during startup and commissioning of the Facility ("Test Energy
Agreement"). Under the terms of the Test Energy Agreement, TVA will purchase all
test energy generated by the Facility at a cost equal to the lower of (a)
$21.29/MWh during on peak hours, $16.74/MWh during off peak hours, and (b) 90%
of TVA's decremental system cost. The Test Energy Agreement will remain in
effect until the Partnership declares that testing of the Units has been
completed. As of March 31, 2000, the Partnership has recorded approximately
$240,000 in revenue from the sale of test energy to TVA. This amount has been
recorded as a component of construction in progress in the accompanying March
31, 2000 balance sheet.
On July 22, 1998, the Partnership entered into a $240 million fixed
price Turnkey Engineering, Procurement and Construction Contract ("Construction
Agreement") with BVZ Power Partners-Batesville ("BVZ"), a joint venture formed
by H.B. Zachary Company and a subsidiary of Black & Veatch, LLP. The obligations
of BVZ are guaranteed by Black & Veatch, LLP and the entire Construction
Agreement is backed by a performance bond. Under the terms of the Construction
Agreement, BVZ has committed to develop and construct the Facility subject to
the terms, deadlines and conditions set forth in the Construction Agreement. In
the event the construction and start-up to specified performance levels of the
two VEPCO Units and the Aquila Unit has not occurred on or prior to July 16,
2000, July 26, 2000 and July 31, 2000, as adjusted under the terms of the
Construction Agreement ("Guaranteed Completion Dates"), respectively, then BVZ
will be required under the contract to pay liquidated damages, subject to
limits. In the event the construction and start-up of the entire Facility to
specified performance levels occurs prior to the last Guaranteed Completion
Date, then BVZ will be entitled to receive a bonus for early completion.
At various times during the period between January 8, 1999 and January
15, 1999, BVZ's access to the construction site was limited as a result of the
failure of the temporary access road. Due to delays in construction progress
experienced by BVZ during this period, the Partnership and BVZ entered into a
change order to the Construction Agreement to extend the Guaranteed Completion
Dates by 7 days. This extension is reflected in the Guaranteed Completion Dates
above.
The Partnership received a force majeure notice from BVZ and the
manufacturer of the steam turbine generators with respect to delays incurred
during the transportation of one of the VEPCO Unit's steam turbine generator to
the Facility. The Partnership requested that BVZ and the manufacturer provide
additional information to support the claim of force majeure. In response to our
request, the manufacturer has recently provided information indicating a total
of 21 days of delay and an 18 day claim of force majeure for delay in the
delivery of the steam turbine generator. BVZ has stated that it is working extra
hours, multiple shifts and weekends in an attempt to meet its originally
projected target completion dates. If it is determined that the delay in the
delivery of the steam turbine constitutes a force majeure event under the BVZ
Construction Agreement, BVZ would be entitled to a day for day extension of the
guaranteed completion date with respect to that VEPCO Unit. We have informed
VEPCO of the occurrence of a potential force majeure event as a result of a
delay in the delivery of the VEPCO Unit's steam turbine generator that was
beyond our reasonable control and without our fault or negligence. If it is
determined that any portion of the delay in
(continued)
F-9
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
the delivery of the steam turbine constitutes a force majeure event under the
VEPCO PPA agreement, the date that we are required to deliver power under the
VEPCO PPA agreement would be extended day for day for the number of days of the
force majeure event. The Partnership is currently evaluating all information
relative to this claim of force majeure to determine if force majeure relief is
warranted. A final resolution of the issue has not yet occurred.
On April 1, 2000, BVZ curtailed start-up and commissioning on one of
the VEPCO Units as a result of a water chemistry excursion, which occurred
during operations to establish steam purity. Subsequently, BVZ determined that
the Facility water treatment system required maintenance due to water treatment
system degradation. Following a three-week outage to perform maintenance on
several plant systems, the VEPCO Unit was restarted and steam purity was
established. At the conclusion of the outage, BVZ issued a Contract Agreement
change notification requesting a 21-day schedule extension for the VEPCO Unit, a
three-day schedule extension for the other VEPCO Unit, and reimbursement for
approximately $200,000 in costs. The Partnership does not feel that the request
for a schedule modification or a contract price change is warranted. The
Partnership is currently investigating the claim and will issue a formal
response to the request.
During a routine inspection of the second VEPCO unit combustion
turbine, damage to the row one compressor blades was discovered. The combustion
turbine manufacturer was notified and additional technical support has been
dispatched to the Facility to determine the cause and extent of the damage and
assist in repairs. At this time, the impact on the construction schedule for the
second VEPCO unit has not been determined.
A gap of 46 to 61 days currently exists between the Guaranteed
Completion Dates and the guaranteed delivery start dates of June 1, 2000 under
the VEPCO PPA and the Aquila PPA. This gap may be increased if BVZ is successful
in its claim that the steam turbine delay constitutes a force majeure event and
we are unsuccessful in our claim that the steam turbine delay constitutes a
force majeure event under the VEPCO PPA agreement. This gap may also be
increased if the Partnership determines that any portion of BVZ's requested
schedule extensions for the VEPCO units is warranted. This gap and any further
delay in construction and start-up of the Facility beyond June 1, 2000, may
obligate the Partnership to: (i) provide replacement power to VEPCO or reimburse
VEPCO for any incremental replacement power cost during the period of delay, up
to a maximum of $11,320,000 and (ii) elect to, at the option of the Partnership,
provide replacement power to Aquila, reimburse Aquila for any incremental
replacement power cost during the period of delay, or elect to incur an
adjustment to the reservation payment to be received under the Aquila PPA.
The current construction schedule provided to the Partnership by BVZ
anticipates that the construction and start-up of the two VEPCO Units and the
Aquila Unit will occur on May 31, 2000, June 14, 2000 and June 29, 2000,
respectively. The Partnership has notified both VEPCO and Aquila of these
revised dates. Based upon the estimated completion date of June 14, 2000 for one
of the VEPCO Units the Partnership will be obligated for the cost of replacement
power for the period from June 1, 2000 to the actual completion date of the
VEPCO Unit. The Partnership has notified VEPCO that the Partnership will elect
to reimburse VEPCO for any incremental replacement power costs during the period
of delay from June 1, 2000 to the actual completion date of the VEPCO Unit. The
Partnership has also notified Aquila that it will elect to incur an adjustment
to the reservation payment to be received for the period of delay from June 1,
2000 to the actual completion date of the Aquila Unit under the Aquila PPA. The
estimated liability that may result from this period of delay, if any, cannot
presently be determined.
The Partnership and BVZ executed a change order to the Construction
Agreement to provide additional incentives to BVZ for accelerating the
substantial completion of each of the three Units at the Facility. The maximum
cost of this change order is capped at $1,500,000, that is $500,000 for each
Unit to achieve substantial completion on or before June 1, 2000 or $25,000 for
each day of schedule improvement from June 6, 2000 for one of the VEPCO Units,
June 16, 2000 for the second VEPCO Unit and June 21, 2000 for the Aquila Unit up
to June 1, 2000.
(continued)
F-10
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
While BVZ will be obligated to pay liquidated damages for any failure
to complete the construction and start-up of the Facility on or prior to one day
after the Guaranteed Completion Dates, no delay damages will be due from BVZ
with respect to any Unit during the respective gap periods described above.
Because the delay liquidated damages are subject to limits, there can be no
assurance that such liquidated damages will fully compensate the Partnership for
replacement power costs or other costs associated with delays for which BVZ is
responsible. The ultimate liability that would result from this delay, if any,
cannot presently be determined.
As of March 31, 2000 and December 31, 1999, engineering, procurement
and construction was estimated to be approximately 96% and 93% complete,
respectively, and total costs incurred to date under the Construction Agreement
were approximately $230,433,000 and $222,664,000, respectively, including
retainage. At March 31, 2000 and December 31, 1999, the Partnership had retained
construction contract payments under the Construction Agreement totaling
approximately $11,393,000 and $11,091,000, respectively.
The Partnership has entered into a contract with Kruger, Inc.
("Kruger") dated September 15, 1999 for the supply of water pretreatment system
equipment. The lump sum price for this contract is approximately $415,000, which
includes all costs associated with the engineering, manufacturing and delivery
of the water pretreatment system equipment. As of March 31, 2000 and December
31, 1999, approximately $375,000 and $166,000, respectively, of the contract had
been completed and invoiced to the Partnership, including approximately $19,700
and $8,300, respectively, of retainage. During January 2000, all major equipment
was delivered to the Facility. The obligations of Kruger are secured by a
performance bond and a payment bond.
The Partnership entered into a contract with Lauren Constructors, Inc.
("Lauren") dated October 19, 1999 for the engineering, procurement and
construction of a water pretreatment system. The water pretreatment system will
operate to help ensure that water supplied to the Facility is of the quality
specified in the Construction Agreement with BVZ. The lump sum price for this
contract is approximately $1,755,000, including change orders. As of March 31,
2000 and December 31, 1999, approximately $1,014,000 and $207,000, respectively,
of the water pretreatment system contract had been completed and invoiced to the
Partnership including approximately $87,700 and $10,400, respectively, of
retainage. The water pretreatment system became operational during April 2000
and Lauren anticipates construction of the water pretreatment system will be
completed prior to the end of May 2000. The obligations of Lauren are secured by
a performance bond and a payment bond.
The Partnership has entered into electrical interconnection agreements
with Tennessee Valley Authority (the "TVA Interconnection Agreement") and with
Entergy Mississippi, Inc. (the "Entergy Interconnection Agreement" and together
with the TVA Interconnection Agreement, the "Interconnection Agreements").
The TVA Interconnection Agreement has a term of thirty-five years,
subject to certain amendments for regulatory conformance on a non-discriminatory
basis, which amendments could be proposed by the Tennessee Valley Authority at
any time after five years from commencement of commercial operations. If the
Partnership and TVA fail to reach agreement on such amendment within six months,
TVA may terminate the TVA Interconnection Agreement upon giving the Partnership
one years' notice.
The TVA Interconnection Agreement provides for the cost of the
interconnection facilities of approximately $4,000,000 and system upgrades of
approximately $9,500,000 to be paid by the Partnership. As of March 31, 2000 and
December 31, 1999, total costs incurred under the TVA Interconnection Agreement
were approximately $12,556,000. The Partnership is entitled to receive system
upgrade credits in the amount of incremental revenue received by Tennessee
Valley Authority for future transmission services procured for the delivery of
energy from the Facility. The amount of such credits, if any, may not exceed the
total cost of the system upgrades paid for by the Partnership.
The Entergy Interconnection Agreement has a term of thirty-five years
from the date when the interconnection facilities have been completed,
automatically extending for subsequent five-year periods.
(continued)
F-11
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Entergy Interconnection Agreement provides for the cost of the
interconnection facilities of approximately $1,100,000 and system upgrades of
approximately $7,100,000 to be paid by the Partnership. As of March 31, 2000 and
December 31, 1999, total costs incurred under the Entergy Interconnection
Agreement were approximately $6,286,000. The Partnership is entitled to receive
system upgrade credits in the amount of incremental revenue received by Entergy
for future transmission services procured for the delivery of energy from the
Facility. The amount of such credits, if any, may not exceed the total cost of
the system upgrades paid for by the Partnership. The Partnership has entered
into three contracts aggregating approximately $9,200,000 for the design and
construction of an electrical substation and transmission line system (the
"Partnership's Interconnection Facilities").
The Partnership's Interconnection Facilities are required to enable the
Partnership to deliver the output of the Facility to the Tennessee Valley
Authority and Entergy Mississippi, Inc. interconnection facilities. The
Partnership will design, construct, own and operate the Partnership's
Interconnection Facilities at its own expense.
The Partnership entered into another contract with Lauren Constructors,
Inc. ("Lauren") dated January 13, 1999 for the design, engineering, procurement,
construction and testing of electrical substation and transmission lines that
will interconnect to the TVA and Entergy transmission systems. The lump sum
price for this contract is approximately $4,760,000 including change orders. As
of March 31, 2000 and December 31, 1999 approximately $4,760,000 and $4,671,000,
respectively, of the contract had been completed and invoiced to the
Partnership, including retainage of approximately $20,000 and $228,000,
respectively. The obligations of Lauren are secured by a performance bond and a
payment bond.
The Partnership has entered into a contract with North American
Transformer, Inc. ("North American") dated as of January 13, 1999 for the supply
of four single phase transformers to be incorporated into our electrical
substation. The lump sum price for this contract is approximately $3,683,000. As
of December 31, 1999 the total contract had been invoiced to the Partnership
including retainage of approximately $368,000. The obligations of North American
are secured by a performance bond and a payment bond.
The Partnership has entered into a contract with Siemens Power
Transmission and Distribution, LLC ("Siemens") dated as of January 13, 1999 for
the supply of thirteen circuit breakers to be incorporated into the
Partnership's electrical substation. The lump sum price for this contract is
approximately $722,000. As of December 31, 1999 the total contract had been
invoiced to the Partnership. At March 31, 2000 the Partnership had $15,000 of
retainage payable to Siemens. The obligations of Siemens are secured by a
performance bond and a payment bond.
The Partnership entered into three contracts aggregating approximately
$18,350,000 for the construction of the Facility's gas lateral pipeline and the
pipelines through which the Facility will receive water and dispose of waste
water (collectively the "Infrastructure"). These contracts were subsequently
transferred to Panola County, Mississippi ("Panola County"). The Partnership has
leased the Infrastructure under terms which provide the Partnership with the
operational control and responsibility for the Infrastructure, and with the use
of the Infrastructure for the full projected requirements of the Facility.
The Partnership has entered into a contract with Robinson Mechanical
Contractors, Inc. ("Robinson") dated as of January 13, 1999 for the design,
engineering, procurement, construction, and testing of intake facilities that
will withdraw water from Enid Lake and pump it to the Facility. The lump sum
price for this contract is approximately $5,256,000 including change orders.
Robinson is obligated to pay $5,000 for each day that completion of the water
intake infrastructure is delayed beyond November 1, 1999. As of December 31,
1999 approximately $4,080,000 of the contract had been invoiced to the
Partnership. As of March 31, 2000 and December 31, 1999, the Partnership had
outstanding accounts payable to Robinson of approximately $150,000. The
obligations of Robinson are secured by a performance bond and a payment bond.
Pursuant to a change order effective November 1, 1999, the Partnership
transferred the water intake contract to Panola County; therefore, the
Partnership is no longer entitled to receive liquidated damages under this
contract.
(continued)
F-12
<PAGE>
The Partnership has entered into a contract with Garney Companies, Inc.
("Garney") dated as of March 1, 1999 for the design, engineering, procurement,
construction, and testing of a water supply pipeline to transport water from
Enid Lake to the Facility and a wastewater discharge pipeline to transport
wastewater from the Facility to the Little Tallahatchie River. The lump sum
price for this contract is approximately $4,528,000 including change orders.
Garney is obligated to pay $5,000 for each day that final completion is delayed
beyond November 1, 1999. As of December 31, 1999 the total contract had been
invoiced to the Partnership. As of March 31, 2000 and December 31, 1999, the
Partnership had outstanding accounts payable to Garney of approximately $20,000.
The obligations of Garney are secured by a performance bond and a payment bond.
Pursuant to a change order effective November 1, 1999, the Partnership
transferred the water supply and waste water pipeline contract to Panola County;
therefore, the Partnership is no longer entitled to receive liquidated damages
under this contract.
The Partnership has entered into a contract with Big Warrior
Corporation ("Big Warrior") dated as of February 4, 1999 for the design,
engineering, procurement, construction, and testing of a lateral gas pipeline
and related facilities to transport natural gas from two interstate gas
pipelines to the Partnership's Facility. The lump sum price for this contract is
approximately $8,565,000 including change orders. Big Warrior is obligated to
pay $5,000 for each day that initial operation of the gas pipeline is delayed
beyond October 1, 1999 and $10,000 for each day that final completion is delayed
beyond November 1, 1999. As of December 31, 1999 approximately $8,450,000 of the
contract had been completed and invoiced to the Partnership. As of March 31,
2000 and December 31, 1999, the Partnership had no outstanding accounts payable
to Big Warrior. The obligations of Big Warrior are secured by a performance bond
and a payment bond. Pursuant to a change order effective November 1, 1999, the
Partnership transferred the lateral gas pipeline contract to Panola County;
therefore, the Partnership is no longer entitled to receive any liquidated
damages under this contract.
The Partnership has entered into five agreements with State of
Mississippi governmental entities. Under an "Inducement Agreement," the State of
Mississippi agreed to issue general obligations bonds (the "Municipal Bonds") to
finance the Infrastructure, Panola County (and ultimately the Industrial
Development Authority of Panola County) agreed to assume ownership of the
Infrastructure, and the Partnership agreed to operate and maintain both the
Facility and the Infrastructure. As contemplated by the Inducement Agreement,
the Partnership has transferred to Panola County the construction contracts
relating to the Infrastructure and its title to the Infrastructure already
completed or under construction, together with permanent easements and real
estate rights relating to the Infrastructure sites. The Partnership paid the
cost of constructing the Infrastructure until the State of Mississippi issued
the Municipal Bonds to finance the Infrastructure and these transfers had been
made. The State of Mississippi has reimbursed the Partnership for the costs that
it incurred for development and easement acquisition activities and for the
construction of the Infrastructure after April 11, 1999 and will pay any
remaining costs due under the Infrastructure contracts up to a maximum aggregate
amount of approximately $17,000,000. The Partnership has received approximately
$14,278,000 of these funds as a reimbursement. This reimbursement has been
reflected as a reduction in land and easements and construction in progress of
approximately $899,000 and $13,379,000, respectively, in the accompanying March
31, 2000 and December 31, 1999 financial statements.
Effective April 1, 2000, the Partnership has entered into an electric
power and energy supply contract ("Supply Contract") with Tallahatchie Valley
Electric Power Association ("TVEPA"). Under the terms of the Supply Contract,
TVEPA will supply firm electric power and energy to the Partnership in the
amount of 8,000 kilowatts for the period from April 1, 2000 through September
2000 ("Period 1") and 5,000 kilowatts for the period from and after the end of
Period 1 through the end of the contract term. The initial term of the Supply
Contract is one year with automatic extensions from year to year thereafter for
a maximum contract term of ten years. The Supply Contract may be terminated by
either party at the end of the initial term or any time after the end of the
initial term, upon at least 90 days written notice.
The terms of the Supply Contract require the Partnership to make
monthly payments to TVEPA including a customer charge, a demand charge, and an
energy charge. The demand charge and energy charge are calculated based upon
specific rate schedules provided by TVEPA and the Partnership's actual usage of
electric power and energy. The customer charge is a fixed amount per month.
(continued)
F-13
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
These and other contracts and activities incident to the construction
and ultimate operation of the Facility require various other commitments and
obligations by the Partnership. Additionally, the contracts contain various
restrictive covenants, which allow the contracted party to terminate the
contract upon the occurrence of specified events or, in certain cases, default
under other contractual commitments.
5. FINANCING
On May 21, 1999, the Partnership and Funding issued two series of
Senior Secured Bonds (the "Bonds") in the following total principal amounts:
$150,000,000 7.164% Series A Senior Secured Bonds due 2014 and $176,000,000
8.160% Series B Senior Secured Bonds due 2025. Interest is payable semiannually
on each January 15 and July 15, commencing January 15, 2000, to the holders of
record on the immediately preceding January 1 and July 1. On January 15, 2000,
the Partnership made interest payments aggregating approximately $16,320,000.
Principal payments are payable on each January 15 and July 15, commencing on
July 15, 2001.
The Bonds are secured by substantially all of the personal property and
contract rights of the Partnership and Funding. In addition, Holding and Energy
have pledged all of their interests in the Partnership, and Holding has pledged
all of the common stock of Energy and all of the common stock of Funding.
The Bonds are senior secured obligations of the Partnership and
Funding, rank equivalent in right of payment to all other senior secured
obligations of the Partnership and Funding and rank senior in right of payment
to all existing and future subordinated debt of the Partnership and Funding.
Effective March 7, 2000, the Partnership and Funding filed a
registration statement with the Securities and Exchange Commission (the "SEC")
for a registered offer to exchange the Bonds for two series of debt securities
(the "Exchange Bonds") which are in all material respects substantially
identical to the Bonds.
6. RELATED PARTY TRANSACTIONS
LS Power Management, LLC ("LSP Management"), a wholly owned subsidiary
of LS Power, provides certain management services to the Partnership pursuant to
a management services agreement. Under this management services agreement, LSP
Management manages the business affairs of the Partnership during construction
and operation of the Facility. LSP Management is reimbursed for its reasonable
and necessary expenses incurred in performing its services, including salaries
of its personnel, other than executive officers, to the extent related to
services provided under the management services agreement. LSP Management will
also receive a monthly management fee of approximately $33,300 during the
construction and operation of the Facility. This management fee will be adjusted
annually based on published indices. Management fee payments began during the
third quarter of 1999. For the three months ended March 31, 2000 and for the
year ended December 31, 1999, LSP Management billed the Partnership
approximately $311,000 and $1,043,000, respectively, under the management
services agreement.
The Facility is operated and maintained under a long-term operations
and maintenance agreement with Cogentrix Batesville Operations, LLC (the
"Operator"). The initial term of the operations and maintenance agreement is
twenty-seven years. The Partnership has the option of extending the term of the
agreement for successive two-year terms with one hundred and eighty days notice.
Under the terms of the agreement the Partnership is required to pay the Operator
a fixed fee of $390,000, payable in ten monthly installments, for services
provided during construction of the Facility and a fixed monthly fee of
approximately $42,000 during operation of the Facility. The Partnership is also
required to reimburse the Operator for all labor costs, including payroll and
taxes, subcontractor costs and other costs deemed reimbursable by the
Partnership. The management fee will be adjusted annually based on published
indices. For the three months ended March 31, 2000 and for the year ended
December 31, 1999 Cogentrix billed the Partnership approximately $732,000 and
$984,000, respectively, under the operations and maintenance agreement.
(continued)
F-14
<PAGE>
7. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on BVZ for the construction of the
Facility, contractors for the construction of the interconnection facilities and
the Operator for the operation and maintenance of the Facility. During the terms
of the VEPCO PPA and Aquila PPA, the Partnership will be highly dependent on two
utilities for the purchase of electric generating capacity and dispatchable
energy from their respective Units at the Facility. Any material breach by any
one of these parties of their respective obligations to the Partnership could
affect the ability of the Partnership to make payments under the various
financing agreements. In addition, bankruptcy or insolvency of other parties or
default by such parties relative to their contractual or regulatory obligations
could adversely affect the ability of the Partnership to make payments under the
various financing agreements. If an agreement were to be terminated due to a
breach of such agreement, the Partnership's ability to enter into a substitute
agreement having substantially equivalent terms and conditions, or with an
equally creditworthy third party, is uncertain and there can be no assurance
that the Partnership will be able to make payments under the various financing
agreements.
F-15
<PAGE>
LSP BATESVILLE FUNDING CORPORATION
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Current asset-Cash $ 1,000 $ 1,000
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liability-Due to LSP Energy Limited Partnership $ 5,960 $ 5,960
------- -------
Commitments and contingencies
Common stock, $.01 par value, 1,000 shares authorized, 100 shares
Issued and outstanding 1 1
Additional paid-in-capital 999 999
Accumulated deficit (5,960) (5,960)
------- -------
Total Stockholder's Equity (Deficit) (4,960) (4,960)
------- -------
Total Liability and Stockholder's Equity (Deficit) $ 1,000 $ 1,000
======= =======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
LSP BATESVILLE FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
------ ------
Revenues $ -- $ --
General and administrative expenses -- --
------ ------
Total expenses -- --
------ ------
Net income (loss) $ -- $ --
====== ======
See accompanying notes to financial statements.
F-17
<PAGE>
LSP BATESVILLE FUNDING CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL ACCUMULATED
STOCK PAID-IN-CAPITAL DEFICIT TOTAL
------ --------------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $1 $999 $(5,960) $(4,960)
Net loss - -- -- --
-- ---- ------- -------
Balance at March 31, 2000 $1 $999 $(5,960) $(4,960)
== ==== ======= =======
Balance at December 31, 1998 $1 $999 $ -- $ 1,000
Net loss - -- -- --
-- ---- ------- -------
Balance at March 31, 1999 $1 $999 $ -- $ 1,000
== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
LSP BATESVILLE FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS
ENDED
MARCH 31,
2000 1999
------ ------
Cash Flows from Operating Activities $ -- $ --
------ ------
Cash Flows from Investing Activities -- --
------ ------
Cash Flows from Financing Activities -- --
------ ------
Increase in cash -- --
Cash, beginning of period 1,000 1,000
------ ------
Cash, end of period $1,000 $1,000
====== ======
See accompanying notes to financial statements.
F-19
<PAGE>
LSP BATESVILLE FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
LSP Batesville Funding Corporation ("Funding") was established on
August 3, 1998. Funding's business purpose is limited to maintaining its
organization and activities necessary to facilitate the acquisition of financing
by LSP Energy Limited Partnership ("the Partnership") from the institutional
debt market and to offering debt securities. Funding is wholly owned by LSP
Batesville Holding, LLC ("Holding"), a Delaware limited liability company.
Holding was established on July 29, 1998 for the purpose of owning and
managing the limited partnership interests of the Partnership, the common stock
of LSP Energy, Inc., the general partner of the Partnership, and the common
stock of Funding.
The Partnership is a Delaware limited partnership formed in February
1996 to develop, finance, construct, own and operate a gas-fired electric
generating facility with a design capacity of approximately 837 megawatts to be
located in Batesville, Mississippi (the "Facility"). The Partnership has been in
the development stage since its inception and is not expected to generate any
operating revenues until the Facility achieves commercial operations. As with
business ventures of this size and nature, the ultimate construction and
operation of the Facility could be affected by many factors. Construction of the
Facility is expected to be completed in the year 2000.
Due to the insignificance of income tax effects applicable to Funding,
the accompanying financial statements do not reflect any income tax effects.
2. FINANCING
On May 21, 1999, the Partnership and Funding issued two series of
Senior Secured Bonds (the "Bonds") in the following total principal amounts:
$150,000,000 7.164% Series A Senior Secured Bonds due 2014 and $176,000,000
8.160% Series B Senior Secured Bonds due 2025. Interest is payable semiannually
on each January 15 and July 15, commencing January 15, 2000, to the holders of
record on the immediately preceding January 1 and July 1. On January 15, 2000,
the Partnership made interest payments aggregating approximately $16,320,000.
Principal payments are payable on each January 15 and July 15,
commencing on July 15, 2001.
The Bonds are secured by substantially all of the personal property and
contract rights of the Partnership and Funding. In addition, Holding and Energy
have pledged all of their interests in the Partnership, and Holding has pledged
all of the common stock of Energy and all of the common stock of Funding.
The Bonds are senior secured obligations of the Partnership and
Funding, rank equivalent in right of payment to all other senior secured
obligations of the Partnership and Funding and rank senior in right of payment
to all existing and future subordinated debt of the Partnership and Funding.
Effective March 7, 2000, the Partnership and Funding filed a
registration statement with the Securities and Exchange Commission (the "SEC")
for a registered offer to exchange the Bonds for two series of debt securities
(the "Exchange Bonds") which are in all material respects substantially
identical to the Bonds.
F-20
<PAGE>
LSP ENERGY LIMITED PARTNERSHIP
LSP BATESVILLE FUNDING CORPORATION
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------
**3.1 -- Amended and Restated Certificate of Incorporation of LSP
Batesville Funding Corporation.
**3.2 -- Amended and Restated Limited Partnership Agreement of LSP
Energy Limited Partnership.
**3.3 -- By-Laws of LSP Batesville Funding Corporation.
**4.1 -- Indenture, dated as of May 21, 1999, among LSP Batesville
Funding Corporation, LSP Energy Limited Partnership and The
Bank of New York, as Trustee.
**4.2 -- First Supplemental Indenture, dated May 21, 1999 among LSP
Batesville Funding Corporation, LSP Energy Limited
Partnership and The Bank of New York, as Trustee, relating
to $150,000,000 aggregate principal amount of 7.164% Series
A Senior Secured Bonds due 2014.
**4.3 -- Second Supplemental Indenture, dated May 21, 1999 among LSP
Batesville Funding Corporation, LSP Energy Limited
Partnership and The Bank of New York, as Trustee, relating
to $176,000,000 aggregate principal amount of 8.160% Series
B Senior Secured Bonds due 2025.
**4.4 -- Form of Third Supplemental Indenture among LSP Batesville
Funding Corporation, LSP Energy Limited Partnership and The
Bank of New York, as Trustee, relating to $150,000,000
aggregate principal amount of 7.164% Series C Senior Secured
Bonds due 2014.
**4.5 -- Form of Fourth Supplemental Indenture among LSP Batesville
Funding Corporation, LSP Energy Limited Partnership and The
Bank of New York, as Trustee, relating to $176,000,000
aggregate principal amount of 8.160% Series D Senior Secured
Bonds due 2025.
**4.6 -- Specimen Certificate of 7.164% Series A Senior Secured Bonds
due 2014.
**4.7 -- Specimen Certificate of 8.160% Series B Senior Secured Bonds
due 2025.
**4.8 -- Form of Specimen Certificate of 7.164% Series C Senio9r
Secured Bonds due 2014.
**4.9 -- Form of Specimen Certificate of 8.160% Series D Senior
Secured Bonds due 2025.
**4.10 -- Registration Rights Agreement, dated as of May 21, 1999,
among LSP Batesville Funding Corporation, LSP Energy Limited
Partnership, Credit Suisse First Boston Corporation, Scotia
Capital Markets (USA) Inc. and TD Securities (USA) Inc.
**4.11 -- Second Amended and Restated Common Agreement, dated as of
May 21, 1999, among LSP Batesville Funding Corporation, LSP
Energy Limited Partnership and The Bank of New York, as
Collateral Agent, Administrative Agent and Intercreditor
Agent.
**4.12 -- Intercreditor Agreement, dated as of May 21, 1999, among LSP
Batesville Funding Corporation, LSP Energy Limited
Partnership, Credit Suisse First Boston, as VEPCO L/C Agent,
and The Bank of New York, as Collateral Agent, Trustee,
Administrative Agent and Intercreditor Agent.
**4.13 -- Second Amended and Restated Equity Contribution Agreement,
dated as of May 21, 1999, among LSP Batesville Holding, LLC,
LSP Energy Limited Partnership and The Bank of New York, as
Collateral Agent.
EI-1
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------
**4.14 -- Second Amended and Restated Collateral Agency Agreement,
dated as of May 21, 1999, among LSP Batesville Funding
Corporation, LSP Energy Limited Partnership, the Senior
Secured Parties party thereto from time to time, The Bank of
New York, as Administrative Agent, Collateral Agent and
Intercreditor Agent and Credit Suisse First Boston, as
Additional Collateral Agent.
**4.15 -- Pledge and Security Agreement, dated as of May 21, 1999
(Funding Corporation's Stock), between LSP Batesville
Holding, LLC and The Bank of New York, as Collateral Agent.
**4.16 -- Second Amendment and Restated Pledge and Security Agreement
(LSP Energy, Inc.'s Stock), dated as of May 21, 1999,
between LSP Batesville Holding, LLC and The Bank of New
York, as Collateral Agent.
**4.17 -- Second Amended and Restated Pledge and Security Agreement
(Limited Partnership Interest in the Partnership), dated as
of May 21, 1999, between LSP Batesville Holding, LLC and The
Bank of New York, as Collateral Agent.
**4.18 -- Second Amended and Restated Pledge and Security Agreement
(General Partnership Interest in the Partnership), dated as
of May 21, 1999, between LSP Energy, Inc. and The Bank of
New York, as Collateral Agent.
**4.19 -- Second Amended and Restated Security Agreement, dated as of
May 21, 1999, between LSP Energy Limited Partnership and The
Bank of New York, as Collateral Agent.
**4.20 -- Security Agreement, dated as of May 21, 1999, between LSP
Batesville Funding Corporation and The Bank of New York, as
Collateral Agent.
**4.21 -- Deed of Trust, Security Agreement, Assignment of Leases and
Rents and Fixture Filing, dated as of May 21, 1999, by LSP
Energy Limited Partnership, as trustor, to James W. O'Mara,
as trustee, for the benefit of The Bank of New York, as
Collateral Agent.
**4.22 -- Second Amended and Restated Securities Account Control
Agreement, dated as of May 21, 1999, among LSP Batesville
Funding Corporation, LSP Energy Limited Partnership and The
Bank of New York, as Collateral Agent and Securities
Intermediary.
**5.1 -- Opinion of Latham & Watkins regarding the validity of the
exchange bonds.
**10.1 -- Purchase Agreement, dated May 13, 1999, among LSP Energy
Limited Partnership, LSP Batesville Funding Corporation,
Credit Suisse First Boston Corporation, Scotia Capital
Markets (USA) Inc. and TD Securities (USA) Inc.
**10.2 -- Power Purchase Agreement and amendments thereto, dated
May 18, 1998, July 22, 1998 and August 11, 1998, among LSP
Energy Limited Partnership and Virginia Electric and Power
Company.
**10.3 -- Power Purchase Agreement and amendments thereto,
dated May 21, 1998, July 14, 1998, July 16, 1998 and August
27, 1998, among LSP Energy Limited Partnership, Aquila
Energy Marketing Corporation and Utilicorp United Inc.
**10.4 -- Interconnection Agreement, dated July 22, 1998, between LSP
Energy Limited Partnership and the Tennessee Valley
Authority.
**10.5 -- Interconnection and Operating Agreement and amendments
thereto, dated May 18, 1998 and August 18, 1998, between LSP
Energy Limited Partnership and Entergy Mississippi, Inc.
EI-2
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------
**10.6 -- Interconnection Agreement, dated July 28, 1998, between LSP
Energy Limited Partnership and ANR Pipeline Company.
**10.7 -- Facilities Agreement, dated June 23, 1998, between Tennessee
Gas Pipeline Company and LSP Energy Limited Partnership.
**10.8 -- Turnkey Engineering, Procurement and Construction Agreement
and amendments thereto, dated July 22, 1998, October 22,
1998, November 2, 1998, November 5, 1998, December 10, 1998,
February 1, 1999 and April 12, 1999, between LSP Energy
Limited Partnership and BVZ Power Partners - Batesville.
**10.9 -- Engineering Services Agreement, dated July 24, 1998, between
LSP Limited Partnership and Black & Veatch, LLP.
**10.10 -- Guaranty Agreement, dated July 22, 1998, by Black & Veatch,
LLP in favor of LSP Energy Limited Partnership.
**10.11 -- Management Services Agreement, dated August 24, 1998,
between LSP Energy Limited Partnership and LS Power
Management, LLC.
**10.12 -- Operation and Maintenance Agreement, dated August 24, 1998,
between LSP Energy Limited Partnership and Cogentrix
Batesville Operations, LLC.
**10.13 -- Water Supply Storage Agreement and amendments thereto, dated
June 8, 1998 and March 15, 1999, between LSP Energy Limited
Partnership and the United Sates of America.
**10.14 -- Letter Agreement/Blanket Purchase Order, dated July 23,
1998, between LSP Energy Limited Partnership and Siemens
Westinghouse Power Corporation.
**10.15 -- Ad Valorem Tax Contract, dated August 24, 1998, among LSP
Energy Limited Partnership, Panola County, Mississippi, the
City of Batesville, Mississippi, the Department of Economic
and Community Development and the Panola County Tax
Assessor/Collector.
**10.16 -- Letter of Credit Agreement, dated August 28, 1998, among LSP
Energy Limited Partnership, Credit Suisse First Boston, as
the VEPCO L/C Agent and the VEPCO L/C Issuer, and the VEPCO
L/C Banks.
**10.17 -- Infrastructure Use Agreement (Gasline Use), dated August 12,
1999, among LSP Energy Limited Partnership, the Industrial
Development Authority of the Second Judicial District of
Panola County, Mississippi, the Mississippi Major Economic
Impact Authority, Panola County, Mississippi and the City of
Batesville, Mississippi.
**10.18 -- Inducement Agreement, dated August 12, 1999, among LSP
Energy Limited Partnership, the Industrial Development
Authority of the Second Judicial District of Panola County,
Mississippi, the Mississippi Department of Economic and
Community Development, the Mississippi Major Economic Impact
Authority, Panola County, Mississippi and the City of
Batesville, Mississippi.
**10.19 -- Panola Partnership, dated August 12, 1999, among LSP Energy
Limited Partnership and Panola Partnership, Inc.
**10.20 -- Infrastructure Use Agreement (Water Use), dated August 12,
1999, among LSP Energy Limited Partnership, the Industrial
Development Authority of the Second Judicial District of
Panola County, Mississippi, the Mississippi Major Economic
Impact Authority, Panola County, Mississippi
EI-3
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------
**10.21 -- Yalobusha County Agreement, dated February 16, 1999, among
LSP Energy Limited Partnership, Yalobusha County,
Mississippi and the Coffeeville School District.
**10.22 -- Performance Bond and Payment Bond, dated August 13, 1998, of
United States Fidelity and Guaranty Company, as surety.
10.23 -- Power Purchase Agreement between Tennessee Valley Authority
and LSP Energy Limited Partnership dated February 25, 2000.
10.24 -- Facilities Interconnect, Construction, Ownership and
Operation Agreement between Trunkline Gas Company and LSP
Energy Limited Partnership for M&R Panola County,
Mississippi dated January 28, 2000.
**25.1 -- Statement of Eligibility and Qualification (Form T-1) under
the Trust Indenture Act of 1939 of The Bank of New York.
27.1 -- Financial Data Schedule (LSP Energy Limited Partnership).
27.2 -- Financial Data Schedule (LSP Batesville Funding
Corporation).
- --------------------------------------------------------------------------------
** Incorporated herein by reference from the Registration Statement on Form
S-4, File No.'s 333-84609 and 333-84609-01 filed with the Securities and
Exchange Commission by LSP Energy Limited Partnership and LSP Batesville Funding
Corporation on March 6, 2000.
EI-4
<PAGE>
Exhibit 10.23
POWER PURCHASE AGREEMENT
BETWEEN
TENNESSEE VALLEY AUTHORITY
AND
LSP ENERGY LIMITED PARTNERSHIP
THIS AGREEMENT is made and entered into as of the 25th day of February,
2000, by and between Tennessee Valley Authority ("TVA") and LSP Energy Limited
Partnership ("LSP Energy"). LSP Energy and TVA are also hereinafter sometimes
referred to individually as "Party" and collectively as "Parties."
RECITALS
A. LSP Energy and TVA have entered into Interconnection Agreement
98PAP-236148, dated July 22, 1998 ("Interconnection Agreement").
Capitalized terms that are not defined in this Agreement shall have
the meaning set forth in the Interconnection Agreement for the same
defined term.
B. LSP Energy and TVA desire to set forth in this Agreement certain of
the terms and conditions which shall govern TVA's purchase of energy
during the start-up and test period of the Facility.
AGREEMENTS
LSP Energy and TVA agree as follows:
1. DELIVERY AND PURCHASE OF TEST ENERGY
1.1 The Facility consists of three generating units. Each
generating unit consists of a single combustion turbine generator and steam
turbine generator set ("Unit"). LSP Energy shall deliver at the point specified
in Section 5, and TVA shall receive and pay for, all electric energy ("Test
Energy") generated by each Unit of the Facility during the start-up and test
period of such Unit, as designated by LSP Energy at its sole discretion ("Test
Period"). During the Test Period for each Unit, by 1100 Central Time, LSP Energy
shall provide TVA with an estimate, characterized by hour, of the quantity of
Test Energy to be generated by such Unit for the following Day. TVA recognizes
that the estimated Test Energy schedule may vary from actual Test Energy
delivered due to the inherent uncertainty associated with the start-
<PAGE>
up and testing of new power plants; provided, however, LSP Energy shall use
reasonable efforts to minimize variances between the scheduled Test Energy and
the delivered Test Energy. LSP Energy shall promptly notify TVA upon the
occurrence of any changes to the estimated Test Energy schedule.
1.2 Subject to the limitations set forth in the Interconnection
Agreement, LSP Energy shall have sole discretion to determine the quantity of
Test Energy generated during the Test Period, and, except as specified in
Section 1.1, LSP Energy shall have no obligation to schedule, deliver or sell
any specific quantity of energy from the Facility to TVA as Test Energy or
otherwise. Following termination of the Test Period for a Unit and subject to
the limitations set forth in the Interconnection Agreement, LSP Energy shall
have the right to sell energy and capacity from such Unit to any other party
whether or not LSP Energy is concurrently delivering Test Energy from any other
Unit; provided that, pursuant to Section 1.1, LSP Energy may not sell to others
any Test Energy.
2. TERM AND TERMINATION
2.1 This Agreement shall become effective as of the Initial
Synchronization Date of the first Unit to be tested and shall continue in effect
until its expiration at 00:00 hours Central Time on the day following completion
of the Test Period for the last Unit to be tested ("Expiration Date"); provided,
however, the provisions of this Agreement (excluding Section 5.2, which shall
continue to apply to all Units until the Expiration Date) shall cease to apply
to any Unit upon completion of the Test Period for such Unit. LSP Energy at its
sole discretion shall promptly notify TVA of the completion of the Test Period
for each Unit.
3. PRICE OF ENERGY
3.1 The price that TVA shall pay to LSP Energy for Test Energy
received by TVA under this Agreement during each clock hour shall be the lower
of (a) the then-current price provided for in Part B of TVA's Dispersed Power
Price Schedule CSPP (currently $21.29/MWh during onpeak hours, $16.74/MWh during
offpeak hours), and (b) the amount calculated by multiplying TVA's decremental
system cost during that clock hour by 0.9. The North American Electric
Reliability Council definition of onpeak and offpeak periods shall apply.
4. BILLING AND PAYMENT
4.1 The hourly charge to TVA for Test Energy received by TVA
during any clock hour shall be equal to the metered Test Energy for the clock
hour (determined in accordance with Section 2.3 of the Interconnection
Agreement) multiplied by the price of Test Energy during the clock hour
(determined in accordance with Section 3.1 of this Agreement). The summation of
all hourly charges for Test Energy received by TVA in the Month shall be TVA's
monthly charge for Test Energy received by TVA for the Month. TVA will promptly
render payment to LSP Energy within 30 Days after the end of the Month during
which said Test Energy was received. If the payment date falls on a non-business
Day, then the payment shall be due on the next following Business Day. Payments
shall be made by electronic transfer to an appropriate account designated by LSP
Energy.
2
<PAGE>
4.2 In case any portion of any payment is the subject of a bona
fide dispute, the undisputed amount shall be payable when due as described in
Section 4.1, and any disputed amount subsequently determined to be owed by TVA
to LSP Energy shall be paid promptly after such determination, with interest
calculated in accordance with the methodology specified for interest on refunds
in FERC's regulations at 18 CFR Section 35.19a(a)(2)(iii) from the date such
amount would have been paid in the absence of any dispute.
5. POINT OF DELIVERY
5.1 Test energy provided under this Agreement shall be delivered
by LSP Energy to TVA at the Delivery Point specified in the Interconnection
Agreement. The Test Energy shall be provided by LSP Energy in accordance with
Good Utility Practice. Title to and risk of loss of the Test Energy delivered by
LSP Energy shall pass from LSP Energy to TVA upon delivery thereof at the
Delivery Point.
5.2 Until the Expiration Date, all of the Facility Electrical
Output for each Unit (including those Units for which the Test Period has been
completed prior to the Expiration Date) shall be delivered into the TVA Control
Area.
6. FORCE MAJEURE
6.1 Neither Party shall be responsible for, liable for, or deemed
in breach of this Agreement for any delay or failure in the performance of its
respective obligations under this Agreement (except for obligations to pay
money, which shall not be excused due to Force Majeure) to the extent such delay
or failure is due solely to circumstances beyond the reasonable control of the
Party experiencing such delay or failure (such Party referred to herein as the
"Non-Performing Party"), including but not limited to acts of God; labor
disturbance; extraordinarily severe weather conditions; war; riots;
requirements, actions, or failures to act on the part of governmental
authorities preventing or delaying performance; fire; damage to or breakdown of
necessary facilities (such causes hereinafter called "Force Majeure"); provided
that:
(i) The Non-Performing Party gives the other Party written notice
within two (2) Business Days of the Force Majeure, with details to be supplied
within ten (10) Days further describing the particulars of the event; and
(ii) The suspension of performance is of no greater scope and of no
longer duration than is attributable to the Force Majeure; and
(iii) The Non-Performing Party uses all reasonable efforts to remedy
its inability to perform; and
(iv) When the Non-Performing Party is able to resume performance of
its obligations under this Agreement, that Party shall give the other Party
written notice to that effect; and
3
<PAGE>
(v) The Force Majeure was not caused by or connected with the
Non-Performing Party's negligent or intentional acts, errors, or omissions, or
its failure to comply with any law, rule, regulation, order, or ordinance, or
for its breach or default of this Agreement.
7. LIMITATION OF LIABILITY
7.1 Neither Party shall be liable in contract, in tort (including
negligence and strict liability), under any warranty, or otherwise to the other
Party, its agents, representatives, its affiliated and associated companies, or
its assigns, for any special, indirect, incidental, consequential, or punitive
damages resulting from either Party's performance or non-performance of an
obligation imposed on it by this Agreement.
8. LAWS, REGULATIONS, ORDERS, APPROVALS, AND PERMITS
8.1 This Agreement is made subject to present and future
applicable local, state, and Federal laws and to the regulations or orders of
any local, state, or Federal regulatory authority having jurisdiction over the
matters set forth herein. Performance under this Agreement is conditioned upon
securing and retaining such local, state, or Federal approvals, grants, or
permits and upon the satisfactory performance of all necessary environmental
reviews as may from time to time be necessary with respect to such performance.
Each Party shall use its Commercially Reasonable best efforts to secure and
retain all such approvals, grants, and permits within such time as will permit
it to perform all of its obligations under this Agreement.
9. ASSIGNMENTS
9.1 This Agreement shall be binding upon and shall inure to the
benefit of, and may be performed by, the successors and assigns of the
Parties, except that no assignment, pledge, or other transfer of this
Agreement by either Party shall operate to release the assignor, pledgor, or
transferor from any of its obligations under this Agreement unless: (a) the
other Party consents in writing to such assignment, pledge, or other
transfer, and releases, in writing, the assignor, pledgor, or transferor from
any of its obligations under this Agreement, which consent and release shall
not be unreasonably withheld; (b) the assignment, pledge, or other transfer
is to an affiliate of the assignor, pledgor, or transferor and the assignee,
pledgee, or transferee has assumed, in writing, all of the obligations of the
assignor, pledgor, or transferor under this Agreement, provided that such
assignee, pledgee, or transferee has demonstrated financial capacity at least
equal to that of the assignor, pledgor, or transferor; or (c) such assignment
or transfer is incident to a merger or consolidation with, or assignment or
transfer of all, or substantially all, of the assets of the assignor or
transferor to another person, entity, political subdivision, or public
corporation that will, as part of such succession, assume all of the
obligations of the assignor, pledgor, or transferor under this Agreement,
provided that such person, entity, political subdivision, or public
corporation has demonstrated financial capacity at least equal to that of the
assignor, pledgor, or transferor. TVA hereby consents to LSP Energy's
assignment of its right, title, and interest to this Agreement to its project
lenders in conjunction with the financing of the Facility, provided that such
assignment and consent shall in no way modify the obligations of the Parties
under this Agreement.
4
<PAGE>
9.2 Except as provided in Section 9, neither Party may assign,
pledge, or otherwise transfer its rights under this Agreement to any other
entity without the consent of the other Party, which consent shall not be
unreasonably withheld.
10. NOTICES
10.1 All notices and communications under this Agreement shall be
deemed given to a Party (a) if delivered by hand or sent by overnight courier,
on the day of delivery or (b) if sent by registered or certified mail, return
receipt requested, on the date of receipt.
If to LSP Energy:
LSP Energy Limited Partnership
c/o LS Power, LLC
Two Tower Center, 20th Floor
East Brunswick, New Jersey 08816
Attention: Michael P. Witzing
Phone: 732-249-6750
Fax: 732-249-7290
If to TVA:
General Manager, Electric System Operations
Tennessee Valley Authority
1101 Market Street, MR BA
Chattanooga, Tennessee 37402-2801
The designation of the person to be so notified or the address of
such person may be changed at any time and from time to time by either Party by
similar notice.
11. ACCOUNTS AND RECORDS
11.1 The Parties shall keep complete and accurate records of their
operations under this Agreement and shall maintain such records for a period of
at least four years after the expiration of this Agreement. Either Party shall
have the right, at its own expense, to examine and inspect upon reasonable
notice, through a third-party auditing entity acceptable to both Parties, all
such records insofar as may be necessary for the purpose of ascertaining the
reasonableness and accuracy of all relevant data, estimates, statements, or
charges hereunder. Such records, including cost information, that are indicated
to be proprietary and confidential shall not be disclosed to the Party
requesting the examination and shall only be made available to the auditing
entity on condition that the records and information are not disclosed, except
as required by law, to the other Party or others without the express written
approval of the Party whose records and cost information are being examined.
5
<PAGE>
12. THIRD-PARTY BENEFICIARIES
12.1 Except as expressly provided in Section 9.2, nothing in this
Agreement, express or implied, shall be construed to create rights in, or to
grant remedies to, or delegate any duty, obligation, or undertaking established
herein to any third party as a beneficiary to this Agreement.
13. CHOICE OF LAW
13.1 The validity, interpretation, and performance of this
Agreement shall be governed by the applicable Federal law of the United States
of America, without regard to the laws requiring application of the laws of
another jurisdiction.
14. MISCELLANEOUS
14.1 A holding by any court or governmental agency having
jurisdiction that any provision of this Agreement is invalid shall not result in
invalidation of the entire Agreement, and all remaining terms shall remain in
full force and effect.
14.2 No statement or agreement, oral or written, that was made
prior to entering into this Agreement shall vary or modify the written terms of
this Agreement, except to the extent stated in Recital A to this Agreement.
Neither Party shall claim any amendment to or modification of or release from
any provision by mutual agreement unless that agreement is in writing signed by
the other Party and which specifically states that it is an amendment to,
modification of, or release from this Agreement.
14.3 The section headings are for convenience only and shall not be
interpreted in any way to limit or change the subject matter of this Agreement.
14.4 This Agreement may be executed in several counterparts, each
of which shall be considered an original and all of which shall constitute but
one and the same instrument.
14.5 Each Party warrants and represents to the other on the date of
this Agreement that (a) it has the power to enter into and perform its
obligations under this Agreement; (b) entering into and performing this
Agreement does not violate or conflict with its charter, bylaws, licenses,
consents, regulatory approvals, or comparable governing documents, any law
applicable to it, any order or judgment of any court or other agency of
government applicable to it, or any agreement to which it is a party; and (c)
the Parties and the individuals and entities signing this Agreement on their
behalf warrant that they have the necessary power and authority to execute this
Agreement and thereby bind the respective Parties.
14.6 A waiver by either Party of any one or more defaults by the
other in the performance of any of the provisions of this Agreement shall not be
construed as a waiver of any other default or defaults, whether of a like kind
or different nature.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
signed by their respective duly authorized representatives.
LSP ENERGY LIMITED PARTNERSHIP
BY: LSP ENERGY, INC., its general partner
By: /s/ Michael P. Witzing
-----------------------------------------
Name: Michael P. Witzing
---------------------------------------
Title: Vice President
--------------------------------------
TENNESSEE VALLEY AUTHORITY
By: /s/ Terry Boston
-----------------------------------------
Terry Boston
Executive Vice President
Transmission/Power Supply Group
7
<PAGE>
Exhibit 10.24
FACILITIES INTERCONNECT, CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT
BETWEEN
TRUNKLINE GAS COMPANY
AND
LSP ENERGY LIMITED PARTNERSHIP
FOR
M&R _________
PANOLA COUNTY, MISSISSIPPI
<PAGE>
FACILITIES INTERCONNECT, CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT
This Facilities Interconnect, Construction, Ownership and Operation Agreement
("Agreement") is made this 28th day of January, 2000 by and between Trunkline
Gas Company ("TGC"), a Delaware Corporation with its principal office in
Houston, Texas and LSP Energy Limited Partnership ("LSPE"), a Delaware Limited
Partnership, with its principal office in Batesville, Mississippi.
WITNESSETH:
WHEREAS, TGC is a natural gas transmission company rendering gas transportation
service to the public; and
WHEREAS, LSPE is engaged in the generation of electricity as an independent
power producer in the State of Mississippi; and
WHEREAS, TGC has requested an interconnection ("Interconnection") between the
24-inch pipeline owned by Panola County or a successor governmental authority
(the "County Entity") and leased to LSPE (the "LSPE Pipeline"), at approximate
survey station 110+00, and TGC's 36-inch and 30-inch Line Nos. 100-3 and 100-2,
valve section 81, at approximate milepost 328.22, in Panola County, Mississippi,
for the purpose of delivering up to 240 MMSCFD of natural gas from TGC Line Nos.
100-3 and 100-2; and
WHEREAS, TGC and one or more parties with contractual arrangements to use or
benefit from the use of the LSPE Pipeline ("Potential Shippers") may enter into,
a transportation service agreement for gas to be delivered to such Potential
Shipper through the use of the Interconnection; and
WHEREAS, TGC has examined information provided by or on behalf of the affected
Potential Shippers, and has determined that the installation of the
Interconnection is required to accommodate actual gas load, in compliance with
TGC's construction policies, and is willing to facilitate the installation of
such Interconnection under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, above, and the mutual
covenants hereinafter set forth, TGC and LSPE (the "Parties" hereto; each is a
"Party") agree as follows:
ARTICLE I
FACILITY DESCRIPTION AND LOCATION
---------------------------------
1.01 The Interconnection shall collectively consist of the installation of the
facilities comprising the "Interconnecting Facilities" and the facilities
comprising the "LSPE Tap Facilities", each as defined below. The LSPE Tap
Facilities shall consist of those facilities required by LSPE to accept gas at
the point of connection between the LSPE Pipeline and TGC and which are more
particularly described as the LSPE Tap Facilities as listed in Exhibit A, a
letter agreement dated as of September 1, 1999 by and among LSPE and TGC,
attached hereto and incorporated herein by this reference. The Interconnecting
Facilities shall consist of those facilities required by TGC to deliver gas to
the LSPE Pipeline including the following:
A. The measuring and regulating station ("M&R") which includes:
1. A single 16-inch multipath ultrasonic meter run plus
associated piping, valves, and an inlet and/or outlet
insulating flange (the "Meter Run").
2. Pressure regulation and/or overpressure protection equipment
plus associated piping and valves.
3. Flow control equipment to provide remote flow control
throttling capability and remote emergency shut-in capability
by TGC's Houston Gas Control Department.
1
<PAGE>
4. All applicable instrumentation
B. The electronic gas measurement equipment ("EGM") consisting of the
EGM building, differential and static pressure transmitters,
temperature transmitters, RTU, communications (telephone or radio)
equipment, chromatograph and associated equipment and
instrumentation.
C. The Connecting Piping, consisting of the 16-inch piping between the
upstream insulating flange of the LSPE Tap Facilities and the
insulated flange downstream of the M&R piping (the "Connecting
Piping").
D. The Hot Taps, consisting of a 12-inch tap valve, a 12-inch check
valve and an insulating flange on Line Nos. 100-3 and 100-2,
including all piping between such tap valve, check valve and
insulating (the "Hot Taps").
E. The Lateral Line, consisting of approximately 1,000-feet of 16-inch
pipeline between the Hot Taps and the M&R (the "Lateral").
F. Any other required equipment or materials necessary to affect the
Interconnection not specifically included in the LSPE Tap
Facilities.
1.02 The Interconnecting Facilities are more specifically set out in Exhibit B,
attached hereto and incorporated herein by this reference.
ARTICLE II
ENGINEERING, CONSTRUCTION AND RIGHTS-OF-WAY
-------------------------------------------
2.01 REGULATORY FILING AND PERMITTING - TGC, or its designee, at its sole cost
and expense shall prepare and file any necessary FERC filings and exhibits, in
regard to the Interconnecting Facilities. LSPE shall support such filings,
provided such support shall not impose any cost on or otherwise adversely impact
LSPE. Additionally, TGC shall secure all permits required for the
Interconnecting Facilities.
2.02 DESIGN, MATERIAL SPECIFICATION AND PROCUREMENT, CONSTRUCTION AND PROJECT
MANAGEMENT - TGC, or its designee, at its sole cost and expense, shall carry out
design, material specification and procurement, construction and project
management of the Interconnecting Facilities. All designs will be in accordance
with DOT Title 49 CFR Part 192 and applicable federal, state and local safety
regulations, TGC specifications and in accordance with sound and prudent natural
gas pipeline industry practices. The measurement equipment shall be designed in
accordance with the latest edition of specifications prescribed by the American
Gas Association Measurement Committee Report No. 3, 3rd Edition, February 1991,
or any revision thereof, effective on the date of execution. The Hot Taps,
Lateral, M&R and Connecting Piping shall be designed consistent with the MAOP of
the upstream pipeline or the MAOP of the LSPE Pipeline as applicable. All
electrical equipment will be designed, installed and inspected in accordance
with the latest edition of the National Electric Code (ANSI/NFPA 70) and all
applicable TGC Engineering Standards and Specifications. All hazardous area
classifications will be determined using AGA Report XFO 277. All hazardous area
classifications will be approved by a TGC representative.
2.03 RIGHTS-OF-WAY - TGC shall acquire easement rights for the Interconnecting
Facilities.
2.04 COMMUNICATIONS - TGC shall provide to LSPE EGM compiled data through an RS
232 port. At a minimum, the signal from the EGM shall provide real time
pressure, temperature, and flow information. Under normal situations TGC will
utilize solar power and radio communications. If circumstances require
otherwise, TGC, at its expense, shall install the necessary commercial
electrical power and telephone communications.
2
<PAGE>
ARTICLE III
OWNERSHIP
3.01 TGC shall own the Interconnecting Facilities. Demarcation of the change of
ownership between the Interconnection Facilities owned by TGC and the LSPE Tap
Facilities owned by the County Entity is set forth in the attached Exhibit B.
3.02 TGC shall be responsible for 100% of the costs and expenses incurred by
TGC to install the Interconnecting Facilities.
ARTICLE IV
OPERATION AND MAINTENANCE RESPONSIBILITIES
------------------------------------------
4.01 TGC or its designee, at its expense, shall operate, maintain, repair, and
replace the Interconnecting Facilities in accordance with the requirements of
any federal, state or other governmental agency having jurisdiction and in
accordance with sound and prudent natural gas pipeline industry practice.
4.02 The EGM shall calculate the custody transfer gas volumes through the M&R.
Dekatherm volumes will be calculated on a dry BTU basis. TGC shall have the
right to shut-in the Interconnection without prior notice to LSPE in accordance
with TGC's FERC Gas Tariff as effective from time to time. TGC's gas control
center located in Houston, Texas ("TGC Gas Control"), however, will notify
LSPE's designated fuel manager or gas control center ("LSPE Gas Control") as
soon as practicable thereafter.
4.03 The M&R shall include a Meter Run sufficient to measure all gas volumes
flowing to LSPE's pipeline. The M&R shall measure the flowing gas pressures and
volume pursuant to the proper nomination of gas volumes as mutually agreed upon
by TGC and LSPE or it's designee. The measurements and nominations shall be in
accordance with TGC's FERC gas tariff. TGC shall incorporate a properly sized
flow control valve or valves in the Interconnection Facilities to control the
nominated volume over the complete range from 0.5 MMSCFD to 240 MMSCFD.
4.04 TGC shall operate and maintain its overpressure protection devices and
shall inspect and test the overpressure protection devices on an annual basis to
establish that such is properly operated in accordance with DOT Title 49 CFR
Part 192 regulations. The overpressure protection devices shall be set at a
pressure not to exceed 892 psig, which equals 104% LSPE's pipeline MAOP.
4.05 Remote operation of TGC's control valves shall be controlled by TGC Gas
Control in Houston.
4.06 TGC or its designee, at its expense, shall be solely responsible for
upkeep and maintenance of the Interconnecting Facilities, including the exterior
of the M&R and Connecting Piping subject hereto including but not limited to
painting and rust protection relevant to same as well as upkeep of the grounds
surrounding same. Such grounds upkeep responsibilities shall include but not be
limited to painting, fencing, vehicular access road repair and maintenance and
mowing.
4.07 LSPE shall operate and maintain or cause to be operated and maintained the
LSPE Tap Facilities, as determined necessary in its discretion, pursuant to its
agreements with the Potential Shippers and in accordance with prudent natural
gas pipeline industry practice; provided that, in no event shall LSPE have any
obligation or liability to TGC with respect to such operation and maintenance.
4.08 All gas delivered by TGC to LSPE at the Interconnection Facilities shall
conform to the specifications set forth in the General Terms and Conditions of
TGC's FERC Gas Tariff.
3
<PAGE>
4.09 TGC shall deliver gas at the Interconnection Facilities at TGC's
prevailing line pressure; provided, however, that consistent with the notice
provided by LSPE Gas Control, TGC shall control the line pressure or volume of
its deliveries through the Interconnection as necessary to permit gas to enter
the LSPE Pipeline from TGC concurrently with any gas being delivered at such
time from any other pipeline source.
4.10 The reading, testing, calibrating, and/or adjusting of the TGC EGM or any
custody transfer measurement facilities shall be performed and paid for by TGC.
Testing and calibrating of the measurement facilities and any adjustments for
inaccuracies related thereto, shall be performed in accordance with TGC's Tariff
and with TGC's applicable measurement standards.
4.11 TGC shall provide LSPE with reasonable advance notice of the reading,
testing, calibrating, inspection, repair, changing and/or adjusting of the TGC
EGM or any custody transfer measurement facilities. LSPE may have
representatives and/or designees present during the time that such work is being
performed. TGC shall also provide LSPE with reasonable advance written notice of
all scheduled maintenance or repair work on such facilities. For any maintenance
or repair work which could reasonably result in interruption or curtailment of
gas deliveries to the affected Potential Shipper at the point of connection
between the Interconnecting Facilities and the LSPE Tap Facilities., TGC shall
use commercially reasonable efforts to perform such work during the maintenance
outages of LSPE's Power Plant or such other times as are agreeable to LSPE, and
TGC shall use commercially reasonable efforts to complete such work in the
shortest time practicable.
ARTICLE V
NOTIFICATION
------------
5.01 All notices and other communications between the Parties, unless otherwise
specifically provided, shall be in writing and deemed to have been duly given
when delivered in person, by national courier or by the United States Postal
Service, addressed as follows:
If to LSPE:
Attn: Plant Manager, Batesville Generation Facility
LSP Energy Limited Partnership
200 Industrial Drive
P.O. Box 1168
Batesville, MS 38606
Phone (662) 563-1330
With copy to:
Attn: Batesville Project Manager
LSP Energy Limited Partnership
c/o LS Power, LLC Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Phone (732) 249-6750
Fax (732) 249-7290
If to TGC:
FOR PAYMENTS: As instructed on the invoice.
4
<PAGE>
FOR ALL OTHER COMMUNICATIONS:
1. Prior to facilities being placed in service:
Keith Teague
Trunkline Gas Company
5444 Westheimer, Room WT 462
Houston, Texas 77056
(713) 989-7451
(713) 989-1126 (Fax)
2. After facilities are placed in service:
Technical Operations Superintendent
Trunkline Gas Company
8100 Big Lake Road
Lake Charles, Louisiana 70605
(318) 478-4202
(318) 475-4239 (Fax)
or to such other address as either Party from time to time may designate for
itself.
ARTICLE VI
LIABILITIES
-----------
6.01 (A) EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, LSPE SHALL INDEMNIFY
AND HOLD HARMLESS THE TGC INDEMNIFIED PARTIES (AS HEREINAFTER DEFINED) FROM AND
AGAINST THE CLAIMS AND ACTIONS (AS HEREINAFTER DEFINED), AND UPON DEMAND BY TGC
SHALL PROTECT AND DEFEND THE TGC INDEMNIFIED PARTIES FROM SUCH CLAIMS AND
ACTIONS, ASSERTED OR SUFFERED BY OR ARISING IN FAVOR OF ANY THIRD PARTY,
INCLUDING, WITHOUT LIMITATION, LSPE'S CONTRACTORS OR SUBCONTRACTORS OF EVERY
TIER, THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES AND INVITEES
OF LSPE OR LSPE'S CONTRACTORS OR SUBCONTRACTORS OF EVERY TIER, ONE OR MORE OF
THE TGC INDEMNIFIED PARTIES OR ANY THIRD PARTIES, AND SHALL PAY ANY AND ALL
JUDGMENTS OR REASONABLE SETTLEMENTS OF ANY KIND OR NATURE (TO INCLUDE INTEREST)
AS WELL AS COURT COSTS, REASONABLE ATTORNEYS' FEES AND EXPENSES, AND ANY
REASONABLE EXPENSES INCURRED IN ENFORCING THIS INDEMNITY PROVISION, INCURRED BY,
IMPOSED UPON OR RENDERED AGAINST ONE OR MORE OF THE TGC INDEMNIFIED PARTIES ON
ACCOUNT OF ANY CAUSE OR CAUSES IN CONNECTION WITH INJURIES (INCLUDING DEATH) TO
ANY PERSON OR DAMAGE TO OR DESTRUCTION OF ANY PROPERTY OR ANY CLAIM UNDER ANY
LAW PRETAINING TO THE PROTECTION OF HEALTH, SAFETY OR THE ENVIRONMENT, TO THE
EXTENT SUSTAINED AS THE RESULT OF THE ACTIVITIES OR OMISSIONS OF LSPE IN
CONNECTION WITH THIS AGREEMENT, WHETHER BEFORE OR AFTER COMPLETION OF SUCH
ACTIVITIES, WHETHER BASED ON CONTRACT, ON TORT, OR PURSUANT TO ANY STATUTE, RULE
OR REGULATION, AND REGARDLESS OF WHETHER THE CLAIMS AND ACTIONS ARE FORESEEABLE
OR UNFORESEEABLE OR ARE FOUNDED IN WHOLE OR IN PART UPON THE JOINT, CONCURRENT,
CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF ONE OR MORE OF THE TGC INDEMNIFIED
PARTIES.
6.01 (B) EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, TGC SHALL INDEMNIFY
AND HOLD HARMLESS THE LSPE INDEMNIFIED PARTIES (AS HEREINAFTER DEFINED) FROM AND
AGAINST THE CLAIMS AND ACTIONS (AS HEREINAFTER DEFINED), AND UPON DEMAND BY LSPE
SHALL PROTECT AND DEFEND THE LSPE INDEMNIFIED PARTIES FROM SUCH
5
<PAGE>
CLAIMS AND ACTIONS, ASSERTED OR SUFFERED BY OR ARISING IN FAVOR OF ANY THIRD
PARTY, INCLUDING, WITHOUT LIMITATION, TGC'S CONTRACTORS OR SUBCONTRACTORS OF
EVERY TIER, THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES AND
INVITEES OF TGC OR TGC'S CONTRACTORS OR SUBCONTRACTORS OF EVERY TIER, ONE OR
MORE OF THE LSPE INDEMNIFIED PARTIES OR ANY THIRD PARTIES, AND SHALL PAY ANY AND
ALL JUDGMENTS OR REASONABLE SETTLEMENTS OF ANY KIND OR NATURE (TO INCLUDE
INTEREST) AS WELL AS COURT COSTS, REASONABLE ATTORNEYS' FEES AND EXPENSES, AND
ANY REASONABLE EXPENSES INCURRED IN ENFORCING THIS INDEMNITY PROVISION, INCURRED
BY, IMPOSED UPON OR RENDERED AGAINST ONE OR MORE OF THE LSPE INDEMNIFIED PARTIES
ON ACCOUNT OF ANY CAUSE OR CAUSES WHATSOEVER IN CONNECTION WITH INJURIES
(INCLUDING DEATH) TO ANY PERSON OR DAMAGE TO OR DESTRUCTION OF ANY PROPERTY OR
ANY CLAIM UNDER ANY LAW PRETAINING TO THE PROTECTION OF HEALTH, SAFETY OR THE
ENVIRONMENT, TO THE EXTENT SUSTAINED AS THE RESULT OF THE ACTIVITIES OR
OMISSIONS OF TGC IN CONNECTION WITH THIS AGREEMENT, BEFORE OR AFTER COMPLETION
OF SUCH ACTIVITIES, WHETHER BASED ON CONTRACT, ON TORT, OR PURSUANT TO ANY
STATUTE, RULE OR REGULATION, AND REGARDLESS OF WHETHER THE CLAIMS AND ACTIONS
ARE FORESEEABLE OR UNFORESEEABLE OR ARE FOUNDED IN WHOLE OR IN PART UPON THE
JOINT, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF ONE OR MORE OF THE
LSPE INDEMNIFIED PARTIES.
6.02 As used herein the following terms shall have the following meanings:
a. "CLAIMS AND ACTIONS" shall mean any and all direct or indirect
claims, demands, actions, causes of action, suits, right of recovery
for any relief or damages, debts, accounts, damages, costs, losses,
liabilities and expenses (including, without limitation, interest,
court costs, reasonable attorneys' fees and expenses, and other
reasonable costs of defense), of any kind or nature including, but
not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Toxic
Substances Control Act, and federal and state equivalents.
b. "TGC INDEMNIFIED PARTIES" shall mean TGC, TGC's affiliates, and the
officers, directors, employees, agents and representatives of each
of such parties.
c. "LSPE INDEMNIFIED PARTIES" shall mean LSPE, LSPE's affiliates, and
the officers, directors, employees, agents and representatives of
each of such parties.
6.03 In the event that any statute or rule of law should be held applicable to
any indemnity clause in favor of one or more of the TGC Indemnified Parties or
the LSPE Indemnified Parties which would render void, voidable, or unenforceable
any such indemnity clause as to any party by reason of any provisions contained
therein, then and in only such event, such indemnity clause shall be deemed
modified and read, construed and enforced as to such party with respect to the
provisions held to violate the statute or rule of law to require indemnity by
the indemnifying party to the fullest extent required by such indemnity
provision modified and limited only to the degree or extent necessary to bring
such indemnity into compliance with such statute or rule of law, but otherwise,
the indemnity shall remain in full force and effect and binding upon the parties
hereto.
6.04 THE PARTIES HERETO AGREE THAT NEITHER PARTY SHALL BE LIABLE FOR ANY
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR IN ANY MANNER RELATED TO THIS AGREEMENT.
6.05 Each Party acknowledges and agrees that in no event shall any partner,
shareholder, owner, officer, director, employee, or affiliate of either Party be
personally liable to the other Party for any payments, obligations, or
performance under this Agreement, or any breach or failure of performance of
either Party. The sole recourse for payment or performance of the obligations
hereunder shall be against a Party and not against any other Person.
6
<PAGE>
ARTICLE VII
ASSIGNMENTS
-----------
7.01 Any person who succeeds by purchase, merger, or consolidation to all, or
substantially all, of the properties of either TGC or LSPE shall be entitled to
the rights and shall be subject to the obligations of its predecessor in title
under this Agreement. This Agreement shall be binding and will inure to the
benefit of the successors, nominees and assignees of the Parties. No assignment
of this Agreement, or any right or obligation hereunder, shall be made without
the prior written notice to, and consent of, the other Party (which shall not be
unreasonably withheld), except that any Party shall have the right to assign
this Agreement to any financially responsible affiliate (with equal or higher
credit rating) without the prior written consent of the other Party and no prior
consent is required if the assignment is carried out pursuant to Paragraph 7.03
or Paragraph 7.04 below.
7.02 Nothing contained herein shall prevent or restrict either Party from
pledging, granting a security interest in, or assigning as collateral all or any
portion of such Party's interest in this Agreement to secure any debt or
obligation of such Party under any mortgage, deed, trust, security or similar
instrument. TGC shall cooperate with LSPE in delivering the necessary consent to
assignment and other documentation reasonably required by lenders in connection
with any future LSPE financing.
7.03 Nothing contained herein shall prevent or restrict LSPE from assigning all
or any portion of its interest in this Agreement to the County Entity in
connection with its financing of infrastructure related to LSPE's Power Plant;
provided however, that any such assignment shall relieve LSPE of its obligations
and liabilities under this Agreement only to the extent such obligations and
liabilities are assumed and accepted by such entity.
ARTICLE VIII
TERM
----
8.01 This Agreement shall become effective upon acceptance hereof by TGC and
LSPE and shall remain in effect unless terminated as provided below.
8.02 Upon the cessation of the transportation of gas through the
Interconnection Facilities for a period of twelve consecutive months, either
party may terminate this Agreement upon thirty days prior written notice to the
other. In the event of such termination, either party, at it own expense, may
disconnect it's facilities from the facilities of the other party in accordance
with prudent natural gas industry practice.
ARTICLE IX
AUDITS
------
9.01 LSPE reserves the right to audit data used to perform volume, BTU, and
dekatherm calculations. TGC agrees to provide such requested data.
ARTICLE X
MISCELLANEOUS
-------------
10.01 TGC makes no representation, warranty or guarantee, express or implied,
by this Agreement that it will deliver natural gas at this proposed point of
Interconnection. This Agreement is not an agreement to transport natural gas.
This Agreement shall in no way require LSPE to accept gas from TGC.
10.02 Each Party shall promptly notify the other of any action, circumstance,
condition, or reasonably likely potential occurrence that would reasonably be
expected to have a material effect on the ability of such Party to perform its
intended obligations under this Agreement.
7
<PAGE>
10.03 Except in connection with such maintenance as required or permitted under
this Agreement, no Party shall remove any facilities or equipment constructed
pursuant to this Agreement until all transportation services through the
facilities have ceased. Six (6) months' written notice of any Party's intent to
remove facilities must be given to the other prior to removal of any facilities.
Notwithstanding the foregoing LSPE shall have the right to interrupt or
terminate the use of the LSPE Tap Facilities or the LSPE Pipeline in accordance
with its agreements with the Potential Shippers and shall have no obligation or
liability to TGC with respect to such interruption or termination.
10.04 THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MISSISSIPPI, EXCEPT FOR THE CONFLICT OF LAWS PROVISIONS
THEREOF WHICH WOULD REFER A PARTY TO THE LAWS OF ANOTHER JURISDICTION.
10.05 This Agreement is expressly made subject to all statutes and/or
regulations of any governmental body having jurisdiction.
10.06 Transportation services rendered by TGC will initially be performed
pursuant to a transportation agreement entered into with the affected Potential
Shipper under the TGC open-access transportation blanket certificate or any
successor thereto and shall be subject to the applicable provisions of the TGC
transportation tariff.
10.07 TGC shall, as to those facilities which it is to install hereunder,
utilize reasonable efforts to install same in a prompt manner. It is, however,
recognized and stipulated that limitations as to availability of personnel
and/or materials, and the ability to obtain or acquire or any delays in
obtaining or acquiring any necessary permits or other authorizations and/or
easements, may cause delays in the installation of such facilities.
10.08 LSPE represents and warrants to TGC that LSPE has all requisite power and
authority to permit the Interconnection contemplated by this agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year above first
written.
TRUNKLINE GAS COMPANY
By: /s/ Jeryl Mohn
--------------------------------
Title: Vice President
-----------------------------
LSP ENERGY LIMITED PARTNERSHIP
By: LSP Energy, Inc.,
its general partner
By: /s/ Clarence J. Heller
--------------------------------
Name: Clarence J. Heller
Title: Executive Vice President
8
<PAGE>
[LETTERHEAD]
September 1, 1999
Mr. Michael P. Witzing
Vice President
LSP Energy Limited Partnership
C/o LS Power, LLC
Two Tower Center, 10th Floor
East Brunswick, New Jersey 08816
Page 1 of 1
Re: Facilities Modification Agreement
Tap Facilities
Panola County, Mississippi
Dear Mr. Witzing:
Trunkline Gas Company ("TGC") and LSP Energy Limited Partnership ("LSPE")
have agreed to undertake the modifications contemplated herein to the LSPE
24-inch pipeline traversing Panola County, Mississippi ("LSPE Pipeline").
Accordingly, LSPE and TGC hereby agree to the following:
1. The term "Tap Facilities" shall mean the 24"x24"x16" tee, 16-inch valve
and related flanges and piping to be installed at approximate survey
station 110+00 on the LSPE Pipeline, located in Section 1, T8S R9W,
Panola County, Mississippi. Such Tap Facilities are more fully described
and defined in "Exhibit A", attached hereto and made a part hereof for
all purposes.
2. Subject to the execution and delivery of the agreement referenced in
paragraph 3, LSPE agrees to cause the Tap Facilities to be designed and
installed on the LSPE Pipeline. All designs will be in accordance with
DOT Title 49 CFR Part 192, and applicable federal, state, and local
safety regulations and in accordance with sound and prudent natural gas
pipeline industry practices. LSPE shall prepare and file any necessary
governmental filings and exhibits, and make any required governmental
reports, in regard to its construction or operation of the Tap
Facilities. Additionally, LSPE shall secure all required clearances,
permits and easements in regard to the Tap Facilities. TGC shall fully
support any filings and all clearance and permit applications related to
the Tap Facilities. LSPE may assign all or part of its rights and
obligations under this agreement.
3. In accordance with the terms and conditions of a separate agreement
between TGC and Universal Ensco, Inc. ("Universal"), TGC shall reimburse
Universal for 100% of the actual costs and expenses that are incurred to
install and/or arrange for the installation of the Tap Facilities,
including any costs to acquire easements, clearances and permits.
4. LSPE shall own the Tap Facilities. Nothing contained within this
Agreement shall be deemed to allow, or create any obligation on the part
of LSPE to permit, TGC to interconnect to the Tap Facilities. Any such
right to interconnect will require a separate interconnection agreement.
LSPE shall enter into good faith negotiations with TGC for the purpose of
establishing such a separate interconnection agreement.
If you are in agreement with the terms of this Agreement, please indicate by
signing in the space provided below and return the originals to TGC for
execution. A fully executed copy will be returned for your files.
Sincerely,
[SIGNATURE]
R.K. Teague
AGREED AND ACCEPTED AGREED AND ACCEPTED
this 1st day of September, 1999 this 3rd day of September, 1999
LSP Energy Limited Partnership TRUNKLINE GAS COMPANY
BY: Michael P. Witzing BY: Jeryl Mohn
----------------------------- -------------------------------
TITLE: Vice President TITLE: Vice President
-------------------------- ----------------------------
<PAGE>
EXHIBIT A
[GRAPH TO COME]
<PAGE>
EXHIBIT B
[GRAPH TO COME]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF LSP ENERGY LIMITED PARTNERSHIP AS OF AND
FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001092436
<NAME> LSP ENERGY LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 217
<SECURITIES> 23,007
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,310
<CURRENT-ASSETS> 24,967
<PP&E> 314,944
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<TOTAL-ASSETS> 350,213
<CURRENT-LIABILITIES> 26,802
<BONDS> 326,000
0
0
<COMMON> 0
<OTHER-SE> (2,589)
<TOTAL-LIABILITY-AND-EQUITY> 350,213
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (642)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF LSP BATESVILLE FUNDING CORPORATION AS OF
AND FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001092435
<NAME> LSP BATESVILLE FUNDING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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0
0
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<OTHER-SE> (5)
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<CGS> 0
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 0
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