<PAGE>
Registration No. 333-91391
As filed with the Securities and Exchange Commission on January __, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AES IRONWOOD, L.L.C.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4930 54-145-7537
(State of incorporation or (Primary Standard Industrial (I.R.S. Employer Identification
organization) Classification Code Number) Number)
</TABLE>
<TABLE>
<S> <C>
305 PRESCOTT ROAD WILLIAM LURASCHI
LEBANON, PA 17042 AES IRONWOOD, L.L.C.
(717) 228-1328 1001 NORTH 19TH STREET, SUITE 2000
(Address, including zip code, and telephone number, ARLINGTON, VA 22209
including area code, of registrant's principal (703) 522-1315
executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
MICHAEL B. BARR
HUNTON & WILLIAMS
1900 K STREET, NW
WASHINGTON, DC 20006
(202) 955-1500
(202) 778-2201 (FAX)
Approximate date of commencement of proposed sale to the public: As
soon as practicable following the effectiveness of this Registration Statement.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ] ________
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
COMPANY MAY NOT EXCHANGE THE BONDS UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THE NEW BONDS AND IT IS NOT A SOLICITATION OF AN OFFER TO BUY THE
NEW BONDS IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY __, 2000
PROSPECTUS
$308,500,000
AES IRONWOOD, L.L.C.
Offer to Exchange All Outstanding
8.857% Senior Secured Bonds due 2025
For 8.857% Senior Secured Exchange Bonds due 2025
------------------
THE NEW BONDS:
o Interest Payments: Interest on the bonds will be payable every three
months, on February 28, May 31, August 31 and November 30 of each
year, beginning August 31, 1999.
o Security: The new bonds will rank equally with all of our other senior
debt secured by a lien on and security interest in shared collateral,
which consists of substantially all of our assets. In addition, the
indenture accounts, the debt service reserve account and the debt
service reserve letter of credit, other than to the extent the
provider's right to specific proceeds under the debt service reserve
letter of credit, are separate collateral solely for the benefit of
the holders of the new bonds.
o Ranking: The new bonds rank equally in right of payment with all other
present and future senior debt and senior in right of payment to all
subordinated debt.
o Listing: The new bonds will not be listed on any securities exchange
or NASDAQ.
THE EXCHANGE OFFER:
o Expiration: 5:00 p.m. New York City time on ______, 2000, unless
otherwise extended.
o Tendered Bonds: All old bonds that are validly tendered and not
validly withdrawn at the expiration of the exchange offer will be
exchanged for an equal principal amount of new bonds that are
registered under the Securities Act of 1933.
o Tax Consequences: The exchange of old bonds for new bonds will not be
a taxable event for U.S. federal income tax purposes.
o We are not making this exchange offer in any state or jurisdiction
where it is not permitted.
You should carefully consider the "RISK FACTORS" beginning on page 16 of this
prospectus before participating in the exchange offer or investing in the new
bonds issued in the exchange offer.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
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The date of this prospectus is ____________, 2000.
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.....................................1
SUMMARY OF THE EXCHANGE OFFER..........................3
SUMMARY OF THE TERMS OF THE NEW BONDS..................6
SUMMARY OF INDEPENDENT ENGINEER'S REPORT..............11
SUMMARY OF INDEPENDENT POWER CONSULTANT'S REPORT......14
SUMMARY OF SIGNIFICANT PROJECT CONTRACTS..............15
RISK FACTORS..........................................16
CALCULATION OF EARNINGS TO FIXED CHARGES DEFICIENCY...23
USE OF PROCEEDS.......................................23
CAPITALIZATION........................................23
THE EXCHANGE OFFER....................................25
SELECTED FINANCIAL DATA...............................34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................35
OUR BUSINESS..........................................37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........41
SUMMARY OF PRINCIPAL PROJECT CONTRACTS................42
ROLE OF THE INDEPENDENT ENGINEER......................69
DESCRIPTION OF THE NEW BONDS..........................71
SUMMARY OF PRINCIPAL FINANCING DOCUMENTS..............79
PLAN OF DISTRIBUTION.................................106
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS......106
LEGAL MATTERS........................................106
EXPERTS..............................................107
WHERE YOU CAN FIND MORE INFORMATION..................107
INDEX TO FINANCIAL STATEMENTS........................F-1
ANNEX A: GLOSSARY OF TECHNICAL TERMS.................A-1
ANNEX B: INDEPENDENT ENGINEER'S REPORT...............B-1
ANNEX C: INDEPENDENT POWER CONSULTANT'S REPORT.......C-1
------------------------
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. You should rely only on the information or
representations provided in this prospectus. We have not authorized any person
to provide information other than that provided in this prospectus. We are not
making an offer of these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
Each broker-dealer that receives new bonds for its own account under
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new bonds. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of new bonds
received in exchange for old bonds where such old bonds were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the expiration date of the exchange
offer and ending on the close of business 270 days after the expiration date, we
will make this prospectus available to any broker-dealer for use in connection
with any such resale. See "PLAN OF DISTRIBUTION."
UK SELLING RESTRICTIONS
The new bonds may not be offered or sold in or into the United Kingdom
except to persons whose ordinary activities involve acquiring, holding, managing
or disposing of investments, as principal or agent, for the purposes of their
businesses, or in other circumstances that do not constitute an offer to the
public in the United Kingdom for the purposes of the Public Offers of Securities
Regulations 1995 or the Financial Services Act 1986, and this prospectus may
only be issued or passed on to persons in the United Kingdom if such persons are
of a kind described in article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or if such persons are
persons to whom this prospectus may otherwise lawfully be issued or passed on.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus but
does not contain all of the information that is important to you. To understand
all of the terms of the exchange offer and to attain a more complete
understanding of our business and financial situation, you should read carefully
this entire prospectus. For an explanation of specific technical terms used in
this prospectus, please read "ANNEX A: GLOSSARY OF TECHNICAL TERMS."
AES Ironwood, L.L.C., AES Ironwood, Inc. and AES Prescott, L.L.C.
AES Ironwood, L.L.C. was formed to develop, construct, own, operate
and maintain a gas-fired electric generating power plant in Lebanon County,
Pennsylvania. We are in the developmental stage and currently have no operating
revenues. All of the equity interests in our company are owned by AES Ironwood,
Inc., a wholly-owned subsidiary of The AES Corporation. The AES Corporation will
provide funds to AES Ironwood, Inc. so that AES Ironwood, Inc. can make an
equity contribution to us to fund project costs. AES Ironwood, Inc. currently
has no operations outside of its activities in connection with our project and
does not anticipate undertaking any operations not associated with our project.
AES Ironwood, Inc. has no assets other than its membership interests in us and
AES Prescott, L.L.C., which will provide development, construction management
and operations and maintenance services to us. AES Prescott has no operations
outside of its activities in connection with our project. The AES Corporation
will supply AES Prescott with personnel and services necessary to carry out its
obligations to us.
The following organizational chart illustrates the relationship among
our company, AES Ironwood, Inc., AES Prescott and The AES Corporation:
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The AES Corporation
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AES Ironwood, Inc.
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AES Ironwood, L.L.C. AES Prescott, L.L.C.
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The AES Corporation
The AES Corporation is a leading global power company committed to
supplying electricity in a socially responsible way. The AES Corporation sells
and markets power from electric generating and distribution companies, largely
through subsidiaries and affiliates. The AES Corporation was one of the original
entrants in the independent power market and today, based on net equity
ownership of generating capacity, in megawatts, in operation or under
construction, is one of the world's largest independent power companies. The AES
Corporation currently employs approximately 44,500 people around the world. As
of December 31, 1998, The AES Corporation had assets of approximately $10
billion, revenues of $2.4 billion and a net income before extraordinary items of
$311 million.
The AES Corporation currently owns or has an interest in 119 power
facilities totaling over 42,000 megawatts in 16 countries including the United
States, Canada, Australia, Argentina, Brazil, the Dominican Republic, India,
Pakistan, Panama, the Netherlands, Hungary, Kazakhstan, Mexico, China and the
United Kingdom. Approximately 19% of The AES Corporation power generation
operating portfolio consists of gas-fired electric generating facilities. In
addition to our facility, The AES Corporation is currently in the process of
adding 5,594 megawatts to its operating portfolio of power facilities.
The AES Corporation also owns interests in 14 distribution companies in
eight countries that sell electricity directly to commercial, industrial,
governmental and residential customers. Those distribution companies serve
1
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approximately 15 million customers. In addition, The AES Corporation recently
acquired CILCORP, Inc., the parent company of Central Illinois Light Company, a
regulated utility. Both of those companies are now wholly-owned subsidiaries of
The AES Corporation. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The
AES Corporation is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information, including financial reports, with the SEC. See
"WHERE YOU CAN FIND MORE INFORMATION."
Our Facility
Our facility, which is still under construction, consists of a 705
megawatt (net) gas-fired combined cycle electric generating facility with
oil-firing capability. We expect our facility to become operational by
approximately June 30, 2001. We will not receive any revenues from the power
purchase agreement or otherwise before our facility becomes operational, at
which time we will begin to receive revenues under the power purchase agreement.
We will sell all of our facility's capacity, and provide fuel conversion and
ancillary services, to Williams Energy under a long-term power purchase
agreement. After the expiration of the 20-year term of the power purchase
agreement, we will enter into other power purchase agreements or operate our
facility as a merchant plant (i.e., an electric generation facility with no
dedicated long-term power purchase agreement).
Our facility will be located in South Lebanon Township, Lebanon County,
Pennsylvania on property owned by us. Our facility will be designed, engineered,
procured and constructed for us by Siemens Westinghouse Power Corporation under
a fixed-price construction agreement. Among other components, our facility will
use two Siemens Westinghouse model 501G combustion turbines with hydrogen-cooled
generators, two unfired heat recovery steam generators and one multicylinder
steam turbine with a hydrogen-cooled generator. Siemens Westinghouse will
provide us with specific combustion turbine maintenance services and spare parts
for an initial term of between eight and 10 years, depending on the timing of
scheduled outages, under a maintenance services agreement. Under the power
purchase agreement, Williams Energy or its affiliates will supply fuel necessary
to allow us to provide capacity, fuel conversion and ancillary services to
Williams Energy. AES Prescott, the operator, will provide development,
construction management and operations and maintenance services for our facility
under an operations agreement. We will provide installation, operation and
maintenance of facilities necessary to interconnect our facility to the
transmission system of Metropolitan Edison Company, under an interconnection
agreement.
------------------
AES Ironwood, L.L.C. is a Delaware limited liability company with
principal executive offices located at 305 Prescott Road, Lebanon, Pennsylvania
17042. Our telephone number is (717) 228-1328.
2
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SUMMARY OF THE EXCHANGE OFFER
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "THE EXCHANGE OFFER" beginning on page 24 for
further information regarding the exchange offer and resale of the new bonds.
The Exchange Offer: We are offering to exchange up to $308,500,000 aggregate
principal amount of new bonds, which have been
registered under the Securities Act, for up to
$308,500,000 aggregate principal amount of old bonds,
which were issued by us on June 25, 1999 in a private
offering. In order for your old bonds to be exchanged,
you must properly tender them prior to the expiration of
the exchange offer. All old bonds that are validly
tendered and not validly withdrawn will be exchanged. We
will issue new bonds on or promptly after the expiration
of the exchange offer. Old bonds may be exchanged for
new bonds only in integral multiples of $1,000.
Registration Rights
Agreement: We sold the old bonds on June 25, 1999 to the initial
purchasers of the old bonds. Simultaneously with that
sale we signed a registration rights agreement with the
initial purchasers which requires us to conduct this
exchange offer.
You have the right pursuant to the registration rights
agreement to exchange your old bonds for new bonds with
substantially identical terms. This exchange offer is
intended to satisfy this right. After the exchange offer
is complete, you will no longer be entitled to any
exchange or registration rights with respect to old
bonds you do not tender for exchange.
Consequences of Failure
to Exchange Your
Old Bonds: If you do not exchange your old bonds for new bonds
pursuant to the exchange offer, you will continue to be
subject to the restrictions on transfer provided in the
old bonds and the indenture. In general, the old bonds
may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently
plan to register the old bonds under the Securities Act.
To the extent that old bonds are tendered and accepted
in the exchange offer, the trading market for untendered
and tendered but unaccepted old bonds will be adversely
affected.
Expiration Date: The exchange offer will expire at 5:00 p.m., New York
City time, on ______, 2000, or such later date and time
to which we extend it, in which case the term
"expiration date" shall mean the latest date and time to
which the exchange offer is extended. Notwithstanding
the preceding sentence, we will not extend the
expiration date beyond ____________, 2000.
Withdrawal of Tenders: You may withdraw your tender of old bonds at any time
prior to the expiration date by delivering written
notice of your withdrawal to the exchange agent in
accordance with the withdrawal procedures set forth in
this prospectus. We will return to you, without charge,
promptly after the expiration or termination of the
exchange offer any old bonds that you tendered but that
were not accepted for exchange. The new bonds will be
issued on or promptly after the expiration date.
Conditions to
the Exchange Offer: We will not be required to accept old bonds for exchange
if the exchange offer would violate applicable law or
any legal action has been instituted or threatened that
would impair our ability to proceed with the exchange
offer. The exchange offer is not conditioned upon any
minimum aggregate principal amount of old bonds being
tendered. We reserve the right to terminate the exchange
offer if certain specified conditions have not been
satisfied and to waive any condition or otherwise amend
the terms of the exchange offer in any respect. Please
read the section "THE EXCHANGE OFFER--Conditions to the
Exchange Offer" on page 27 for more information
regarding the conditions to the exchange offer.
3
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Procedures for
Tendering Old
Bonds and
Representations: If your old bonds are held through The Depository Trust
Company and you wish to participate in the exchange
offer, you may do so through one of the following
methods:
o Delivery of a Letter of Transmittal. You must
complete and sign a letter of transmittal in
accordance with the instructions contained in
the letter of transmittal and forward the letter
of transmittal by mail, facsimile transmission
or hand delivery, together with any other
required documents, to the exchange agent,
either with the old bonds to be tendered or in
compliance with the specified procedures for
guaranteed delivery of such old bonds; or
o Automated Tender Offer Program of The Depository
Trust Company. If you tender under this program,
you will agree to be bound by the letter of
transmittal that we are providing with this
prospectus as though you had signed the letter
of transmittal.
Under both methods, by signing or agreeing to be bound
by the letter of transmittal, you will represent to us
that, among other things:
o any new bonds that you receive will be acquired
in the ordinary course of your business;
o you have no arrangement or understanding with
any person or entity to participate in the
distribution of the new bonds;
o you are not engaged in and do not intend to
engage in the distribution of the new bonds;
o if you are a broker-dealer that will receive new
bonds for your own account in exchange for old
bonds, you acquired those bonds as a result of
market-making activities or other trading
activities and you will deliver a prospectus, as
required by law, in connection with any resale
of such new bonds; and
o you are not our "affiliate," as defined in Rule
405 of the Securities Act.
Please do not send your letter of transmittal or
certificates representing your old bonds to us. Those
documents should only be sent to the exchange agent.
Questions regarding how to tender and requests for
information should be directed to the exchange agent.
Special Procedures for
Beneficial Owners: If you own a beneficial interest in old bonds that are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, and you wish to
tender the old bonds in the exchange offer, you should
contact the registered holder promptly and instruct the
registered holder to tender on your behalf.
Consequences of Not
Complying with
Exchange Offer
Procedures: You are responsible for complying with all exchange
offer procedures. You will only receive new bonds in
exchange for your old bonds if, prior to the expiration
date, you deliver to the exchange agent the letter of
transmittal, properly completed and duly executed, along
with any other documents or signature guarantees
required by the letter of transmittal, as well as
certificates for the old bonds or a book-entry
confirmation of a book-entry transfer of the old bonds
into the exchange agent's account at DTC.
Any old bonds you hold and do not tender, or which you
tender but which are not accepted for exchange, will
remain outstanding. You will not have any appraisal or
dissenters' rights in connection with the exchange
offer.
4
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You should allow sufficient time to ensure that the
exchange agent receives all required documents before
the expiration of the exchange offer. Neither we nor the
exchange agent has any duty to inform you of defects or
irregularities with respect to the tender of your old
bonds for exchange.
Guaranteed Delivery
Procedures: If you wish to tender your old bonds and cannot comply,
prior to the expiration date, with the applicable
procedures for tendering old bonds set forth above and
under "THE EXCHANGE OFFER--Procedures for Tendering",
you must tender your old bonds according to the
guaranteed delivery procedures described in "THE
EXCHANGE OFFER--Guaranteed Delivery Procedures"
beginning on page 30.
U.S. Federal Income
Tax Consideration: The exchange of old bonds for new bonds in the exchange
offer will not be a taxable event for U.S. federal
income tax purposes. Please read "UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS" on page 104.
Use of Proceeds: We will not receive any cash proceeds from the issuance
of new bonds. We intend to use the net proceeds from the
sale of the old bonds, together with an approximately
$50 million equity contribution, to:
o fund the engineering, procurement, construction,
testing and commissioning of our facility;
o pay legal, accounting and other related fees and
expenses in connection with the financing and
development of our project; and
o pay project costs, including interest on the
bonds.
The Exchange Agent
We have appointed The Bank of New York as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows: The Bank of New York, 101 Barclay Street, 7E, New
York, New York 10286; (212) 815-5988. Eligible institutions may make requests by
facsimile at (212) 815-6339.
5
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SUMMARY OF THE TERMS OF THE NEW BONDS
The exchange offer relates to the exchange of up to $308,500,000
principal amount of new bonds for an equal principal amount of old bonds. The
form and terms of the new bonds are substantially identical to the form and
terms of the old bonds, except the new bonds will be registered under the
Securities Act. Therefore, the new bonds will not bear legends restricting their
transfer and will not be entitled to registration under the Securities Act. The
new bonds will evidence the same debt as the old bonds, which they replace, and
both the old bonds and the new bonds are governed by the same indenture.
Issuer: AES Ironwood, L.L.C.
Securities Offered: $308,500,000 aggregate principal amount of 8.857%
Exchange Senior Secured Bonds due 2025.
Interest: We will pay interest on the bonds every three
months, on each February 28, May 31, August 31 and
November 30, beginning on the first payment date after
the last date to which interest has been paid.
Final Maturity Date: November 30, 2025.
Principal Repayment: We will pay principal on the new bonds in installments
quarterly on each February 28, May 31, August 31 and
November 30, commencing February 28, 2002 to the
registered owners on the immediately preceding record
date as set forth under "DESCRIPTION OF THE NEW
BONDS--Payment of Interest and Principal."
Ratings: The new bonds are expected to be rated "BBB-" from
Standard & Poor's Rating Group and "Baa3" from Moody's
Investors Services, Inc., the same ratings borne by the
old bonds. See "DESCRIPTION OF THE NEW BONDS--Ratings."
Summary of
Coverage Ratios: You will find projected coverage ratios with respect to
the bonds in the projections included in the independent
engineer's report, which we have attached as Annex B,
and these ratios are subject to the qualifications,
limitations and exclusions set forth in the independent
engineer's report. The following ratios reflect the base
case assumptions set forth in the independent engineer's
report.
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<CAPTION>
Post-Power
During Power Purchase
Full Term Purchase Agreement
of the Bonds Agreement Term Period
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<S> <C> <C> <C>
Debt Service Coverage
Minimum................. 1.45 1.45 5.77
Average................. 2.30 1.46 5.81
Interest Coverage
Minimum................. 1.58 1.58 18.45
Average................. 11.13 2.59 47.03
</TABLE>
As set forth in the independent engineer's report, these
projections are subject to risks, uncertainties and
other factors which could cause actual results to differ
materially from those stated. We cannot assure that
these projected coverage ratios will be achieved. See
"ANNEX B: INDEPENDENT ENGINEER'S REPORT" and "RISK
FACTORS."
Optional Redemption: We may redeem any of the new bonds, in whole or in part,
at any time at a redemption price equal to:
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o 100% of the principal amount; plus
o accrued interest; plus
o a make-whole premium calculated using a discount
rate equal to the interest rate on comparable
U.S. Treasury securities plus 50 basis points.
Mandatory
Redemption: We must redeem all of the new bonds, in whole or in
part, at a redemption price equal to 100% of the
principal amount plus accrued interest if:
o we receive casualty proceeds, eminent domain
proceeds or specific performance liquidated
damages from Siemens Westinghouse under the
construction agreement; and
o in each case, specified additional conditions
are satisfied.
We must redeem all of the new bonds, in whole or in
part, at a redemption price equal to 100% of the
principal amount plus accrued interest if we receive
proceeds under the guaranty provided by The Williams
Companies, Inc. if we terminate the power purchase
agreement as a result of an event of default by Williams
Energy. See "DESCRIPTION OF THE NEW BONDS--Mandatory
Redemption."
Resale of the New
Bonds: We believe that beneficial interests in the new bonds
may be offered for resale, resold and otherwise
transferred by most owners of the new bonds without
further compliance with the registration and prospectus
delivery requirements of the Securities Act; provided
that:
o you are acquiring the new bonds in the ordinary
course of your business;
o you are not participating, and have no
arrangement or understanding with any person to
participate, in the distribution of the new
bonds; and
o you are not an insider or a related party of
ours.
This belief is based upon existing interpretations of
the staff of the SEC's Division of Corporation Finance
set forth in several no-action letters issued to third
parties unrelated to us and subject to important
restrictions described in "THE EXCHANGE OFFER--Purpose
and Effect of the Exchange Offer." We do not intend to
seek our own no-action letter. If our belief is not
accurate and you transfer a new bond without delivering
a prospectus meeting the requirements of the Securities
Act or without an exemption from such requirements, you
may incur liability under the Securities Act. We do not
and will not assume or indemnify you against such
liability. There can be no assurance that the staff of
the SEC's Division of Corporation Finance would make a
similar determination about the new bonds as it has in
no-action letters about exchanges of the securities of
other companies.
Only broker-dealers that acquired the old bonds as a
result of market-making or other trading activities may
participate in the exchange offer. Each broker-dealer
that receives new bonds for its own account in the
exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of those new
bonds. This prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with those resales.
Broker-dealers that acquired old bonds directly from us
may not rely on the interpretations of the SEC referred
to above. Accordingly, in order to sell their bonds,
broker-dealers that acquired old bonds directly from us
must comply with the registration and prospectus
delivery requirements, including being named as a
selling security holder in any resale prospectus.
Old bonds that are not tendered for exchange will
continue to be subject to existing transfer restrictions
and will not have registration rights. Therefore, the
market for secondary resales of any old bonds that are
not tendered for exchange is likely to be minimal.
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<PAGE>
Equity Contributions: We have entered into an equity subscription agreement
with AES Ironwood, Inc. under which AES Ironwood, Inc.
agreed to contribute up to $50,149,285 in equity to us
to fund project costs. AES Ironwood, Inc.'s obligation
under the equity subscription agreement will be
supported by an acceptable letter of credit or an
acceptable bond. AES Ironwood, Inc. will fund amounts
available under the equity subscription agreement when
all funds in the construction account have been used or
during the continuation of an event of default under the
indenture, whichever occurs first. We have the option of
treating a portion or all of the equity contribution as
affiliate subordinated debt. Subject to the conditions
set forth in the equity subscription agreement and the
collateral agency agreement, including achievement of
final completion of our facility, funding of all
required amounts and deposits under the collateral
agency agreement and absence of any default, any equity
which remains committed under the equity subscription
agreement but unfunded after the commercial operation
date may be canceled. The commercial operation date is
the date initial startup testing at our facility has
been successfully completed and all necessary approvals,
permits, and authorizations have been obtained to allow
us to begin selling energy and capacity.
Ranking: The new bonds:
o rank equally in right of payment with all other
present and future senior secured debt; and
o rank senior in right of payment to all
subordinated debt.
Any debt incurred under the debt service reserve letter
of credit or the construction period letter of credit
would rank equally in right of payment with the new
bonds. There are currently no drawings outstanding under
those letters of credit.
Collateral: The new bonds will rank equally with all of our other
senior debt by a lien on and security interest in the
collateral.
o The indenture accounts, the debt service reserve
account and the debt service reserve letter of
credit, other than to the extent of the letter
of credit provider's right to specific proceeds,
will constitute separate collateral solely for
the benefit of the holders of the bonds.
o The collateral for the benefit of holders of
senior debt, including holders of the new bonds,
will include:
o all of our revenues;
o the project accounts, other than the
debt service reserve account;
o all of our real and personal property;
o proceeds of insurance, condemnation and
liquidated damages payments, if any;
o all project contracts;
o all ownership interests in our company;
and
o the equity contribution and all rights
under the equity subscription agreement.
Limited Recourse: All obligations in connection with the new bonds will be
obligations solely of ours. The bondholders will have no
claim against or recourse to the holders of our
ownership interests or any of our affiliates or any of
their incorporators, stockholders, directors, officers
or employees for the repayment of the new bonds, except
to the extent of their obligations under the transaction
documents, including the equity contribution and the
pledge of AES Ironwood, Inc.'s ownership interests in
our company.
Debt Service
Reserve Account: We will be required to fund or provide for the funding
of a debt service reserve account on the commercial
operation date, the guaranteed completion date or
December 31, 2002, whichever occurs first, in an amount
sufficient to pay principal and interest due on the
bonds on the next two payment dates plus, if we provide
a letter of credit in lieu of funding the debt service
reserve account, six months of interest on the maximum
amount of the letter of credit. We anticipate satisfying
this requirement by providing a letter of credit issued
by Dresdner Bank
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AG, New York Branch or another financial institution
rated at least "A" by Standard & Poor's and "A2" by
Moody's.
Change in Control: While the new bonds are outstanding, the indenture
requires The AES Corporation to maintain directly or
indirectly at least 51% of both of the voting and
economic interests in our company. If The AES
Corporation desires to reduce its voting or economic
interest in AES Ironwood, L.L.C. below 51%, either we
must receive confirmation of the initial ratings of the
bonds or the holders of at least 66-2/3% in aggregate
principal amount of the bonds must approve the change in
ownership.
Other Principal
Covenants: The indenture contains limitations on, among other
actions:
o incurring additional indebtedness;
o granting liens on our property;
o distributing equity and paying subordinated
indebtedness issued by our affiliates;
o entering into transactions with our affiliates;
o amending, terminating or assigning of project
contracts; and
o fundamental changes or disposition of assets.
See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture
--Negative Covenants."
Form, Denomination and
Registration of Bonds: New bonds will be issued in fully registered form
without coupons in denominations of U.S.$100,000 and any
integral multiple of US$1,000 in excess thereof and will
be represented by one or more global bonds, each
registered in the name of a nominee of DTC. Beneficial
interests in the global bonds will be shown on, and
transfers thereof will be effected only through, the
book-entry records maintained by DTC and its direct and
indirect participants, including the Euroclear System
and Cedel Bank.
Governing Law: The new bonds, the indenture and the other principal
financing documents, other than the mortgage, are
governed by the laws of the State of New York. The
mortgage is governed by the laws of the Commonwealth of
Pennsylvania.
Intercreditor
Arrangements: The collateral agency agreement requires the vote of
senior creditors holding at least 33-1/3% of the
combined credit exposure to direct specified actions of
the collateral agent. The collateral agent, who is
appointed by the senior creditors to act on their
behalf, may be directed to exercise remedies following:
o an event of default under the debt service
reserve letter of credit and reimbursement
agreement under which the letter of credit
provider would provide to us the letter of
credit to fund the debt service reserve account;
o an event of default under the construction
period letter of credit and reimbursement
agreement, under which the letter of credit
provider would provide to us the letter of
credit if the commercial operation date is not
achieved;
o an event of default under the indenture; or
o a bankruptcy event with respect to us. The bonds
will represent approximately 95%, without giving
effect to any construction period letter of
credit, of the combined credit exposure, and, in
respect of matters voted on by the senior
creditors, the trustee under the indenture will
vote all bonds according to the votes of a
majority of bondholders voting. See "SUMMARY OF
PRINCIPAL FINANCING DOCUMENTS--Collateral Agency
Agreement."
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Accounts and
Flows of Funds: Following the commercial operation date, project
revenues will be deposited in accounts established under
the financing documents and held by the trustee and the
collateral agent. In most circumstances, operating
revenues will be applied in the following order:
o operating and maintenance costs, including any
working capital loans;
o fees, costs and expenses of the trustee,
collateral agent, debt service reserve letter of
credit provider and any construction period
letter of credit provider;
o interest payments on the bonds, debt service
reserve letter of credit loans and any
construction period letter of credit loans;
o principal payments on the bonds and any
construction period letter of credit loans;
o replenishment of the debt service reserve
account and principal payments on debt service
reserve letter of credit loans;
o required deposits in the major maintenance
reserve account;
o non-dispatch payments to Williams Energy;
o fuel conversion volume rebate payments to
Williams Energy;
o subordinated bonuses to Siemens Westinghouse, if
any;
o repayment of third-party subordinated debt; and
o subject to the restricted payments test,
permitted distributions to persons holding
ownership interests in our company.
Under circumstances involving a termination or
non-renewal of the debt service reserve letter of credit
or specified delays in repayment of the principal amount
of debt service reserve letter of credit loans,
principal repayments of drawings on the debt service
reserve letter of credit will be made at the same
priority as principal on the new bonds. Under certain
circumstances, if no default or event of default under
the indenture is continuing, we may from time to time
withdraw funds then deposited in specified accounts
established under the financing documents so long as we
provide to the collateral agent acceptable credit
support to ensure repayment of the withdrawn funds. See
"SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral
Agency Agreement--Payments During Operating Period" and
"--Advances."
Independent Engineer: Stone & Webster Management Consultants, Inc., as the
independent engineer, is responsible for confirming the
reasonableness of specific statements and projections
made in specified certificates required to be provided,
including with respect to:
o satisfaction of specific requirements under the
construction agreement;
o the cost of and occurrence of the completion of
rebuilding, repairing or restoring our facility
following an event of loss or event of eminent
domain;
o under specified circumstances, the calculation
of debt service coverage ratios and the
consistency of assumptions made in connection
therewith;
o whether any termination, amendment or
modification of any project contract would
reasonably be expected to have a material
adverse effect; and
o specified tests required for the issuance of
additional debt.
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SUMMARY OF INDEPENDENT ENGINEER'S REPORT
Stone & Webster, with the assistance of Stone & Webster Engineering
Corporation, has prepared the independent engineer's report concerning specific
technical, environmental and economic aspects of our facility. We have attached
the independent engineer's report as Annex B to this prospectus. The independent
engineer's report includes, among other things, a conceptual design review of
our facility, a review of the significant project contracts and a review of
financial projections, including annual revenues, expenses and debt service
coverage for our facility during the period the bonds are scheduled to remain
outstanding. We retained Stone & Webster to prepare the independent engineer's
report because it is a leading consulting engineering firm which devotes a
substantial portion of its resources to providing services related to the
technical, environmental and economic aspects of power projects. Neither we, nor
any of our affiliates, is affiliated with Stone & Webster. We do not intend to
update the economic projections in the independent engineer's report from June
18, 1999, the date it was prepared.
For purposes of reviewing the projected operating results, Stone &
Webster relied on specific assumptions regarding material contingencies and
other matters that are not within our control or that of Stone & Webster or any
other person. Each of these assumptions is described in the independent
engineer's report. These assumptions are inherently subject to significant
uncertainties, and actual results will differ, perhaps materially, from those
projected. See "RISK FACTORS."
Subject to the information contained, and the assumptions and
qualifications made, in Stone & Webster's report, Stone & Webster expressed the
following opinions:
1. The facility design, as specified in the construction
agreement, is in accordance with standard industry practice. Siemens
Westinghouse possesses the organization and personnel to execute its obligations
under the construction agreement and the maintenance services agreement, and is
familiar with the construction and maintenance of large electrical generation
facilities. Our project construction schedule proposed by Siemens Westinghouse
is achievable and is consistent with the terms of the power purchase agreement.
2. Stone & Webster views the 501G combustion turbine as an
advancement in high-temperature advanced technology combustion turbines for
Siemens Westinghouse and is typical of the normal design evolution for
manufacturers. Many of the design concepts incorporated in the 501G are rooted
firmly in the 501 series and are complemented by improvements which have been
tested in the 501F series or predicted by extensive modeling or full scale
testing. The first 501G unit is expected to begin commercial operation later in
1999. The various 501G components and designs have been individually shop tested
and computer analyzed. Siemens Westinghouse's 501G is gaining commercial
acceptance as demonstrated by the fact that 17 of Siemens Westinghouse's 501Gs
have been sold to date in the United States.
3. The combustion turbines for our project are scheduled to
become the third and fourth 501Gs in operation. As a result, our project will
benefit from approximately 25 months of facility start-up, extensive testing and
operating experience of the first installation of 501Gs (McIntosh Project) and
approximately nine months of such experience from the second installation of
501Gs (Millenium Project). Because the 501G has no commercial operating
experience, the initial unit availability of the 501G may be lower in the early
years of operation than is the case with combustion turbine units currently in
operation that use mature technology. Lower initial unit availability has been
reflected in the base case and a sensitivity case has been included in the
projected operating results utilizing lower availability than that set forth in
the base case.
4. A sustained period of commercial operation at full load
conditions followed by an inspection of the combustion turbine is necessary to
predict with any certainty the types of start-up and operational problems, if
any, that the 501G may encounter. However, our project will benefit from the
start-up testing and inspection programs implemented by Siemens Westinghouse at
the McIntosh and Millenium units. Siemens Westinghouse has also invested in, and
has stated that it will make available to our project, a complete set of risk
parts for the entire combustion turbine gas path. In addition, under the
maintenance services agreement, Siemens Westinghouse will provide combustion
turbine spare parts to our project. This full set of gas path risk parts to be
made available by Siemens Westinghouse and the maintenance services agreement
long term spare parts program will minimize the duration of any unscheduled
combustion turbine-related outages that require the replacement of parts by
having the most commonly replaced parts readily available. In addition, Siemens
Westinghouse has the resources and capabilities to resolve any problem that may
arise with the 501Gs.
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5. The steam turbine and electrical generator designs are
acceptable and in accordance with standard industry practice.
6. If designed and constructed in accordance with the
construction agreement and operated and maintained in accordance with the
maintenance services agreement and the operations agreement, our facility should
be capable of meeting the net output contract requirements specified in our
projected operating results.
7. The liquidated damages provisions of the construction
agreement are reasonable. The one-year warranty period is acceptable based on
the commercial terms of the construction agreement in conjunction with the
one-year warranty in the maintenance services agreement. These two agreements,
although independent, are complementary and afford our project a greater degree
of protection than is available from the construction agreement alone. Under
both agreements, Siemens Westinghouse is obligated to notify AES Ironwood,
L.L.C. of any engineering or design defects that may be manifested in any of
Siemens Westinghouse's fleet of 501Gs. In addition, the risk of a component
failure occurring after the one year construction agreement warranty is
mitigated because the projected operating results indicate our project will have
adequate revenues to insure the purchase of components that can be reasonably
assumed to require replacement. Component failures associated with casualty
events are generally covered by insurance policies. The performance testing
plan, as specified in the construction agreement, is acceptable, customary and
should adequately demonstrate our project's performance.
8. Williams Energy possesses the organization and personnel to
execute its obligations under the power purchase agreement and is familiar with
the provision of fuel to, and purchase of electricity from, large electrical
generation facilities.
9. Williams Energy has executed specific agreements with Texas
Eastern Transmission Corporation to provide natural gas delivery services to AES
Ironwood, L.L.C. These agreements require Texas Eastern to construct, own and
operate an approximate three-mile pipeline from its mainline to our facility.
Stone & Webster has not, however, independently verified the design of the
natural gas pipeline which will interconnect our facility to the interstate gas
pipeline that will serve our facility nor its proposed construction schedule.
10. Our facility can feasibly be electrically integrated into the
Pennsylvania/New Jersey/Maryland (or "PJM") power pool market, and no known
transmission limitations will inhibit the feasible evacuation of our facility's
full net capacity both under summer and winter conditions.
11. Stone & Webster will independently verify the design of the
make-up water supply pipeline when it becomes available. The proposed pipeline
construction schedule appears reasonable and achievable. Stone & Webster does
not know of any reason why the City of Lebanon Authority should be unable to
perform its obligations under the effluent supply agreement.
12. AES Prescott, as an affiliate of The AES Corporation and with
the assistance of Siemens Westinghouse under the terms of the maintenance
services agreement, should be capable of operating and maintaining our facility
in accordance with standard industry practices.
13. The technical requirements described in the project contracts
are comprehensive, reasonable and achievable as well as consistent within and
between the various documents.
14. The Phase I environmental site assessments conducted by an
independent environmental consultant which indicated no significant
environmental issues were performed in accordance with standard industry
practice and their results appear reasonable.
15. A majority of our project's required permits have been
acquired and our project's permit acquisition plan for those permits not yet
required is reasonable.
16. AES Ironwood, L.L.C. has received a determination that our
facility is an exempt wholesale generator under the applicable rules of the
Federal Energy Regulatory Commission.
17. Assuming our facility is constructed, operated and maintained
in accordance with the terms of the construction agreement, the power purchase
agreement, the operations agreement and the maintenance services agreement, then
it is reasonable to assume that our facility will be able to operate in a manner
consistent with applicable permit limits for a period at least equal to the term
of the bonds.
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18. The construction agreement price is competitive relative to
similar facilities and our project's proposed operating and maintenance expenses
are consistent with other comparable projects.
19. The technical assumptions utilized in the independent power
consultant's report by Hagler Bailly are reasonable.
20. Stone & Webster reviewed the technical and commercial
assumptions and the calculation methodology of our project's financial pro forma
model. The technical assumptions assumed in the projected operating results are
reasonable and are consistent with the project contracts. The financial pro
forma model fairly presents, in Stone & Webster's judgment, projected revenues
and projected expenses under the base case assumptions. Therefore, the projected
operating results are a reasonable forecast of AES Ironwood, L.L.C.'s financial
results under the base case assumptions.
21. The principal amount of the bonds, when combined with the
equity contributions and interest earned during the construction period, should
be sufficient to pay the costs of constructing our project and interest on the
bonds through the end of the construction period.
22. The projected revenues from the sale of capacity are more than
adequate to pay the annual operating and maintenance expenses, including
provisions for major maintenance, other operating expenses and debt service
based on Stone & Webster's studies and analyses of our project and the
assumptions set forth in the independent engineer's report. The average and
minimum debt service coverage ratios for the full term of the bonds are 2.30x
and 1.45x, respectively. The average and minimum debt service coverage ratios
during the term of the power purchase agreement are 1.46x and 1.45x,
respectively. The average and minimum debt service coverage ratios during the
post-power purchase agreement period for the debt are 5.81x and 5.77x,
respectively.
23. Assuming deficiencies of up to 6% for heat rate and 5% for
capacity, the average debt service coverage ratios, over the term of the bonds,
after payment of liquidated damages due to a failure to achieve heat rate and
capacity guarantees, are projected to remain approximately the same as the debt
service coverage ratios in the base case.
The independent engineer's report should be read by all prospective
investors in its entirety. Stone & Webster is subject to the informational
requirements of the Exchange Act, and in accordance therewith, files reports,
proxy statements and other information with SEC. See "WHERE YOU CAN FIND MORE
INFORMATION."
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SUMMARY OF INDEPENDENT POWER CONSULTANT'S REPORT
Hagler Bailly Consulting, Inc. has prepared the independent power
consultant's report, which we have attached as Annex C to this prospectus. We
have retained Hagler Bailly to forecast our facility's use and future electric
energy prices because it is an independent consulting firm which provides
various energy-related consulting services, including services related to the
marketing and fuel supply aspects of power projects. Neither we, nor any of our
affiliates, is affiliated with Hagler Bailly.
Hagler Bailly's report includes, among other things,
o a forecast of our facility's utilization during the period after
the end of the power purchase agreement term and
o a forecast of electric energy prices during the power purchase
agreement term and electric energy and capacity prices during
the period after the end of the power purchase agreement term.
Subject to the information contained, and the assumptions and other
limitations stated, in Hagler Bailly's report, including the qualifications set
forth in the forward of such report, Hagler Bailly has expressed the following
opinions, among others:
1. Our facility's dispatch position on the supply curve will be
highly competitive and well below the highest priced baseload coal plant during
the period after the end of the power purchase agreement term, and during the
term of the power purchase agreement, due to our facility's high efficiency, low
production costs and the influence of demand growth in conjunction with unit
retirements.
2. Our facility is expected to have an average capacity factor of
90.7% during the period after the end of the power purchase agreement term. The
addition of new, more efficient gas-fired power generation facilities in PJM
power pool market over time is not expected to affect our facility's dispatch.
3. Even using the price assumptions contained in the independent
engineer's report, our facility's average capacity factor remains significantly
high at 89.6% during the period after the end of the power purchase agreement
term.
4. During the term of the power purchase agreement, the economics
of our project are not sensitive to fuel prices because the costs of fuel are
the responsibility of Williams Energy under the power purchase agreement's fuel
tolling provisions.
Hagler Bailly's report, including the qualifications set forth in the
forward of such report, should be read by all bondholders in its entirety. We do
not intend to update the facility utilization and energy price forecast, except
to the extent required under the indenture. See "SUMMARY OF PRINCIPAL FINANCING
DOCUMENTS--Indenture--Affirmative Covenants." Hagler Bailly is subject to the
informational requirements of the Exchange Act, and in accordance therewith,
files reports, proxy statements and other information with the SEC. See "WHERE
YOU CAN FIND MORE INFORMATION."
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SUMMARY OF SIGNIFICANT PROJECT CONTRACTS
Power Purchase Agreement and Related Guaranty
Under the terms of the power purchase agreement, we will, for a term of
20 years beginning on the commercial operation date of our facility, which is
the date initial startup testing at the facility has been successfully completed
and all necessary approvals, permits, and authorizations have been obtained,
sell all of our facility's net electrical output and provide fuel conversion and
ancillary services to Williams Energy. Williams Energy is obligated to pay us
for our facility's net capacity, which payments are expected to be adequate to
cover our debt service and our fixed operation and maintenance costs and, at the
same time, provide us a return on equity. Williams Energy will be obligated to
pay us whether or not it requires our facility to generate energy and even if it
is unable to take any energy, so long as our facility is available for
operation. Williams Energy is also obligated to supply us with all of the fuel
necessary to provide net capacity, ancillary services and fuel conversion
services to it.
The Williams Companies, Inc. will provide us with a guaranty of
Williams Energy's payment obligations to us under the power purchase agreement
and to pay damages if Williams Energy fails to pay us. The Williams Companies,
Inc.'s payment obligations under the guaranty are capped at an amount equal to
125% of the sum of the principal amount of the new bonds plus the maximum debt
service reserve account required balance. As security for our obligations under
the power purchase agreement, we are required to provide to Williams Energy
either a guaranty from The AES Corporation or a letter of credit in the amount
of $30 million. To satisfy our obligation, we have provided to Williams Energy a
letter of credit which will terminate when our facility begins commercial
operation. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Construction Period
Letter of Credit and Reimbursement Agreement."
Construction Agreement and Related Guaranty
Under a construction agreement, Siemens Westinghouse will design,
engineer, procure and construct our facility so that it will be complete and
ready to operate. Siemens Westinghouse is wholly owned by Siemens Corporation
which is, in turn, wholly owned by Siemens A.G. Siemens Westinghouse's
obligations under the construction agreement will be guaranteed by Siemens
Corporation. The contract price payable to Siemens Westinghouse is $214,950,000,
which is to be paid in installments in accordance with the payment and milestone
schedule included in the construction agreement. The contract price may be
adjusted as set forth in the construction agreement, including as a result of
unexpected or uncontrollable events or modifications to the scope of work to be
provided by Siemens Westinghouse. Siemens Westinghouse has guaranteed that our
facility will be mechanically complete and specific performance requirements
will be satisfied so that our facility will be commercially operational by the
date which is approximately 23-1/2 months after we have given it full notice to
proceed, which we did on June 8, 1999. If our facility does not satisfy the
applicable completion requirements by the date guaranteed by Siemens
Westinghouse and such failure is not excused in accordance with the terms of the
construction agreement, Siemens Westinghouse will be obligated to pay us delay
liquidated damages in the amounts specified in the construction agreement.
Siemens Westinghouse has guaranteed specific availability levels for our
facility and if those levels are not demonstrated during a 45-day period before
final acceptance of our facility by us, we may withhold specified payments to
Siemens Westinghouse. Siemens Westinghouse has also guaranteed that during
performance testing, our facility will generate a specified amount of electrical
energy and meet specified thermal efficiency rates when using natural gas and
fuel oil. If Siemens Westinghouse cannot meet these testing requirements it will
be required to pay us performance liquidated damages in the amounts specified in
the construction agreement. The total liability of Siemens Westinghouse for
delays in completion, together with its liability for any performance
shortfalls, is limited in the aggregate to an amount equal to 45% of the
contract price. The construction agreement also contains a sub-limit on Siemens
Westinghouse's liability for delays in completion of our facility in an amount
equal to 20% of the contract price. The total aggregate cap on liability of
Siemens Westinghouse under the construction agreement, including liquidated
damages, but excluding specified indemnity obligations, is limited to an amount
not to exceed the contract price, as adjusted.
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RISK FACTORS
Before tendering your old bonds for new bonds or investing in the new
bonds, you should be aware that there are various risks involved in your
investment. We have discussed below the material risks that you should consider
in making your investment decision. You should consider carefully these risk
factors, together with all of the other information included in this prospectus.
If the commercial operations of our facility are significantly delayed, or are
otherwise unable to generate sufficient cash flow, we may not be able to pay our
operating expenses or service the bonds.
Construction of our facility currently is scheduled to be completed
within 23-1/2 months from the date Siemens Westinghouse receives from us a full
notice to proceed under the construction agreement. We gave full notice on June
8, 1999. We will not receive any material revenues unless and until our facility
achieves commercial operation. Once our facility commences operation, principal
and interest on the bonds will be payable principally from revenues received by
us under the power purchase agreement. Operation and maintenance expenses of our
facility generally are payable before payment of debt service with respect to
the bonds. No representation or assurance can be made that our facility will be
successfully constructed or that, if our facility is successfully constructed,
revenues will be sufficient to pay the operation and maintenance expenses of our
facility and principal of and interest on the bonds. We have no assets other
than our facility, the project contracts and other assets and contract rights
related to our facility. Once our equity contribution is made to fund project
construction costs, our debt to capitalization ratio will be .8638 to 1.
Until our facility commences operation, debt service on the bonds will
be payable solely from funds on deposit in the construction account, which
deposit was made with a portion of the net proceeds from the issuance of the old
bonds, any investment earnings, specific contingency and other funds held under
the collateral agency agreement and the indenture, insurance proceeds, if any,
and liquidated damages payable under the construction agreement. The
construction interest account under the indenture will contain an amount
sufficient to pay interest on the bonds only through 45 days following the
guaranteed provisional acceptance date under the construction agreement, without
giving effect to any extensions. Thus, if there is a prolonged delay beyond the
guaranteed provisional acceptance date in our facility's attaining commercial
operation, we cannot assure that sufficient sources of funds will be available
to make payments of principal of, premium, if any, and interest on the bonds.
During the term of the power purchase agreement, our ability to make
payments of principal of, premium, if any, and interest on the bonds will be
substantially a function of (1) the ability of our facility to operate at levels
which provide sufficient revenues from sales to Williams Energy after the
payment of all operation and maintenance expenses and specific other expenses
paid prior to debt service and (2) the ability of Williams Energy to make
required payments under the power purchase agreement. Fixed payments under the
power purchase agreement may be reduced significantly or eliminated during
periods when our facility's availability fails to meet required levels under the
power purchase agreement. With specific exceptions, fixed payments will not be
made by Williams Energy during unexpected or uncontrollable events which prevent
our facility from operating. Following the expiration of the term of the power
purchase agreement, our ability to make payments of principal of, premium, if
any, and interest on the bonds will be substantially a function of:
o our ability to find purchasers of electric generating capacity
and energy from our facility,
o the availability of adequate market prices for capacity, energy
and ancillary services,
o our ability to procure sufficient quantities of fuel at
competitive prices and
o the ability of our facility to operate at levels which provide
sufficient revenues from the sale of electric generating
capacity, energy and ancillary services to power purchasers
after the payment of all operation and maintenance expenses and
certain other expenses paid prior to service.
In the event that we exhaust the proceeds from the bonds, the equity
contribution and the liquidation of the collateral, the holders of the bonds
will have limited or no recourse in the event of a default.
Because we are a special-purpose company, our ability to make payments
of principal of, premium, if any, and interest on the bonds will be entirely
dependent on the performance of our obligations under the project contracts and
financing documents. Our obligations under the financing documents will be
obligations solely of ours, secured solely by the collateral. If we default in
our obligations under the financing documents, we cannot assure that realization
on the collateral would provide sufficient funds to repay all amounts due on the
bonds.
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None of the owners of the ownership interests in our company, nor any
affiliate, incorporator, stockholder, partner, officer, director or employee of
ours, will guarantee the payment of the bonds or has any obligation with respect
to the payment of the bonds. The collateral includes a pledge of AES Ironwood,
Inc.'s ownership interests in AES Ironwood, L.L.C., and under the equity
subscription agreement, AES Ironwood, Inc. has agreed to contribute in the
aggregate up to $50,149,285 to us to fund project costs. However, neither AES
Ironwood, Inc. nor any of its affiliates has any obligation to contribute sums
in excess of the amount required to be advanced under the equity subscription
agreement. If the proceeds of the bonds and the equity contribution required
under the equity subscription agreement are insufficient to fund the successful
development, construction, start-up and testing of our facility, we may not have
other sources of funds available to complete our facility.
The bonds will be secured by liens on substantially all of our assets
related to our facility, including all of the project contracts. If a default
occurs under the indenture or other financing documents, we cannot assure that
an exercise of remedies, including foreclosing on the assets in a judicial
proceeding, would provide sufficient funds to repay all amounts due on the
bonds. As result of specific provisions of the documents under which we obtained
our rights in and to the facility site, it is unlikely that the real estate
comprising a portion of the collateral could be used for any purpose other than
an electric generating facility.
If the parties that we depend on breach their obligations to us, our cash flow
and ability to service the bonds may be impaired.
During the term of the power purchase agreement, we will be dependent
on Williams Energy for revenues from sales of capacity, ancillary services and
energy from our facility and on Williams Energy and its affiliates for fuel
supply and transportation. We are dependent on Metropolitan Edison for
connection of our facility to the electric transmission grid, as well as on
other third-party sources of goods and services which constitute the principal
inputs to our facility's operations. Any material breach by any of these parties
of their obligations under the project contracts could adversely affect our cash
flows and could impair our ability to make payments of principal of and interest
on the bonds.
The other parties to the project contracts have the right to terminate
and/or withhold payments or performance under the contracts if specific events
occur. If a project contract were to be terminated due to nonperformance by us
or by the other party to the contract, our ability to enter into a substitute
agreement having substantially equivalent terms and conditions is uncertain.
If Williams Energy's financial condition deteriorates or it breaches its
obligations to us and cannot be adequately replaced, we may not be able to
service the bonds.
Williams Energy currently is our sole customer for purchases of
capacity, ancillary services and energy. Williams Energy's payments under the
power purchase agreement are expected to provide all of our revenues during the
term of the power purchase agreement. It is uncertain whether we would be able
to find another purchaser on similar terms for our facility's output if Williams
Energy were not performing under the power purchase agreement. If another
purchaser or purchasers could be found, we cannot assure that the price paid by
that purchaser or purchasers would be sufficient to enable us to make payments
in respect of the bonds. Any material failure by Williams Energy to make
capacity and fuel conversion payments under the power purchase agreement could
therefore have a material adverse effect on revenues and our ability to make
payments in respect of the bonds.
The ability of Williams Energy to meet its obligations under the power
purchase agreement will be dependent on Williams Energy's financial condition
generally, and Williams Energy's financial condition will in part be dependent
upon its ability to sell our facility's capacity and electric energy at adequate
prices.
As we have described in this prospectus, The Williams Companies, Inc.
will provide to us a guaranty of Williams Energy's obligations under the power
purchase agreement to make fixed payments and to pay damages if Williams Energy
fails to make such payments. The Williams Companies, Inc.'s obligations under
that guaranty are capped at an amount equal to 125% of the sum of (x) the
principal amount of the bonds plus (y) the maximum debt service reserve account
required balance.
If we encounter significant construction delays, any liquidated damages,
contingency funds, or insurance proceeds may be insufficient to service the
bonds.
As with any major construction undertaking, completion of our facility
could be delayed or prevented, or cost overruns could be incurred, as a result
of numerous factors, including shortages of material, labor disputes, weather
interferences, difficulties in obtaining necessary permits or in meeting permit
conditions or unforeseen engineering,
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environmental or geological problems. We cannot assure that any available
liquidated damages or contingency funds or the proceeds of any insurance and
warranties would be sufficient to pay for any significant cost overruns or
redeem a sufficient principal amount of the bonds so that projected debt service
coverage ratios can be achieved or maintained. In particular, we are required to
pay principal of and interest on the bonds without regard to any unexpected or
uncontrollable events under the construction agreement.
If as a result of unexpected or uncontrollable events specified in the
construction agreement or specified acts or omissions by us, completion of our
facility is delayed or prevented, or our facility cannot achieve operation in
accordance with design specifications and performance guarantees, Siemens
Westinghouse would not be obligated to pay liquidated damages. Under these
circumstances, no proceeds of insurance may be available to us or any proceeds
that are available may not be sufficient to pay our debt service or increased
costs. Generally, Siemens Westinghouse would not be obligated to pay liquidated
damages for events or circumstances that adversely affect its ability to perform
its obligations under the construction agreement to the extent that the events
or circumstances are beyond its reasonable control and are not caused by its or
its subcontractors' negligence or lack of due diligence and could not have been
avoided by the use of its reasonable efforts. In addition, the date for
achievement of provisional acceptance and the guaranteed provisional acceptance
under the construction agreement could be subject to adjustment as a result of
unexpected or uncontrollable events.
The power purchase agreement requires that the commercial operation
date occur by no later than June 30, 2001, which may be extended under the terms
of the power purchase agreement to no later than December 31, 2002. Our project
capital budget includes adequate funds for the payment of amounts that may be
required to extend the commercial operation under the power purchase agreement.
If the commercial operation date fails to occur by that date, as so extended,
Williams Energy may terminate the power purchase agreement.
Under the construction agreement, we are responsible for a number of
matters in connection with the construction, completion and start-up of our
facility. While we believe that we have made adequate arrangements to assure
timely performance of our responsibilities, we are relying on other parties to
enable us to perform our responsibilities under the construction agreement and
we cannot be certain that the other parties will meet their obligations under
their contracts. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Construction
Agreement."
Because the facility has not yet been constructed and our company has no
operating history, various unexpected events may increase our expenses or reduce
our revenues and impair our ability to service the bonds.
Because our facility has not yet been constructed, it has no operating
history. As with any new business venture of this size and nature, operation of
our facility could be affected by many factors, including start-up problems, the
breakdown or failure of equipment or processes, the performance of our facility
below expected levels of output or efficiency, failure to operate at design
specifications, labor disputes, changes in law, failure to obtain necessary
permits or to meet permit conditions, government exercise of eminent domain
power or similar events and catastrophic events including fires, explosions,
earthquakes and droughts. The occurrence of these events could significantly
reduce or eliminate revenues or significantly increase the expenses of our
facility, thereby jeopardizing our ability to make payments on the bonds. In
addition, the liability of AES Prescott for failure to perform under the
operations agreement is subject to specific limitations and AES Prescott is not
required to post a performance bond. The proceeds of any available insurance and
limited warranties may not be adequate to cover our lost revenues or increased
costs. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Power Purchase Agreement"
and "--Operations Agreement."
Because the combustion turbines to be used in our facility have no significant
operating experience, our project may incur problems relating to start-up,
commissioning and performance.
The Siemens Westinghouse 501G combustion turbines to be used in our
facility are the manufacturer's latest development in combustion turbines whose
fundamental design basis is based upon the Siemens Westinghouse 501 series.
However, the 501G combustion turbine currently has no significant operating
experience and may have unit availability lower than combustion turbine units
using mature technologies. Thus, we cannot assure that our project will not
incur problems relating to start-up, commissioning and performance that could
jeopardize the achievement of Provisional Acceptance, timely commencement of
commercial operations of our facility or the performance of our facility during
its commercial operation. For a discussion of the 501G technology and related
risks, see "ANNEX B: INDEPENDENT ENGINEER'S REPORT--Facility Design."
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Following the expiration of the power purchase agreement, our facility is
expected to become a merchant facility and we cannot assure that we will be able
to find adequate purchasers or otherwise compete effectively in the merchant
market.
At the end of the term of the power purchase agreement, at which time
27.1% of the bonds are expected to remain outstanding, our facility is expected
to become a merchant facility, i.e., an electric generation facility with no
dedicated long-term power purchase agreement, and Williams Energy's obligation
to provide fuel will cease. If the power purchase agreement is terminated prior
to its stated term as a result of an event of default or otherwise, our facility
could enter a merchant phase sooner than the anticipated termination date of the
power purchase agreement. Given the uncertainty regarding the performance of our
facility, future environmental regulation, competition from other generating
facilities, including possibly some owned by The AES Corporation and its
affiliates, fuel prices and other market conditions that may prevail in the
future in the PJM power pool market, we cannot assure that we will be able to
find purchasers or otherwise compete effectively in the merchant market.
Also, there are current legal and regulatory limitations on our ability
to operate our facility on a merchant basis. Our rate schedule when filed with
FERC will be limited to sales to Williams Energy. Under current law, before we
could engage in sales to any other entities, we would be required to seek
additional market-based rate authority from FERC. Although we do not currently
anticipate that we would encounter material difficulty in obtaining this
additional market-based rate authority, we cannot assure that FERC will grant
this authority. In addition, our status as an exempt wholesale generator under
federal law prohibits us from making retail sales of electricity in the United
States. We currently anticipate that electric energy generated by our facility
will be sold primarily in the wholesale market both during the term of the power
purchase agreement and after our facility becomes a merchant plant.
Nevertheless, if we were to desire to participate directly in the retail
electric market when that market develops, we would be precluded from doing so
absent a change in federal law. Under current federal law, however, we would not
be precluded from making sales to a power marketer, including an affiliate,
which could in turn make retail sales.
Compliance with environmental and other regulatory matters could cause
significant delays and expenses that may impair our ability to service the
bonds.
General
We are subject to a number of statutory and regulatory standards and
required approvals relating to energy, labor and environmental laws. Although
the necessary environmental permits for the commencement of construction of our
facility have been obtained, we are required to comply with the terms of our
environmental permits and to obtain other permits for the construction and
operation of our facility. Several of our permits have not yet been obtained,
and some cannot be obtained until our facility has commenced operation. Under
specific circumstances, delay in receipt of or failure to obtain such permits
could delay completion of the construction of our facility or prevent the
operation of our facility.
Some permits that have been obtained by us in connection with our
facility will require amendment prior to commercial operation of our facility
and others will require renewal or reissuance during the life of our facility.
While we have no reason to believe that such permits cannot be amended or will
not be renewed or reissued, our inability to amend, renew or obtain reissuance
of these permits in the future could cause the suspension of construction or
operation of our facility.
The permits that have been obtained and that will be obtained contain
ongoing requirements. Failure to satisfy and maintain any permit conditions or
other applicable requirements could delay or prevent completion of the
construction of our facility, prevent the operation of our facility and/or
result in additional costs. If our facility attains commercial operation, we
cannot assure that our facility will operate within the limits established by
the permits or approvals. See "OUR BUSINESS--Permits and Regulatory Approvals"
and "ANNEX B: INDEPENDENT ENGINEER'S REPORT--Environmental and Permitting."
Energy Regulatory Matters
We believe that we have obtained all material energy-related federal,
state and local approvals required as of the date of this prospectus to
construct and operate our facility. Although not currently required, additional
regulatory approvals, including renewals, extensions, transfers, assignments,
reissuances or similar actions may be required in the future due to a change in
laws and regulations, a change in our power purchasers or for other reasons. We
cannot assure that we will be able to (1) obtain all required regulatory
approvals that we do not yet have or that we may require in the future, (2)
obtain any necessary modifications to existing regulatory approvals or (3)
maintain required regulatory
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approvals. Delay in obtaining or failure to obtain and maintain in full force
and effect any regulatory approvals, or amendments, or delay or failure to
satisfy any such conditions or applicable requirements, could prevent operation
of our facility or sales to third parties, or could result in additional costs
to us. Our business also could be materially and adversely affected as a result
of statutory or regulatory changes or judicial or administrative interpretations
of existing laws and regulations that impose more comprehensive or stringent
requirements on us.
The insurance we have obtained may be inadequate in the event of a total loss or
taking of our facility, and we cannot assure that the insurance proceeds we
receive will be sufficient to satisfy all of our indebtedness.
We are obligated under the financing documents and other project
contracts to obtain and keep in force comprehensive insurance with respect to
our facility, including general liability insurance and machinery coverage,
business interruption insurance, delay in start-up insurance and all-risk
property damage insurance, including, among other things, damage caused by fire,
floods or hurricanes. We cannot assure that such insurance coverage will be
available in the future at commercially reasonable costs or that the amounts for
which we are insured or amounts which we receive under insurance coverage will
cover all losses. If there is a total loss or taking of our facility, we cannot
assure that the insurance proceeds we receive will be sufficient to satisfy all
our indebtedness, including the redemption of the bonds as required under the
indenture. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Indenture."
The ability of our company to incur additional indebtedness may impair our
ability to service the bonds.
We may issue additional bonds and we may incur additional indebtedness
at any time or from time to time, in accordance with the terms of the indenture.
Any additional bonds will, and any additional senior debt, may rank equally with
all our senior secured indebtedness. The issuance of additional bonds, other
than for refinancing purposes, or additional senior debt would create additional
claims against the collateral under the security documents and could result in a
reduction in debt service coverage ratios and cash available to make payments of
principal of and interest on the bonds. See "SUMMARY OF PRINCIPAL FINANCING
DOCUMENTS--Indenture."
Subject to limitations set forth in the indenture, we are permitted to
incur subordinated debt, which may be secured by a junior lien on the
collateral, for purposes allowed under the indenture. Although subordinated debt
would be subject to limitations contained in the collateral agency agreement
concerning the ability of the holders of subordinated debt to declare defaults,
exercise remedies or institute specified legal proceedings, the incurrence of
subordinated debt would increase our leverage and the total debt service payable
by us. In addition, the holders of subordinated debt may be our secured
creditors and therefore have the rights available to secured creditors under
federal and state law.
Drawings under letters of credit may increase payments of debt service on senior
debt.
Drawings under the debt service reserve letter of credit will be
converted into debt service reserve letter of credit loans which will mature
five years after the date of the loans. Interest on debt service reserve letter
of credit loans is payable at the same level in the flow of funds as payments of
interest on other senior debt, including the bonds. Principal on debt service
reserve letter of credit loans is generally payable out of available cash flow
after the payment of principal on the bonds. In specific circumstances, however,
principal payments on any drawings under the debt service reserve letter of
credit will be made at the same level in the flow of funds as payments of
principal on the bonds.
If the construction period letter of credit is issued and our facility
is not completed within the time period specified in the power purchase
agreement, as may be extended, Williams Energy may draw on such construction
period letter of credit. Drawings under the construction period letter of credit
will be converted into construction period letter of credit loans under any
construction period letter of credit reimbursement agreement that will mature in
10 years from the conversion. Principal of and interest on any construction
period letter of credit loans under the construction period letter of credit
reimbursement agreement will be made at the same respective levels in the flow
of funds as payments of principal and of interest on the bonds.
Thus, drawings on the construction period letter of credit and, in
specific circumstances, drawings under the debt service reserve letter of
credit, will increase payments of debt service on senior debt. We cannot assure
that our revenues from sales of capacity and fuel conversion services under the
power purchase agreement or otherwise would be sufficient to cover such
increases in debt service payments. The lenders under the debt service reserve
letter of credit reimbursement agreement and the construction period letter of
credit reimbursement agreement will rank equally with the bonds by a lien on and
security interest in the collateral.
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The collateral agency agreement contains provisions that may limit the remedies
that could be exercised in respect of the event of default, other than a
bankruptcy event of default, unless and until the required senior parties have
directed the collateral agent to do so.
We have entered into a collateral agency agreement with our senior
creditors designating the collateral agent as the agent for each of the senior
creditors. The collateral agency agreement requires the affirmative vote of
senior creditors holding at least a majority of the outstanding combined
exposure to direct specific actions of the collateral agent, including the
exercise of remedies following a trigger event. Because the affirmative vote of
these required senior creditors is required before the collateral agent can
exercise remedies under the collateral agency agreement and the other security
documents following most events of default if an event of default under the
indenture were to occur, no remedies could be exercised in respect of the event
of default, other than a bankruptcy event of default, unless and until the
required senior creditors have directed the collateral agent to do so. If the
holders of the bonds do not constitute holders of at least a majority of the
outstanding combined exposure, the trustee and the holders of the bonds may not
be able to direct the collateral agent to exercise remedies in respect of an
event of default under the indenture without the affirmative vote of other
senior creditors. In addition, under the terms of the other financing documents,
we may not terminate, amend or otherwise modify any provision of the indenture,
any other security document or any subordinated loan agreement, if the
termination, amendment or modification could, in the reasonable opinion of the
creditors who are parties to the other financing documents, reasonably be
expected to have a material adverse effect on the rights and benefits of such
creditors. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency
Agreement."
Projections and the assumptions underlying those projections used in the
projections are inherently subject to significant uncertainties and actual
results may differ, perhaps materially, from those projected and should not be
unduly relied upon.
The financing of our facility has been structured on the basis of
assumptions and projections with respect to our facility's potential revenue
generating capacity and associated costs over the term of the bonds. Stone &
Webster, as independent engineer, has evaluated the technical, environmental and
economic aspects of our project. Stone & Webster's report contains a discussion
of the many assumptions utilized in preparing these projections.
Investors should review Stone & Webster's report in its entirety.
Projections of future operations and the economic results of those
operations included in Stone & Webster's report have been prepared by us and
reviewed by Stone & Webster on the basis of present knowledge and assumptions
which we and Stone & Webster believe to be reasonable. Our independent auditors
have not examined, reviewed or compiled the projections and, accordingly, do not
express an opinion or any other form of assurance with respect to them. After
the issuance of the bonds, neither we nor Stone & Webster will provide the
holders of the bonds with revised projections or any report of the differences
between the projections and actual operating results later achieved by our
project.
For purposes of preparing the projections, assumptions were made, of
necessity, with respect to completion of construction, availability and
performance of our facility, dispatch levels, capital expenditures, operation
and maintenance expenditures, the revenues that we will receive for capacity and
electric energy, the availability of fuel, our tax treatment, general business
and economic conditions and several other material contingencies and other
matters that are not within our control and the outcome of which cannot be
predicted by us, Stone & Webster, or any other person with any certainty of
accuracy. These assumptions and the other assumptions used in the projections
are inherently subject to significant uncertainties and actual results will
differ, perhaps materially, from those projected. Accordingly, the projections
are not necessarily indicative of current values or future performance and
neither we, Stone & Webster, nor any other person assumes any responsibility for
their accuracy. Therefore, no representation is made or intended, nor should any
be inferred, with respect to the likely existence of any particular future set
of facts or circumstances. If actual results are materially less favorable than
those shown or if the assumptions used in formulating the projections prove to
be incorrect, our ability to make payments of principal of, premium, if any, and
interest on the bonds may be adversely affected.
Cautionary note regarding forward-looking statements.
This prospectus includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events based upon our knowledge of facts as of the date of this
prospectus and our assumptions about future events. These forward-looking
statements are subject to various risks and uncertainties that may be outside of
our control, including, among other things:
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o availability and terms of capital and capital market conditions;
o unanticipated changes in interest rates and rates of inflation;
o general industry trends;
o competition;
o governmental, statutory, regulatory or administrative changes or
initiatives affecting us, our facility, the contracts relating
to our facility, or the U.S. electricity industry generally;
o weather conditions and other natural phenomena;
o inability of various counterparties to meet their obligations
with respect to financial instruments;
o each of the factors discussed in the "RISK FACTORS" section
beginning on page 16; and
We use words like "anticipate," "estimate," "project," "plan," "expect" and
similar expressions to help identify forward-looking statements in this
prospectus.
In light of these and other risks, uncertainties and assumptions, the
actual events or results may be very different from those expressed or implied
in the forward-looking statements in this prospectus or may not occur. We have
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
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CALCULATION OF EARNINGS TO FIXED CHARGES DEFICIENCY
EARNINGS (thousands)
Pretax Income.................................... (1,858)
Fixed Charges.................................... 7,383
Capitalized Interest............................. (3,666)
------
Net Total........................................ 1,859
======
FIXED CHARGES
Interest Expense................................. 3,695
Capitalized Interest............................. 3,666
Other............................................ 22
------
Total............................................ 7,383
======
The dollar amount of the deficiency of earnings to fixed charges is:
($5,524) (in thousands).
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
bonds. In consideration for issuing the new bonds, we will receive in exchange a
like principal amount of old bonds. The old bonds surrendered in exchange for
the new bonds will be retired and canceled and cannot be reissued. Accordingly,
issuance of the new bonds will not result in any change in our capitalization.
We intend to use the net proceeds from the sale of the old bonds, together with
an approximately $50 million equity contribution, approximately as follows:
(thousands)
Construction Costs................................ $238,000
Other Hard (Construction-Related) Costs........... $13,944
Development Fee to AES Corporation................ $10,000
Legal, Accounting, Consulting and other
Development and Construction Costs.............. $11,345
Initial Working Capital........................... $1,800
Net Interest During Construction.................. $51,141
Start-up and Other Soft Costs..................... $15,419
Company's Contingency............................. $17,000
TOTAL USES OF FUNDS...................... $358,649
========
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999. The following information should be read in conjunction with the
consolidated financial statements and related notes thereto and the other
financial information contained elsewhere in this prospectus. See "SELECTED
FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
Long-Term Debt:
(thousands)
Long Term Bonds.......................... $308,500
========
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Funds available from the issuance of the old bonds will be drawn from
time to time to fund construction of our facility. Once the available old bond
proceeds have been used, AES Ironwood, Inc. agrees to fund up to approximately
$50.1 million of project costs to be contributed to us pursuant to the equity
subscription agreement.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the issuance of the old bonds, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
o prepare and file a registration statement with the SEC for an
exchange of the new bonds for the old bonds under the Securities
Act;
o use our reasonable efforts to cause the registration statement
to become effective within 180 days following the original
issuance of the old bonds;
o keep the exchange offer open for acceptance for a period of not
less than 30 days, or longer, if required by law, after the date
the registration statement is declared effective by the SEC; and
o accept for exchange all old bonds validly tendered by and not
withdrawn in accordance with the terms of the exchange offer
registration statement.
As soon as practicable after the exchange offer registration statement
becomes effective, we will offer the holders of old bonds who are not prohibited
by any law or policy of the SEC from participating in this exchange offer the
opportunity to exchange their old bonds for new bonds registered under the
Securities Act that are substantially identical to the old bonds, except that
the new bonds will not contain terms with respect to transfer restrictions,
registration rights and additional interest.
Under limited circumstances, we will use our reasonable best efforts to
cause the SEC to declare effective a shelf registration statement with respect
to the resale of the old bonds and keep the statement effective for up to two
years after the effective date of the shelf registration statement. These
circumstances include:
o if any changes in law or their interpretations by the staff of
the SEC do not permit us to effect the exchange offer as
contemplated by the registration rights agreement;
o if the exchange offer is not consummated within 220 days after
June 25, 1999, or by January 31, 2000;
o if any of Lehman Brothers, Morgan Stanley Dean Witter or
Dresdner Kleinwort Benson North America, as initial purchasers
of the old bonds, so requests with respect to old bonds held by
it following consummation of the exchange offer; and
o if any holder of the old bonds notifies us that it is not
permitted to participate in the exchange offer or has
participated in the exchange offer and has received new bonds
that are not freely tradeable.
Interest in addition to the interest otherwise due will accrue on the
bonds at a rate of 0.5% per annum if the exchange offer is not consummated or
the shelf registration statement is not declared effective by the SEC on or
prior to 220 days after June 25, 1999, or by January 31, 2000. Any additional
interest shall accrue on the old bonds from and including the date on which the
circumstances giving rise to such additional interest shall occur to but
excluding the date on which all such circumstances have been cured. Any such
additional interest will be payable on the bond payment dates.
To exchange your old bonds for transferable new bonds in the exchange
offer, you will be required to make the following representations:
o any new bonds that you receive will be acquired in the ordinary
course of your business;
o you have no arrangement or understanding with any person or
entity to participate in the distribution of the new bonds;
o you are not our "affiliate," as defined in Rule 405 of the
Securities Act;
o you are not a broker-dealer, and you are not engaged in and do
not intend to engage in the distribution of the new bonds; and
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o if you are a broker-dealer that will receive new bonds for your
own account in exchange for old bonds, you acquired those bonds
as a result of market-making activities or other trading
activities and you will deliver a prospectus, as required by
law, in connection with any resale of such new bonds.
In addition, if we are required to file a shelf registration statement,
we may require you to deliver information to be used in connection with the
shelf registration statement in order to have your bonds included in the shelf
registration statement. A holder who sells old bonds under the shelf
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers. Such a holder will also be subject to the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder, including indemnification obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you may review the provisions
of the registration rights agreement that we filed with the SEC as an exhibit to
the registration statement of which this prospectus is a part.
Resale of New Bonds
Based on the interpretations of the SEC staff in no-action letters
issued to third parties, we believe that new bonds issued under the exchange
offer may be offered for resale, resold and otherwise transferred by you as the
holder of the new bonds without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
o you are not our "affiliate" within the meaning of Rule 405 under
the Securities Act;
o such new bonds are acquired in the ordinary course of your
business; and
o you do not intend to participate in the distribution of such new
bonds.
Broker-dealers that acquired old bonds directly from us may not rely on
the interpretations of the SEC set forth above. Accordingly, in order to sell
their bonds, broker-dealers that acquired old bonds directly from us must comply
with the registration and prospectus delivery requirements, including being
named as a selling security holder in any resale prospectus. If you are a
broker-dealer that will receive new bonds for your own account in exchange for
old bonds, you acquired those bonds as a result of market-making activities or
other trading activities and you will deliver a prospectus, as required by law,
in connection with any resale of such new bonds. Only broker-dealers that
acquired old bonds as a result of market-making or other trading activities may
participate in the exchange offer.
If you do not satisfy the above conditions, you
o cannot rely on such interpretations by the SEC staff; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction.
We do not intend to seek our own no-action letter, and there can be no
assurance that the SEC staff would make a similar determination with respect to
the new bonds as it has in prior no-action letters issued to other parties. In
November 1998, the SEC proposed certain changes to the regulatory structure for
offerings registered under the Securities Act. The SEC has stated that, if these
proposals are adopted, the SEC staff will repeal its interpretations set forth
in prior no-action letters. We cannot predict whether these proposals will be
adopted or, if they are adopted, when and in what form they will be adopted.
Unless an exemption from registration is otherwise available, any
bondholder intending to distribute new bonds should be covered by an effective
registration statement under the Securities Act containing the selling
bondholder's information required by Item 507 of Regulation S-K under the
Securities Act. This prospectus may be used for an offer to resell, resale or
other retransfer of new bonds only as specifically described in this prospectus.
Please read the section captioned "PLAN OF DISTRIBUTION" for more details
regarding the transfer of new bonds.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this
prospectus and in the letter of transmittal, we will accept for exchange any old
bonds properly tendered and not withdrawn prior to the expiration date. We will
issue new bonds in principal amount equal to the principal amount of old bonds
surrendered under the exchange offer. Old bonds may be tendered for new bonds
only in integral multiples of $1,000.
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The exchange offer is not conditioned upon any minimum aggregate
principal amount of old bonds being tendered for exchange.
As of the date of this prospectus, $308,500,000 aggregate principal
amount of the old bonds are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of old bonds. There will be
no fixed record date for determining registered holders of old bonds entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the
provisions of the registration rights agreement, the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
SEC. Old bonds that are not tendered for exchange in the exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the indenture relating to the bonds
and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered old
bonds when we have given oral or written notice of the acceptance to the
exchange agent and complied with the applicable provisions of the registration
rights agreement. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the new bonds from us.
If you tender old bonds in the exchange offer, you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old bonds.
We will pay all charges and expenses, other than applicable taxes described
below, in connecting with the exchange offer. It is important that you read the
section labeled "--Fees and Expenses" for more details regarding fees and
expenses incurred in the exchange offer.
We will return any old bonds that we do not accept for exchange for any
reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
Neither we nor our board of directors makes any recommendation to
holders of the old bonds as to whether to tender or refrain from tendering all
or any portion of their old bonds in the exchange offer. In addition, no one has
been authorized to make any such recommendation. Holders of the old bonds must
make their own decision whether to tender pursuant to the exchange offer, and,
if so, the aggregate amount of old bonds to tender after reading this prospectus
and the letter of transmittal and consulting with their advisers, if any, based
on their financial position and requirements.
Expiration Date
The exchange offer will expire at 5:00 p.m., New York City time
________, 2000, unless, in our sole discretion, we extend it. Notwithstanding
the preceding, we will not extend the expiration date beyond __________________,
2000.
Extensions, Delays in Acceptance, Termination or Amendment
We expressly reserve the right, at any time or various times, to extend
the period of time during which the exchange offer is open. We may delay
acceptance of any old bonds by giving oral or written notice of such extension
to their holders. During any such extensions, all old bonds previously tendered
will remain subject to the exchange offer, and we may accept them for exchange.
In order to extend the exchange offer, we will notify the exchange
agent orally or in writing of any extension. We will notify the registered
holders of old bonds of the extension no later than 9:00 a.m., New York City
time, on the business day after the previously scheduled expiration date.
If any of the conditions described below under "--Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion:
o to delay accepting for exchange any old bonds;
o to extend the exchange offer; or
o to terminate the exchange offer
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
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Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice to the
registered holders of old bonds. If we amend the exchange offer in a manner that
we determine to constitute a material change, we will promptly file a
post-effective amendment to the registration statement and disclose such
amendment by means of a prospectus supplement when the post-effective amendment
has been declared effective by the SEC. The supplement will be distributed to
the registered holders of the old bonds. Depending upon the significance of the
amendment and the manner of disclosure to the registered holders, we will extend
the exchange offer if the exchange offer would otherwise expire during any such
period of delay.
Conditions to the Exchange Offer
Despite any other term of the exchange offer, we will not be required
to accept for exchange, or exchange any new bonds for, any old bonds, and we may
terminate the exchange offer as provided in this prospectus before accepting any
old bonds for exchange, if in our reasonable judgment:
o the exchange offer, or the making of any exchange by a holder of
old bonds, would violate applicable law or any applicable
interpretation of the staff of the SEC; or
o any action or proceeding has been instituted or threatened in
any court or by or before any governmental agency with respect
to the exchange offer that, in our judgment, would reasonably be
expected to impair our ability to proceed with the exchange
offer.
In addition, we will not be obligated to accept for exchange the old
bonds of any holder that has not made to us the representations described under
"--Purpose and Effect of the Exchange Offer," "--Procedures for Tendering" and
"PLAN OF DISTRIBUTION" and such other representations as may be reasonably
necessary under applicable SEC rules, regulations or interpretations to make
available to us an appropriate form for registration of the new bonds under the
Securities Act.
We expressly reserve the right to amend or terminate the exchange offer
and to reject for exchange any old bonds not previously accepted for exchange,
upon the occurrence of any of the conditions to the exchange offer specified
above. We will give oral or written notice of any extension, amendment,
non-acceptance or termination to the registered holders of the old bonds as
promptly as practicable.
These conditions are for our sole benefit and we may assert them in
whole or in part at any time or at various times in our sole discretion. If we
fail at any time to exercise any of these rights, this failure will not mean
that we have waived our rights. Each such right will be deemed an ongoing right
that we may assert at any time or at various times. If any waiver or amendment
constitutes a material change to the exchange offer, we will promptly disclose
the waiver or amendment by means of a prospectus supplement that will be
distributed to the registered holders of the old bonds. In this case, we will
extend the exchange offer to the extent required by the Exchange Act to provide
holders of old bonds the opportunity to effectively consider the additional
information and to factor this information into their investment decision.
In addition, we will not accept for exchange any old bonds tendered,
and will not issue new bonds in exchange for any such old bonds, if at such time
any stop order has been threatened or is in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture relating to the bonds under the Trust Indenture
Act of 1939.
Procedures for Tendering
How to Tender Generally
Only a holder of old bonds may tender such old bonds in the exchange
offer. To tender in the exchange offer, a holder must:
o complete, sign and date the letter of transmittal, or a
facsimile of the letter of transmittal;
o have the signature on the letter of transmittal guaranteed if
the letter of transmittal so requires; and
o mail or deliver such letter of transmittal or facsimile to the
exchange agent prior to the expiration date; or
o comply with the automated tender offer program procedures of
DTC, described below.
In addition, either:
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o the exchange agent must receive, prior to the expiration date, a
timely confirmation of book-entry transfer of such old bonds
into the exchange agent's account at DTC according to the
procedure for book-entry transfer described below or a properly
transmitted agent's message; or
o the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
its address provided above under "SUMMARY OF THE EXCHANGE OFFER--The Exchange
Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration
date will constitute an agreement between the holder and us in accordance with
the terms and subject to the conditions described in this prospectus and in the
letter of transmittal.
The method of delivery of the letter of transmittal and all other
required documents to the exchange agent is at your election and risk. Rather
than mail these items, we recommend that you use an overnight or hand delivery
service. In all cases, you should allow sufficient time to assure delivery to
the exchange agent before the expiration date. You should not send the letter of
transmittal to us. You may request your brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for you.
How to Tender if You Are a Beneficial Owner
If you beneficially own old bonds that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender those bonds, you should contact the registered holder promptly and
instruct it to tender on your behalf.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal, as described below, guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act, that is a member of
one of the recognized signature guarantee programs identified in the letter of
transmittal, unless the old bonds are tendered:
o by a registered holder who has not completed the box entitled
"SPECIAL ISSUANCE INSTRUCTIONS" or "SPECIAL DELIVERY
INSTRUCTIONS" on the letter of transmittal; or
o for the account of a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an
office or correspondence in the United States, or an eligible
guarantor institution.
If the letter of transmittal or any bonds or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's automated tender
offer program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old bonds to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received
by the exchange agent and forming part of the book-entry confirmation, to the
effect that:
o DTC has received an express acknowledgment from a participant in
its automated tender offer program that is tendering old bonds
that are the subject of such book-entry confirmation;
o such participant has received and agrees to be bound by the
terms of the letter of transmittal or, in the case of an agent's
message relating to guaranteed delivery, that such participant
has received and agrees to be bound by the applicable notice of
guaranteed delivery; and
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o the agreement may be enforced against such participant.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered old bonds
and withdrawal of tendered old bonds. Our determination will be final and
binding. We reserve the absolute right to reject any old bonds not properly
tendered or any old bonds our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defect,
irregularities or conditions of tender as to particular old bonds. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, all defects or irregularities in connection with tenders
of old bonds must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
old bonds, neither we, the exchange agent nor any other person will incur any
liability for failure to give such notification. Tenders of old bonds will not
be deemed made until such defects or irregularities have been cured or waived.
Any old bonds received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned to the tendering holder, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
When We Will Issue New Bonds
In all cases, we will issue new bonds for old bonds that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
o old bonds or a timely book-entry confirmation of such old bonds
into the exchange agent's account at DTC; and
o a properly completed and duly executed letter of transmittal and
all other required documents or a properly transmitted agent's
message.
Return of Old Bonds Not Accepted or Excepted
If we do not accept any tendered old bonds for exchange for any reason
described in the terms and conditions of the exchange offer or if old bonds are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged old bonds will be returned without expense to
their tendering holder. In the case of old bonds tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
below, such non-exchanged old bonds will be credited to an account maintained
with DTC. These actions will occur as promptly as practicable after the
expiration or termination of the exchange offer.
Your Representation to Us
By signing or agreeing to be bound by the letter of transmittal, you
will represent to us that, among other things:
o any new bonds that you receive will be acquired in the ordinary
course of your business;
o you have no arrangement or understanding with any person or
entity to participate in the distribution of the new bonds;
o you are not engaged in and do not intend to engage in the
distribution of the new bonds;
o if you are a broker-dealer that will receive new bonds for your
own account in exchange for old bonds, you acquired those bonds
as a result of market-making activities or other trading
activities and you will deliver a prospectus, as required by
law, in connection with any resale of such new bonds; and
o you are not our "affiliate," as defined in Rule 405 of the
Securities Act.
Book-Entry Transfer
The exchange agent will establish an account with respect to the old
bonds at DTC for purposes of the exchange offer promptly after the date of this
prospectus. Any financial institution participating in DTC's system may make
book-entry delivery of old bonds by causing DTC to transfer such old bonds into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
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Guaranteed Delivery Procedures
If you wish to tender your old bonds but you cannot deliver the letter
of transmittal or any other required documents to the exchange agent or comply
with the applicable procedures under DTC's automated tender offer program prior
to the expiration date, you may still tender if:
o the tender is made through a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States, or an
eligible guarantor institution;
o prior to the expiration date, the exchange agent receives from
such member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc.,
commercial bank or trust company having an office or
correspondent in the United States, or eligible guarantor
institution either a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand
delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
o setting forth your name and address, the registered
number(s) of your old bonds and the principal amount of
old bonds tendered;
o stating that the tender is being made thereby; and
o guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of
transmittal or facsimile thereof, together with the old
bonds or a book-entry confirmation, and any other
documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the
exchange agent; and
o the exchange agent receives such properly completed and executed
letter of transmittal or facsimile thereof, as well as a
book-entry confirmation, and all other documents required by the
letter of transmittal, within three New York Stock Exchange
trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent you if you wish to tender your old bonds according to the
guaranteed delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date.
For a withdrawal to be effective:
o the exchange agent must receive a written notice of withdrawal
at one of the addressees listed under "SUMMARY OF THE EXCHANGE
OFFER--The Exchange Agent," or
o you must comply with the appropriate procedures of DTC's
automated tender offer program system.
Any notice of withdrawal must:
o specify the name of the person who tendered the old bonds to be
withdrawn; and
o identify the old bonds to be withdrawn, including the principal
amount of such old bonds.
If old bonds have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old bonds and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility
and time of receipt of notice of withdrawal, and our determination shall be
final and binding on all parties. We will deem any old bonds so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any old bonds that have been tendered for exchange but that are not
exchanged for any reason will be credited to an account maintained with DTC for
the old bonds. This crediting will take place as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn old bonds by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
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Exchange Agent
The Bank of New York has been appointed exchange agent of the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Registered Mail or Certified Mail By Overnight Courier
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
New York, NY 10286 New York, NY 10286
Attention: Terence Rawlins Attention: Terence Rawlins
By Telephone By Facsimile
(212) 815-5988 (212) 815-6339
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional solicitation
by telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or other soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
o SEC registration fees;
o fees and expenses of the exchange agent and trustee;
o accounting and legal fees and printing costs; and
o related fees and expenses.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of
old bonds under the exchange offer. The tendering holder, however, will be
required to pay any transfer taxes, whether imposed on the registered holder or
any other person, if:
o certificates representing old bonds for principal amounts not
tendered or accepted for exchange are to be delivered to, or are
to be issued in the name of, any person other than the
registered holder of old bonds tendered;
o tendered old bonds are registered in the name of any person
other than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange
of old bonds under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a bond
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
Consequences of Failure to Exchange
If you do not exchange your old bonds for new bonds under the exchange
offer, you will remain subject to the existing restrictions on transfer of the
old bonds, and the market for secondary resales is likely to be minimal. In
general, you may not offer or sell the old bonds unless they are registered
under the Securities Act, or if the offer or sale is exempt from registration
under the Securities Act and applicable state securities laws. Except as
required by the registration rights agreement, we do not intend to register
resales of the old bonds under the Securities Act. Unless they are
broker-dealers selling under certain circumstances, holders of old bonds will no
longer have any rights under the registration rights agreement. Broker-dealers
that are not eligible to participate in the exchange offer may have additional
rights under the registration rights agreement to facilitate the sale of their
old bonds.
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Accounting Treatment
We will record the new bonds in our accounting records at the same
carrying value as the old bonds, which is the aggregate principal amount of the
old bonds, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. Participation in the exchange offer is
voluntary, and you should carefully consider whether to accept. You are urged to
consult your financial and tax advisors in making your own decision on what
action to take.
Further Bond Acquisition
We may in the future seek to acquire untendered old bonds in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any old bonds that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old bonds.
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SELECTED FINANCIAL DATA
Our selected financial data is presented below and consists of our
summary balance sheet information as of September 30, 1999, which should be read
in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and with our financial statements appearing elsewhere
in this prospectus. We began construction of our facility in June 1999 and,
since we are in the development stage, we currently have no operating revenues.
All construction costs and all project development costs have been capitalized
and will continue to be capitalized until the commencement of commercial
operation of our facility. Accordingly, only balance sheet data is presented and
no ratio of earnings to fixed charges has been computed since it would not be
meaningful. The balance sheet information as of September 30, 1999 and the
statement of operations for the period ended September 30, 1999 have been
derived from our financial statements which have been audited by Deloitte &
Touche LLP, independent public accountants, whose report appears elsewhere in
this prospectus.
AES Ironwood, L.L.C.
(Development Stage Enterprise)
As of and for the period ended September 30, 1999
(thousands)
Assets
Current Assets $ 1,065
Investments Held by Trustee (1) 99,590
Land 528
Construction in Progress 216,139
Deferred Financing Costs 2,290
Certificate of Deposit 385
---------
Total Assets $ 319,997
=========
Liabilities & Member's Deficit
Current Liabilities $ 4,124
Bond Financing 308,500
Other Long-Term Liabilities 9,231
Member's Deficit (1,858)
Total Liabilities & Member's Deficit $ 319,997
=========
Operating Expenses:
General and Administrative Expenses $ 162
---------
Net Operating loss $ 162
---------
Interest Income 1,999
Interest Expense (3,695)
NET LOSS $ (1,858)
=========
Cash Paid for Construction
in Progress Since Inception $ 204,388
=========
- -----------
(1) This amount consists of funds held pending expenditure by us for
construction of our facility, interest payments to bondholders during the
construction period, and investment earnings thereon.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
We were formed on October 30, 1998 to develop, construct, own, operate
and maintain our facility. We were dormant until June 25, 1999, the date of the
sale of the old bonds. We are in the development stage and have no operating
revenues. We obtained $308,500,000 of project funding from the sale of the old
bonds. The total cost of the construction of our facility is estimated to be
approximately $359 million, which will be financed by the proceeds from the sale
of the old bonds and the equity contribution described below.
Our facility is still under construction and we expect it to be
completed and operational by approximately June 30, 2001.
Equity Contributions
Under the equity subscription agreement, AES Ironwood, Inc. is
obligated to contribute up to approximately $50.1 million to us to fund project
costs. AES Ironwood, Inc.'s obligation to make the contributions is, and will
be, supported by an acceptable letter of credit or an acceptable bond.
Results of Operations
For the period from June 25, 1999 (inception) through September 30,
1999, costs in the amount of $216,139,000 pertaining to the cost of the
construction of our facility have been capitalized as Construction Work in
Progress and are included as assets on the balance sheet. Interest capitalized
during this period was approximately $3.7 million. The cost of purchasing land
for construction of our facility has been separately identified on the balance
sheet.
From June 25, 1999 through September 30, 1999, general and
administrative costs of $162,000 were incurred. These costs did not directly
relate to construction and are included as expenses in the Statement of
Operations.
A portion of the proceeds from the sale of the old bonds have not yet
been expended on construction and were invested by the trustee. The interest
income earned on these invested funds is included in the Statement of
Operations.
The interest expense incurred on the portion of the old bond proceeds
expended during the construction period is capitalized to Construction in
Progress and is included on the balance sheet. Interest expense incurred on the
old bond proceeds not spent on construction of our facility are included as
interest expense in the Statement of Operations.
For the period from June 25, 1999 through September 30, 1999,
non-capitalizable costs plus interest expense and less interest income resulted
in a net loss on the September 30, 1999 Statement of Operations of approximately
$1.9 million. The results of operations may not be comparable with the results
of operations during future periods, especially when our facility begins
commercial operations in 2001.
Liquidity and Capital Resources
We believe that the net proceeds from the sale of the old bonds,
together with the equity contribution, will be sufficient to (1) fund the
engineering, procurement, construction, testing and commissioning of our
facility until it is placed in commercial operation, (2) pay certain fees and
expenses in connection with the financing and development of our project and (3)
pay project costs, including interest on the bonds. After our facility is placed
in commercial operation, we will depend on our revenues under the power purchase
agreement, and after the power purchase agreement expires, we will depend on
market sales of electricity.
In order to provide liquidity in the event of cash flow shortfalls, the
debt service reserve account will contain an amount equal to the debt service
reserve account required balance through cash funding, issuance of the debt
service reserve letter of credit or a combination of the two.
As of the end of the latest fiscal year, we have committed to two
additional capital expenditures totaling $5.7 million. One is for a pipeline for
$2.5 million and the other is for a pumping station for $3.2 million.
Business Strategy and Outlook
Our overall business strategy is to market and sell all of its net
capacity, fuel conversion and ancillary services to Williams Energy during the
term of the power purchase agreement. After expiration of the power purchase
agreement, we anticipate selling our facility's capacity, ancillary services and
energy under a power purchase agreement or into the
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PJM power pool market. We intend to cause our facility to be managed, operated
and maintained in compliance with the project contracts and all applicable legal
requirements.
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OUR BUSINESS
General
We are a Delaware limited liability company formed to develop,
construct, own, operate and maintain our project and manage the production of
electric generating capacity, ancillary services and energy at our facility.
After the commercial operation date, our sole business will be the ownership and
operation of our project. We own the land on which our facility will be located.
Our facility will be designed, engineered, procured and constructed for us by
Siemens Westinghouse Power Corporation on a fixed-price, turnkey basis under the
construction agreement. Siemens Westinghouse will provide combustion turbine
maintenance services and spare parts with respect to our facility for an initial
term of between eight and 10 years, depending on the timing of scheduled
outages, under the maintenance services agreement. AES Prescott, a wholly-owned
subsidiary of The AES Corporation, will provide development, construction
management and operations and maintenance services for the project under the
operations agreement.
We have entered into a power purchase agreement for a term of 20 years
under which Williams Energy has committed to purchase all of the net capacity,
fuel conversion and ancillary services of our facility. Net capacity is the
maximum amount of electricity generated by our facility net of electricity used
at our facility. Fuel conversion services consist of the combustion of natural
gas and fuel oil in order to generate electric energy. Ancillary services
consist of services necessary to support the transmission of capacity and
energy. Williams Energy is obligated to supply us with all natural gas and/or
fuel oil necessary to provide net capacity, fuel conversion services and
ancillary services under the power purchase agreement. We anticipate that during
the term of the power purchase agreement substantially all of our revenues will
be derived from payments made under the power purchase agreement.
Our Property
Since we are a development stage company, our principal property is the
land for the facility site, which we own. The facility site is located in South
Lebanon Township, Lebanon County, Pennsylvania on an approximately 35-acre
parcel of land. We have access, utility, drainage and construction easements
across neighboring property. We are able to use these easements as long as there
is no default under the agreements with the owner of the adjacent property and
we are using the facility site for a power plant. We intend to construct a
railspur to facilitate the transportation of heavy equipment to the facility
site, but will not maintain rights in the railspur after construction has been
completed. We have title insurance in connection with our property rights.
Under the indenture and the other related financing documents, our
rights and interests in our property rights are encumbered by mortgages,
security agreements, collateral assignments and pledges for the benefit of the
bondholders and other senior creditors.
For a description of our facility, see "PROSPECTUS SUMMARY--Our
Facility."
Competition
Under the power purchase agreement, Williams Energy will be required to
purchase all of our facility's capacity and energy. Therefore, during the term
of the power purchase agreement, competition from other capacity and energy
providers will only become an issue if Williams Energy breaches its agreement
and ceases to purchase our capacity and energy or the power purchase agreement
is otherwise terminated or not performed in accordance with its terms. Following
the term of the power purchase agreement, we anticipate selling our facility's
net capacity, ancillary services and energy under a power purchase agreement or
into the PJM power pool market. At such time, we will face competition from
other generating facilities selling into the PJM power pool market including,
possibly, other facilities owned by The AES Corporation or its affiliates.
Employees
Other than the officers listed under "OUR MANAGEMENT--Management", we
have no employees and do not anticipate having any employees in the future.
Under the operations agreement, AES Prescott will manage the development and
construction of and will operate and maintain our facility. The direct labor
personnel and the plant operations management will be employees of The AES
Corporation provided to AES Prescott under the services agreement.
Insurance
As owner of our facility, we will maintain a comprehensive insurance
program as required under the indenture and underwritten by recognized insurance
companies. Among other insurance policies, we will maintain commercial
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general liability insurance, permanent property insurance for full replacement
value of our facility and business interruption insurance covering at least 12
months of debt service and fixed operation and maintenance expenses. We have
obtained title insurance in an amount equal to the principal amount of the
bonds.
AES Prescott, as operator of our facility, will maintain, among other
insurance policies, workers' compensation insurance, or evidence of
self-insurance, if required, and comprehensive automobile bodily injury and
property damage liability insurance.
Legal Proceedings
We are not party to any legal proceedings.
Permits and Regulatory Approvals
AES Prescott, as operator of our facility, and AES Ironwood, L.L.C., as
owner of our facility, must comply with numerous Federal, state and local
regulatory requirements including environmental requirements in the operation of
our facility. The material regulatory permits and authorizations that we must
obtain for construction and operation are set forth in the independent
engineer's report, which is attached as Annex B to this prospectus.
On March 31, 1999, we received a certification from FERC that we are
an Exempt Wholesale Generator. Certification as an Exempt Wholesale Generator
exempts us from regulation under the Public Utility Holding Company Act of 1935.
We will maintain this status so long as we continue to meet the requirements of
such certification, which we intend to do. Prior to commercial operation, we
will be required to file the power purchase agreement with FERC and obtain
approval for the rates contained therein. We anticipate filing with FERC and
obtaining such approval prior to the end of 2000.
On March 29, 1999, we received our Prevention of Significant
Deterioration Permit, or "air permit", from the Pennsylvania Department of
Environmental Protection. The appeal period in respect of the air permit expired
on May 3, 1999 and no appeal was filed. The air permit requires that our
facility be constructed in a manner that will allow it to meet specified
limitations on emissions of air pollutants. Under the construction agreement,
Siemens Westinghouse is required to construct our facility to meet these
requirements.
We are subject to a number of statutory and regulatory standards and
required approvals relating to energy, labor and environmental laws. Although
the necessary environmental permits for the commencement of construction of our
facility have been obtained, we are required to comply with the terms of our
environmental permits and to obtain other permits for the construction and
operation of our facility. Several of such permits have not yet been obtained,
and some cannot be obtained until operation of our facility has commenced. Under
specific circumstances, delay in receipt of or failure to obtain such permits
could delay completion of the construction of our facility or prevent the
operation of our facility.
Some permits that we have obtained in connection with our facility will
require amendment prior to commercial operation of our facility and others will
require renewal or reissuance during the life of our facility. While we have no
reason to believe that such permits cannot be amended or will not be renewed or
reissued, our inability to amend, renew or obtain reissuance of these permits in
the future could cause the suspension of construction or operation of our
facility.
The permits that have been obtained and that will be obtained contain
ongoing requirements. Failure to satisfy and maintain any such permit conditions
or other applicable requirements could delay or prevent completion of the
construction of our facility, prevent the operation of our facility and/or
result in additional costs. See "ANNEX B: INDEPENDENT ENGINEER'S
REPORT--Environmental and Permitting."
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OUR MANAGEMENT
Management
We are a Delaware limited liability company and have no employees other
than our officers. Our officers receive no compensation for their services to
us or for any transaction between us and any of our affiliates. We are managed
by our Board of Directors under the terms of our Limited Liability Company
Agreement, dated as of November 1, 1998. The following table sets forth the
names, ages and positions of our directors and executive officers and their
positions with us. Our directors are elected annually and each elected director
holds office until the director's successor is elected and qualified or the
director resigns or is removed. Our officers are elected from time to time by
vote of the Board of Directors.
Name Age Position(s)
- ---- --- -----------
John Ruggirello............49 President
Barry Sharp................40 Director, Vice President and Chief
Financial Officer
William Luraschi...........36 Vice President and Secretary
Patricia Rollin............38 Vice President
Stephen Dahm...............54 Vice President
Kevin Polchow..............38 Vice President
Bart Rossi.................51 Vice President
William Hoagland...........38 Treasurer
Maureen Shearer............36 Assistant Secretary
Dennis Bakke...............54 Director
Roger Naill................52 Director
John Ruggirello, 49, has served as President of AES Ironwood, L.L.C.
since November 1998. He is Senior Vice President of The AES Corporation. Mr.
Ruggirello also serves as the President of AES Enterprise, a business
development and plant operations division serving the Mid-Atlantic United States
since 1994. Prior to his current position, Mr. Ruggirello was plant manager of
AES Beaver Valley. Mr. Ruggirello spends approximately 20% of his time in his
capactity as Senior Vice President of The AES Corporation.
Barry Sharp, 40, has served as Director, Vice President and Chief
Financial Officer of AES Ironwood, L.L.C. since November 1998. He is currently
Senior Vice President and Chief Financial Officer of The AES Corporation. He
joined The AES Corporation as Director of Finance and Administration in 1986.
Prior to The AES Corporation, he held various positions with Arthur Anderson &
Company and Marriott. Mr. Sharp spends approximately 95% of his time in his
capacity as Senior Vice President and Chief Financial Officer of The AES
Corporation.
William Luraschi, 36, has served as Vice President of AES Ironwood,
L.L.C. since November 1998. He is currently Vice President, Secretary and
General Counsel of The AES Corporation. He joined The AES Corporation as General
Counsel in 1995. Prior to joining The AES Corporation, he was an attorney at the
law offices of Chadbourne and Parke. Mr. Luraschi spends approximately 95% of
his time in his capacity as Vice President, Secretary and General Counsel of The
AES Corporation.
Patricia Rollin, 38, has served as Vice President of AES Ironwood,
L.L.C. since November 1998. She is also a Vice President of AES Enterprise. She
served as Director of Investor Relations of The AES Corporation from 1994
through 1995. She joined The AES Corporation Corporate Strategic Planning in
1984.
Stephen Dahm, 54, has served as Vice President of AES Ironwood, L.L.C.
since November 1998. He is a Project Director of AES Ironwood, L.L.C. Prior to
joining AES Ironwood, L.L.C., he served as Vice President and Project Director
for AES Lal Pir and PakGen. Mr. Dahm joined The AES Corporation in 1994 after 18
years with Bechtel.
Kevin Polchow, 38, has served as Vice President of AES Ironwood, L.L.C.
since November 1998. Mr. Polchow is currently the Tax Director of The AES
Corporation. He assumed that position in 1994. Prior to joining The AES
Corporation, Mr. Polchow served as a Senior Manager at Deloitte & Touche LLP.
Bart Rossi, 51, has served as Vice President of AES Ironwood, L.L.C.
since November 1998. Mr. Rossi is currently a Project Engineering Director at
The AES Corporation. He assumed that position in 1996. Prior to joining The AES
Corporation, Mr. Rossi served as a Chief Engineer for Ebasco Services, Inc.
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William Hoagland, 38, has served as Vice President of AES Ironwood,
L.L.C. since November 1998. Mr. Hoagland is currently Director of Finance and
Administration of The AES Corporation and has held that position since 1994.
Prior to joining The AES Corporation, Mr. Hoagland was an auditor at Deloitte &
Touche LLP.
Maureen B. Shearer, 36, has served as Secretary of AES Ironwood,
L.L.C. since November 1998. She is currently Corporate Paralegal of The AES
Corporation and has held that position since 1995. She joined The AES
Corporation as an Executive Assistant in 1989. Prior to joining The AES
Corporation, Ms. Shearer served active duty with the U.S. Coast Guard.
Dennis Bakke, 54, has served as Director of AES Ironwood, L.L.C. since
November 1998. He is currently the President and CEO of The AES Corporation. He
assumed this position in 1994. He became the President and Chief Operating
Officer of The AES Corporation in 1987 and served as Executive Vice President
from 1981 to 1987. Mr. Bakke spends approximately 95% of his time in his
capactity as President and CEO of The AES Corporation.
Roger F. Naill, 52, has served as Director of AES Ironwood, L.L.C.
since November 1998. He is Senior Vice President of The AES Corporation and
heads The AES Corporation Corporate Strategic Planning Group. He assumed that
position in 1981. Mr. Naill spends approximately 95% of his time in his
capacity as Senior Vice President of The AES Corporation.
Each of the officers and directors listed above is currently an
officer, director or employee of The AES Corporation or an affiliate of The AES
Corporation and receives compensation from The AES Corporation or the affiliate.
No cash or non-cash compensation is currently proposed to be paid in the current
calendar year by AES Ironwood, L.L.C. to any of the officers and directors
listed above.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Affiliations
We, AES Ironwood, Inc. and AES Prescott are each wholly-owned indirect
subsidiaries of The AES Corporation. The AES Corporation has agreed to provide
AES Ironwood, Inc. sufficient funds for AES Ironwood, Inc. to contribute up to
$50,149,285 to us to fund project costs under an equity subscription agreement.
Other than the equity subscription agreement, the only other business we intend
to transact with any of our affiliates is an operations agreement with AES
Prescott.
Other Relationships and Related Transactions
The AES Corporation. The AES Corporation is a leading global power
company committed to supplying electricity in a socially responsible way. The
AES Corporation currently has assets in excess of $10 billion and employs
approximately 44,500 people around the world. Under a services agreement, The
AES Corporation will supply to AES Prescott all of the personnel and services
necessary for AES Prescott to comply with its obligations under the operations
agreement.
AES Ironwood, Inc. AES Ironwood, Inc. is a Delaware corporation and a
wholly-owned subsidiary of The AES Corporation. AES Ironwood, Inc. currently has
no operations outside of its activities in connection with our project and does
not anticipate undertaking any operations not associated with our project. AES
Ironwood, Inc. owns all of the ownership interests in our company and AES
Prescott and, under the pledge agreement, AES Ironwood, Inc. has pledged to the
collateral agent all of its ownership interests in our company.
AES Prescott, L.L.C.. AES Prescott is a Delaware limited liability
company and wholly-owned subsidiary of AES Ironwood, Inc. and was established on
October 30, 1998. We have entered into the operations agreement with AES
Prescott under which AES Prescott will manage the development and construction
of and will operate and maintain our facility. Minimum amounts payable under the
operations agreement during the construction period are $125,000 per month. Once
commercial operation is achieved, payments for operation management services
will be approximately $400,000 per quarter. The direct labor personnel and the
plant operations management will be provided to AES Prescott by The AES
Corporation under the services agreement entered into by AES Prescott and The
AES Corporation.
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SUMMARY OF PRINCIPAL PROJECT CONTRACTS
The following chart sets forth the parties to our project contracts and
each such contract is described in more detail below:
- --------------------
Guaranty ------|
- -------------------- |
The Williams |
Companies, Inc. |
- -------------------- |
| |
| |
| |
| | --------------------
- -------------------- | |------ Operations
Power Purchase | | Agreement
Agreement | | --------------------
- -------------------- | | AES Prescott,
Williams Energy | | L.L.C.
Marketing & ----| | | --------------------
Trading Company | | |
- -------------------- | | |
| | |
| | |
- -------------------- -------------------- --------------------
Construction ---- AES Ironwood, ---- Interconnection
Contract L.L.C. Agreement
- -------------------- -------------------- --------------------
Siemens | | | Metropolitan
Westinghouse | | | Edison
Power Corporation | | | Company
- -------------------- | | | --------------------
| | | |
| | | |
| | | |
| | | |
- -------------------- | | | --------------------
Maintenance | | | Effluent Supply
Services Agreement | | | Agreement
- -------------------- | | | --------------------
Siemens | | | City of
Westinghouse ----| | |------ Lebanon
Power Corporation | | Authority
- -------------------- | | --------------------
| | |
| | |
| | |
| | |
- -------------------- | | --------------------
Guaranty | | Real Estate
- -------------------- | | Agreements
Siemens | | --------------------
Corporation ------| |------ Pennsy Supply, Inc.
- -------------------- --------------------
The following summaries contain the material terms of the principal
project contracts. All capitalized terms used in the following summaries and not
otherwise defined in this prospectus have the meanings given such terms in Annex
A to this prospectus.
Power Purchase Agreement
We have entered into an Amended and Restated Power Purchase Agreement,
dated as of February 5, 1999, with Williams Energy for the sale to Williams
Energy of all of the electric energy and capacity produced by our facility as
well as ancillary services and fuel conversion services.
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Term
The term of the power purchase agreement extends for 20 years after the
first contract anniversary date, which is the last day in the month in which the
commercial operation date occurs. The commercial operation date occurs when
o the Initial Start-Up Testing of our facility has been
successfully completed,
o we have received all approvals from PJM Interconnection, L.L.C.,
which is the independent system operator that operates the
Transmission System to which our facility will interconnect, and
o we have obtained all required permits and authorizations for
operation of our facility.
If the commercial operation date has not occurred by June 30, 2001 for
any reason, including the continued existence of or delay caused by a force
majeure event affecting us, other than any delay caused by any act or failure to
act by Williams Energy or any of its affiliates where such action is required
under the power purchase agreement, Williams Energy shall have the right to
terminate the power purchase agreement; provided, that we can extend the
commercial operation date to December 31, 2001 by exercising either the Free
Extension Option or the First Paid Extension Option.
If we qualify for the Free Extension Option or elect the First Paid
Extension Option, if the commercial operation date has not occurred by
the Final CO Date for any reason, other than as a result of a delay in
exercising an interconnection agreement or any act or failure to act by Williams
Energy or any of its affiliates, where such action is required under the power
purchase agreement, Williams Energy shall have the right to terminate the power
purchase agreement; provided, that we can extend the Final CO Date to and
including December 31, 2002 by exercising the Second Paid Extension Option.
If we elect the Second Paid Extension Option and the commercial
operation date does not occur by December 31, 2002 for any reason whatsoever,
including the continued existence of or delay caused by a force majeure event
affecting us, other than as a result of a delay in exercising an interconnection
agreement or any act or failure to act by Williams Energy or any of its
affiliates where such action is required under the power purchase agreement,
Williams Energy shall have the absolute right to terminate the power purchase
agreement.
Purchase and Sale of Capacity and Services
During the term, commencing with the commercial operation date, we
shall sell and make available to Williams Energy on an exclusive basis, and
Williams Energy shall purchase and pay for, our facility's net capacity and
ancillary services.
In addition, during the term, commencing with the commercial operation
date, we shall perform for Williams Energy on an exclusive basis, and Williams
Energy shall purchase and pay for, fuel conversion services.
Fuel Conversion and Other Services
As instructed by us, Williams Energy shall deliver or cause to be
delivered to us at the Gas Delivery Point and Oil Delivery Point on an exclusive
basis all quantities of natural gas and fuel oil, respectively, as we required:
o to generate Net Electric Energy and/or ancillary services,
o to perform Start-Ups,
o to perform Shutdowns, and
o to operate our facility during any period other than a Start-Up,
Shutdown or Dispatch Period for any reason.
Williams Energy shall be responsible for the construction of all Gas
Interconnection Facilities. If such Gas Interconnection Facilities have not been
constructed and/or Williams Energy is unable for any reason to deliver natural
gas to our facility by the date that our facility would otherwise be prepared to
begin Initial Start-Up Testing, and but for the failure to provide such natural
gas our facility is otherwise ready, or would otherwise have been ready, to
begin such testing, then Williams Energy shall commence making payments to us
for each day of such delay beginning on the Start-Up Testing Date and continuing
until the date that natural gas is delivered to our facility for Initial
Start-Up Testing, in an amount for each such day of delay which is equal to
one-thirtieth of the applicable total fixed payment. Upon the expiration of the
power purchase agreement or any termination of the power purchase agreement as
the result of Williams Energy's default, we shall have the right to purchase the
Gas Interconnection Facilities from Williams Energy, or if
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Williams Energy does not own such Gas Interconnection Facilities, Williams
Energy shall assign to us all of its rights to transportation services using
such Gas Interconnection Facilities.
Williams Energy shall be responsible for the cost of procurement and
installation of the Oil Metering Equipment. Williams Energy shall be solely
responsible for all costs and expenses related to the supply and transportation
of natural gas and fuel oil to the Gas Delivery Point and Oil Delivery Point,
respectively. We shall be responsible for all costs and expenses related to the
transportation of natural gas and fuel oil at and from the Gas Delivery Point
and Oil Delivery Point to our facility. At our request, instead of delivering
fuel oil to the applicable Oil Delivery Point, Williams Energy shall deliver or
cause to be delivered such quantities of fuel oil as requested to any off-site
storage facility approved by Williams Energy and delivery to that site shall be
deemed delivery to the Oil Delivery Point. We shall be responsible for all costs
and expenses related to the transportation of such fuel oil from the off-site
storage facility to our facility.
We shall be responsible for the installation, operation and maintenance
at the facility site, at our sole cost and expense, of fuel oil storage tank(s)
capable of storing a volume of usable fuel oil sufficient to operate our
facility at maximum facility capacity output for two continuous days. We shall
not be obligated to operate our facility on fuel oil for more than an operating
hour equivalent that is consistent with our air permit.
Pricing and Payments
For each month of the term after the commercial operation date,
Williams Energy shall pay us for our facility's net capacity, successful
Start-Ups and associated Shutdowns, ancillary services and fuel conversion
services at the applicable rates set forth in the power purchase agreement. Each
monthly payment by Williams Energy will consist of a total fixed payment, a fuel
conversion payment and a start-up payment. The total fixed payment, which is
payable regardless of facility dispatch by Williams Energy but is subject to
adjustment based on facility availability, is calculated by multiplying a fixed
capacity rate for each contract year by our facility's net capacity in the
billing month and is anticipated to be sufficient to cover our debt service and
fixed operating and maintenance costs and to provide us a return on equity. The
fuel conversion payment is intended to cover our variable operating and
maintenance costs and escalates annually based on an escalation index set forth
in the power purchase agreement. In addition, we may receive heat rate bonuses
or be required to pay heat rate penalties.
Prior to the commercial operation date, and during specific facility
tests thereafter, we will purchase natural gas from Williams Energy. Williams
Energy will sell to us the natural gas at prices specified in the power purchase
agreement, and we will sell to Williams Energy at the Electric Delivery Point
any Net Electric Energy produced during such periods at 90% of the Energy Market
Clearing Price.
Williams Energy shall be entitled to an annual fuel conversion volume
rebate if its dispatch of our facility exceeds specified levels and specified
monthly non-dispatch payments if, under specific circumstances, our facility is
not available for dispatch. All fuel conversion volume rebate payments and
non-dispatch payments shall be made to Williams Energy after debt service and
specified other payments but prior to any distribution to holders of the equity
interests in our company. Fuel conversion volume rebate payments shall be paid
to Williams Energy within 30 days after the end of the contract year in which
such payments have been earned and non-dispatch payments shall be paid to
Williams Energy within 20 days after the end of the month on which a payment
obligation arises. Fuel conversion volume rebate payments and any non-dispatch
payments owed to Williams Energy and not paid when due shall be paid, together
with interest, when funds become available to us at the priority level described
above.
Project Development
Our facility shall be located at the facility site; provided, that if
we are unable to obtain all required permits and approvals for such site within
one year after the execution date of the power purchase agreement, the parties
shall in good faith seek to identify a mutually agreeable alternative site
within the PJM power pool market to be acquired by us as a location for our
facility; provided, further, that if such alternate site is not agreed to by the
parties within an additional one-year period, the power purchase agreement will
terminate with no further liability to either party.
We shall provide to Williams Energy within 10 days after the completion
of Initial Start-Up Testing, pertinent written data substantiating our
facility's capability to provide net capacity.
We shall, at our own cost and expense, obtain as and when required all
approvals, permits, licenses and other authorizations from governmental
authorities as may be required to construct, operate and maintain our facility,
the Interconnection Facilities and Protective Gas Apparatus and to perform our
obligations under the power purchase
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<PAGE>
agreement, and during the term, we shall obtain all such additional governmental
approvals, permits, licenses and authorizations as may be required with respect
to our facility as soon as practicable.
Initial Start-Up Testing; Commercial Operation
We shall provide to Williams Energy (1) written notice, at least 30
days in advance, of the expected commercial operation date and (2) a copy of the
notice of commercial operation within five days after the commercial operation
date. Williams Energy shall have the right to be present at Initial Start-Up
Testing of our facility.
Interconnection and Metering Equipment
At our sole cost and expense, we shall own and design, construct,
install and maintain, or be responsible for the design, construction,
installation and maintenance of our facility, the Interconnection Facilities and
Protective Gas Apparatus needed to generate and deliver Net Electric Energy
and/or ancillary services to the Electric Delivery Point in order to fulfill our
obligations under the power purchase agreement, including all Interconnection
Facilities and Protective Gas Apparatus that may be located at any switchyard
and/or substation to be built at our facility. Our facility, the Interconnection
Facilities and Protective Gas Apparatus shall be designed, constructed and
completed in a good and workmanlike manner and in accordance with accepted
electrical practices, with respect to our facility and Interconnection
Facilities, or in accordance with standard gas industry practices, with respect
to Protective Gas Apparatus, such that the expected useful life of our facility,
the Interconnection Facilities and Protective Gas Apparatus shall be not less
than the term of the power purchase agreement.
We shall be solely responsible for the negotiation and execution of the
interconnection agreement with Metropolitan Edison under which Metropolitan
Edison will own and be responsible for the Electric Metering Equipment and the
design, installation, construction and maintenance of the electrical facilities
and protective apparatus, including any transmission equipment and related
facilities, necessary to interconnect Metropolitan Edison's electrical system
with our facility at the Electric Delivery Point. Williams Energy shall
reimburse us for the reasonable Metropolitan Edison costs (i.e., transmission
facility upgrades, Metropolitan Edison protective apparatus and other equipment,
Metropolitan Edison electric meters, and Metropolitan Edison costs for PJM
and other required interconnection-related studies) incurred, or to be
reimbursed, by us under the interconnection agreement up to a maximum amount
which is in excess of the costs anticipated to be incurred by us under the
interconnection agreement.
Williams Energy shall be responsible for the installation, maintenance
and testing of the Gas Metering Equipment, to the extent not otherwise
installed, maintained and tested by the supplier of gas transportation services,
and Oil Metering Equipment, as reasonably approved by us.
All Electric Metering Equipment, Gas Metering Equipment and Oil
Metering Equipment, whether owned by us or by a third party, shall be operated,
maintained and tested in accordance with accepted electrical practices, in the
case of the Electric Metering Equipment, and in accordance with applicable
industry standards, in the case of the Gas Metering Equipment and Oil Metering
Equipment.
Operation; Dispatch
Our facility, the Interconnection Facilities and the Protective Gas
Apparatus shall be operated in accordance with accepted electrical practices and
applicable requirements and guidelines reasonably adopted by Metropolitan Edison
from time to time and applied consistently to Metropolitan Edison's electric
generating facilities, with respect to our facility and Interconnection
Facilities, or in accordance with standard gas industry practices, with respect
to Protective Gas Apparatus. If a conflict between the terms and conditions of
the power purchase agreement and Metropolitan Edison requirements, Metropolitan
Edison requirements shall control.
We shall operate our facility in parallel with Metropolitan Edison's
electrical system with governor control and the Net Electric Energy to be
delivered by us under the power purchase agreement shall be three-phase, 60
hertz, alternating current at a nominal voltage acceptable to Metropolitan
Edison at the Electric Delivery Point, shall not adversely affect the voltage,
frequency, waveshape or Power Factor of power at the Electric Delivery Point and
shall be delivered to the Electric Delivery Point in a manner acceptable to
Metropolitan Edison.
The power purchase agreement acknowledges that Metropolitan Edison has
the right to require us to disconnect our facility from Metropolitan Edison's
electrical system, or otherwise curtail, interrupt or reduce deliveries of Net
Electric Energy, for specific safety or emergency reasons. If our facility has
been disconnected for such reasons, Williams Energy shall continue to be
obligated to make total fixed payments for at least 24 hours after the
occurrence of such disconnection of our facility by Metropolitan Edison.
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<PAGE>
We shall use commercially reasonable efforts to promptly correct any
condition at our facility which necessitates the disconnection of our facility
from Metropolitan Edison's electrical system or the reduction, curtailment or
interruption of electrical output of our facility.
Williams Energy shall have the exclusive right to schedule the
operation of our facility or a unit in accordance with the provisions of the
power purchase agreement; provided, however, that such scheduling shall be
consistent with the design limitations of our facility, applicable law,
regulations and permits, and manufacturers' reasonable recommendations for
operating limits with respect to our facility and major components.
During Initial Start-Up Testing and up to two times each year
thereafter, we shall demonstrate, in accordance with the then-applicable
criteria of PJM, applicable generally to independent power and Metropolitan
Edison generating facilities in PJM of similar technology, the capability of our
facility to produce and maintain, as required for such demonstration, our
facility's net capacity.
Maintenance
At all times during the term of the power purchase agreement, we shall,
at our sole cost and expense, maintain our facility, the Protective Gas
Apparatus, and, consistent with the terms of the interconnection agreement, the
Interconnection Facilities. Maintenance shall be performed in accordance with
accepted electrical practices, with respect to our facility and Interconnection
Facilities, or in accordance with standard gas industry practices, with respect
to Protective Gas Apparatus, and manufacturers' recommended maintenance
procedures and in accordance with the maintenance provisions of the power
purchase agreement.
Metering, Billing, Payment and Taxes
Net Electric Energy delivered by us to Williams Energy shall be metered
at the Electric Delivery Point, using Metropolitan Edison's Electric Metering
Equipment on an hour-by-hour basis, or such shorter intervals as may be
necessary to implement the power purchase agreement, are technically feasible
using such metering equipment, and are agreed to by Metropolitan Edison.
We shall provide to Williams Energy a monthly statement using
Metropolitan Edison's meters, or back-up Electric Metering Equipment installed
by us if Metropolitan Edison's electric meters are not functional. Such
statement shall set forth the amount of Net Electric Energy delivered by us to
Williams Energy in each hour and the computation of the amount due from Williams
Energy to us and such other amounts as may then be due and payable by Williams
Energy to us. Williams Energy shall pay us the net amount shown to be due to us
on the monthly statement.
Except as otherwise specified in the power purchase agreement, each
party shall have the right to set off against any and all amounts owed by it
under the power purchase agreement past due amounts owed to it under the power
purchase agreement by the other party.
The payments by Williams Energy to us do not include reimbursement for,
and Williams Energy is liable for and shall pay, cause to be paid, or reimburse
us if we have paid, all taxes imposed on or with respect to natural gas or fuel
oil or the use or consumption or transportation, other than any of such taxes
for which we are liable as described in the following paragraph or on Net
Electric Energy or the use and consumption thereof after the Electric Delivery
Point. Williams Energy shall indemnify, defend and hold us harmless from any
liability for such taxes.
Except as provided in the previous paragraph and except for specified
taxes that may be imposed in the future, the payments by Williams Energy to us
include full reimbursement for, and we shall be liable for and shall pay, or
cause to be paid, or reimburse Williams Energy if Williams Energy has paid, all
taxes. If Williams Energy is required to remit any tax for which we are
responsible, the amount shall be deducted from any sums due to us. We shall
indemnify, defend and hold harmless Williams Energy from any liability for such
taxes.
Dispute Resolution
If the parties are in dispute with respect to specified matters
relating to the term, Gas Interconnection Facilities, maintenance and billing
and metering, and they do not resolve the dispute within seven days of notifying
the other party in writing of the existence of such dispute, a committee
consisting of two officers of each party shall meet and attempt in good faith to
resolve such dispute. If such committee does not resolve the dispute within
seven days following their initial meeting, then a single third-party engineer
shall be designated to consider and decide the issues raised by such dispute
unless both parties determine that further discussions by the committee are
merited. The selection of such third-party engineer shall be made from the list
of engineers set forth in the power purchase agreement.
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Each party shall designate in writing to the other party from time to
time a representative who shall be authorized to resolve any dispute relating to
the subject matter of the power purchase agreement not referred to in the
preceding paragraph.
If any dispute is not resolved between the parties within 30 days from
the date on which a party provided to the other party a written notice of such
dispute, then such dispute shall be settled exclusively and finally by
arbitration in accordance with the procedures described in the power purchase
agreement, except for disputes described in the second preceding paragraph.
The dispute resolution provisions of the power purchase agreement shall
survive the termination or expiration of the power purchase agreement.
Insurance
We shall keep our facility continuously insured against loss or damage
in the amounts and for the risks that property of similar character is usually
so insured by entities owning and operating like properties.
We and the operator of our facility shall each procure or cause to be
procured and shall maintain in effect continuously during the term of the power
purchase agreement minimum insurance coverage for our facility: workers'
compensation; employer's liability; commercial general liability; bodily injury;
property damage; blanket contractual; underground, explosion and collapse
hazard; products and completed operations hazard; broad form property damage;
personal injury; automobile liability, bodily injury and property damage; and
commercial umbrella liability.
We shall procure and maintain in effect continuously during the term of
the power purchase agreement, "all risk" property insurance in sufficient
amounts to cover and otherwise insure for the full replacement cost of our
facility and business interruption insurance covering 100% of our continuing
fixed operating expenses and debt service for a period of at least 12 months
arising from any loss insured against by our "all risk" property insurance.
Force Majeure
A party shall be excused from performing its obligations under the
power purchase agreement and shall not be liable in damages or otherwise to the
other party if and to the extent such party declares that it is unable to
perform or is prevented from performing an obligation under the power purchase
agreement by a force majeure condition, except for any obligations and/or
liabilities under the power purchase agreement to pay money, which shall not be
excused, and except to the extent an obligation accrues prior to the occurrence
or existence of a force majeure condition; provided, that:
o the party declaring its inability to perform by virtue of force
majeure, as promptly as practicable after the occurrence of the
force majeure condition, but in no event more than five days
later, gives the other party written notice describing, in
detail, the nature, extent and expected duration of the force
majeure condition;
o the suspension of performance is of no greater scope and of no
longer duration than is reasonably required by the force majeure
condition;
o the party declaring force majeure uses all commercially
reasonable efforts to remedy its inability to perform; and
o as soon as the party declaring force majeure is able to resume
performance of its obligations excused as a result of the force
majeure condition, it promptly shall give written notice to the
other party.
Irrespective of whether the force majeure condition is declared by
Williams Energy or us, the time period of a force majeure shall be excluded from
the calculation of all payments under the power purchase agreement and Williams
Energy shall be under no obligation to pay us any of the payments described in
the power purchase agreement; provided, that:
o if Williams Energy declares a force majeure, it shall, subject
to its right to terminate the power purchase agreement if such
force majeure has not been fully corrected or alleviated within
18 months of such declaration, continue to pay us only the
applicable monthly total fixed payment as described in the power
purchase agreement until the earlier of (1) the termination of
the force majeure condition or (2) the termination of the power
purchase agreement; and
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o if we declare a force majeure due to an action or inaction of
Metropolitan Edison that prevents us from delivering Net
Electric Energy to the Electric Delivery Point, Williams Energy
shall continue to pay the applicable portion of the total fixed
payment for the first 24 hours of such period.
Notwithstanding anything to the contrary contained in the power
purchase agreement, except as may expressly be provided in the power purchase
agreement, the term force majeure shall not include the following nor will the
following excuse a party's performance:
o The failure to complete our facility by or to achieve the
commercial operation date as extended under the power purchase
agreement, which failure is caused by, arises out of or results
from the acts or omissions of us, and/or from the acts or
omissions of any third party, unless, and then only to the
extent that, any such acts or omissions of such third party (1)
would itself be excused under the power purchase agreement by
virtue of a force majeure condition, or (2) is the result of a
failure of Williams Energy to provide fuel to our facility under
the power purchase agreement;
o Any reduction, curtailment or interruption of generation or
operation of our facility, or of the ability of Williams Energy
to accept or transmit Net Electric Energy, whether in whole or
in part, which reduction, curtailment or interruption is caused
by or arises from the acts or omissions of any third party
providing services or supplies to the party claiming force
majeure, including any vendor or supplier to either party of
materials, equipment, supplies or services, or any inability of
Metropolitan Edison to deliver Net Electric Energy to Williams
Energy, unless, and then only to the extent that, any such acts
or omissions would itself be excused under the power purchase
agreement as a force majeure;
o Any outage, whether or not due to the fault or negligence of us,
of our facility attributable to a defect or inadequacy in the
manufacture, design or installation of our facility that
prevents, curtails, interrupts or reduces the ability of our
facility to generate Net Electric Energy or the ability of us to
perform our obligations under the power purchase agreement; or
o To the extent that the party claiming force majeure failed to
prevent or remedy the force majeure condition by taking all
commercially reasonable acts, short of litigation if such remedy
requires litigation, and, except as otherwise provided in the
power purchase agreement, failed to resume performance under the
power purchase agreement with reasonable dispatch after the
termination of the force majeure condition; or
o To the extent that the claiming party's failure to perform was
caused by lack of funds; or
o To the extent Williams Energy is unable to perform due to a
shortage of natural gas or fuel oil supply not caused by an
event of force majeure; or
o Because of an increase or decrease in the market price of
electric energy/capacity, natural gas or fuel oil, or because it
is uneconomic for such party to perform its obligations under
the power purchase agreement.
Neither party shall be required to settle any strike, walkout, lockout
or other labor dispute on terms which, in the sole judgment of the party
involved in the dispute, are contrary to its interest.
Williams Energy shall have the right to terminate the power purchase
agreement if a force majeure has been declared by us and the effect of such
force majeure has not been fully corrected or alleviated within 18 months after
the date such force majeure was declared; provided, however, that Williams
Energy shall not have the right to terminate the power purchase agreement if (1)
the force majeure was caused by Williams Energy or (2) the force majeure event
does not prevent or materially limit Williams Energy's ability to sell our
facility's net capacity into or through the PJM power pool market or to a third
party.
Events of Default; Termination; Remedies
The following shall constitute events of default under the power
purchase agreement:
o breach of any term or condition of the power purchase agreement,
including, but not limited to, (1) any failure to maintain or to
renew any security, (2) any breach of a representation, warranty
or covenant or (3) failure of either party to make a required
payment to the other party;
o our facility is not available to provide fuel conversion
services to Williams Energy during any period of 180 consecutive
days after the commercial operation date, except as may be
excused by force majeure or the
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absence of available natural gas, or if such non-availability is
caused by act or failure by Williams Energy where such action is
required by the power purchase agreement;
o we sell or supply Net Electric Energy, ancillary services or
capacity from our facility, or agree to do the same, to any
person or entity other than Williams Energy, without the prior
approval of Williams Energy;
o failure by us for 30 consecutive days to perform regular and
required maintenance, testing or inspection of the
Interconnection Facilities, our facility and/or other electric
equipment and facilities;
o failure by us for 30 consecutive days to correct or resolve a
material violation of any code, regulation and/or statute
applicable to the construction, installation, operation or
maintenance of our facility, the Interconnection Facilities,
Protective Gas Apparatus or any other electric equipment and
facilities required to be constructed and operated under the
power purchase agreement when such violation impairs our
continued ability to perform under the power purchase agreement;
o involuntary bankruptcy or insolvency of either party and
continues for more than 60 days;
o voluntary bankruptcy or insolvency by either party;
o any modifications, alterations or other changes to our facility
by or on behalf of us which prevent us from fulfilling, or
materially diminishes our ability to fulfill, our obligations,
duties, rights and responsibilities under the power purchase
agreement and which after reasonable notice and opportunity to
cure, are not corrected;
o there shall be outstanding for more than 60 days any unsatisfied
final, non-appealable judgment against us in an amount exceeding
$500,000, unless the existence of such unsatisfied judgment
shall not materially affect our ability to perform our
obligations under the power purchase agreement; and
o we shall cease to own, directly or indirectly, beneficially and
of record, at least 50 percent of the equity interests in our
company or shall cease to possess the power to direct or cause
the direction of our management or policies or any person, other
than The AES Corporation or an affiliate, authorized to act as a
power marketer by FERC or any affiliate of such person shall
own, directly or indirectly, beneficially or of record, any of
the equity interests in our company.
Upon the occurrence of any event of default, other than an event of
default for voluntary bankruptcy or insolvency, for which no notice shall be
required or opportunity to cure permitted, the party not in default, to the
extent such party has actual knowledge of the occurrence of such event of
default, shall give prompt written notice of the default to the defaulting
party. Such notice shall set forth, in reasonable detail, the nature of the
default and, where known and applicable, the steps necessary to cure such
default. The defaulting party shall have 30 days, but only two business days in
the case of a default for failure to make a requested payment to the
non-defaulting party under the power purchase agreement, following receipt of
such notice either to cure such default or commence in good faith all such steps
as are necessary and appropriate to cure such default if such default cannot be
completely cured within such 30-day period.
If the defaulting party fails to cure such default or take such steps
as provided under the preceding paragraph, and immediately upon the occurrence
of any event of default for voluntary bankruptcy or insolvency, the power
purchase agreement may be terminated by the non-defaulting party, without any
liability or responsibility whatsoever, by written notice to the party in
default. The power purchase agreement shall terminate and the non-defaulting
party may exercise all such rights and remedies as are available to it to
recover damages caused by such default.
Security
We agreed to compensate Williams Energy for any actual damages it
suffers or incurs as the result of its reliance upon the delivery of our
facility's net capacity, ancillary services and fuel conversion services, to the
extent such damages cannot be mitigated fully. We further agreed that the
damages Williams Energy may suffer under these circumstances will be any and all
reasonable costs incurred by Williams Energy in excess of costs that would have
been incurred had the commercial operation date occurred on or before June 30,
2001, as such date may be extended under the power purchase agreement.
As required by the power purchase agreement, we have provided to
Williams Energy a guaranty of our performance and payment obligations under the
power purchase agreement from The AES Corporation in the amount of $30 million,
which guaranty shall terminate on the commercial operation date. At any time
that The AES Corporation's senior unsecured debt is no longer rated investment
grade by Standard & Poor's or Moody's, or at any time at our option,
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we shall provide such financial security for the guaranty amount as specified in
the following paragraph. Upon the provision of the guaranty or other financial
security referred to in this paragraph, the guaranty provided by The AES
Corporation under the provisions of the original power purchase agreement shall
be canceled and returned to us.
We shall provide to Williams Energy, within 30 days after a reduction
in the unsecured debt rating of The AES Corporation as described above, or at
any time if payment is so secured at our option, security in the form of a
single letter of credit, satisfactory to Williams Energy in form and substance,
upon which Williams Energy may draw if our facility does not achieve the
commercial operation date by the date specified in the power purchase agreement,
as such date may be extended. If such security contains an expiration date,
either express or implied, we shall renew such security not later than 30 days
prior to such expiration date and shall contemporaneously provide written notice
of such renewal to Williams Energy. If we fail to renew such security as set
forth above, Williams Energy is entitled to demand and receive payment
thereunder on or after three days after written notice of such failure is
provided to us, and in such event the amount so drawn shall be deposited in an
interest bearing escrow account and shall be returned to us at the commercial
operation date unless otherwise drawn on by Williams Energy in satisfaction of
our obligations under the preceding security provisions. The requirement for
such security shall terminate upon the commercial operation date.
Williams Energy has provided to us a guarantee, issued by The Williams
Companies, Inc., of Williams Energy's performance and payment obligations under
the power purchase agreement; provided, that if The Williams Companies, Inc. is
no longer rated investment grade the guarantee shall, within 30 days after the
loss of such rating, be replaced by a guarantee from another affiliate of
Williams Energy that is rated investment grade or by other security acceptable
to us, including a letter of credit which meets the requirements of the power
purchase agreement.
Assignment
Generally, neither the power purchase agreement nor any rights, duties,
interests or obligations thereunder may be assigned, transferred, pledged or
otherwise encumbered or disposed of, by operation of law or otherwise without
the prior written consent of the other party.
We agreed that we will not sell, transfer, assign, lease or otherwise
dispose of our facility or any substantial portion thereof or interest therein
necessary to perform our obligations under the power purchase agreement to any
person that is a FERC-authorized power marketer or an affiliate without the
prior written consent of Williams Energy, which consent shall not be
unreasonably withheld.
Construction Agreement
We, as assignee of AES Ironwood, Inc., have entered into an Agreement
for Engineering, Procurement and Construction Services, dated as of September
23, 1998, as amended, with Siemens Westinghouse for Siemens Westinghouse to
perform services in connection with the design, engineering, procurement, site
preparation and clearing, civil works, construction, start-up, training and
testing and to provide all materials and equipment (excluding operational spare
parts), machinery, tools, construction fuels, chemicals and utilities, labor,
transportation, administration and other services and items (collectively and
separately, the "Services") for our facility.
Siemens Westinghouse's Services and Other Obligations
Siemens Westinghouse shall complete our project by performing or
causing to be performed all of the Services. The Services shall include:
engineering and design; construction and construction management; providing
design documents, instruction manuals, a project procedures manual and quality
assurance plan; procurement of all materials, equipment and supplies and all
contractor and subcontractor labor and manufacturing and related services;
providing a spare parts list; providing all labor and personnel; obtaining some
applicable permits and providing information to assist us in obtaining other
applicable permits; performing inspection, expediting, quality surveillance and
traffic services; transporting, shipping, receiving and marshalling all
materials, equipment and supplies and other items; providing storage for all
materials, supplies and equipment and procurement or disposal of all soil and
gravel (including remediation and disposal of specific hazardous materials);
providing for design, construction and installation of Electrical
Interconnection Facilities (including Electric Metering Equipment, automatic
regulation equipment, Protective Apparatus and control system equipment) and
reviewing other Metropolitan Edison interconnections to our facility (including
gas and water pipelines); performing Performance Tests and Power Purchase
Agreement Output Tests; providing for start-up and initial operation functions;
providing specified spare parts, waste disposal services, chemicals, consumables
and utilities.
The Services shall also include: training our personnel prior to
Provisional Acceptance; providing us and our designee with access to the
facility site; obtaining additional necessary real estate rights; clean-up and
waste disposal
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(including hazardous materials brought to the facility site by Siemens
Westinghouse or the subcontractors); submitting a construction schedule and
progress reports; payment of contractor taxes; employee identification and
security arrangements; protecting adjoining utilities and public and private
lands from damage; paying appropriate royalties and license fees; providing
final releases and waivers to us; posting collateral or providing other
assurances if major subcontractors fail to furnish final waivers; maintaining
labor relations and project labor agreements; providing further assurances;
coordinating with other contractors; and causing Siemens Corporation to execute
and deliver the related guaranty.
Construction and Start-Up
Except for specific Services the performance of which has already
commenced, Siemens Westinghouse shall commence performance of the Services on
the date specified in our notice to proceed. Siemens Westinghouse shall perform
the Services in accordance with prudent utility practices, generally accepted
standards of professional care, skill, diligence and competence applicable to
engineering, construction and project management practices, all applicable laws,
all applicable permits, the real estate rights, the quality assurance plan,
Metropolitan Edison electrical interconnection requirements, the environmental
requirements and safety precautions set forth in the construction agreement, and
all of the requirements necessary to maintain the warranties granted by the
subcontractors under the construction agreement. Siemens Westinghouse shall
perform the Services in accordance with our construction schedule and shall
cause
o each Construction Progress Milestone to be achieved on or prior
to the applicable Construction Progress Milestone Date,
o either Provisional Acceptance or Interim Acceptance of our
facility to occur on or prior to the Guaranteed Provisional
Acceptance Date and
o Final Acceptance of our facility to occur on or before the
Guaranteed Final Acceptance Date.
Siemens Westinghouse shall perform the Services such that our facility,
when operated in accordance with the instruction manual and the Power Purchase
Agreement Operating Requirements, regardless of whether our facility is operated
at 705 megawatts or at a different output, on natural gas and on fuel oil,
respectively, as of Provisional Acceptance, Interim Acceptance and Final
Acceptance, will comply with all applicable laws and applicable permits,
Metropolitan Edison electrical interconnection requirements and the Guaranteed
Emissions Limits in accordance with the Completed Performance Test requirements.
Contract Price and Payment
The adjusted contract price, including base Scope Changes through the
date of the construction agreement, is $238 million and commencing on the
construction commencement date is to be paid in installments in accordance with
the Payment and Milestone Schedule. The contract price may be adjusted as a
result of Scope Changes. We shall make scheduled payments to Siemens
Westinghouse upon receipt of Siemens Westinghouse's payment request unless the
independent engineer fails to confirm the matters certified to by Siemens
Westinghouse in such request, in which case we may defer such scheduled payments
until such condition is satisfied. We shall withhold from each scheduled payment
5%, other than our project completion payment, of such payment until after Final
Acceptance. At Final Acceptance, we shall pay all Retainage except for
$1,000,000 and 150% of the cost of completing all Punch List items. We shall pay
our project completion payment, including all remaining Retainage within 30 days
after Project Completion. Upon the termination of the construction agreement,
Siemens Westinghouse shall be entitled to a termination payment equal to the
scheduled payments due and owing, Retainage and termination costs incurred by
Siemens Westinghouse and subcontractors. We are not obligated to make any
payment to Siemens Westinghouse at any time Siemens Westinghouse is in material
breach of the construction agreement, unless Siemens Westinghouse is diligently
pursuing a cure. All payments are subject to release of claims.
Our Required Services
Our responsibilities include: designating a representative for our
project; furnishing Siemens Westinghouse access to the facility site; securing
specified applicable permits and real estate rights; providing specified
start-up personnel; furnishing water, water delivery facilities, specified spare
parts, water disposal services and consumables; providing permanent utilities
for the start-up, testing and operation of our facility; providing fuel supply
arrangements; providing electrical interconnection facilities arrangements;
furnishing approvals; administering third-party contracts; causing The AES
Corporation to provide a pre-financial closing guaranty.
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If we fail to meet any of our obligations under the construction
agreement, then, to the extent that Siemens Westinghouse was reasonably delayed
in the performance of the Services as a direct result thereof, an equitable
adjustment to one or more of the contract price, the Guaranteed Completion
Dates, the Construction Progress Milestone Dates, the Payment and Milestone
Schedule and our construction schedule, and, as appropriate, such other
provisions of the construction agreement that may be affected thereby, shall be
made by agreement between us and Siemens Westinghouse.
Completion and Acceptance of our Project
Mechanical Completion
Mechanical Completion shall be achieved when:
o All equipment and facilities necessary for the full, safe and
reliable operation of our facility have been properly
constructed, installed, insulated and protected where required,
and correctly adjusted, and can be safely used for their
intended purposes in accordance with the instruction manual and
all applicable laws and applicable permits;
o The tests required for Mechanical Completion that are identified
in the construction agreement have been successfully completed;
o Our facility is fully and properly interconnected and
synchronized with the electrical system of Metropolitan Edison
in accordance with Metropolitan Edison electrical
interconnection requirements, and all features and equipment of
our facility are capable of operating simultaneously; and
o The complete performance by Siemens Westinghouse of all the
Services relating to our facility under the construction
agreement, except for any remaining Punch List items,
Performance Tests, Power Purchase Agreement Output Tests and
Reliability Run, in compliance with the standards of performance
set forth in the construction agreement, such that our facility
meets all of the applicable requirements set forth in the
construction agreement but excluding the achievement of the
Guaranteed Emission Limits and the Performance Guarantees.
When Siemens Westinghouse believes that it has achieved Mechanical
Completion, it shall deliver to us the Notice of Mechanical Completion. Within
10 days of receipt of the Notice of Mechanical Completion, if it is satisfied
that the Mechanical Completion requirements have been met, we shall deliver to
Siemens Westinghouse a Mechanical Completion Certificate. If reasonable cause
exists for doing so, we shall notify Siemens Westinghouse in writing that
Mechanical Completion has not been achieved, stating the reasons therefor. If
Mechanical Completion has not been achieved as so determined by us, Siemens
Westinghouse shall promptly take such action or perform such additional Services
as will achieve Mechanical Completion of our facility and shall issue to us
another Notice of Mechanical Completion. Such procedure shall be repeated as
necessary until Mechanical Completion of our facility has been achieved.
Performance Tests and Power Purchase Agreement Output Tests
Once Mechanical Completion has been achieved, Siemens Westinghouse
shall perform the Performance Tests and Power Purchase Agreement Output Tests in
accordance with criteria set forth in the construction agreement. Siemens
Westinghouse shall give us notice of the Performance Tests and Power Purchase
Agreement Output Tests. We shall arrange for the disposition of output during
start-up and testing. Siemens Westinghouse may declare the Performance Test or
the Power Purchase Agreement Output Test to be a Completed Performance Test or a
Completed Power Purchase Agreement Output Test, respectively, if during such
tests the operation of our facility complies with applicable laws, applicable
permits, Guaranteed Emissions Limits and other required standards.
Provisional Acceptance
Provisional Acceptance shall be achieved when:
o Siemens Westinghouse has concluded a Completed Performance Test
in which our facility, while operating on natural gas,
demonstrates during a minimum of two 2-hour tests an average net
electrical output and a net heat rate of 95% (or higher) of the
natural gas-based Electrical Output Guarantee and 108% (or
lower) of the natural gas-based Heat Rate Guarantee;
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o Siemens Westinghouse has concluded a Completed Power Purchase
Agreement Output Test in which our facility demonstrates (1) a
level of achievement of 95% (or higher) of the natural gas-based
Electrical Output Guarantee, while operating on natural gas, and
(2) to our reasonable satisfaction, the other capabilities
required to be demonstrated under the construction agreement;
and
o Our facility has achieved, and continues to satisfy, the
requirements of Mechanical Completion.
When Siemens Westinghouse believes that it has achieved Provisional
Acceptance of our facility, it shall deliver to us a Notice of Provisional
Acceptance. If we are satisfied that the Provisional Acceptance requirements
have been met, we shall deliver to Siemens Westinghouse a Provisional Acceptance
Certificate. If reasonable cause exists for doing so, we shall notify Siemens
Westinghouse in writing that Provisional Acceptance of our facility has not been
achieved, stating the reasons therefor. If we determine that Provisional
Acceptance of our facility has not been achieved, Siemens Westinghouse shall
promptly take such action or perform such additional Services as will achieve
Provisional Acceptance and, if Siemens Westinghouse believes that Provisional
Acceptance of our facility has been achieved, shall issue to us another Notice
of Provisional Acceptance. Unless Interim Acceptance or Final Acceptance of our
facility shall have previously occurred, such procedure shall be repeated as
necessary until Provisional Acceptance of our facility has been achieved. Upon
the earliest to occur of Provisional Acceptance, Interim Acceptance and Final
Acceptance of our facility, we shall take possession and control our facility
and shall thereafter be solely responsible for its operation and maintenance.
After we take possession and control of our facility, Siemens Westinghouse shall
have reasonable access to our facility to complete the Services.
Interim Acceptance
Interim Acceptance shall be achieved when:
o Siemens Westinghouse has concluded a Completed Performance Test
in which our facility, while operating on natural gas,
demonstrates during such Performance Test an average net
electrical output and a net heat rate (each as measured and
corrected to the design operating conditions, all in accordance
with the procedures set forth in the construction agreement) of
95% (or higher) of the natural gas-based Electrical Output
Guarantee (but in no event lower than the percentage of the
natural gas-based Electrical Output Guarantee demonstrated by
the applicable Completed Performance Test and Completed Power
Purchase Agreement Output Test at Provisional Acceptance, if
applicable) and 104% (or lower) of the natural gas-based Heat
Rate Guarantee;
o If neither Provisional Acceptance nor Interim Acceptance of our
facility has occurred, Siemens Westinghouse has completed a
Completed Power Purchase Agreement Output Test in accordance
with the construction agreement to be concluded in which our
facility demonstrates (1) a level of achievement of 95% (or
higher) of the natural gas-based Electrical Output Guarantee,
while operating on natural gas, and (2) to Metropolitan Edison's
reasonable satisfaction, the other capabilities required to be
so demonstrated under the construction agreement;
o Our facility has achieved, and continues to satisfy the
requirements for the achievement of, Mechanical Completion; and
o Siemens Westinghouse has completed performance of the Services
except for (1) Punch List items and (2) Services that are
required by the terms of the construction agreement to be
completed after the achievement of Interim Acceptance.
When Siemens Westinghouse believes that it has achieved Interim
Acceptance of our facility, it shall deliver to us a Notice of Interim
Acceptance. If we are satisfied that the Interim Acceptance requirements have
been met, we shall deliver to Siemens Westinghouse an Interim Acceptance
Certificate. If reasonable cause exists for doing so, we shall notify Siemens
Westinghouse in writing that Interim Acceptance of our facility has not been
achieved, stating the reasons therefor. If we determine that Interim Acceptance
has not been achieved, Siemens Westinghouse shall promptly take such action or
perform such additional Services as will achieve Interim Acceptance and, if
Siemens Westinghouse believes that Interim Acceptance of our facility has been
achieved, shall issue to us another Notice of Interim Acceptance. Unless Final
Acceptance of our facility shall have previously occurred, such procedure shall
be repeated as necessary until Interim Acceptance of our facility has been
achieved.
Final Acceptance
Final Acceptance shall be achieved when:
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o Siemens Westinghouse has concluded a Completed Performance Test
in which our facility, while operating separately on natural gas
and on fuel oil, demonstrates during such Performance Test an
average net electrical output and a net heat rate of 100% (or
higher) of each of the corresponding natural gas-based and fuel
oil-based Electrical Output Guarantees and 100% (or lower) of
each of the corresponding natural gas-based and fuel oil-based
Heat Rate Guarantees;
o If neither Provisional Acceptance nor Interim Acceptance of our
facility shall have occurred or if we shall have requested that
a new Completed Power Purchase Agreement Output Test be
conducted in connection with Final Acceptance of our facility,
Siemens Westinghouse has concluded a Completed Power Purchase
Agreement Output Test in which our facility demonstrates (1) a
level of achievement of 100% (or higher) of the natural
gas-based Electrical Output Guarantee, while operating on
natural gas, and (2) to Metropolitan Edison's reasonable
satisfaction, the other capabilities required to be so
demonstrated under the construction agreement;
o our facility has achieved, and continues to satisfy the
requirements for the achievement of, Mechanical Completion;
o the Reliability Guarantee has been achieved under the
construction agreement; and
o Siemens Westinghouse has completed performance of the Services
except for (1) Punch List items and (2) Services that are
required by the terms of the construction agreement to be
completed after the achievement of Final Acceptance, such as
Siemens Westinghouse's warranty obligations.
The Reliability Guarantee shall have been achieved if and only if our
facility demonstrates an average equivalent availability of not less than 92%
while operating over a period of at least 45 consecutive days in accordance with
applicable laws, applicable permits, Metropolitan Edison electrical
interconnection requirements, the Power Purchase Agreement Operating
Requirements, the Guaranteed Emissions Limits, the instruction manual and the
power purchase agreement.
When Siemens Westinghouse believes that it has achieved Final
Acceptance of our facility, it shall deliver to us a Notice of Final Acceptance.
If we are satisfied that the Final Acceptance requirements have been met, we
shall deliver to Siemens Westinghouse a Final Acceptance Certificate. If
reasonable cause exists for doing so, we shall notify Siemens Westinghouse in
writing that Final Acceptance has not been achieved, stating the reasons
therefor. If we determine that Final Acceptance has not been achieved, Siemens
Westinghouse shall promptly take such action or perform such additional Services
as will achieve Final Acceptance and shall issue to us another Notice of Final
Acceptance. Such procedure shall be repeated as necessary until Final Acceptance
has been achieved or deemed to have occurred.
At any time, by giving notice to Siemens Westinghouse, we, in our sole
discretion may elect to effect Final Acceptance, in which case Final Acceptance
shall be deemed effective as of the date of such notice, and Siemens
Westinghouse shall have no liability to us for any amounts thereafter arising as
Performance Guarantee Payments (other than any Interim Period rebates that arose
prior to such election by us) for failure of our facility to achieve any or all
of the applicable Performance Guarantees.
At any time after Provisional Acceptance or Interim Acceptance of our
facility has been achieved, Siemens Westinghouse may, after exhausting all
reasonable repair and replacement alternatives in order to achieve the
applicable Performance Guarantees for Final Acceptance, so long as the
Reliability Guarantee shall have been achieved, give to us notice of its
intention to elect to declare Final Acceptance. In such event, Siemens
Westinghouse may elect to use the results of the most recent eligible Completed
Performance Test for the purpose of determining our facility's level of
achievement of the Performance Guarantees. Final Acceptance shall be deemed
effective as of the last to occur of (1) the date of our receipt of the
declaration and report of the final Completed Performance Test, or, as
applicable, the most recent Completed Performance Test, (2) the date of our
receipt of the declaration and report of any additional Completed Power Purchase
Agreement Output Test required by us in connection with Final Acceptance and (3)
the effective date of the achievement of the Reliability Guarantee.
If on or before the Guaranteed Final Acceptance Date (1) our facility
has achieved either Provisional Acceptance or Interim Acceptance, (2) the most
recent Completed Performance Test has satisfied the relevant provisions of the
construction agreement and (3) the Reliability Guarantee has been achieved, then
Final Acceptance of our facility shall be deemed to occur on the Guaranteed
Final Acceptance Date. If (1) on or before the Guaranteed Final Acceptance Date,
our facility has achieved at least Provisional Acceptance or Interim Acceptance
and has achieved all other
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requirements for Final Acceptance except for the Reliability Guarantee and (2)
within 90 days after the Guaranteed Final Acceptance Date, the Reliability
Guarantee has been achieved and all other requirements for Final Acceptance
continue to be satisfied at such time, then Final Acceptance of our facility
shall be deemed to occur on the date on which the Reliability Guarantee is
achieved.
Project Completion
Project Completion shall be achieved under the construction agreement
when:
o Final Acceptance of our facility shall have occurred and the
Performance Guarantees with respect to our facility shall have
been achieved (or in lieu of achievement of the Performance
Guarantees, applicable rebates under the construction agreement
shall have been paid, we shall have elected Final Acceptance);
o The Reliability Guarantee shall have been achieved;
o Siemens Westinghouse shall have demonstrated during the Completed
Performance Test that the operation of our facility does not
exceed the Guaranteed Emissions Limits;
o The requirements for achieving Mechanical Completion of our
facility shall continue to be met;
o The Punch List items shall have been completed in accordance with
the construction agreement; and
o Siemens Westinghouse shall have performed all of the Services,
other than those Services, such as Siemens Westinghouse's warranty
obligations, which by their nature are intended to be performed
after Project Completion.
When Siemens Westinghouse believes that it has achieved Project
Completion, it shall deliver to us a Notice of Project Completion. If we are
satisfied that the Final Acceptance requirements have been met, we shall deliver
to Siemens Westinghouse a Project Completion Certificate. If reasonable cause
exists for doing so, we shall notify Siemens Westinghouse in writing that
Project Completion has not been achieved, stating the reasons therefor. If our
Project Completion has not been achieved as so determined by us, Siemens
Westinghouse shall promptly take such action or perform such additional Services
as will achieve Project Completion and shall issue to us another Notice of
Project Completion. Such procedure shall be repeated as necessary until Project
Completion is achieved.
Siemens Westinghouse shall be obligated to achieve Project Completion
within 180 days after Final Acceptance of our facility. If Siemens Westinghouse
does not achieve our Project Completion on or before our Project Completion
Deadline or if we determine that Siemens Westinghouse is not proceeding with all
due diligence to complete the Services in order to achieve Project Completion by
such deadline, we may retain another contractor to complete such work at
contractor's expense.
Price Rebate for Failure to Meet Guarantees
Completion Dates
Siemens Westinghouse guarantees that (1) at least one of Provisional
Acceptance, Interim Acceptance or Final Acceptance of our facility shall be
achieved on or before the Guaranteed Provisional Acceptance Date and (2) Final
Acceptance of our facility shall be achieved on or before the Guaranteed Final
Acceptance Date.
If none of Provisional Acceptance, Interim Acceptance or Final
Acceptance of our facility occurs by the date that is 45 days after the
Guaranteed Provisional Acceptance Date, Siemens Westinghouse shall pay us
$110,000 per day for each day Provisional Acceptance, Interim Acceptance or
Final Acceptance is later than the Guaranteed Provisional Acceptance Date, but
in no event shall the aggregate amount of such payments be greater than the
Delay LD SubCap.
If none of Provisional Acceptance, Interim Acceptance and Final
Acceptance of our facility occurs on or before the date that is 40 days after
the Guaranteed Provisional Acceptance Date, Siemens Westinghouse shall, on such
date, submit for approval by us and the independent engineer a Plan to
accelerate the performance of the Services as necessary in order to achieve (1)
at least one of Provisional Acceptance, Interim Acceptance and Final Acceptance
of our facility by the date that is 12 months after the Guaranteed Provisional
Acceptance Date and (2) Final Acceptance of our facility by the Guaranteed Final
Acceptance Date. If the Plan is not approved by us and the independent engineer,
Siemens Westinghouse shall revise the Plan and resubmit a revised Plan for
approval by us and the independent engineer.
If Provisional Acceptance, Interim Acceptance and Final Acceptance,
whichever is the earlier to occur, of our facility occurs prior to the
Guaranteed Provisional Acceptance Date, we shall pay Siemens Westinghouse
$50,000 per
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day, as an early completion bonus, for each day by which Provisional
Acceptance, Interim Acceptance and Final Acceptance precedes the Guaranteed
Provisional Acceptance Date, but in no event shall the aggregate amount of such
bonus exceed $3,000,000.
Performance Guarantees
Electrical Output
If the average net electrical output of our facility at Provisional
Acceptance or Interim Acceptance, whichever is the earlier to occur, is less
than the natural gas-based Electrical Output Guarantee, then Siemens
Westinghouse shall pay us, as a rebate, for each day during the Interim Period,
an amount equal to $0.22 per day for each kilowatt by which such average net
electrical output is less than such natural gas-based Electrical Output
Guarantee.
Upon Final Acceptance, if (1) the average net electrical output of our
facility during the natural gas-fired portion of the Completed Performance Test
is less than the natural gas-based Electrical Output Guarantee, then we shall
pay Siemens Westinghouse, as a rebate, an amount equal to $550 for each kilowatt
by which such an average net electrical output is less than the natural
gas-based Electrical Output Guarantee and (2) the fuel oil-based portion of the
Completed Performance Test is less than the fuel oil-based Electrical Output
Guarantee, then Siemens Westinghouse shall pay us, as a rebate, an amount equal
to $30 for each kilowatt by which such average net electrical output is less
than the fuel oil-based Electrical Output Guarantee.
Upon Final Acceptance, if the average net electrical output of our
facility during the natural gas-fired portion of the Completed Performance Test
is greater than the natural gas-based Electrical Output Guarantee, then Siemens
Westinghouse shall pay us as a bonus, an amount equal to 50% of the net
incremental revenues received by us during the period of the first three years
following the commercial operation date as a result of (1) any power purchase
agreement concluded with a utility whereby the utility purchases such excess
output, (2) any short-term sales of such excess output, and (3) any spot sales
of such excess output, in each of the cases (1) through (3) above after
subtracting all incremental costs and taxes associated with such excess output,
provided, however, that the aggregate amount of any such bonus shall in no event
exceed $275 per kilowatt of excess capacity.
Heat Rate Guarantees
If the average net heat rate of our facility at Provisional Acceptance
and/or Interim Acceptance, if having occurred before Final Acceptance, exceeds
the natural gas-based Heat Rate Guarantee, then Siemens Westinghouse shall pay
us, as a rebate, for each day during the Interim Period, an amount equal to $44
per day for each BTU/KwH by which such measured net heat rate is greater than
such natural gas-based Heat Rate Guarantee.
Upon Final Acceptance, if the net heat rate of our facility during (1)
the natural gas-fired portion of the Completed Performance Test exceeds the
natural gas-based Heat Rate Guarantee, then Siemens Westinghouse shall pay us,
as a rebate, an amount equal to $162,300 for each BTU/KwH by which such measured
heat rate is greater than the natural gas-based Heat Rate Guarantee, and (2) the
fuel oil-fired portion of the Completed Performance Test exceeds the natural
gas-based Heat Rate Guarantee, then Siemens Westinghouse shall pay us, as a
rebate, an amount equal to $17,000 for each BTU/KwH by which such measured heat
rate is greater than the fuel oil-based Heat Rate Guarantee.
Upon Final Acceptance, if the average net heat rate during the natural
gas-fired portion of the Completed Performance Test is less than the natural
gas-based Heat Rate Guarantee, then we shall pay Siemens Westinghouse, as a
bonus, an amount equal to $40,000 for each BTU/KwH by which such measured heat
rate is less that the natural gas-based Heat Rate Guarantee (provided, however,
that the aggregate amount of any such bonus shall in no event exceed
$3,000,000).
Liability and Damages
Limitation of Liability
In no event shall Siemens Westinghouse's liability exceed (1) (the
Delay LD SubCap and (2) the Total LD SubCap.
Consequential Damages
Neither party nor any of its contractors, subcontractors or other
agents providing equipment, material or services for our project shall be liable
for any indirect, incidental, special or consequential loss or damage of any
type.
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Aggregate Liability of Contractor
The total aggregate liability of Siemens Westinghouse and any of its
subcontractors; including liabilities covered by the Delay LD SubCap and the
Total LD SubCap, to us shall not in any event exceed an amount equal to the
contract price; provided, however, that such limitation of liability shall not
apply to obligations to remove liens or to make indemnification payments.
Warranties and Guarantees
Siemens Westinghouse warrants and guarantees that during the
applicable warranty period
o all machinery, equipment, materials, systems, supplies and other
items comprising our project shall be new and of first-rate
quality which satisfies Metropolitan Edison-grade standards and in
accordance with prudent utility practices and the specifications
set forth in the construction agreement, suitable for the use in
generating electric energy and capacity under the climatic and
normal operating conditions and free from defective workmanship or
materials,
o it will perform all of its design, construction, engineering and
other Services in accordance with the construction agreement,
o our project and its components shall be free from all defects
caused by errors or omissions in engineering and design, as
determined by reference to prudent utility practices, and shall
comply with all applicable laws, all applicable permits,
Metropolitan Edison electrical interconnection requirements, the
Power Purchase Agreement Operating Requirements and the Guaranteed
Emissions Limits and
o the completed project shall perform its intended functions of
generating electric energy and capacity as a complete, integrated
operating system as contemplated in the construction agreement. If
we notify Siemens Westinghouse within 30 days after the expiration
of the applicable warranty period of any defects or deficiencies
discovered during the applicable warranty period, Siemens
Westinghouse shall promptly reperform any of the services at its
own expense to correct any errors omissions, defect or
deficiencies and, in the case of defective or otherwise deficient
machinery, equipment, materials, systems supplies or other items,
replace or repair the same at its own expense. Siemens
Westinghouse warrants and guarantees that, to the extent we have
made all payments then due to Siemens Westinghouse, title to our
facility and all work, materials, supplies and equipment shall
pass to us free and clear of all liens, other than any permitted
liens. Other than the warranties and guarantees provided in the
construction agreement there are no other warranties of any kind,
whether statutory, express or implied relating to the Services.
During the applicable warranty period, Siemens Westinghouse shall
promptly notify us of any engineering and design defects which are manifested in
any of Siemens Westinghouse's fleet of 501G combustion turbines under
construction, start-up or testing or in operation during such warranty period
and which could reasonably be expected to be common to the fleet or this
facility. Upon such a notification from Siemens Westinghouse of a fleet-wide or
common defect and otherwise upon notification from us no later than 30 days
after the expiration of the applicable warranty period of any defects or
deficiencies in our project or any component, we shall, subject to the
provisions of the construction agreement, make our facility or such subject
Equipment available to Siemens Westinghouse for Siemens Westinghouse to
re-perform, replace or, at its option, repair the same at its expense such that
it is in compliance with the standards warranted and guaranteed, all in
accordance with the construction agreement.
Force Majeure
Force Majeure Event
A force majeure event shall mean any act or event that prevents the
affected party from performing its obligations, other than the payment of money,
under the construction agreement or complying with any conditions required to be
complied with under the construction agreement if such act or event is beyond
the reasonable control of and not the fault of the affected party and such party
has been unable by the exercise of due diligence to overcome or mitigate the
effects of such act or event. Force majeure events include, but are not limited
to, acts of declared or undeclared war, sabotage, landslides, revolution,
terrorism, flood, tidal wave, hurricane, lightning, earthquake, fire, explosion,
civil disturbance, insurrection or riot, act of God or the public enemy, action
(including unreasonable delay or failure to act) of a court or public authority,
or strikes or other labor disputes of a regional or national character that are
not limited to only the employees of Siemens Westinghouse or its subcontractors
and that are not due to the breach of a
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labor contract or applicable law by the party claiming force majeure or any of
its subcontractors. Force majeure events do not include (1) strikes, work
stoppages and labor disputes or unrest of any kind that involve only employees
of Siemens Westinghouse or any subcontractors, except as expressly provided in
the preceding sentence, (2) late delivery of materials or equipment, except to
the extent caused by a force majeure event and (3) economic hardship.
Excused Performance
If either party is rendered wholly or partly unable to perform its
obligations because of a force majeure event, that party will be excused from
whatever performance is affected by the force majeure event to the extent so
affected; provided, that:
o the non-performing party gives the other party prompt notice
describing the particulars of the occurrence;
o the suspension of performance is of no greater scope and of no
longer duration than is reasonably required by the force majeure
event;
o the non-performing party exercises all reasonable efforts to
mitigate or limit damages to the other party;
o the non-performing party uses its best efforts to continue to
perform its obligations under the construction agreement and to
correct or cure the event or condition excusing performance; and
o when the non-performing party is able to resume performance of its
obligations, that party shall give the other party written notice
to that effect and shall promptly resume performance under the
construction agreement.
Scope Changes
Scope Changes
We may order Scope Changes to the Services, in which event one or more
of the contract price, the Construction Progress Milestone Dates, the Guaranteed
Completion Dates, the Payment and Milestone Schedule, our construction schedule
and the Performance Guarantees shall be adjusted accordingly, if necessary. All
Scope Changes shall be authorized by a Scope Change Order and only we or our
representative may issue Scope Change Orders.
As soon as Siemens Westinghouse becomes aware of any circumstances
which it has reason to believe may necessitate a Scope Change, Siemens
Westinghouse shall issue to us a Scope Change Order Notice at its expense. If we
desire to make a Scope Change, in response to a Scope Change Order Notice or
otherwise, we shall submit a Scope Change Order Request to Siemens Westinghouse.
Siemens Westinghouse shall promptly review the Scope Change Order Request and
notify us in writing of the options for implementing the proposed Scope Change
and the effect, if any, each such option would have on the contract price, the
Guaranteed Completion Dates, the Construction Progress Milestone Dates, the
Payment and Milestone Schedule, our construction schedule and the Performance
Guarantees.
No Scope Change Order shall be issued and no adjustment of the contract
price, the Guaranteed Completion Dates, the Construction Progress Milestone
Dates, the Payment and Milestone Schedule, our construction schedule or the
Performance Guarantees shall be made in connection with any correction of
errors, omission, deficiencies, or improper or defective work on the part of
Siemens Westinghouse or any subcontractors in the performance of the Services.
Changes due to changes in applicable laws or applicable permits occurring after
the date of the construction agreement shall be treated as Scope Changes.
Effect of Force Majeure Event
If and to the extent that any force majeure events affect Siemens
Westinghouse's ability to meet the Guaranteed Completion Dates, or the
Construction Progress Milestone Dates, an equitable adjustment in one or more of
such dates, the Payment and Milestone Schedule and our construction schedule
shall be made by agreement between us and Siemens Westinghouse. No adjustment to
the Performance Guarantees and, except as otherwise expressly set forth below,
the contract price shall be made as a result of a force majeure event. If
Siemens Westinghouse is delayed in the performance of the Services by a force
majeure event, then:
o to the extent that the delay(s) are, in the aggregate, six months
or less, Siemens Westinghouse shall absorb all of its costs and
expenses resulting from such delay(s); and
o to the extent that the delay(s) are, in the aggregate, more than
six months, Siemens Westinghouse shall be reimbursed by us for
those incremental costs and expenses resulting from such delay(s)
which are incurred by Siemens Westinghouse after such six-month
period.
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Price Change
An increase or decrease in the contract price, if any, resulting from a
Scope Change requested by us or made under the construction agreement shall be
determined, upon the mutual agreement of the parties.
Continued Performance Pending Resolution of Disputes
If a dispute regarding the amount of any increase or decrease in
Siemens Westinghouse's costs with respect to a Scope Change, Siemens
Westinghouse shall proceed with the performance of such Scope Change promptly
following our execution of the corresponding Scope Change Order.
If hazardous materials were not identified in an environmental site
assessment report delivered by us to Siemens Westinghouse prior to the
construction commencement date and were not brought onto the facility site by
Siemens Westinghouse or any of its subcontractors, then Siemens Westinghouse
shall be entitled to a Scope Change under the construction agreement.
Insurance
General
Siemens Westinghouse shall provide and maintain the following types of
insurance at all times while it or any subcontractor is performing the Services:
workers' compensation insurance and employers' liability insurance; commercial
general liability insurance; business automobile liability insurance; commercial
umbrella and/or excess insurance; "all-risk" builder's risk insurance; and ocean
marine cargo insurance. Before permitting any of its subcontractors to perform
any Services at the facility site, Siemens Westinghouse shall obtain a
certificate of insurance from each such subcontractor evidencing that such
subcontractor has obtained insurance in such amounts and against such risks as
is consistent with Siemens Westinghouse's customary practices for such types of
subcontracts for projects of similar type and capacity to our project. All
insurance policies supplied by Siemens Westinghouse shall include a waiver of
any right of subrogation of the insurers and of any right of the insurers to any
set-off, counterclaim or deduction.
Cost of Premiums
Construction Insurance: Siemens Westinghouse shall bear responsibility
for payment of all premiums for insurance coverage required to be provided by
Siemens Westinghouse.
Operating Insurance: we shall be responsible for obtaining, on such
terms and conditions as we and our financing parties reasonably deem to be
appropriate, "all-risk" property insurance, including "business interruption"
coverage, for our facility for the period commencing with the first to occur of
Provisional Acceptance, Interim Acceptance and Final Acceptance.
Risk of Loss
With respect to our facility, until the Risk Transfer Date, Siemens
Westinghouse shall bear the risk of loss and full responsibility for the costs
of replacement, repair or reconstruction resulting from any damage to or
destruction of our facility or any materials, equipment, tools and supplies,
which are purchased for permanent installation in or for use during construction
of our facility.
After the Risk Transfer Date with respect to our facility, we shall
bear all risk of loss and full responsibility for repair, replacement or
reconstruction with respect to any loss, damage or destruction to our facility
which occurs after such Risk Transfer Date.
Termination
Termination for Company's Convenience
We may for its convenience terminate any part of the Services or all
remaining Services at any time upon 30 days' prior written notice to Siemens
Westinghouse specifying the part of the Services to be terminated and the
effective date of termination. We may elect to suspend completion of all or any
part of the Services upon 10 days' prior written notice to Siemens Westinghouse
or, in emergency situations upon such prior notice as circumstances permit.
Termination by Contractor
If we fail to pay to Siemens Westinghouse any payment and such failure
continues for 20 days, then (1) Siemens Westinghouse may suspend its performance
of the Services upon 10 days' prior written notice to us, which suspension
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may continue until such time as such payment, plus accrued interest, is paid to
Siemens Westinghouse, and/or (2) if such payment has not been made prior to the
commencement of a suspension by Siemens Westinghouse under clause (1) above,
Siemens Westinghouse may terminate the construction agreement upon 60 days'
prior written notice to us; provided, that such termination shall not become
effective if such payment, plus accrued interest, is made to Siemens
Westinghouse prior to the end of such notice period. In the event of such a
suspension, an equitable adjustment to one or more of the contract price, the
Guaranteed Completion Dates, the Construction Progress Milestone Dates, the
Payment and Milestone Schedule and our construction schedule, and, as
appropriate, such other provisions of the construction agreement that may be
affected thereby, shall be made by agreement between us and Siemens
Westinghouse. If we have suspended completion of all or any part of the Services
in accordance with the construction agreement for a period in excess of two
years in the aggregate, Siemens Westinghouse may, at its option, at any time
thereafter so long as such suspension continues, give written notice to Company
that Siemens Westinghouse desires to terminate such suspended Services. Unless
we order Siemens Westinghouse to resume performance of such suspended services
within 10 days of the receipt of such notice from Siemens Westinghouse, such
suspended Services shall be deemed to have been terminated by us for its
convenience. If the occurrence of one or more force majeure events prevents
Siemens Westinghouse from performing the Services for a period of 365
consecutive days, Siemens Westinghouse may, at its option, give written notice
to us of its desire to terminate the construction agreement.
Consequences of Termination
o Upon any termination, we may, provided, that if such termination
is pursuant to any default Siemens Westinghouse shall have been
paid all amounts due and owing to it under the construction
agreement (and provided further, that it shall not be deemed to
constitute a waiver by Siemens Westinghouse of any rights to
payment it may have as a result of a non-default related
termination in the event of a termination pursuant to a default),
at its option elect to have itself, or its designee, which may
include any other affiliate of The AES Corporation or any
third-party purchaser, (1) assume responsibility for and take
title to and possession of our project and any or all work,
materials or equipment remaining at the facility site and (2)
succeed automatically, without the necessity of any further action
by Siemens Westinghouse, to the interests of Siemens Westinghouse
in any or all items procured by Siemens Westinghouse for our
project and in any and all contracts and subcontracts entered into
between Siemens Westinghouse and any subcontractor with respect to
the equipment specified in the construction agreement with respect
to any or all other subcontractors selected by us which are
materially necessary to the timely completion of our project,
Siemens Westinghouse shall use all reasonable efforts to enable
us, or our designee, to succeed to Siemens Westinghouse's
interests thereunder.
o If any termination occurs, we may, without prejudice to any other
right or remedy it may have, at its option, finish the Services by
whatever method we may deem expedient.
Default and Remedies
Contractor's Default
Siemens Westinghouse's events of default include: voluntary bankruptcy
or insolvency; involuntary bankruptcy or insolvency; materially adverse
misleading or false representation or warranty; improper assignment; failure to
maintain required insurance; failure to comply with applicable laws or
applicable permits; cessation or abandonment of the performance of Services;
termination or repudiation of, or default under the related guaranty; failure to
supply sufficient skilled workers or suitable material or equipment; failure to
make payment when due for labor, equipment or materials; non-occurrence of
Provisional Acceptance, Interim Acceptance, Final Acceptance and Construction
Progress Milestones; and failure to remedy non-performance or non-observance of
any provision in the construction agreement.
Company's Rights and Remedies
If Siemens Westinghouse is in default of its obligations, We shall have
any or all of the following rights and remedies, in addition to any other rights
and remedies that may be available to us under the construction agreement or at
law or in equity, and Siemens Westinghouse shall have the following obligations:
o We may, without prejudice to any other right or remedy we may have
under the construction agreement or at law or in equity, terminate
the construction agreement in whole or in part immediately upon
delivery of notice to Siemens Westinghouse. In case of such
partial termination, the parties shall mutually agree upon a Scope
Change Order to make equitable adjustments, including the
reduction and/or deletion of obligations of the parties
commensurate with the reduced scope Siemens Westinghouse shall
have after taking into account such partial termination, to one or
more of the Guaranteed Completion Dates, the Construction Progress
Milestone
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Dates, the contract price, the Payment and Milestone Schedule, our
construction schedule, the Performance Guarantees and such other
provisions of the construction agreement which may be affected
thereby, as appropriate. If the parties are unable to reach mutual
agreement as to such Scope Change Order and the dispute resolution
procedures set forth in the construction agreement are invoked,
such procedures shall give due consideration to customary terms
and conditions under which Siemens Westinghouse has entered
subcontracts with third party prime contractors covering services
substantially similar to those Services which are not being
terminated.
o If requested by us, Siemens Westinghouse shall withdraw from the
facility site, shall assign to us such of its subcontracts, to the
extent permitted therein, as we may request, and shall remove such
materials, equipment, tools and instruments used by, and any
debris and waste materials generated by, Siemens Westinghouse in
the performance of the Services as we may direct, and we, without
incurring any liability to Siemens Westinghouse (other than the
obligation to return to Siemens Westinghouse at the completion of
our project such materials that are not consumed or incorporated
into our project, solely on an "as is, where is" basis without any
representation or warranty of any kind whatsoever) may take
possession of any and all designs, drawings, materials, equipment,
tools, instruments, purchase orders, schedules and facilities of
Siemens Westinghouse at the facility site that we deem necessary
to complete the Services.
Assignment
Consent Required
Generally, neither we nor Siemens Westinghouse and shall have any right
to assign or delegate any of their respective rights or obligations under the
construction agreement either voluntarily or involuntarily or by operation of
law.
Maintenance Services Agreement
We, as assignee of AES Ironwood, Inc., have entered into the
Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services
Contract, dated as of September 23, 1998, with Siemens Westinghouse by which
Siemens Westinghouse will provide us with, among other things, combustion
turbine parts, shop repairs and scheduled outage technical field assistance
services.
The maintenance services agreement became effective on the date of
execution and unless terminated early, shall terminate upon completion of shop
repairs performed by Siemens Westinghouse following the eighth Scheduled Outage
of the applicable Combustion Turbine or 10 years from initial synchronization of
the applicable combustion turbine, whichever occurs first.
Scope of Work
During the term of the maintenance services agreement, and in
accordance with the Scheduled Outage plan, Siemens Westinghouse is required to
do the following:
o deliver the type and quantity of New Program Parts for
installation of the Combustion Turbine;
o repair/refurbish Program Parts and equipment for the Combustion
Turbine;
o provide Miscellaneous Hardware;
o provide us with material safety data sheets for all hazardous
materials Siemens Westinghouse intends to bring/use on the
facility site;
o provide the services of a maintenance program engineer to manage
the Combustion Turbine maintenance program; and
o provide TFA Services.
We are responsible for, among other things:
o storing and maintaining parts, materials and tools to be used in
or on the Combustion Turbine;
o maintaining and operating the Combustion Turbine consistently with
the warranty conditions;
o ensuring that its operator and maintenance personnel are properly
trained;
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o transporting Program Parts in need of repair/refurbish; and
o providing Siemens Westinghouse, on a monthly basis, with the
required Equivalent Starts and EBHs.
We and Siemens Westinghouse will jointly develop the Scheduled Outage
plan. The Scheduled Outage plan will be consistent with the terms and conditions
of the power purchase agreement.
Early Replacement
If it is determined that due to normal wear and tear a Program Part(s)
for the Combustion Turbine has failed or will not last until the next Scheduled
Outage, and such part has to be repaired before the scheduled replacement
period, Siemens Westinghouse will replace such Program Part by moving up a New
Program Part which is otherwise scheduled to be delivered at a later date. The
contract price for such replacement will not be affected if the replacement date
is less than or equal to one year earlier than the Scheduled Outage during which
such Program Part was scheduled to be replaced. If the actual replacement date
for a Program Part is more than one year earlier than the Scheduled Outage at
which point the Program Part was scheduled to be replaced, such early
replacement will result in an adjustment to the Payment Schedule. Siemens
Westinghouse has the final decision with regard to the replacement or
refurbishment associated with any Program Part. If we dispute Siemens
Westinghouse's decision, we may seek to resolve such dispute in accordance with
the dispute resolution procedures discussed below.
Parts Life Credit
After applicable warranty periods set forth in the maintenance services
agreement and the construction agreement, Siemens Westinghouse will provide a
parts life credit if a Program Part requires replacement due to normal wear and
tear prior to meeting its expected useful life. Siemens Westinghouse has the
final decision with regard to actual parts life and the degree of repair or
refurbishment associated with any Program Parts. The parts life credit will be
calculated in terms of EBHs and Equivalent Starts. The price of the replacement
part will be adjusted for inflation. If we dispute Siemens Westinghouse's
decision, we may seek to resolve such dispute in accordance with the dispute
resolution procedures discussed below.
Contract Price and Payment Terms
Siemens Westinghouse will invoice us monthly and payments are then due
within 25 days. The fees assessed by Siemens Westinghouse will be based on the
number of EBHs accumulated by the applicable Combustion Turbine as adjusted for
inflation. The contract price will be the aggregate number of fees as adjusted
plus any additional payment amount mutually agreed to by the parties under a
Change Order.
Unscheduled Outages and Unscheduled Outage Work
If during the term of the maintenance services agreement an Unscheduled
Outage occurs resulting from (1) the non-conformity of New Program Parts; (2)
the failing of a Shop Repair; (3) a Program Part requiring replacement due to
normal wear and tear prior to achieving its expected life in terms of EBHs or
Equivalent Starts; or (4) the failure of a Service, performed by Siemens
Westinghouse, we shall hire Siemens Westinghouse, to the extent not supplied by
Siemens Westinghouse as a warranty remedy under Siemens Westinghouse's
warranties under the maintenance services agreement to supply any additional
parts, Miscellaneous Hardware, Shop Repairs and TFA Services under a Change
Order. We will be entitled to any applicable parts life credit with respect to
Program Parts as well as a discount for TFA Services. If such Unscheduled Outage
occurs within a specified number of EBHs of a Scheduled Outage and it was
anticipated that the additional parts, Miscellaneous Hardware, Shop Repairs and
TFA Services to be used in such Unscheduled Outage were to be used during the
upcoming Scheduled Outage, the upcoming Scheduled Outage shall be moved up in
time to become the Unscheduled Outage/moved-up Scheduled Outage. We shall not be
required to pay any additional money for such Program Parts, Miscellaneous
Hardware, Shop Repairs and TFA Services.
If any Program Parts are delivered by Siemens Westinghouse within 15
days of receipt of such Change Order, we will pay to Siemens Westinghouse the
price for the Program Part set forth in the maintenance services agreement plus
a specified percentage. Any Program Part delivered after 30 days of such Change
Order will cost us the price set forth in the maintenance services agreement
minus a specified percentage.
Changes in Operating Restrictions
The maintenance services agreement requires that each Combustion
Turbine will be operated in accordance with the requirements of the power
purchase agreement and prudent utility practices, with 8,000 EBH/year and 100
Equivalent Starts per year by using natural gas fuel or liquid fuel and water.
Should the actual operations differ from these operating
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parameters which causes a Scheduled Outage to be planned/performed earlier or
later than as expected, then, under a Change Order, an adjustment in the scope,
schedule, and price shall be made.
Warranties
Siemens Westinghouse warrants that the New Program Parts, Miscellaneous
Hardware and any Shop Repairs shall conform to standards of design, materials
and workmanship consistent with generally accepted practices of the electric
utility industry. The warranty period with respect to Program Parts, Hardware
and Shop Repair is until the earlier of one year from the date of installation
of the original Program Part or Hardware, a specific number of starts or fired
hours after installation of such Program Parts and Hardware, or three years from
the date of delivery of the original Program Part, Hardware, and in the case of
Shop Repair, three years from completion of the work. Warranties on the Program
Parts and Hardware shall not expire more than one year after the conclusion of
the maintenance services agreement. Siemens Westinghouse will repair or replace
any Program Part or Hardware, at its cost, if notified of any failure or
non-conformity of such Program Part or Hardware during such warranty period.
Siemens Westinghouse also warrants that the Services of its personnel
and technical information transmitted will be competent and consistent with
prudent utility practices and the Services will comply in all material respects
with laws and will be free from defects in workmanship for a period of one year
from the date of completion of that item of Services. The warranties on such
Services shall expire no later than one year after the termination or end of the
term of the maintenance services agreement.
In addition, Siemens Westinghouse warrants any Program Part removed
during a Scheduled Outage and delivered by us to the designated facility for
repair will be repaired and delivered by Siemens Westinghouse within 26 weeks.
If Siemens Westinghouse does not deliver the Program Part within this time frame
or does not provide a New Program Part in lieu of the Program Part being Shop
Repaired and an outage occurs which requires such a Program Part, Siemens
Westinghouse will pay us liquidated damages for each day the Program Part is not
repaired and delivered the aggregate of which liquidated damage payments shall
not exceed a maximum annual cap. If upon reaching the maximum cap on aggregate
liquidated damages, Siemens Westinghouse still has not repaired and delivered
such Program Part, we may elect to terminate the maintenance services agreement
because Siemens Westinghouse shall be considered to have failed to perform its
material obligations.
Except for the express warranties set forth in the maintenance services
agreement, Siemens Westinghouse makes no other warranties or representations of
any kind. No implied statutory warranty of merchantibility or fitness for a
particular purpose applies.
The warranties provided by Siemens Westinghouse are conditioned upon
(1) our receipt, handling, storage, operation and maintenance of our project,
including any Program Parts and Miscellaneous Hardware, being done in accordance
with the terms of the Combustion Turbine instruction manuals; (2) operation of
the Combustion Turbine in accordance with the terms of the maintenance services
agreement; (3) repair of accidental damage done consistently with the equipment
manufacturer's recommendations; (4) us providing Siemens Westinghouse with
access to the facility site to perform its services under the maintenance
services agreement; and (5) hiring Siemens Westinghouse to provide TFA Services,
Program Parts, Shop Repairs and Miscellaneous Hardware required to dissemble,
repair and reassemble the Combustion Turbine.
Insurance
Siemens Westinghouse shall maintain in full force and effect during the
term of the maintenance services agreement the following required insurance
coverage: commercial general liability, workers' compensation, umbrella excess
liability and business automobile liability. All such policies of workers'
compensation must provide a waiver of subrogation rights against us.
We shall maintain in full force and effect during the term of the
maintenance services agreement the following required insurance coverage:
property insurance, commercial general liability, workers' compensation,
umbrella excess liability and business automobile liability insurance. The
policies of property insurance and workers' compensation must include waivers of
subrogation rights against Siemens Westinghouse.
Termination
We may terminate the maintenance services agreement if:
o specific bankruptcy events affecting Siemens Westinghouse occur;
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o Siemens Westinghouse fails to perform or observe in any material
respect any provision in the maintenance services agreement and
fails to (1) promptly commence to cure and diligently pursue the
cure of such failure or (2) remedy such failure within 45 days
after Siemens Westinghouse receives written notice of such
failure;
o we terminate the construction agreement due to the contractor's
default thereunder or due to our inability to obtain construction
financing or environmental operating permits; or
o the contractor terminates the construction agreement for any
reason other than our default thereunder.
Notwithstanding the preceding, we may terminate the maintenance
services agreement at any time for its convenience following the completion of
the first major outage of both Combustion Turbines. In addition, the
maintenance services agreement will automatically terminate if:
o We terminate the construction agreement for reasons other than (1)
the default of the contractor and (2) our inability to obtain
permits for our project or
o the contractor terminates the construction agreement for our
default thereunder. If such termination, Siemens Westinghouse
shall discontinue any work or services being performed and
continue to protect our property. Siemens Westinghouse shall
transfer title to and deliver any New Program Parts and
Miscellaneous Hardware already purchased by us. We shall pay
Siemens Westinghouse those amounts owed at the time of
termination.
Limitation of Liability
We agreed that the remedies provided in the maintenance services
agreement are exclusive and that under no circumstances shall the total
aggregate liability of Siemens Westinghouse during a given year exceed 100% of
the contract price payable to Siemens Westinghouse for that given year under the
maintenance services agreement. We further agreed that under no circumstances
shall the total aggregate liability of Siemens Westinghouse for liquidated
damages during a given year exceed a specified percentage of the contract price
payable to Siemens Westinghouse for that given year under the maintenance
services agreement. We further agreed that under no circumstances shall the
total aggregate liability of Siemens Westinghouse exceed a specified percentage
of the contract price payable to Siemens Westinghouse under the maintenance
services agreement.
Force Majeure
Neither party will be liable for failure to perform any obligation or
delay in performance, excluding payment, to the extent such failure or delay is
caused by any act or event beyond the reasonable control of the affected party
or Siemens Westinghouse's suppliers; provided, that such act or event is not the
fault or the result of negligence of the affected party and such party has been
unable by exercise of reasonable diligence to overcome or mitigate the effects
of such act or event of force majeure includes: any act of God; act of civil or
military authority; act of war whether declared or undeclared; act (including
delay, failure to act, or priority) of any governmental authority; civil
disturbance; insurrection or riot; sabotage; fire; inclement weather conditions;
earthquake; flood; strikes, work stoppages or other labor difficulties of a
regional or national character which are not limited to only the employees of
Siemens Westinghouse or its subcontractors or suppliers and which are not due to
the breach of an applicable labor contract by the party claiming force majeure;
embargo; fuel or energy shortage; delay or accident in shipping or
transportation to the extent attributable to another force majeure; changes in
laws which substantially prevents a party from complying with its obligations in
conformity with its requirements under the maintenance services agreement or
failure or delay beyond its reasonable control in obtaining necessary
manufacturing facilities, labor, or materials from usual sources to the extent
attributable to another force majeure; or failure of any principal contractor to
provide equipment to the extent attributable to another force majeure. Force
majeure shall not include: (1) economic hardship, (2) changes in market
conditions or (3) except due to an event of force majeure, late delivery of
Program Parts or other Equipment.
If a delay in performance is excusable due to a force majeure, the date
of delivery or time for performance of the work will be extended by a period of
time reasonably necessary to overcome the effect of such force majeure and if
the force majeure lasts for a period longer than 30 days and such delay directly
increases Siemens Westinghouse's costs or expenses, we, after reviewing Siemens
Westinghouse's additional direct costs and expenses, will reimburse Siemens
Westinghouse for its reasonable additional direct costs and expenses incurred
after 30 days from the beginning of the force majeure resulting from such delay.
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Interconnection Agreement
We have entered into a Generation Facility Transmission Interconnection
Agreement, dated as of March 23, 1999, with Metropolitan Edison for the
installation, operation and maintenance of the facilities necessary to
interconnect our facility to the transmission system of Metropolitan Edison.
Under the interconnection agreement, we and Metropolitan Edison will construct,
own, operate and maintain the Interconnection Facilities. We will be responsible
for all of the costs of construction, operation and maintenance of the
Interconnection Facilities, including those owned by Metropolitan Edison.
Scope
The interconnection agreement will become effective on the effective
date established by FERC and will continue in full force and effect until a
mutually agreeable termination date not to exceed the retirement date for our
facility.
Metropolitan Edison's Obligations
Metropolitan Edison will install, own, operate and maintain, at our
cost and expense, a portion of the Interconnection Facilities, including, but
not limited to specific substation protective relaying equipment and a 230 kV
power circuit breaker. The facilities to be installed by Metropolitan Edison,
together with the facilities to be installed by us, are those necessary to allow
the interconnection of our facility with the transmission system of Metropolitan
Edison.
Metropolitan Edison is to complete the installation of the facilities
necessary to permit us to energize the switch yard and to begin commissioning of
our facility by June 30, 2000. If those facilities are completed prior to June
30, 2000, Metropolitan Edison will be paid an early completion bonus of $5,000
for each day of early completion up to and including 30 days (May 31, 2000). If
those facilities are completed after June 30, 2000, Metropolitan Edison will pay
delay damages of $5,000 for each day of delay up to and including 42 days
(August 11, 2000). We will also have the ability to take over the completion of
these facilities if it becomes apparent that Metropolitan Edison will not be
able to complete them within such 42-day period, Metropolitan Edison has not
proposed a reasonable recovery plan, and we can demonstrate that we are able to
complete the facilities more quickly than Metropolitan Edison.
Metropolitan Edison is to complete the installation of its portion of
the Interconnection Facilities and specific transmission system reinforcements
necessary to permit the dispatch of the full output of our facility by August
31, 2000.
Company's Obligations
We will install, own, operate and maintain a portion of the
Interconnection Facilities, including, but not limited to, a 230 kV switchyard,
including generator step up transformers, instrument transformers, revenue
metering, power circuit breakers, control and protective relay panels,
supervisory control and data acquisition equipment, and protective relaying
equipment.
We will reimburse Metropolitan Edison for its actual costs of
installing the Interconnection Facilities. Our payments to Metropolitan Edison
consist of an advance payment of $500,000 on the execution date of the
interconnection agreement, another payment of $40,000 within 30 days of the
execution date of the interconnection agreement (for work undertaken by
Metropolitan Edison prior to December 17, 1998), a payment of $1,000,000 at
financial closing and monthly invoices for the work performed.
We are obligated to modify our portion of the Interconnection
Facilities as may be required to conform to changes in good utility practice or
as required by PJM.
We are obligated to keep our facility insured against loss or damage in
accordance with the minimum coverages specified in the interconnection
agreement.
Operation and Maintenance of Interconnection Facilities
The parties are obligated to operate and maintain their respective
portions of the Interconnection Facilities in accordance with good utility
practices and the requirements and guidelines of PJM and Metropolitan Edison.
Metropolitan Edison will have the right to disconnect our facility from
its Transmission System and/or curtail, interrupt or reduce the output of our
facility when operation of our facility or the Interconnection Facilities
adversely affects the quality of service rendered by Metropolitan Edison or
interferes with the safe and reliable operation of its Transmission System or
the regional transmission system. Metropolitan Edison, however, is obligated to
use reasonable efforts to minimize any such disconnection, curtailment,
interruption or reduction in output.
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In accordance with good utility practice, Metropolitan Edison may
remove the Interconnection Facilities from service as necessary to perform
maintenance or testing or to install or replace equipment on the Interconnection
Facilities or the Transmission System. Metropolitan Edison is obligated to use
due diligence to restore the Interconnection Facilities to service as promptly
as practicable.
In addition, if we fail to operate, maintain, administer, or insure our
facility or its portion of the Interconnection Facilities, Metropolitan Edison
may, following 30 days' notice and opportunity to cure such failure, disconnect
our facility from the Transmission System.
Force Majeure
If either party is delayed in or prevented from performing or carrying
out its obligations under the interconnection agreement by reason of force
majeure, such party shall not be liable to the other party for or on account of
any loss, damage, injury or expense resulting from or arising out of such delay
or prevention; provided, however, that the party encountering such delay or
prevention shall use due diligence to remove the cause or causes thereof.
Default
The events of default under the interconnection agreement are:
o breach of a material term or condition and uncured failure to
provide a required schedule, report or notice;
o failure or refusal of a party to permit the representatives of the
other party access to maintenance records, or its Interconnection
Facilities or Protective Apparatus;
o appointment by a court of a receiver or liquidator or trustee that
is not discharged within 60 days, issuance by a court of a decree
adjudicating a party as bankrupt or insolvent or sequestering a
substantial part of its property that has not been discharged
within 60 days after its entry, or filing of a petition to declare
a party bankrupt or to reorganize a party under the Federal
Bankruptcy Code or similar state statute that has not been
dismissed within 60 days;
o voluntary filing by a party of a petition in bankruptcy or consent
to the filing of a bankruptcy or reorganization petition, an
assignment for the benefit of creditors, an admission by a party
in writing of its inability to pay its debts as they come due, or
consent to the appointment of a receiver, trustee, or liquidator
of a party or any part of its property; and
o failure to provide the other party with reasonable written
assurance of the party's ability to perform any of the material
duties and responsibilities under the interconnection agreement
within 60 days of a reasonable request for such assurance.
Upon an event of default, the non-defaulting party may give notice of
such event of default to the defaulting party. The defaulting party will have 60
days following the receipt of such notice to cure the default or to commence in
good faith the steps necessary to cure a default that cannot be cured within
that 60-day period. If the defaulting party fails to cure its default within 60
days or fails to take the steps necessary to cure a default that cannot be cured
within a 60-day period, the non-defaulting party will have the right to
terminate the interconnection agreement.
Metropolitan Edison will have the right to operate and/or to purchase
specific equipment, facilities and appurtenances from us that are necessary for
Metropolitan Edison to operate and maintain its Transmission System if (1) we
commence bankruptcy proceedings or petitions for the appointment of a trustee or
other custodian, liquidator, or receiver, (2) a court issues a decree for relief
of us or appoints a trustee or other custodian, liquidator, or receiver for us
or a substantial part of our assets and such decree is not dismissed within 60
days or (3) we cease operation for 30 consecutive days without having an
assignee, successor, or transferee in place.
Operations Agreement
We have entered into a Development and Operations Services Agreement,
dated as of June 1, 1999, with AES Prescott by which AES Prescott will provide
development and construction management services and, after the commercial
operation date, operating and maintenance services for our facility for a period
of 27 years. Under the operations agreement, AES Prescott will be responsible
for, among other things, preparing plans and budgets related to start-up and
commercial operation of our facility, providing qualified operating personnel,
making repairs, purchasing consumables and spare parts (not otherwise provided
under the maintenance services agreement) and providing other services as needed
according to industry standards. AES Prescott will be compensated for such
services on a cost plus
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fixed-fee basis. Under the services agreement between AES Prescott and The AES
Corporation, The AES Corporation will provide to AES Prescott all of the
personnel and services necessary for AES Prescott to comply with its obligations
under the operations agreement.
Effluent Supply Agreement
We, as assignee of AES Ironwood, Inc., have entered into an Effluent
Supply Agreement, dated as of March 3, 1998, with the City of Lebanon Authority,
by which City of Lebanon Authority will provide effluent to be used by us at the
electric generating facility to be constructed in South Lebanon Township,
Pennsylvania.
Supply of Effluent
Effluent Supply
Subsequent to completion of the pipeline connecting our facility with
the wastewater treatment facility owned and operated by City of Lebanon
Authority and throughout the term of the effluent supply agreement, City of
Lebanon Authority shall make available to us a supply of effluent not less than
2,160,000 gallons per day. In the event of a shortfall, we may elect to accept
potable water from City of Lebanon Authority in accordance with the effluent
supply agreement.
We shall not be obligated to purchase any minimum amount of effluent
and shall be entitled to seek and obtain water from other available sources.
City of Lebanon Authority shall use its best efforts to comply with requests by
us for excess effluent, which shall not exceed (1) 4,600,000 gallons per day or
(2) 1,679,000,000 gallons per calendar year. In addition, City of Lebanon
Authority shall use its best efforts to meet our minimum effluent requirements.
Compensation
We will pay City of Lebanon Authority monthly for all effluent
delivered to the point of delivery during the prior month. The base rate for
effluent supplied shall be: (1) for 0-2,160,000 gallons per day, $0.29 per
thousand gallons and (2) for 2,160,000 or greater gallons per day, $0.21 per
thousand gallons, which rates shall be subject to annual adjustment for
inflation.
Pipeline and Real Estate Rights
Concerning the Pipeline
We shall be solely responsible, at its cost and expense, for
constructing and installing the pipeline.
We and City of Lebanon Authority shall cooperate in good faith to
obtain the necessary real estate rights for constructing, operating, maintaining
and accessing the pipeline.
Operation and Maintenance
The City of Lebanon Authority shall operate and maintain the pipeline
in accordance with the effluent supply agreement, and as compensation, we shall
pay to City of Lebanon Authority $18,250 per year, which amount shall be subject
to annual adjustment for inflation.
Capital Improvements
The effluent supply agreement provides for capital improvements.
Potable Water
The City of Lebanon Authority shall make available to us on a
continuous basis a potable water supply of not less than 50 gallons per minute.
We shall not be obligated to purchase a minimum amount of potable water, but
shall pay the City of Lebanon Authority for potable water accepted at the
potable delivery point at the rate applicable to us set forth in City of Lebanon
Authority's applicable rate schedule.
Force Majeure
If either party shall be unable to carry out any obligation under the
effluent supply agreement due to force majeure, the effluent supply agreement
shall remain in effect, but such obligation shall be suspended for the period
necessary as a result of the force majeure; provided, that: (1) the
non-performing party gives the other party written notice not later than 48
hours after the occurrence of the force majeure describing the particulars of
the force majeure; (2) the suspension of performance is of no greater scope and
of longer duration than is required by the force majeure; and
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(3) the non-performing party uses its best efforts to remedy its inability to
perform. Notwithstanding the preceding, the settlement of strikes, lockouts, and
other labor disputes shall be entirely within the discretion of the affected
party, and such party shall not be required to settle any strike, lockout or
other labor dispute on terms which it deems inadvisable.
Term
The term of the effluent supply agreement shall be 25 years unless
terminated early as a result of (1) our inability to obtain financing for our
project; (2) our inability to obtain necessary approvals to construct and
operate our project; (3) failure by us to deliver the commencement notice by
December 31, 2004, or (4) the occurrence of any event of default.
Early Termination for Event of Default
A party may terminate the effluent supply agreement (1) upon a
bankruptcy event of the other party or (2) if the other party fails to perform
or observe any of its material obligations under the effluent supply agreement
within the time contemplated by the effluent supply agreement and such failure
continues for a period of time greater than 30 days from the defaulting party.
Pennsy Supply Agreements
We, as assignee of AES Ironwood, Inc., have entered into an Agreement
Relating to Real Estate, dated as of October 22, 1998, with Pennsy Supply, Inc.
under which Pennsy Supply has agreed to grant to us specific easements and the
right to pump water from Pennsy Supply-owned property. The easements, which are
primarily for access and utility purposes, would run from property owned by us,
on which it will develop and construct its electric generating facility, across
property owned by Pennsy Supply and require that our property be used as a power
plant. Pennsy Supply has also agreed to grant to us easements with respect to
storm-water facilities and construction of a rail spur. Pennsy Supply will make
water available to us during construction and testing of our facility and for as
long as we operate our facility. We will bear all costs and expenses with
respect to water-pumping. In consideration for the easements and the
water-pumping rights, we have agreed to convey to Pennsy Supply title to a
parcel of land adjacent to the property owned by us.
We have also entered into an Easement and Right of Access Agreement,
dated as of April 15, 1999, with Pennsy Supply under which Pennsy Supply has
granted us the rights and easements referred to in the prior paragraph as well
as specific other rights and easements required by us for the construction and
operation of our facility.
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ROLE OF THE INDEPENDENT ENGINEER
Stone & Webster will initially serve as the independent engineer in
accordance with the indenture.
Under a consulting services agreement with us, and in accordance with
the indenture, the independent engineer is responsible for confirming the
reasonableness of statements and projections made in specified certificates
required to be provided, including with respect to
o satisfaction of certain requirements under the construction
agreement;
o the cost of and occurrence of the completion of rebuilding,
repairing or restoring of our facility following an event of loss;
o under specified circumstances, the calculation of debt service
coverage ratios and the consistency of assumptions made in
connection with such calculations;
o whether any termination, amendment or modification of any project
contract would reasonably be expected to have a material adverse
effect; and
o specified tests required for the issuance of additional debt.
The trustee may remove the independent engineer if at any time the
independent engineer becomes incapable of acting or is, or is reasonably likely
to be, adjudged bankrupt or insolvent or a receiver is appointed for, or any
public officer shall take charge or control of, the independent engineer or its
property or its affairs for the purpose of rehabilitation, conservation or
liquidation, and shall appoint a successor independent engineer. Within 30 days
of receipt by the trustee of a written notification from us to the effect that
the independent engineer has failed to carry out its obligations in a timely
manner, and in other circumstances, the trustee must remove the independent
engineer and appoint a successor independent engineer from those engineers then
listed on a schedule to the indenture. We will pay for all services performed by
the independent engineer and its reasonable costs and expenses related to such
services.
If we and the independent engineer are in dispute in respect of a
notice, plan, report, certificate or budget and we are unable to resolve the
dispute within seven days of the independent engineer expressing its
disagreement with such notice, plan, report, certificate or budget, a single
independent third-party engineer will be designated to consider and decide the
issues raised by such dispute. The selection of such third-party engineer will
be made from the list of engineers described below. We must designate the
third-party engineer from such list not later than the third day following the
expiration of the seven-day period described above and such designation shall
become effective in three days. Within three days of the designation of a
third-party engineer, we and the independent engineer will submit to the
third-party engineer a notice setting forth in detail such person's position in
respect of the issues in dispute. Such notice shall include supporting
documentation, if appropriate.
The third-party engineer must complete all proceedings and issue his
decision with regard to the issues in dispute as promptly as reasonably
possible, but in any event within 10 days of the date on which he is designated
as third-party engineer, unless the third-party engineer reasonably determines
that additional time is required in order to give adequate consideration to the
issues raised. In such case the third-party engineer must state in writing his
reasons for believing that additional time is needed and shall specify the
additional period required, which such period shall not exceed 10 days without
our agreement.
If the third-party engineer determines that the position set forth in
the independent engineer's notice is correct, it must so state and must state
the corrective actions to be taken by us. In such case, we shall promptly take
such actions. We shall thereafter bear all costs which may arise from actions
taken under the third-party engineer's decision. If the third-party engineer
determines that the position set forth in the independent engineer's notice is
not correct, it must so state and must state the appropriate actions to be taken
by us. In such case, we shall take such actions and for purposes of the
indenture, the independent engineer and the trustee shall be deemed to have
approved, confirmed, concurred in or consented to the notice, plan, report,
certificate or budget in dispute. The decision of the third-party engineer will
be final and non-appealable. We shall bear all reasonable costs incurred by the
third-party engineer in connection with this dispute resolution mechanism.
The third-party engineer will be chosen from the list of qualified
engineers set forth in a schedule to the indenture. Such list will also be used
by the trustee to choose a successor independent engineer. At any time either we
or the trustee may remove a particular engineer from the list by obtaining the
other person's reasonable consent to such
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removal. However, neither we nor the trustee may remove a name or names from the
list if such removal would leave the list without at least two names, unless, at
the same time, we and the trustee reasonably agree to the addition of one or
more names to such list. During January of each year, we and the independent
engineer will review the current list of third-party engineers and give notice
to the trustee of any proposed additions to the list and any intended deletions.
Intended deletions will automatically become effective 30 days after the trustee
received notice unless the trustee makes a written objection within 30 days and
provided that such deletions do not leave the list fewer than two names.
Proposed additions to the list will automatically become effective 30 days after
the trustee received notice unless the trustee makes a written objection within
30 days. We may add a new name or names to the list of third-party engineers at
any time; provided, however, that no person will be added to such list or
authorized to act as third-party engineer unless such person is a competent firm
of professional engineers or consultants with a national reputation.
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DESCRIPTION OF THE NEW BONDS
General
We will issue new bonds under the indenture, dated as of June 25, 1999,
between us and the trustee. This is the same indenture under which the old bonds
were issued. We summarize below certain provisions of the indenture, but do not
restate the indenture in its entirety. We urge you to read the indenture because
it, and not this description, defines your rights as a holder of the notes.
Copies of the indenture and the other financing documents are available for
inspection during normal business hours at the offices of the trustee. The new
bonds will be issued in fully registered form without coupons and in
denominations of $100,000 and any integral multiple of $1,000 in excess thereof.
The indenture permits us to issue new bonds and any future senior
secured indebtedness under a supplemental indenture as may be authorized from
time to time in accordance with the indenture. We may also issue, subject to the
indenture, any other series of debt issued under the indenture through a
supplemental indenture on terms we established. See "SUMMARY OF PRINCIPAL
FINANCING DOCUMENTS--Indenture--Supplemental Indentures."
The new bonds will be direct obligations of ours and will be secured by
the collateral to the same extent as the old bonds.
Principal Amount, Interest Rate and Stated Maturity
We will issue the new bonds in the aggregate principal amount of
$308,500,000. The new bonds will bear interest at the rate per annum set forth
on the cover of this prospectus and have a final maturity date of November 30,
2025.
Payment of Interest and Principal
We will pay interest on the bonds every three months, on each February
28, May 31, August 31 and November 30, commencing August 31, 1999, to the
registered owners on the immediately preceding record date, as such information
appears on our books and records.
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We will pay principal on the new bonds in installments semiannually on
each February 28, May 31, August 31 and November 30, commencing February 28,
2002, to the registered owners on the immediately preceding record date as
follows:
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT PAYABLE
<TABLE>
<CAPTION>
YEAR FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ANNUAL TOTAL
- ---- ----------- ------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
2002 0.1600% 0.1600% 0.1600% 0.1600% 0.6400%
2003 0.3850% 0.3850% 0.3850% 0.3850% 1.5400%
2004 0.5150% 0.5150% 0.5150% 0.5150% 2.0600%
2005 0.5700% 0.5700% 0.5700% 0.5700% 2.2800%
2006 0.5800% 0.5800% 0.5800% 0.5800% 2.3200%
2007 0.7400% 0.7400% 0.7400% 0.7400% 2.9600%
2008 0.9200% 0.9200% 0.9200% 0.9200% 3.6800%
2009 0.7800% 0.7800% 0.7800% 0.7800% 3.1200%
2010 0.8150% 0.8150% 0.8150% 0.8150% 3.2600%
2011 1.0300% 1.0300% 1.0300% 1.0300% 4.1200%
2012 0.7600% 0.7600% 0.7600% 0.7600% 3.0400%
2013 0.9600% 0.9600% 0.9600% 0.9600% 3.8400%
2014 1.2900% 1.2900% 1.2900% 1.2900% 5.1600%
2015 1.2400% 1.2400% 1.2400% 1.2400% 4.9600%
2016 1.3550% 1.3550% 1.3550% 1.3550% 5.4200%
2017 1.4650% 1.4650% 1.4650% 1.4650% 5.8600%
2018 1.0100% 1.0100% 1.0100% 1.0100% 4.0400%
2019 1.2050% 1.2050% 1.2050% 1.2050% 4.8200%
2020 1.6250% 1.6250% 1.6250% 1.6250% 6.5000%
2021 1.6500% 1.6500% 1.2000% 1.2000% 5.7000%
2022 1.3900% 1.3900% 1.3900% 1.3900% 5.5600%
2023 1.5000% 1.5000% 1.5000% 1.5000% 6.0000%
2024 1.5500% 1.5500% 1.5500% 1.5500% 6.2000%
2025 1.7300% 1.7300% 1.7300% 1.7300% 6.9200%
=======
100%
</TABLE>
At our direction the trustee shall round principal amounts to be
redeemed to the nearest $1,000.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months and, for any period shorter than a full month, on the basis
of the actual number of days elapsed. Interest on the new bonds will accrue from
the most recent date to which interest has been paid on the old bonds.
Payment and Paying Agents
Principal, make-whole premium, if any, and interest in respect of the
new bonds will be payable at the office of the paying agent in the County of New
York, The City of New York. The trustee will serve as the principal paying agent
and transfer agent. The new bonds may be presented for payment of principal at
the office of any paying agent. Payments in respect of principal of the new
bonds will be made only against surrender of the new bonds. Payment in respect
of interest on any interest payment date with respect to any new bond will be
made to the person in whose name the new bond is registered on February 1, May
1, August 1 and November 1, each date a "regular record date", as the case may
be, immediately preceding such interest payment date, except that interest
payable at maturity will be payable to the person to whom the principal of the
new bond is paid. All payments of principal and interest with respect to
certificated new bonds, if any, will be made by dollar check drawn on a bank in
The City of New York or, for bondholders of at least U.S.$1,000,000 in aggregate
principal amount of bonds, by wire transfer to a dollar account maintained by
the payee with a bank in The City of New York; provided, that a written request
from the bondholder to that effect designating the account is received by the
trustee or the paying agent no later than the regular record date immediately
preceding such interest payment date. Unless such designation is revoked, any
such designation made by
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such person with respect to such certificated bonds will remain in effect with
respect to any future payments with respect to such certificated bonds payable
to such person. Payments with respect to global bonds will be made to DTC or its
nominee, as bondholder, under DTC's rules, regulations and procedures.
If any payment in respect of a new bond is due on a day that is, at any
place of payment, not a business day, the bondholder will not be entitled to
payment of the amount due until the next succeeding business day at such place
and will not be entitled to any further interest or other payment in respect of
any such delay.
The indenture provides that any money paid by us to the trustee for any
payment with respect to the new bonds that remains unclaimed for two years will
be repaid to us, and thereafter the bondholder will look only to us for payments
thereof as an unsecured creditor, and we shall not be liable to pay any taxes or
other duties in connection with such payment; provided, however, that unless
otherwise provided by applicable law, the right to receive payment of principal
and interest on any new bond, whether at maturity, redemption or otherwise, will
become void at the end of five years from the relevant date thereof, or such
shorter period as may be prescribed by applicable law.
Subject to specific limitations set forth in the indenture, we reserve
the right at any time to vary or terminate the appointment of the securities
registrar or any paying agent or transfer agent with or without cause, upon
giving 30 days' written notice to the securities registrar, such paying agent or
transfer agent, as the case may be, and the trustee, and to appoint another
securities registrar or additional or other paying agents or transfer agents and
to approve any change in the specified offices through which any paying agent or
transfer agent acts; provided, that we will at all times maintain a securities
registrar, paying agent and transfer agent in the County of New York, The City
of New York.
Optional Redemption
We may redeem all of the new bonds of each series, in whole or in part,
at our option at any time, at a redemption price equal to the outstanding
principal amount plus accrued and unpaid interest to the redemption date,
together with the applicable make-whole premium.
Mandatory Redemption
Event of Loss and Event of Eminent Domain
If either an event of loss or an event of eminent domain shall occur,
as soon as reasonably practicable but no later than the date of receipt by us or
the collateral agent of casualty proceeds or eminent domain proceeds, as the
case may be, we shall make a reasonable good faith determination as to whether
(1) our facility or any portion can be rebuilt, repaired or restored to permit
operation on a commercially feasible basis and (2) the casualty proceeds or the
eminent domain proceeds, as the case may be, together with any other amounts
that are available to us for such rebuilding, repair or restoration are
sufficient to permit such rebuilding, repair or restoration of our facility or a
portion thereof. Our determination shall be evidenced by a certificate as to
redemption filed with the collateral agent which, if we determine that our
facility or a portion thereof can be rebuilt, repaired or restored to permit
operation on a commercially feasible basis and that the casualty proceeds or the
eminent domain proceeds, as the case may be, together with any other amounts
that are available to us for such rebuilding, repair or restoration, are
sufficient, shall also set forth a reasonable good faith estimate by us of the
total cost of such rebuilding, repair or restoration. We shall deliver to the
collateral agent at the time it delivers the certificate as to redemption a
certificate of the independent engineer, dated the date of the certificate as to
redemption, confirming that, based upon reasonable investigation and review of
the determination made by us, the independent engineer believes the
determination and the estimate of the total cost, if any, set forth in the
certificate as to redemption to be reasonable.
We must redeem all of the new bonds upon an event of loss or an event
of eminent domain:
o in whole, at a redemption price equal to 100% of the principal
amount together with any accrued and unpaid interest through the
redemption date, within 90 days after receipt by the trustee of
casualty proceeds or eminent domain proceeds if our facility is
substantially destroyed and cannot be rebuilt, repaired or
restored to permit operation on a commercially feasible basis or
an event of eminent domain has occurred and our facility cannot be
operated on a commercially feasible basis, as the case may be. Our
obligation to redeem the bonds upon an event of loss or an event
of eminent domain under the preceding circumstances is not limited
to the casualty proceeds or eminent domain proceeds actually
received; or
o in part, at a redemption price equal to 100% of the principal
amount together with any accrued and unpaid interest through the
redemption date, within 90 days after receipt by the trustee of
casualty proceeds or eminent domain proceeds if a portion of our
facility is destroyed or taken but our facility can be rebuilt,
repaired or
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restored to permit operation on a commercially feasible basis. The
aggregate amount of the new bonds to be redeemed under this
paragraph will equal the amount received by the trustee for such
purpose in accordance with the provision of the collateral agency
agreement; provided, however, that the new bonds shall not be
subject to mandatory redemption when the proceeds not used for
rebuilding, repair or restoration do not exceed $5 million and we
certify to the trustee, which certification is confirmed by the
independent engineer, that (1) such proceeds are not needed for
rebuilding, repair or restoration of our facility or (2) not using
such proceeds for the rebuilding, repair or restoration of our
facility would not reasonably be expected to result in a material
adverse effect.
Any eminent domain proceeds and casualty proceeds received by the
trustee under the two preceding paragraphs shall be deposited in the redemption
subaccount.
Upon Receipt of Performance Liquidated Damages Under the Construction Agreement
If we receive performance liquidated damages under the construction
agreement, we shall, as soon as reasonably practicable, make a reasonable good
faith determination as to whether:
o it is technically feasible to modify, repair or replace any
portion of our facility in order to remedy the circumstances
giving rise to the obligation of Siemens Westinghouse to pay such
performance liquidated damages;
o the performance liquidated damages, together with any other
amounts that are available to us for such modification, repair or
replacement, are sufficient to permit such modification, repair or
replacement, including the making of all required payments of
interest and principal on our indebtedness during such
modification, repair or replacement;
o the projected average senior debt service coverage ratio, after
giving effect to such modification, repair or replacement and the
application of the performance liquidated damages to accomplish
the same, during the power purchase agreement term (taken as one
period) and the post-power purchase agreement period (taken as one
period) would be equal to or greater than the projected average
senior debt service coverage ratio set forth in the base case
projections for each such period included in this prospectus; and
o the projected minimum senior debt service coverage ratio, after
giving effect to such modification, repair or replacement and the
application of the performance liquidated damages to accomplish
the same, during the power purchase agreement term and the
post-power purchase agreement period would be equal to or greater
than the projected minimum senior debt service coverage ratio set
forth in the base case projections for each such period included
in this prospectus.
Our determination shall be evidenced by an officer's certificate, together with
such supporting detail as the collateral agent or the independent engineer may
reasonably request, filed with the collateral agent which, if we determine that
such portion of our facility can be modified, repaired or replaced and that the
other statements set forth above are true, shall also set forth our reasonable
good faith estimate of the total cost of such modification, repair or
replacement. We shall deliver to the collateral agent at the time we deliver the
officer's certificate referred to above a certificate of the independent
engineer, dated the date of the officer's certificate, stating that, based upon
reasonable investigation and review of the determinations, assumptions,
conclusions and estimates of costs made by us, the independent engineer believes
the determinations, assumptions, conclusions and estimates of costs set forth in
the officer's certificate are reasonable.
If the requirements of the preceding paragraph are satisfied, the
collateral agent shall apply the amounts received from Siemens Westinghouse to
the payment, or reimbursement to the extent the same have been paid or satisfied
by us, of the costs of modification, repair and replacement of that portion of
tour facility that requires modification, repair or replacement in order to
remedy the circumstances giving rise to the obligation of Siemens Westinghouse
to pay such performance liquidated damages. Upon receipt of an officer's
certificate from us, confirmed by the independent engineer, certifying that
o all modifications, repairs or replacements of that portion of our
facility that requires modification, repair or replacement in
order to remedy the circumstances giving rise to the obligation of
Siemens Westinghouse to pay performance liquidated damages have
been completed and
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o the projected debt service coverage ratio tests referred to in
the immediately preceding paragraph continue to be met,
the collateral agent shall transfer all remaining proceeds of the performance
liquidated damages to us or to whomever we in writing direct.
If the requirements of the preceding paragraph are not satisfied, then
we must redeem the new bonds.
Any performance liquidated damages under the construction agreement
received by the trustee under the preceding paragraph shall be deposited in the
redemption subaccount.
Upon Receipt of Proceeds Under the Guaranty by The Williams Companies, Inc.
If the power purchase agreement is terminated as a result of an event
of default by Williams Energy and we receive proceeds under the guaranty
provided by The Williams Companies, Inc. in respect thereof, we must redeem the
new bonds, in whole or in part, at a redemption price equal to 100% of the
principal amount together with any accrued and unpaid interest to the redemption
date, as soon as reasonably practicable, but in any event within 90 days of the
receipt of such proceeds. After the payment of specific administrative fees, the
aggregate amount of the new bonds to be redeemed under this paragraph, including
accrued and unpaid interest, will equal an amount which is equal to the amount
paid under the guaranty provided by The Williams Companies, Inc. multiplied by a
fraction the numerator of which is the then outstanding principal amount of the
new bonds and accrued and unpaid interest and the denominator of which is the
principal of and accrued and unpaid interest on all senior debt including the
new bonds.
Ratings
The new bonds are expected to be rated "BBB-" by Standard & Poor's and
"Baa3" by Moody's. Such ratings reflect only the views of the rating agencies at
the time the rating is issued, and any explanation of the significance of such
ratings may only be obtained from the rating agency. There is no assurance that
any such credit ratings will remain in effect for any given period of time or
that such ratings will not be lowered, suspended or withdrawn entirely by the
rating agency, if, in the rating agency's judgment, circumstances so warrant.
Any such lowering, suspension or withdrawal of any rating may have an adverse
effect on the market price or marketability of the new bonds.
Book-Entry, Delivery and Form
The new bonds will initially be represented by one or more permanent
global bonds in definitive, fully registered book-entry form that will be
registered in the name of Cede & Co., the global bond holder, as nominee of DTC.
The global bonds will be deposited on behalf of the acquirors of the new bonds
represented thereby with a custodian for DTC for credit to the respective
accounts of the acquirors or to such other accounts as they may direct at DTC.
See "THE EXCHANGE OFFER--Procedures for Tendering--Book-Entry Transfer."
The Global Bonds
We expect that under procedures established by DTC:
o upon deposit of the global bonds with DTC or its custodian, DTC
will credit on its internal system portions of the global bonds
that shall be comprised of the corresponding respective amounts of
the global bonds to the respective accounts of persons who have
accounts with such depositary; and
o ownership of the bonds will be shown on, and the transfer of
ownership thereof will be effected only through, records
maintained by DTC or its nominee, with respect to interests of
persons, or "participants," who have accounts with DTC, and the
records of participants, with respect to interests of persons
other than participants.
So long as DTC or its nominee is the registered owner or holder of any
of the bonds, DTC or such nominee will be considered the sole owner or holder of
such bonds represented by the global bonds for all purposes under the indenture
and under the bonds represented thereby. No beneficial owner of an interest in
the global bonds will be able to transfer such interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the indenture.
Payments on the bonds represented by the global bonds will be made to
DTC or its nominee, as the case may be, as the registered owner of the global
bonds. Neither we, the trustee nor any paying agent under the indenture will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial
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ownership interests in the global bonds or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment on the
bonds represented by the global bonds, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the global bonds as shown in the records of DTC or its nominee. We also expect
that payments by participants to owners of beneficial interests in the global
bonds held through such participants will be governed by standing instructions
and customary practice as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payment will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance
with DTC rules and will be settled in immediately available funds.
DTC has advised us that it will take any action permitted to be taken
by a holder of bonds, including the presentation of bonds for exchange as
described below, only at the direction of one or more participants to whose
account the DTC interests in the global bonds are credited and only in respect
of the aggregate principal amount as to which such participant or participants
has or have given such direction. However, if there is an event of default under
the indenture, DTC will exchange the global bonds for certificated securities
that it will distribute to its participants.
DTC has advised us as follows:
o DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered under
the provisions of Section 17A of the Exchange Act;
o DTC holds securities that its participants deposit with DTC and
facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical
movement of securities certificates;
o Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations;
o DTC is owned by a number of its participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc.;
o Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly; and
o The rules applicable to DTC and its participants are on file with
the SEC.
Although DTC is expected to follow these procedures in order to
facilitate transfers of interests in the global bonds among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC or its direct or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
Certificated Securities
As of the date of this prospectus, all of the interests in old bonds
are in book-entry form. It is not expected that any old bonds will be in
registered certificated form at the time of the exchange. It is expected that
all old bonds before the exchange, and all bonds outstanding after the exchange,
will be represented by global certificates for bonds in bearer form held by The
Bank of New York as depositary and that DTC will have a book-entry interest in
those bonds. Beneficial interests in those bonds will be held through
participants in DTC acting as securities intermediaries. Therefore, references
in this section to bonds are references to beneficial interests in the bonds in
book-entry form except where the discussion is explicitly about certificated
bonds, and references to owners are to owners of those beneficial interests.
Interests in the global bonds will be exchanged for certificated
securities if:
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o DTC or any successor depositary notifies us that it is unwilling
or unable to continue as depositary for the global bonds, or DTC
ceases to become a "clearing agency" registered under the Exchange
Act, and a successor depositary is not appointed by us within 90
days;
o an event of default has occurred and is continuing with respect to
the bonds and the registrar has received a request from DTC or any
successor depositary to issue certificated securities within 30
days of such request; or
o we determine not to have the bonds represented by global bonds.
Upon the occurrence of any of the events described in the preceding
sentence, we will cause the appropriate certificates securities to be delivered.
Neither we nor the trustee will be liable for any delay by DTC or any successor
depositary or its nominee in identifying the beneficial owners of the related
bonds. Each such person may conclusively rely on instructions from DTC or any
successor depositary or the nominee for all purposes, including the registration
and delivery and the respective principal amounts, of the new bonds to be
issued.
Owners of old bonds should instruct the brokers, dealers, commercial
banks or trust companies with whom they have securities accounts or their
nominees to tender for them. Exchanges by owners will be represented by an
exchange of global certificates for old bonds held by the depositary for global
certificates for new bonds. If fewer than all old bonds are tendered for
exchange, the depositary will hold separate global certificates for bonds
representing the appropriate aggregate amounts of remaining old bonds and of new
bonds.
Same-Day Settlement and Payment
The indenture requires that payments in respect of the bonds
represented by the global bonds, including principal, premium, if any, and
interest, be made by wire transfer of immediately available funds to the
accounts specified by the global bond holder. With respect to certificated
bonds, if any, we will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. Secondary trading in long-term
bonds and debentures of corporate issues is generally settled in clearinghouse
or next-day funds. In contrast, bonds represented by the global bonds are
expected to be eligible to trade in the PORTAL market and to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such bonds will, therefore, be required by DTC to be settled in
immediately available funds. We expect that secondary trading in the
certificated bonds will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear
or Cedel participant purchasing an interest in global bonds from a participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear or Cedel, immediately following the
settlement date of DTC. DTC has advised us that cash received in Euroclear or
Cedel as a result of sales of interests in a global bond by or through a
Euroclear or Cedel participant to a participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
Year 2000
DTC management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its systems, as the
same relate to the timely payment of distributions, including principal and
income payments, to securityholders, book-entry deliveries, and settlement of
trades within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase which is expected to be
completed within approximate time frames.
However, DTC's ability to perform property its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third-party vendors from whom DTC licenses software and
hardware, and third-party vendors on whom DTC relies for information or the
provision of services, including, telecommunication and electrical utility
service providers, among others. DTC has informed the financial community that
it is contacting, and will continue to contact, third-party vendors from whom
DTC acquires services to: (1) impress upon them the importance of such services
being Year 2000 compliant and (2) determine the extent of their efforts for Year
2000 remediation, and as appropriate, testing, of their services. In addition,
DTC is in the process of developing such contingency plans as it deems
appropriate.
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Limited Recourse Nature of the New Bonds
All obligations in connection with the new bonds are solely of our
obligations. The bondholders shall have recourse only to us and the collateral
for repayment of the new bonds. No holder of ownership interests in our company
or any other affiliate of ours or any of their respective incorporators,
stockholders, directors, officers or employees has or will guarantee the payment
of the new bonds. The bondholders shall have no claim against or recourse to the
holders of the ownership interests in our company or any other affiliate of ours
or their respective incorporators, stockholders, directors, officers or
employees by operation of law or otherwise for the repayment of the new bonds.
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SUMMARY OF PRINCIPAL FINANCING DOCUMENTS
The following summaries contain the material terms of the principal
financing documents. All capitalized terms used in the following and not
otherwise defined in this prospectus have the meanings given to them in Annex A
to this prospectus.
Indenture
Accounts
Indenture Accounts
The following accounts have been established by the trustee: the bond
payment account, including the interest payment subaccount, the principal
payment subaccount and the redemption subaccount, and the construction interest
account. All amounts from time to time held in each indenture account shall be
held in the name of the trustee subject to the lien and security interest
granted under the indenture and in the custody of the depositary bank on behalf
of the trustee.
Bond Payment Account
The trustee shall deposit (1) all funds held in the bond payment
account and all funds received by it for the payment of interest on the bonds
into the interest payment subaccount for disbursement in accordance with the
indenture and (2) all funds received by it for the payment of principal on the
bonds, including any funds transferred from the redemption subaccount, into the
principal payment subaccount for disbursement in accordance with the indenture.
Construction Interest Account
The trustee shall deposit all funds received by it for the payment of
interest on the bonds from and including the date of original issuance of the
bonds then outstanding to and through the commercial operation date into the
construction interest account. The trustee will disburse from the construction
interest account the amount required to pay interest on the bonds when due,
whether on an interest payment date or upon call for redemption or by
acceleration or otherwise. On the commercial operation date and upon our
delivery to the collateral agent and the trustee of a commercial operation
certificate, the trustee shall transfer all funds remaining in the construction
interest account to the bond payment account for deposit in the interest payment
subaccount.
Interest Payment Subaccount, Principal Payment Subaccount and Redemption
Subaccount
o The trustee is authorized and directed to disburse from the
interest payment subaccount, the amount required to pay interest on the bonds
when due, whether on an interest payment date or upon call for redemption or by
acceleration or otherwise.
o The trustee is authorized and directed to disburse from the
principal payment subaccount, the amount required to pay principal on the bonds
when due, whether on a principal payment date or upon call for redemption or by
acceleration or otherwise.
o The trustee is authorized and directed to disburse funds from the
redemption subaccount, when amounts on deposit therein equal or exceed
$5,000,000, for the redemption of bonds in accordance with the indenture. The
preceding notwithstanding, the trustee shall transfer funds remaining in the
redemption subaccount for more than one year and not applied to the redemption
of bonds under the indenture to the principal payment subaccount for application
by the trustee in accordance with the indenture.
Affirmative Covenants
We have made the following affirmative covenants in the indenture:
Payment of Principal, Premium, if any, and Interest
We shall duly and punctually pay, or cause to be paid, the principal
of, premium, if any, and interest on, and all other amounts payable in respect
of, the bonds in accordance with their terms and the terms of the indenture and
of the related series supplemental indenture.
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Reporting Requirements
We shall furnish to the senior creditors:
(1) as soon as practicable and in any event within 60 days after the
end of the first, second and third quarterly accounting periods of each fiscal
year, commencing with the quarter ending September 30, 1999, an unaudited
balance sheet as of the last day of such quarterly period and the related
statements of income and cash flows, and reports of all dividends and other
distributions paid to owners during such quarterly period prepared in accordance
with GAAP and, in the case of second and third quarterly periods, for the
portion of the fiscal year ending with the last day of such quarterly period;
(2) as soon as practicable and in any event within 120 days after the
end of each fiscal year, commencing with the fiscal year ended December 31,
1999, a balance sheet as of the end of such year and the related statements of
income and cash flow during such year;
(3) at the time of the delivery of the financial statements provided
for in clauses (1) and (2) above, an officer's certificate to the effect that,
to the best of such officer's knowledge, (a) we are in compliance with all of
our material obligations under the terms of the transaction documents the
non-performance of which has resulted or could reasonably be expected to result
in a material adverse effect and (b) to the best of such officer's knowledge, no
default or event of default has occurred and is continuing or, if any default or
event of default has occurred and is continuing, specifying the extent thereof
and what action we are taking or proposes to take in response; and
(4) each of the following items:
o promptly after we obtain actual knowledge of the occurrence
thereof, written notice of the occurrence of any event or condition which
constitutes an event of default and an officer's certificate, setting forth the
details thereof and the action which we are taking or proposes to take;
o promptly after we obtain actual knowledge of the occurrence
thereof, written notice of the occurrence of any event of eminent domain or any
event of loss and an officer's certificate, setting forth the details and the
action which we are taking or proposes to take; and
o until the occurrence of the commercial operation date, within 45
days after the end of each fiscal quarter, commencing with its quarter ending
September 30, 1999, a quarterly construction report describing the progress of
our facility's construction and expenditure of funds;
(5) we shall furnish or cause to be furnished to the senior creditors
no later than six months prior to the expiration of the term of the power
purchase agreement an independent forecast prepared by an independent consultant
which sets forth projections of (a) electricity prices for the PJM power pool
market (or if such market no longer exists at such time, any successor market or
substitute market as determined in good faith by us which approximates, to the
extent practicable, such region) and (b) gas prices on a delivered basis to our
facility, in each case on at least an annual basis through the final maturity
date for the bonds; provided, that we should not be required to provide the
independent forecast if:
o we enter into a replacement power purchase agreement, effective as
of the expiration of the power purchase agreement and extending to
at least the final maturity date for the bonds,
o the projected senior debt service coverage ratio through the final
maturity date for the bonds, based on the provisions of such
replacement power purchase agreement shall be greater than 2.0 to
1 and
o the senior unsecured long term debt of such power purchaser(s)
under such agreement(s) is rated at least investment grade;
(6) upon the request of any bondholder, or the trustee on behalf of a
holder of a beneficial interest in the bonds, we shall furnish such information
as is specified in paragraph (d)(4) of Rule 144A to such bondholder, and holders
of beneficial interests in the bonds, to a prospective purchaser of the bonds,
and prospective purchasers of beneficial interests in the bonds, who is a
Qualified Institutional Buyer or Institutional Accredited Investor or to the
trustee for delivery to such bondholder or prospective purchaser of the bonds,
as the case may be, unless, at the time of such request, we are subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act;
(7) all such information provided to the senior creditors under
clauses (1), (2), (3) and (4) above shall also be provided by the trustee (a) to
the bondholders and (b) to holders of beneficial interests in the bonds or
prospective
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purchasers of the bonds or beneficial interests in the bonds upon written
request to the trustee, which may be a single continuing request. We shall
furnish the trustee, upon its request, with sufficient copies of all such
information to accommodate the requests of the holders of beneficial interests
in the bonds; and
(8) the information specified in paragraphs (1), (2), (3), (4) and (5)
above shall be provided to each rating agency concurrently with its delivery to
the senior creditors.
Insurance Report
Insurance
We shall maintain or cause to be maintained in accordance with the
terms of the indenture the following insurance coverages: (1) during
construction of our facility, builder's risk, delayed start-up, comprehensive
general liability, workers' compensation and employer's liability, automobile
liability and umbrella liability; and (2) subsequent to transfer of care,
custody and control of the facility to us, all risk property and boiler and
machinery insurance, business interruption, comprehensive general liability,
workers' compensation and employer's liability, automobile liability and
umbrella liability. All policies of insurance except workers' compensation and
automobile liability policies shall name the collateral agent and Williams
Energy as additional insureds. If at any time any of the required insurance
shall no longer be available on commercially reasonable terms, as confirmed by
the independent insurance adviser, we shall procure substitute insurance
coverage reasonably satisfactory to the independent insurance advisor that is
the most equivalent to the required coverage and that is available on
commercially reasonable terms.
Maintenance of Existence, Liens and Governmental Approvals
We shall at all times:
o preserve and maintain in full force and effect (1) its existence
as a limited liability company and its good standing under the laws of the State
of Delaware and (2) its qualification to do business in each other jurisdiction
in which the character of the properties owned or leased by it or in which the
transaction of its business as conducted or proposed to be conducted makes such
qualification necessary;
o obtain and maintain in full force and effect all governmental
approvals, including maintaining compliance with environmental laws, and other
consents and approvals required at any time in connection with the construction,
maintenance, ownership or operation of our facility;
o preserve and maintain good and marketable title to its properties
and assets, subject to no liens other than permitted liens; and
o preserve and maintain liens of the senior creditors on the
collateral.
Operating and Maintenance
We shall, or shall cause the operator to, use, maintain and operate our
facility and the facility site in compliance with generally accepted prudent
operating and maintenance practices and the material provisions of all relevant
project contracts.
Compliance with Applicable Laws
We shall comply with, and shall ensure that our facility is constructed
and operated in compliance with, and shall make such alterations to our facility
and the facility site as may be required for compliance with, all applicable
laws, environmental laws and governmental approvals, except where noncompliance
would not reasonably be expected to result in a material adverse effect.
Project Contracts; Guaranty by The Williams Companies, Inc.; Operation of our
Facility
We shall (1) perform and observe in all material respects our covenants
and agreements contained in any of our project contracts, (2) enforce, defend
and protect all of our rights contained in any of our project contracts and (3)
take all reasonable and necessary actions to prevent the termination or
cancellation of any of our project contracts, except in case of (1) and (2)
above, where such non-performance could not reasonably be expected to have a
material adverse effect.
We (1) shall fully enforce our rights under the guaranty provided by
The Williams Companies, Inc. and the power purchase agreement with respect to
substitute security under the circumstances provided for therein and (2) shall
not, without the consent of bondholders holding a majority in outstanding
principal amount of the bonds, make a demand
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for or take any legal action under the guaranty provided by The Williams
Companies, Inc. if, as a result of payments made under such demand or legal
action by us, the aggregate amount available under the guaranty provided by The
Williams Companies, Inc. would be less than or equal to the principal amount of
the then outstanding senior debt, including the undrawn portions of the maximum
amounts of any debt service reserve letter of credit or construction period
letter of credit. We shall (1) upon any payment event of default or other event
of default under the power purchase agreement, exercise our rights to terminate
the power purchase agreement in accordance with its terms, (2) if of any
termination of the power purchase agreement, fully enforce its rights under the
guaranty provided by The Williams Companies, Inc. and (3) use any amounts
obtained under the guaranty provided by The Williams Companies, Inc. to redeem
the bonds in accordance with the indenture and to pay principal and interest on
our other senior debt in accordance with the financing documents and in each
case in accordance with the collateral agency agreement.
We shall (1) exercise all of our rights under the operations agreement
to terminate such agreement if (a) a bankruptcy event in respect of the operator
has occurred and is continuing and (b) the operator has failed to perform any
material obligation under the operations agreement and (2) exercise our rights
under the operations agreement to cause the operator to terminate the services
agreement under the terms of that agreement if (a) a bankruptcy event in respect
of The AES Corporation has occurred and is continuing and (b) The AES
Corporation has failed to perform any material obligation under the services
agreement.
Annual Budget
Not less than 30 days prior to (1) the anticipated commercial operation
date, and thereafter (2) the commencement of each fiscal year, we shall provide
to the senior creditors and the rating agencies an annual budget. The first
annual budget shall cover the period from the commercial operation date through
the end of the fiscal year in which the commercial operation date occurs, and if
such period consists of less than six months, for the immediately succeeding
fiscal year. Each annual budget shall specify the estimated sales of capacity
and energy under the power purchase agreement and any replacement power purchase
agreement and all other sales of capacity and energy, the estimated rates and
revenues for each category of such sales, all operating and maintenance costs, a
manpower forecast, a periodic inspection, maintenance and repair schedule, a
description of all required capital expenditures and the underlying operating
assumption and implementation plans for the fiscal year covered by such annual
budget. We shall operate and maintain our facility, or cause our facility to be
operated and maintained, in accordance with the annual budget other than
deviations resulting from operating requirements under our project contracts or
prudent operating and maintenance practices.
Insurance Report
Within 30 days after the end of each fiscal year, we shall submit to
the senior creditors and each rating agency that currently is rating any of the
bonds then outstanding a certificate (1) listing all insurance being carried by,
or on behalf of, us under the indenture and (2) certifying that all insurance
policies required to be maintained under our project contracts and the indenture
are in full force and effect and all premiums therefor have been fully paid.
Inspection
The senior creditors shall have the right, upon reasonable advance
written notice, to inspect our facility and the facility site from time to time;
provided, that we shall have the right to specify reasonable dates and times for
any such inspection in order to avoid any material interference with operation
of our facility.
Construction of our Facility
We shall cause the construction of our facility to be prosecuted and
completed with diligence and continuity, except for interruptions provided for
in the construction agreement or due to events of force majeure, which events
of force majeure we shall use our best efforts to mitigate, in a good and
workmanlike manner and in accordance with sound, generally accepted building and
engineering practices, all material applicable governmental requirements and the
construction agreement. We shall at all times cause a complete set of the
current and, when available, as-built plans, and all supplements, relating to
our facility to be maintained on the facility site or Siemens Westinghouse's
offices and available for inspection by thereto independent engineer.
Contractor Performance Tests; Final Acceptance
The independent engineer shall have the right to witness and verify the
performance tests required by the construction agreement. We shall not, without
the prior written confirmation by the independent engineer, either
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(1) grant the Final Acceptance Certificate to Siemens Westinghouse under the
construction agreement or (2) elect to effect Final Acceptance under the
construction agreement.
Casualty Proceeds; Eminent Domain Proceeds
We shall cause all casualty proceeds and eminent domain proceeds to be
deposited in the restoration account under the collateral agency agreement.
Payment of Taxes and Impositions
We will pay or cause to be paid, before any fine, interest or penalty
is imposed, all impositions. If, under any applicable law, any impositions may
at our option be paid in installments, whether or not interest shall accrue on
the unpaid balance, we shall have the right; to exercise such option and to
pay or cause to be paid such impositions and any accrued interest in
installments as they fall due and before any fine, penalty, further interest or
cost may be added; provided, that no event of default shall then exist.
We will pay all taxes and other governmental charges (including stamp
taxes) assessed by any governmental authorities and imposed on the collateral
agent, its successors or assignees, by reason of the collateral agent's
ownership of the mortgage or the other security documents or payable by either
us or the collateral agent upon any modification, amendment, extension and/or
consolidation. We will also pay any tax imposed directly or indirectly on the
mortgage in lieu of a tax on the mortgaged property or any part thereof, whether
by reason of (1) the passage after the date of the mortgage of any law of the
Commonwealth of Pennsylvania deducting from the value of real property for the
purposes of taxation any lien, (2) any change in the laws for the taxation of
mortgages or debts secured by mortgages for state or local purposes, (3) a
change in the means of collection of any such tax or (4) any tax, now or
hereafter assessed against the mortgage or assessed against, or withheld from,
any payments made by us under the indenture.
We will not claim or demand or be entitled to any credit or credits for
the payment of any Impositions, and no deduction shall otherwise be made or
claimed from the taxable value of the mortgaged property, or any part thereof,
by reason of the mortgage.
Preservation of Lien of Mortgage
We will (1) preserve our right, title and interest in and to the
mortgaged property and will warrant and defend the same against any and all
claims and demands whatsoever, (2) continue to have full power and lawful
authority to encumber and convey the mortgaged property as provided in the
mortgage and (3) maintain and preserve the priority of the lien of the mortgage
until all of the obligations under the financing documents are paid and
performed in full.
Negative Covenants
We will make the following negative covenants:
Limitations on Additional Indebtedness
We shall not create or incur or suffer to exist any indebtedness or
lease obligations except for:
o the bonds;
o indebtedness incurred under the debt service reserve letter of
credit and reimbursement agreement or any construction period
letter of credit and reimbursement agreement;
o letters of credit and other financial obligations arising under
our project contracts;
o affiliate subordinated debt;
o purchase money obligations incurred to finance discrete items of
equipment not comprising an integral part of our project that
extend only to the equipment being financed and that do not in the
aggregate have annual debt service or lease obligations exceeding
$5 million;
o trade accounts payable, other than for borrowed money, arising,
and accrued expenses incurred, in the ordinary course of business
so long as such trade accounts payable are payable within 90 days
of the date the respective goods are delivered or the respective
services are rendered;
o obligations in respect of surety bonds or similar instruments in
an aggregate amount not exceeding $5 million at any one time
outstanding;
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o any lines of credit for working capital purposes in the maximum
amount of $5 million;
o senior debt used for an expansion of our facility; provided,
however, that such senior debt may not be issued unless (1) (a)
the projected average senior debt service coverage ratio, after
giving effect to such senior debt, is at least 1.50 to 1.0 through
the end of the power purchase agreement term (taken as one period)
and at least 2.50 to 1.0 during the post-power purchase agreement
period (taken as one period) and (b) the projected minimum senior
debt service coverage ratio, after giving effect to such senior
debt, is at least 1.30 to 1.0 through the end of the power
purchase agreement term and at least 2.15 to 1.0 during the
post-power purchase agreement period; (2) we provide a ratings
reaffirmation from each of the rating agencies; and (3) the
trustee does not, within 60 days of notice to holders of the bonds
setting forth a summary of the terms of such senior debt and a
description of the facilities to be constructed with the proceeds
of such senior debt, receive an instruction from persons holding a
majority in principal amount of the bonds not to permit the
issuance of such senior debt; and
o senior debt or subordinated debt, from persons who are not
affiliates of ours, for required modifications to our facility and
optional modifications to our facility; provided, however, that we
may issue (1) senior debt on a parity basis with the bonds only
for required modifications to our facility and only if (a) the
projected average senior debt service coverage ratio, after giving
effect to such senior debt, is at least 1.30 to 1.0 through the
end of the power purchase agreement term (taken as one period) and
at least 2.0 to 1.0 during the post-power purchase agreement
period (taken as one period) or (b) we provide a ratings
reaffirmation from each of the rating agencies; (2) subordinated
debt for required modifications to our facility only if (x) the
projected average total debt service coverage ratio, after taking
into account such subordinated debt, is at least 1.20 to 1.0
through the end of the power purchase agreement term (taken as one
period) and at least 1.65 to 1.0 during the post-power purchase
agreement period (taken as one period) and (B) the projected
minimum total debt service coverage ratio, after giving effect to
such subordinated debt, is at least 1.1 to 1.0 through the power
purchase agreement term and at least 1.35 to 1.0 during the
post-power purchase agreement period, or (2) we provide a ratings
reaffirmation from each of the rating agencies; or (3)
subordinated debt for optional modifications to our facility only
if we provide a ratings reaffirmation from each of the rating
agencies. In the case of clauses (2) and (3) of the preceding
proviso, the final maturity date of such subordinated debt shall
not be earlier than the final maturity date for the bonds and the
average life of such subordinated debt must be no shorter than the
average remaining life of the bonds.
Restricted Payments
We shall not make any payments restricted under the indenture unless
the distribution conditions set forth in the collateral agency agreement have
been satisfied. See "SUMMARY OF PRINCIPAL FINANCING DOCUMENTS--Collateral Agency
Agreement--Distribution Account."
Prohibition of Change in Control
We shall not engage in, or permit to occur, any change in control,
where change in control means any failure by The AES Corporation, at all times
while bonds are outstanding, to maintain directly or indirectly at least a 51%
voting and economic interest in our company, unless prior to giving effect to
the reduction in the voting or economic interest of The AES Corporation in our
Company either (1) each of the rating agencies provides a ratings reaffirmation
to the trustee or (2) the reduction in The AES Corporation's voting or economic
interest has been approved by bondholders holding at least 66-2/3% in aggregate
principal amount of the bonds.
Nature of Business
We shall not engage in any business other than the development,
financing, construction and operation and maintenance of our facility as
contemplated by our project contracts.
Amendments to Project Contracts
We shall not, except as otherwise expressly set forth in the financing
documents, terminate, amend or modify, other than immaterial amendments or
modifications as certified by us, any of our project contracts to which we are a
party, or consent to any assignment by another party, unless (1) we certify to
the senior creditors that such termination, amendment, modification or
assignment is not reasonably expected to result in a material adverse effect and
such termination, amendment, modification or assignment is not reasonably
expected to materially increase the likelihood of the occurrence of a future
material adverse effect and (2) the independent engineer does not within 10
business days of
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receipt of such certificate disagree in writing to the certification provided
under clause (1); provided, however, that we shall not:
o amend or modify the power purchase agreement unless in addition to
the requirements of clauses (1) and (2) above, we certify that
such amendment or modification would not cause our net operating
revenues to decrease by more than 5% and such certification is
confirmed by the independent engineer,
o except as otherwise expressly set forth in the financing
documents, terminate the power purchase agreement or consent to
any release of, assignment by or change in the identity of
Williams Energy unless (1) within 90 days of such termination or
consent resulting from an event of default by Williams Energy
under the power purchase agreement, or prior to any such
termination or consent or for any other reason we (a) enter into a
replacement power purchase agreement or (b) provide the senior
creditors and each of the rating agencies with a power marketing
plan and (2) we provide to the trustee and the collateral agent a
ratings reaffirmation from each rating agency within such 90-day
period or prior to such termination or consent, as the case may
be, or
o release or modify in any way the guaranty provided by The Williams
Companies, Inc. unless we obtain substitute security therefor
under the power purchase agreement.
Prohibition on Fundamental Changes and Disposition of Assets
We shall not enter into any transaction of merger or consolidation,
change our form of organization or our business, liquidate or dissolve
ourselves, or suffer any liquidation or dissolution, except as permitted in the
indenture. We shall not amend its governing instruments except where such
amendment could not reasonably be expected to result in a material adverse
effect. We shall not purchase or otherwise acquire all or substantially all of
the assets of any other person; provided, that we may maintain ownership
interests in subsidiaries if such subsidiaries are involved in operation,
maintenance or fuel supply for our facility. In addition, except as contemplated
by our project contracts or permitted under the indenture, or as authorized by
the first and second provisos below, we shall not sell, lease (as lessor) or
transfer (as transferor) any property or assets material to the operation of our
facility except in the ordinary course of business to the extent that such
property is worn out or is no longer useful or necessary in connection with the
operation of our facility; provided, however, that:
o we shall not sell, lease or transfer any of such property or
assets without the written approval of the collateral agent, if
the aggregate fair market value of all sales, leases and transfers
in the current fiscal year exceeds $5 million; and
o we may loan useful spare parts to other electric power generating
facilities owned by an affiliate of ours without prior approval of
the trustee or the collateral agent on the conditions that, with
respect to any spare part whose value is in excess of $50,000, (1)
at the time of the loan the recipient of the spare part enters
into an enforceable obligation to replace the spare part in kind,
or to pay to us an amount equal to the replacement value of the
spare part, within 30 days of our demand for the same and (2) we
certify to the collateral agent that the spare part shall not be
necessary for a planned outage or for scheduled maintenance of our
facility prior to being replaced, and such certificate is
confirmed by the independent engineer.
Liens
We shall not create or suffer to exist or permit any lien upon or with
respect to any of its properties, other than permitted liens.
Transactions with Affiliates
We shall not enter into any transactions with affiliates other than (1)
the operations agreement and the equity subscription agreement and (2)
transactions in the ordinary course of business on fair and reasonable terms no
less favorable to us than we would obtain in an arm's length transaction with an
unaffiliated third party.
Change Orders
We shall not initiate or approve any change order under the
construction agreement that individually exceeds $5,000,000 or when aggregated
with all other change orders exceeds $10,000,000, unless we certify in writing
to the collateral agent that (1) such change order is technically feasible, (2)
such change order is not reasonably expected to materially and adversely affect
the operation or reliability of our facility, (3) the implementation of such
change order is not reasonably expected to cause the commercial operation date
to occur after December 31, 2002 and (4) adequate funds
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are available to us to fund such change orders and other project costs through
the commercial operation date, and such certification is confirmed by the
independent engineer.
Events of Default
Events of default under the indenture shall include the following:
o We shall fail to pay any principal, interest or premium, if any,
including any make-whole premium, on a bond when the same becomes due and
payable, whether at scheduled maturity or required prepayment or by acceleration
or otherwise and such failure shall continue for 10 or more days; or
o Any representation or warranty made by us in the indenture shall
prove to have been false or misleading in any respect as of the time made,
confirmed or furnished and the inaccuracy has resulted or is reasonably expected
to result in a material adverse effect and the circumstances surrounding such
misrepresentation shall continue uncured for 30 or more days from the discovery
thereof; provided, that if we commence efforts to cure the factual situation
resulting in such misrepresentation within such 30-day period, we may continue
to effect such cure of the misrepresentation, and such misrepresentation shall
not be deemed an event of default, for an additional 60 days so long as an
authorized representative of ours certifies that no other event of default has
occurred and is continuing and we are diligently pursuing the cure; or
o We shall fail to maintain insurance in accordance with the
indenture; or
o We shall fail to perform or observe covenants or agreements in the
indenture with respect to the following: maintenance of existence and
governmental approvals; nature of business; compliance with applicable laws;
amendments to project contracts; prohibition on fundamental changes and
disposition of assets; liens; indebtedness; or restricted payments; and such
failure shall continue uncured for more than 30 days after we have actual
knowledge of such failure; or
o A change in control shall have occurred; or
o We shall fail to perform or observe any of our covenants or
agreements contained in any other provision of the indenture not referred to
above and such failure shall continue uncured for more than 30 days after we
have actual knowledge of such failure; provided, that if we commence efforts to
cure such default within such 30-day period and is diligently attempting to cure
such default, and certifies to the trustee the steps it is taking, we may
continue to effect such cure of the default (and such default shall not be
deemed an event of default) for an additional 60 days so long as we certify that
no other event of default has occurred and is continuing and we are diligently
pursuing such cure; or
o We or, so long as The AES Corporation has any outstanding
obligations under any acceptable credit support, The AES Corporation or, so long
as AES Ironwood, Inc. has any outstanding obligations under the equity
subscription agreement, AES Ironwood, Inc. shall (1) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or substantially all of its property, (2)
admit in writing its inability, or be generally unable, to pay its debts as such
debts become due, (3) make a general assignment of the benefit of its creditors,
(4) commence a voluntary case under the Bankruptcy Code, (5) file a petition
seeking to take advantage of any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts, (6) fail
to controvert in a timely and appropriate manner, or acquiesce in writing to,
any petition filed against such person in an involuntary case under the
Bankruptcy Code or (7) take any corporate or other action for the purpose of
effecting any of the preceding; or
o A proceeding or case shall be commenced without the application or
consent of ours or, so long as The AES Corporation has any obligations under any
acceptable credit support, The AES Corporation or, so long as AES Ironwood, Inc.
has any outstanding obligations under the equity subscription agreement, AES
Ironwood, Inc. in any court of competent jurisdiction, seeking (1) its
liquidation, reorganization, dissolution, winding-up or the composition or
readjustment of debts, (2) the appointment of a trustee, receiver, custodian,
liquidator or the like of such person under any law relating to bankruptcy,
insolvency, reorganization, winding-up or the composition or adjustment of
debts, and such proceeding or case shall continue undismissed, or any order,
judgment or decree approving or ordering any of the preceding shall be entered
and continue unstayed and in effect, for a period of 90 or more consecutive
days, or (3) any order for relief against such person shall be entered in an
involuntary case under the Bankruptcy Code (each event described in this
paragraph and in the preceding clause referred to as a "bankruptcy event"); or
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o A final and non-appealable judgment or judgments for the payment
of money in excess of $15,000,000 shall be rendered against us, and the same
remain unpaid or unstayed for a period of more than 60 or more consecutive days
from the date of entry; or
o An "event of default" has occurred and is continuing under the
debt service reserve letter of credit and reimbursement agreement, the
construction period letter of credit and reimbursement agreement or any other
indebtedness of ours the holder of which, or an agent or trustee therefor, is a
party to the collateral agency agreement, other than indebtedness incurred under
the indenture, or an "event of default" has occurred and is continuing in
respect of any other indebtedness of ours in excess of $15,000,000; or
o With respect to any project contract: (1) such project contract
is declared unenforceable by a governmental authority, (2) any other party
denies it has a material obligation under such project contract or (3) any
other party defaults in respect of its obligations under such project contract,
and in the case of each event described in clause (1), (2) or (3), such event
would be likely to result in a material adverse effect; provided, however, that
none of such events shall be an event of default under the indenture if within
180 days (90 days in respect of the power purchase agreement or the
construction agreement) from the occurrence of such event (a) the other party
resumes performance or enters into an alternative agreement with us or (b) we
enter into a replacement contract or contracts with another party or parties
which (A) contain, as certified by us, substantially equivalent terms and
conditions or, if such terms and conditions are no longer available on a
commercially reasonable basis, the terms and conditions then available on a
commercially reasonable basis and (B) either (1) we provide to the trustee and
the collateral agent a ratings reaffirmation from each rating agency or (2) we
certify that we would, after giving effect to the alternative agreement,
maintain a projected minimum senior debt service coverage ratio in any year
during the remaining term of the bonds equal to or greater than the lesser of
(x) the projected minimum annual senior debt service coverage ratio which would
have been in effect had performance under the original project contract
continued and (y) 1.25 to 1.0 or (c) in the case of the power purchase
agreement, we deliver to the trustee and collateral agent a power marketing
plan and obtains a ratings reaffirmation from each rating agency; or
o Any grant of a lien contained in the security documents shall
cease to be effective to grant a perfected lien to the trustee or the collateral
agent on a material portion of the collateral described therein with the
priority purported to be created thereby; provided, however, that we shall have
10 days from actual knowledge to cure any such cessation; or
o The construction of our facility is permanently abandoned; or
o AES Ironwood, Inc. fails to perform or breaches any of its payment
obligations under the equity subscription agreement and such failure or breach
continues for 10 business days or more; or
o Any acceptable credit provider fails to perform or breaches any
of its payment obligations under any acceptable credit support and such
failure or breach continues for 10 business days or more.
Remedies upon Default
(1) If one or more events of default shall have occurred and be
continuing, then:
o in the case of a bankruptcy event, the entire principal amount of
the bonds then outstanding, all interest accrued and unpaid thereon, and all
premium payable under the bonds and the indenture, if any, shall automatically
become due and payable without presentment, demand, protest or notice of any
kind, all of which are waived; or
o in the case of any other event of default, the trustee may, and
upon written direction of the bondholders of not less than 33-1/3% of the
aggregate principal amount of the bonds then outstanding, the trustee shall, by
notice to us, declare the entire principal amount of the bonds, all interest
accrued and unpaid, and all premium payable under the bonds and the indenture,
if any, to be due and payable, whereupon the same shall become due and payable
without presentment, demand, protest or further notice of any kind, all of which
are waived; or
o the trustee shall, if the required bondholders request in writing
to the trustee, direct the collateral agent, to the extent permitted under the
collateral agency agreement, to take possession of all the collateral and, under
the collateral agency agreement, to sell the collateral, as and to the extent
permitted under the collateral agency agreement;
(2) If an event of default occurs and is continuing and is known to
the trustee, as described in the indenture, the trustee shall mail to each
bondholder a notice of the event of default within 30 days after the occurrence
thereof. Except in the case of an event of default in payment of principal of or
interest on any bond, the trustee may withhold the
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notice to the bondholders if a committee of its trust officers in good faith
determines that withholding the notice is in the interest of the bondholders;
(3) At any time after the principal of the bonds shall have become due
and payable upon a declared, but not an automatic, acceleration as provided in
the indenture, and before any judgment or decree for the payment of the money so
due, or any portion thereof, shall be entered, the bondholders of not less than
a majority in aggregate principal amount of the bonds then outstanding, by
written notice to us and the trustee, may rescind and annul such declaration and
its consequences if:
o there shall have been paid to or deposited with the trustee a sum
sufficient to pay
(a) all overdue installments of interest on the bonds,
(b) the principal of and premium, if any, on any bonds
that have become due otherwise than by such
declaration of acceleration and interest at the
respective rates provided in the bonds for late
payments of principal or premium,
(c) to the extent that payment of such interest is
lawful, interest upon overdue installments of
interest at the respective rates provided in the
bonds for late payments of interest, and
(d) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses,
disbursements, and advances of the trustee, its
agents and counsel, and
o all events of default, other than the non-payment of the
principal of the bonds that has become due solely by such acceleration, have
been cured or waived as provided in the indenture;
No such rescission shall affect any subsequent default or impair any right
consequent.
Except as otherwise specifically provided in the indenture, the holders
of a majority in principal amount of the bonds shall have the right to direct
the time, place and method of conducting any proceeding for any remedy available
to the trustee or exercising any power conferred on the trustee; provided, that
(1) such direction shall not conflict with any law or the indenture or the
collateral agency agreement and (2) the trustee may take any other action deemed
proper by the trustee which is not inconsistent with such direction.
All rights and remedies available to the bondholders, or to the trustee
with respect to the collateral, or otherwise under the security documents, are
subject to the collateral agency agreement, including the ability to enforce any
remedy and the limitations on the trustee's ability to vote the interests
represented by the bonds.
Affiliate Cure Rights
Any affiliate of ours shall, at its option, have the right, but not the
obligation, to cure any events of default for which cures are applicable.
Trustee
The Bank of New York, as successor to IBJ Whitehall Bank & Trust
Company, will act as the trustee under the indenture. The indenture provides
that the trustee will not be liable in connection with the performance of its
duties thereunder, except for its own gross negligence, bad faith or willful
misconduct. The trustee may become the owner of any bonds, with the same rights
it would have if it were not the trustee, and may carry any monies held by the
trustee on deposit with itself and shall not have any liability for interest
upon any such monies.
The trustee may resign at any time and be discharged from its duties
and obligations under the indenture by giving written notice to us and upon
appointment and acceptance of a successor. The trustee may be removed at any
time by the holders of not less than a majority in principal amount of the bonds
then outstanding. We or any holder who has been a bona fide holder of a security
for at least six months, may remove the trustee if (1) the trustee fails to
comply with the provisions of the indenture regarding conflicting interests, (2)
the trustee ceases to be eligible as required under the indenture and fails to
resign after written request, (3) the trustee becomes bankrupt or insolvent or
(4) the trustee fails to carry out its obligations in a timely manner.
Notwithstanding the preceding, no resignation or removal of the trustee and no
appointment of a successor trustee shall become effective until the acceptance
of appointment by the successor trustee.
Except during the continuance of an event of default under the
indenture, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an event of default, the trustee
will exercise
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such of the rights and powers vested in it by the indenture, and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The indenture contains limitations on our rights to obtain payments of
claims in specific cases or to realize on specific property received by it in
respect of any such claim as security or otherwise. The trustee is permitted to
engage in other transactions with us; provided, however, that if it acquires any
"conflicting interest", as defined in the indenture, it must eliminate such
conflict or resign as trustee under the indenture.
Supplemental Indentures
Supplemental Indentures and Amendments without the Consent of Bondholders
Without the consent of the bondholders, we and the trustee, at any time
and from time to time, may enter into one or more supplemental indentures in
form reasonably satisfactory to the trustee and may amend any of the other
financing documents, for any of the following purposes:
o to establish the form and terms of bonds of any series permitted
by the indenture;
o to evidence the succession of another entity to us and the
assumption by any such successor of our covenants under the bonds
and the indenture;
o to evidence the succession of a new trustee or a co-trustee or
separate trustee under the indenture;
o to add to the covenants of us, for the benefit of the bondholders,
or to surrender any right or power conferred upon us under the
indenture;
o to convey, transfer and assign to the trustee, and to subject to
the lien of the indenture, additional properties or assets and to
correct or amplify the description of any property at any time
subject to the lien of the indenture or to assure, convey and
confirm unto the trustee any property subject or required to be
subject to the lien of the indenture;
o to facilitate the issuance of bonds in uncertificated form;
o to change or eliminate any provision of the indenture; provided,
however, that if such change or elimination would adversely affect
the interests of the holders of any bonds of any series, such
change or elimination shall become effective with respect to such
series only when no bond of such series remains outstanding;
o to comply with changes in applicable law; provided, however, that
no such amendment or supplement shall result in a material adverse
effect or otherwise adversely affect the interests of the holders
of any bonds in any material respect;
o to make any changes required by Standard & Poor's or Moody's or
any other nationally recognized securities rating agency as a
condition to the issuance or maintenance of the then current
rating on the bonds or any series thereof; provided, that any such
change shall not result in a material adverse effect or otherwise
adversely affect the interests of the holders of any bonds in any
material respect; or
o to cure any ambiguity, to correct or supplement any provision of
the indenture that may be defective or inconsistent with any other
provision of the indenture, or to make any other provisions with
respect to matters or questions arising under the indenture;
provided, that such action shall not adversely affect the interest
of the bondholders of any series in any material respect.
Supplemental Indentures with the Consent of Bondholders
With the consent of the bondholders of not less than a majority in
aggregate principal amount of the bonds of all series then outstanding, the
trustee and us may, and the trustee shall, enter into one or more supplemental
indentures for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of, the indenture; provided, however, that
no such supplemental indenture shall, without the consent of each bondholder
directly affected thereby: (1) change the stated maturity of any bond (or, if
the principal is payable in installments, the stated maturity of any such
installment), or of any payment of interest, or the dates or circumstances of
payment of premium, if any, on, any bond, or change the principal amount or the
interest or any premium payable upon redemption, or change the place of
payment where, or the coin or currency in which, any bond or the premium, if
any, or the interest is payable, or impair the right to institute suit for the
enforcement of any such payment of principal or interest on or after the stated
maturity (or, in the case of redemption, on or after the redemption date) or
such payment of premium, if any, on or after the date such
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premium becomes due and payable; or (2) except for permitted liens, permit the
creation of any lien prior to or, equally with the lien of any of the security
documents with respect to any of the collateral, or terminate the lien on any
collateral or deprive any bondholder of the security afforded by the lien of the
indenture; or (3) reduce the percentage in principal amount of the bonds then
outstanding, the consent of whose bondholders is required for any such
supplemental indenture, or the consent of whose bondholders is required for any
waiver provided for in the indenture, or reduce the requirements for quorum or
voting; or (4) modify specified provisions of the indenture relating to remedies
following an event of default, except to increase the percentage of the
principal amount of the bonds required to waive past defaults.
Satisfaction and Discharge
We may terminate the indenture by delivering all bonds then outstanding
to the trustee for cancellation and by paying all sums payable under the
indenture and by effecting delivery of officer's certificates and an opinion of
counsel stating that all conditions precedent have been satisfied.
In addition to the preceding, bonds then outstanding shall, prior to
the stated maturity, be deemed to be paid, and our indebtedness shall be deemed
to be satisfied and discharged, at any time all the conditions set forth below
have been satisfied:
o We shall have irrevocably deposited with the trustee, in trust,
monies or permitted investments in an amount which shall be sufficient to pay
when due, without reinvestment, the principal of and premium, if any, and
interest due and to become due on the bonds then outstanding on or prior to the
stated maturity of the final installments of principal or upon redemption or
prepayment;
o We shall have delivered to the trustee, an order stating that
monies deposited with the trustee or in permitted investments shall be held by
the trustee, in trust, as provided in the indenture;
o in the case of redemption or prepayment of the bonds then
outstanding, the notice requisite to the validity of such redemption or
prepayment shall have been given, or irrevocable authority shall have been given
by us to the trustee to give such notice; and
o there shall have been delivered to the trustee an opinion of
counsel to the effect that as a result of a change in applicable law after the
date of the indenture such satisfaction and discharge of the indebtedness with
respect to the bonds then outstanding shall not be deemed to be, or result in, a
taxable event with respect to holders of bonds then outstanding for purposes of
United States Federal income taxation unless the trustee shall have received
documentary evidence that the bondholders either are not subject to, or are
exempt from, United States Federal income taxation.
Collateral Agency Agreement
Project Accounts
The following trust accounts will be established and created with and
in the name of the collateral agent: construction account; revenue account;
operating and maintenance account; debt service reserve account; debt service
reserve letter of credit reimbursement fund; construction period letter of
credit reimbursement fund; restoration account; major maintenance reserve
account; fuel conversion volume rebate account; subordinated debt account; and
distribution account.
Collection of Project Revenues
We shall arrange for the direct payment to the collateral agent of all
project revenues, and to the extent any such project revenues are at any time
received by us prior to the commercial operation date, we shall hold all such
revenues and other such amounts in trust for the collateral agent and shall
transfer to the collateral agent for deposit of such project revenues in the
construction account in each case as soon as reasonably practical but no later
than three business days after receipt, duly endorsed, if necessary, to the
collateral agent.
Advances
Notwithstanding any other provision of the collateral agency agreement
to the contrary, we may withdraw funds on deposit in or credited to any of the
project accounts other than the construction account and the debt service
reserve account (such a withdrawal, an "advance"); provided, however, that, at
the time of the making of such advance:
o no default or event of default shall have occurred and be
continuing and
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o our obligations to repay such advances shall be supported by
acceptable credit support. We shall repay immediately or cause to be repaid any
advances to the extent that the funds on deposit in such project accounts other
than the construction account and the debt service reserve account are
insufficient to make the necessary withdrawals and transfers. In addition, we
shall cause to be repaid immediately the aggregate amount of all advances upon
the occurrence of:
o a default in the payment of principal of, premium, if any, or
interest on the bonds or under the debt service reserve letter of credit and
reimbursement agreement, the construction period letter of credit and
reimbursement agreement or any working capital facility,
o any event of default,
o any default by an acceptable credit provider in respect of its
obligations under its acceptable credit support or
o our failure to provide, within five business days, acceptable
credit support in respect of its obligations to repay advances upon the failure
of the acceptable credit provider to meet the requirements of the definition
thereof. Any amounts so repaid shall be allocated to and deposited in the
project accounts other than the construction account and the debt service
reserve account to which such repayment is required to be made as directed by us
in an officer's certificate.
Construction Account
On the date of original issuance of the old bonds, the net proceeds of
the sale of the old bonds received by us were transferred to the collateral
agent for deposit in the construction account.
On that date, the collateral agent applied the amounts in the
construction account to the payment, or reimbursement, to the extent the same
had been paid or satisfied by us, of project costs. Each requisition after that
date shall be submitted to the collateral agent no less than three business days
in advance of the drawing date and shall include the following:
(1) a certification that the proceeds shall be used solely to pay
project costs in accordance with the indenture;
(2) a certification that work performed to date has been
satisfactorily performed in a good and workmanlike manner and according to the
construction agreement;
(3) a statement that undisbursed funds in the construction account,
together with funds available under the equity subscription agreement and other
available sources of funds, are reasonably expected to be sufficient to complete
our facility according to the construction agreement by December 31, 2002;
(4) a statement that no default or event of default under the
indenture, the debt service reserve letter of credit and reimbursement
agreement, the construction period letter of credit and reimbursement agreement
or any working capital facility has occurred and is continuing;
(5) a statement that all proceeds of prior requisitions have been
expended or applied under the provisions of the financing documents and that the
items for which amounts are requested in the subject requisition have not been
the basis for a previous requisition;
(6) a certification that required insurance, material governmental
approvals and necessary project contracts are in full force and effect; and
(7) a certification that specified representations set forth in the
indenture are true and correct in all material respects.
If we cannot satisfy the requirements of clauses (1) or (5) of the
preceding paragraph, the collateral agent shall not release funds from the
construction account in respect of such requisition until such clauses are
satisfied. If we cannot satisfy clauses (2), (3), (4), (6) or (7) of the
preceding paragraph, but the collateral agent receives a requisition signed by
us, the contents of which shall be confirmed by the independent engineer, (A)
specifying and identifying the failure, and the causes for the failure, to
satisfy the requirements of such clauses (2), (3), (4), (6) or (7) of the
preceding paragraph and (B) certifying that (i) the requirements of clauses (1)
and (5) of the preceding paragraph are satisfied, (ii) there exists no
bankruptcy event in respect of us or AES Ironwood, Inc., and (iii) each of the
construction agreement,
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the power purchase agreement, required insurance policies and material
governmental approvals needed for construction of our facility is in full force
and effect, then the collateral agent shall disburse funds in accordance with
such requisition. Within 15 days of receipt of such requisition, the collateral
agent shall give notice to the senior creditors describing such failure and
specifying that, unless the required senior creditors give notice to the
collateral agent of their objection to payment of further requisitions
containing any such specified failures, the collateral agent shall continue to
make payment of such requisitions from available funds in the construction
account, unless the collateral agent shall have received, by the second business
day prior to the time of payment of such requisition, notice of objection from
the required senior creditors.
Notwithstanding the preceding, the collateral agent will not release
funds from the construction account in respect of a requisition if a Trigger
Event shall have occurred and be continuing until the collateral agent
determines that such Trigger Event is no longer continuing or the required
senior creditors give instructions to the collateral agent as to application of
funds.
Payments on Commercial Operation Date
Not later than 10 days after receipt by the collateral agent of a
certificate from us, the contents of which shall be confirmed in writing by the
independent engineer, certifying, among other things, that (1) all conditions to
the commencement of commercial operation under the power purchase agreement have
been satisfied, (2) the construction period letter of credit has been terminated
or drawn, (3) all permits then required have been obtained and (4) no default is
continuing, the collateral agent shall, after retaining in the construction
account the amount, if any, specified by us as necessary to pay project costs
which are not then due and payable, transfer all remaining funds in the
construction account, plus any amounts available under and under the equity
subscription agreement to the extent necessary to fund first through fifth
below, by wire transfer to the following accounts and recipients in the
following order of priority:
first, to the operating and maintenance account, an amount to the
extent available, as specified by us but in any event, no less than one-month's
non-fuel operating and maintenance costs;
second, to the bond payment account, an amount, to the extent
available, as specified by us for funding of the interest payment subaccount and
principal payment subaccount;
third, to the debt service reserve account, an amount as specified by
us equal to the debt service reserve account required balance to the extent not
already funded or provided through a debt service reserve letter of credit;
fourth, if applicable, to the construction period letter of credit
provider, an amount equal to the principal of and interest on any construction
period letter of credit loans outstanding on the commercial operation date;
fifth, to the major maintenance reserve account, an amount as specified
by us equal to any initial deposit required therein; and
sixth, to the revenue account, any remaining amounts.
Payments During Operating Period
After the transfer specified in the above paragraphs regarding payments
on the commercial operation date and upon receipt by the collateral agent of,
not less than three business days prior to the date of the proposed transfer, an
officer's certificate detailing the amounts to be paid, the collateral agent
shall transfer all remaining funds in the revenue account by wire transfer in
the following order of priority:
first, as and when required, (1) to any working capital provider, an
amount certified by us as the amount, if any, then payable under any working
capital facility; and (2) as and when requested, to the operating and
maintenance account, the amount certified by us as necessary for payment of
operating and maintenance costs;
second, on a monthly basis, (1) to the trustee and the collateral
agent, any amounts certified by us as the amounts then due and payable in
respect of trustee claims and collateral agent claims, respectively; (2) to any
debt service reserve letter of credit provider, any amounts certified by us as
the amounts then due and payable in respect of debt service reserve letter of
credit provider claims; and (3) to any construction period letter of credit
provider, any amounts certified by us as the amounts then due and payable in
respect of construction period letter of credit provider claims; provided,
however, that if funds in the revenue account are insufficient on any date to
make the payments specified in this paragraph second, distribution of funds
shall be made ratably to the specified recipients;
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third, on a monthly basis, (1) to the trustee, for deposit in the
interest payment subaccount, an amount equal to one-third of the interest
becoming due on the bonds on the next succeeding bond payment date; (2) to the
debt service reserve letter of credit reimbursement fund, (a) an amount equal to
one-third of the interest becoming due on any debt service reserve letter of
credit loan on the next succeeding bond payment date, plus one-third of any fees
becoming due under the debt service reserve letter of credit and reimbursement
agreement on the next succeeding bond payment date, (b) an amount equal to
one-third of the interest becoming due on any debt service reserve bond on the
next succeeding bond payment date and (c) an amount equal to one-third of the
interest becoming due on any debt service reserve letter of credit term loan on
the next succeeding bond payment date; and (3) to the construction period letter
of credit reimbursement fund, an amount equal to one-third of the interest
becoming due on any construction period letter of credit loan on the next
succeeding bond payment date, plus one-third of any fees becoming due under the
construction period letter of credit and reimbursement agreement on the next
succeeding bond payment date; provided, however, that if funds in the revenue
account are insufficient on any date to make the payments specified in this
paragraph third, distribution of funds shall be made ratably to the specified
recipients;
fourth, on a monthly basis, (1) to the trustee, for deposit in the
principal payment subaccount, an amount equal to one-third of the principal
becoming due on the bonds on the next succeeding bond payment date; (2) to the
debt service reserve letter of credit reimbursement fund, (a) an amount equal to
one-third of the principal becoming due on any debt service reserve bond on the
next succeeding bond payment date, and (b) an amount equal to one-third of the
principal becoming due on any debt service reserve letter of credit term loan on
the next bond payment date; and (3) to the construction period letter of credit
reimbursement fund, an amount equal to one-third of the principal becoming due
on any construction period letter of credit loan on the next succeeding bond
payment date; provided, however, that if funds in the revenue account are
insufficient on any date to make the payments specified in this paragraph
fourth, distribution of funds shall be made ratably to the specified recipients;
fifth, on a monthly basis, (1) to the debt service reserve letter of
credit provider, an amount equal to the outstanding principal amount of any debt
service reserve letter of credit loans that have not been converted to debt
service reserve term loans or debt service reserve bonds, and (2) to the
collateral agent for deposit in the debt service reserve account, an amount
necessary to fund the debt service reserve account up to the debt service
reserve account required balance, taking into account any amounts remaining
available to be drawn under the debt service reserve letter of credit; provided,
however, that if amounts available for drawing under the debt service reserve
letter of credit are not being reinstated to the full extent of payments made to
the debt service reserve letter of credit provider and funds in the revenue
account are insufficient on any date to make the payments specified in this
paragraph fifth, distribution of funds shall be made ratably to the specified
recipients;
sixth, on a monthly basis, to the major maintenance reserve account,
amounts necessary to cause the balance to be equal to the minimum balance
required at such time under the annual budget;
seventh, on a monthly basis, to us for payment to Williams Energy, the
amount, if any, certified by us as required to make any non-dispatch payments,
as defined in the power purchase agreement, to Williams Energy under the power
purchase agreement;
eighth, on a monthly basis, to the fuel conversion volume rebate
account, an amount equal to one-twelfth of the amount specified by us that would
be owed to Williams Energy at the end of the then current fiscal year under the
power purchase agreement;
ninth, on a monthly basis, if any subordinated debt is outstanding, to
the subordinated debt account, (x) an amount equal to one-third or one-sixth,
depending on the interest payment schedule of such debt, of the interest
becoming due on such subordinated debt on the next succeeding interest payment
date for such debt, plus (y) one-third or one-sixth, depending on the
amortization schedule of such debt, of the principal becoming due on such
subordinated debt on the next applicable principal payment date;
tenth, on a monthly basis, to Siemens Westinghouse, an amount equal to
any subordinated bonuses payable to Siemens Westinghouse under the construction
agreement; and
eleventh, on a monthly basis, to the distribution account, any
remaining amounts for payment of distributions to holders of ownership
interests, including any payment in respect of principal or interest then due on
affiliate subordinated debt; provided, that the distribution conditions set
forth in the collateral agency agreement are satisfied.
When making the transfers specified above, each transfer shall be
adjusted as necessary, taking into account investment gains or losses in such
project account or indenture account and further adjusting such transfers by the
amount
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of any prior over-fundings or any prior shortfalls in such project account or
indenture account, to ensure that the aggregate amounts so transferred to such
project accounts or indenture accounts are sufficient to pay the amount due and
payable from such project accounts and indenture accounts on the applicable
payment date.
Debt Service Reserve Account
The collateral agent shall hold the debt service reserve letter of
credit as security agent for the trustee and the debt service reserve letter of
credit provider to the extent of its interest therein. Upon the occurrence of
the commercial operation date, the debt service reserve account shall be funded,
if necessary, from monies available in the construction account for such purpose
in an amount up to the debt service reserve account required balance. Subsequent
to the commercial operation date, the debt service reserve account shall be
funded, if necessary, from monies transferred from the revenue account. When
determining (1) the amount, if any, required to be deposited into the debt
service reserve account from time to time or (2) whether the debt service
reserve account has deposited therein the debt service reserve account required
balance, amounts on deposit in the debt service reserve account shall be
aggregated with the amount available to be drawn under the debt service reserve
letter of credit.
When there are insufficient monies in the bond payment account on any
bond payment date to pay the interest or principal then due on the bonds, the
collateral agent shall in the following order of priority: first, withdraw
monies on deposit in the debt service reserve account; and second, draw on the
debt service reserve letter of credit in accordance with the terms and
provisions up to the amount available for such purpose thereunder, in each case,
to the extent necessary to make such interest or principal payment on the bonds
and transfer such monies to the trustee for deposit in the bond payment account
for application against such payment.
If the collateral agent receives a written notice from us stating that
there has been a reduction in the long-term debt rating of the debt service
reserve letter of credit provider below the required rating, or if a responsible
officer of the collateral agent otherwise becomes aware of such reduction, and
the debt service reserve letter of credit has not been replaced within the time
period specified therefor, the collateral agent shall draw on the debt service
reserve letter of credit in the amount necessary to fund the debt service
reserve account up to the debt service reserve account required balance.
If the collateral agent receives a notice from the debt service reserve
letter of credit provider stating that the debt service reserve letter of credit
provider shall terminate the debt service reserve letter of credit on the date
specified in such notice, the collateral agent shall, within three business days
of receipt of such notice, draw on the debt service reserve letter of credit in
an amount equal to the amount necessary to fund the debt service reserve account
up to the debt service reserve account required balance and the debt service
reserve letter of credit shall automatically terminate.
If a Trigger Event shall have occurred and be continuing and the
collateral agent has received the written request of the required senior
creditors contained in senior creditor certificates and such notice has not been
rescinded, then the collateral agent, upon receipt of an officer's certificate
of setting forth the debt service reserve account required balance, shall draw
on the debt service reserve letter of credit in an amount equal to the amount
necessary to fund the debt service reserve account up to the debt service
reserve account required balance and the debt service reserve letter of credit
shall automatically terminate.
If, subsequent to the commercial operation date, monies transferred to
the debt service reserve letter of credit provider under clause third under
"--Payments During Operating Period" above are insufficient to repay the
interest on any debt service reserve letter of credit loans due or becoming due
on the first day of such month, the collateral agent, upon receipt of a
certificate of an authorized officer of the debt service reserve letter of
credit provider notifying the collateral agent of the existence, and setting
forth the amount, of such shortfall, within two business days of receipt of such
certificate shall draw on the debt service reserve letter of credit in an amount
equal to the amount of such shortfall and transfer such amount to the debt
service reserve letter of credit provider in payment, in whole or part, of such
interest on such debt service reserve letter of credit loans. Notwithstanding
the preceding, in no event shall any draw on the debt service reserve letter of
credit described in this paragraph individually or in the aggregate with all
other such draws, less any draws previously reimbursed, exceed six months of
interest on the maximum stated amount of the debt service reserve letter of
credit.
Unless the debt service reserve letter of credit is not extended or
replaced or unless there has been an event of default under the debt service
reserve letter of credit as described under "SUMMARY OF PRINCIPAL FINANCING
DOCUMENTS--Debt Service Reserve Letter of Credit and Reimbursement Agreement,"
amounts available for drawing under the debt service reserve letter of credit
shall be reinstated immediately to the extent of any reimbursement of
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principal of debt service reserve letter of credit loans, but not debt service
reserve bonds or debt service reserve letter of credit term loans.
If we and the debt service reserve letter of credit provider shall
agree to issue or reinstate the debt service reserve letter of credit in an
amount that, when aggregated with cash on deposit in the debt service reserve
account would exceed the debt service reserve account required balance, the
collateral agent shall, within two business days of receipt by the collateral
agent of (1) such reissued or reinstated debt service reserve letter of credit,
and (2) an officer's certificate of, transfer an amount equal to such excess
amount to the revenue account for application in accordance with the applicable
provisions of the collateral agency agreement; provided, that the amount of the
debt service reserve letter of credit may not exceed the debt service reserve
account required balance.
Distribution Account
The distribution account shall be funded from funds transferred from
the revenue accounts in accordance with the collateral agency agreement. On any
date on which the conditions set forth below are satisfied, funds on deposit in
or credited to the distribution account may be distributed to, or as directed
by, us for the payment of affiliate subordinated debt, the making of
distributions to the holders of ownership interests in our company or any other
lawful purpose, upon receipt by the collateral agent of an officer's certificate
of requesting such a distribution and certifying that:
(1) all of our project accounts and the bond payment account shall be
funded to their required levels;
(2) no (a) default or event of default under the indenture, (b)
default or event of default under the debt service reserve letter of credit and
reimbursement agreement, (c) default or event of default under any construction
period letter of credit and reimbursement agreement or (d) default under any
working capital arrangements, if any, shall have occurred and be continuing;
(3) the commercial operation date has occurred and at least one
complete fiscal quarter thereafter has elapsed;
(4) if the requested distribution is to be made during the power
purchase agreement term, (a) the senior debt service coverage ratio for the
preceding four fiscal quarters, (or with respect to any date prior to the first
anniversary of the commercial operation date, for the number of complete fiscal
quarters since the commercial operation date), measured as one period, is
greater than or equal to 1.2 to 1 and (b) based on projections prepared by us on
a reasonable basis, the projected senior debt service coverage ratio for the
succeeding four fiscal quarters (including the quarter in which such
distribution is to be made) (or, with respect to any date within the 12-month
period prior to the end of the power purchase agreement term, the number of
complete fiscal quarters, if any, until the end of the power purchase agreement
term) is projected to be greater than or equal to 1.2 to 1; and
(5) if the requested distribution is to be made on or after the date
which is six months prior to the end of the power purchase agreement term, (a)
the senior debt service coverage ratio for the preceding four fiscal quarters
(or, with respect to any date within the first 12 months of the post-power
purchase agreement period, the number of complete fiscal quarters, if any, since
the start of the post-power purchase agreement period) measured as one period,
is greater than or equal to 1.70 to 1.0 (or 1.2 to 1.0 with respect to such
period occurring prior to the end of the power purchase agreement term) and (b)
based on projections prepared by us on a reasonable basis, the projected senior
debt service coverage ratio for the succeeding eight fiscal quarters (including
the fiscal quarter in which such distribution is to be made) or, with respect to
any date within the 24-month period prior to the final maturity date for the
bonds, the number of complete fiscal quarters, if any, until such final maturity
date for the bonds, in each case measured as one period, is projected to be
greater than or equal to 1.70 to 1 (or 1.2 to 1 with respect to such period
occurring prior to the end of the power purchase agreement term), each as
certified by an authorized officer; provided, however, that,
o if distributions are blocked because we fail to satisfy the
conditions of clause (5)(b) above, then in lieu of the coverage
ratio test set forth in such clause, the projected senior debt
service coverage ratio through the final maturity date for the
bonds, measured as one period, shall be 1.70 to 1 in order to
satisfy such clause (5)(b) in respect of amounts then on deposit
in the distribution account;
o for purposes of calculating the projected senior debt service
coverage ratios in clauses (5)(b) above, we shall use (A) for
electricity prices, either (x) the electricity prices forecasted
in the most recent independent forecast furnished to the trustee,
in each case, during the relevant period of calculation, or (y) if
and to the extent that electricity sales during the relevant
period of calculation are made under one or more power sales
agreements at prices other than prices which are by their terms
market prices, the
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electricity prices under such power sales agreements and (B) for
gas prices, either (x) the gas prices forecasted in the most
recent independent forecast furnished to the trustee, in each
case, during the relevant period of calculation, or (y) if and to
the extent that gas purchases during the relevant period of
calculation are made under one or more gas purchase agreements at
prices other than prices which are by their terms market prices,
the gas prices under such gas purchase agreements;
o if, and to the extent that, (A) at least 75% of our facility's net
capacity is subject to one or more power sales agreements on
terms, other than pricing, substantially similar to the power
purchase agreement, but excluding the provision for gas to be
supplied for fuel conversion services by Williams Energy, or on
commercially reasonable terms (other than pricing) typical of
power sales agreements entered into at such time for the same
term, in each case with a term of not less than one year during
the relevant period of calculation, and (B) at least 75% of the
gas supply for our facility is subject to one or more gas supply
agreements on commercially reasonable terms (other than pricing)
typical of gas supply agreements entered into at such time for the
same term, in each case with a term of not less than one year
during the relevant period of calculation (compliance with such
requirements to be certified by us), then clause (5) above shall
be deemed satisfied, if the senior debt service coverage ratio and
the projected senior debt service coverage ratio referred to in
such clause (5) are each equal to or greater than 1.30 to 1 for
the portions of the time periods referred to in such clause (5) in
which such agreements were or are to be in effect, as certified by
us; and
o if amounts on deposit in or credited to the revenue account are
insufficient to make the transfers described in priorities first
through sixth above under "Payments During Operating Period,"
amounts on deposit in or credited to the distribution account will
be transferred to the revenue account to the extent necessary and
applied in accordance with the collateral agency agreement.
Restoration Account
All casualty proceeds and eminent domain proceeds shall be deposited
into the restoration account. Subject to the provisions described below, the
collateral agent shall apply the amounts in the restoration account to the
payment, or reimbursement to the extent the same have been paid or satisfied by
us, of the costs of rebuilding, repair and restoration of our facility or any
part that has been affected by an event of loss or an event of eminent domain.
The collateral agent is authorized to disburse from the restoration
account the amount required to be paid for the repair or replacement of our
facility or any part as specified in the preceding paragraph. The collateral
agent is authorized and directed to issue its checks or transfer funds
electronically for each disbursement from the restoration account, upon receipt
of a restoration certificate signed by our authorized representative, and
approved by the independent engineer; provided, however, that no such approval
of the independent engineer shall be required if less than $5,000,000 is
requested under such requisition or requisitions in any one fiscal year. The
collateral agent shall be entitled to rely on all certifications and statements
in such restoration certificate. The collateral agent shall keep and maintain
adequate records pertaining to the restoration account and all disbursements
therefrom and shall file an accounting with us and the independent engineer
within three months following the last business day of each fiscal year.
If an event of loss or an event of eminent domain shall occur with
respect to any collateral, we shall (1) diligently pursue all our rights to
compensation against any person with respect to such event of loss or event of
eminent domain, (2) in our reasonable judgment compromise or settle any claim
against any person with respect to such event of loss or event of eminent domain
and (3) hold all amounts of casualty proceeds or eminent domain proceeds,
including instruments, received in respect of any event of loss or event of
eminent domain, after deducting all reasonable expenses incurred by it in
litigating, arbitrating, compromising or settling any claims, in trust for the
benefit of the collateral agent segregated from other funds of ours and will
promptly transfer to the collateral agent for deposit in the restoration account
such casualty proceeds or eminent domain proceeds.
If either an event of loss or an event of eminent domain shall occur,
as soon as reasonably practicable but no later than the date of receipt by us or
the collateral agent of eminent domain proceeds or casualty proceeds, as the
case may be, we shall make a reasonable good faith determination as to whether
(1) our facility or any portion can be rebuilt, repaired or restored to permit
operation of our facility or a portion on a commercially feasible basis and (2)
the casualty proceeds or the eminent domain proceeds, as the case may be,
together with any other amounts that are available to us for such rebuilding,
repair or restoration, are sufficient to permit such rebuilding, repair or
restoration of our facility or a portion thereof, including the making of all
required payments of interest and principal on our indebtedness during such
rebuilding, repair or restoration. Our determination shall be evidenced by a
certificate as to redemption filed with the
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collateral agent which, if we determines that our facility or a portion can be
rebuilt, repaired or restored to permit operation on a commercially feasible
basis and that the casualty proceeds or the eminent domain proceeds, as the case
may be, together with any other amounts that are available to us for such
rebuilding, repair or restoration, are sufficient, shall also set forth a
reasonable good faith estimate by us of the total cost of such rebuilding,
repair or restoration. We shall deliver to the collateral agent at the time we
deliver the certificate as to redemption, a certificate of the independent
engineer, dated the date of the certificate as to redemption, stating that,
based upon reasonable investigation and review of the determination made by us,
the independent engineer believes the determination and the estimate of the
total cost set forth in the certificate as to redemption to be reasonable.
If, following an event of loss or event of eminent domain, the
determination is made that our facility cannot be rebuilt, repaired or restored
to permit operation on a commercially feasible basis or that the casualty
proceeds or the eminent domain proceeds, together with any other amounts that
are available to us for such rebuilding, repair or restoration, are not
sufficient to permit such rebuilding, repair or restoration, all of the casualty
proceeds or the eminent domain proceeds, as the case may be, shall be
distributed as provided below.
If, following an event of loss or event of eminent domain, the
determination is made that the entire facility can be rebuilt, repaired or
restored to permit operation on a commercially feasible basis and that the
casualty proceeds or the eminent domain proceeds, together with any other
amounts that are available to us for such rebuilding, repair or restoration, are
sufficient to permit such rebuilding, repair or restoration, all of the casualty
proceeds or the eminent domain proceeds, as the case may be, together with such
other amounts as are available to us for such rebuilding, repair or restoration,
shall be deposited in the restoration account and applied as provided below.
If, following an event of loss or event of eminent domain, the
determination is made that a portion of our facility can be rebuilt, repaired or
restored to permit operation on a commercially feasible basis and that the
casualty proceeds or the eminent domain proceeds, together with any other
amounts that are available to us for such rebuilding, repair or restoration, are
sufficient to permit such rebuilding, repair or restoration, (1) an amount equal
to the estimate of the total cost of such rebuilding, repair or restoration set
forth in the certificate as to redemption filed with the collateral agent shall
be deposited in the restoration account and applied as provided below, and (2)
the amount, if any, by which all of the casualty proceeds or the eminent domain
proceeds, as the case may be, exceed the estimate of the total cost shall be
distributed as provided below.
If we receive casualty proceeds or eminent domain proceeds, as the case
may be, from an event of loss or an event of eminent domain that do not exceed
in the aggregate $5,000,000 during any fiscal year, we shall not have to make
the good faith determination referred to above and the casualty proceeds or the
eminent domain proceeds, as the case may be, shall be deposited in the
restoration account and applied for the rebuilding, repair or restoration of our
facility without any approval of the independent engineer.
Application of Casualty and Eminent Domain Proceeds and Buy-Down Amounts
If the determination is made that all or a portion of our facility is
incapable of being rebuilt, repaired or restored to permit operation on a
commercially feasible basis, all casualty proceeds or eminent domain proceeds
received by the collateral agent and not deposited in the restoration account
shall be distributed by the collateral agent within five business days of
receipt in the following order of priorities:
first, to the collateral agent, the debt service reserve letter of
credit provider, the construction period letter of credit provider and the
trustee, ratably, in an amount equal to the amounts owed in respect of the
collateral agent claims, the trustee claims, the debt service reserve letter of
credit provider claims and the construction period letter of credit provider
claims, respectively, due and payable as of the date of such distribution;
second, to the senior creditors, ratably, an amount equal to the unpaid
amount of all financing liabilities owed to the senior creditors, including the
amount required to be applied to a mandatory redemption of the bonds under
the indenture;
third, to the subordinated debt providers, ratably, an amount equal to
the unpaid amount owed to such subordinated debt providers by us under any
subordinated loan agreement; and
fourth, to us or our successors or assigns or to whomever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, any surplus then remaining from such proceeds.
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At the time the collateral agent is to make a distribution under clause
second in the immediately preceding paragraph, the collateral agent shall
deposit, with the same priority as such distribution, ratably into two separate
trust accounts to be maintained by the collateral agent as follows:
o in the first account, an amount up to the amount equal to the
maximum amount available to be drawn under the debt service reserve letter of
credit, and not represented by a debt service reserve letter of credit loan,
debt service reserve letter of credit term loan or debt service reserve bond,
and
o in the second account an amount up to the amount available to be
drawn under any construction period letter of credit, and not represented by
a construction period letter of credit loan; provided, however, if funds
available are insufficient to make all payments required under clause second of
the preceding paragraph and the required deposits provided for in this sentence,
distribution of funds shall be made ratably to the specified recipients. The
collateral agent shall hold such funds in such separate accounts until receipt
of a written notice or notices from the debt service reserve letter of credit
provider and/or the construction period letter of credit provider, as the case
may be, to the effect that either (1) a drawing has been made on its letter of
credit or (2) its letter of credit has expired or terminated without a drawing
being made thereunder. Upon receipt of a notice or notices specified in clause
(1) of the preceding sentence, the collateral agent shall distribute to the debt
service reserve letter of credit provider and/or the construction period letter
of credit provider, as the case may be, that proportionate share of the amount
in the relevant separate account referred to above, equal to such drawing's
proportionate share of the letter of credit collateralized by such account. Upon
receipt of a notice or notices specified in clause (2) of the second preceding
sentence, the collateral agent shall distribute from the relevant separate
account, in accordance with clauses second, third and fourth above and without
regard to this paragraph, to the appropriate persons an amount equal to the
amount in such separate account.
All amounts received by us from Siemens Westinghouse as performance
liquidated damages under the construction agreement shall be deposited into a
separate account maintained by the depositary bank on behalf of the collateral
agent. If the requisite officer's certificate is delivered, the collateral agent
is authorized to disburse from such separate account the amount required to be
paid for the modification, repair or replacement of that portion of our facility
that requires modification, repair or replacement in order to remedy the
circumstances giving rise to the obligation of Siemens Westinghouse under the
construction agreement to pay such amounts received by us from Siemens
Westinghouse as performance liquidated damages under the construction agreement.
As soon as reasonably practicable following our receipt or the
collateral agent's receipt of amounts received by us from Siemens Westinghouse
as performance liquidated damages under the construction agreement, we shall
make a reasonable good faith determination as to whether:
o it is technically feasible to modify, repair or replace that
portion of our facility that requires modification, repair or replacement in
order to remedy the circumstances giving rise to the obligation of Siemens
Westinghouse under the construction agreement to pay such amounts received by us
from Siemens Westinghouse as performance liquidated damages under the
construction agreement,
o the amounts received by us from Siemens Westinghouse as performance
liquidated damages under the construction agreement, together with any other
amounts that are available to us for such modification, repair or replacement,
are sufficient to permit such modification, repair or replacement, including the
making of all required payments of interest and principal on our indebtedness
during such modification, repair or replacement,
o the projected average senior debt service coverage ratio, after
giving effect to such modification, repair or replacement and the application of
the amounts received by us from Siemens Westinghouse as performance liquidated
damages under the construction agreement to accomplish the same, during the
power purchase agreement term (taken as one period) and the post-power purchase
agreement period (taken as one period) is equal to or greater than the projected
average senior debt service coverage ratio set forth in the base case
projections for each such period set forth in this prospectus and
o the projected minimum senior debt service coverage ratio, after
giving effect to such modification, repair or replacement and the application of
the amounts received by us from Siemens Westinghouse as performance liquidated
damages under the construction agreement to accomplish the same, during the
power purchase agreement term and the post-power purchase agreement period is
equal to or greater than the projected minimum senior debt service coverage
ratio for each such period set forth in the base case projections set forth in
this prospectus.
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Upon receipt of an officer's certificate, confirmed by the independent
engineer, certifying that all modifications, repairs or replacements of that
portion of our facility that requires modification, repair or replacement in
order to remedy the circumstances giving rise to the obligation of Siemens
Westinghouse under the construction agreement to pay amounts received by us from
Siemens Westinghouse as performance liquidated damages under the construction
agreement have been completed, the collateral agent shall transfer all funds
remaining in such separate account first, to such accounts as are specified in
the collateral agency agreement and second, to us or to whomsoever we direct.
If we cannot provide the officer's certificate to permit the
application of amounts received by us from Siemens Westinghouse as performance
liquidated damages under the construction agreement toward the modification,
repair or replacement of that portion of our facility or the independent
engineer fails to confirm such officer's certificate, the collateral agent shall
distribute all amounts received by us from Siemens Westinghouse as performance
liquidated damages under the construction agreement ratably, based on the amount
owing to the specified recipient, to (1) the trustee in respect of the amount of
the bonds then outstanding for redemption of bonds in accordance with the
indenture, (2) the debt service reserve letter of credit provider in respect of
the outstanding amount of debt service reserve loans and (3) the construction
period letter of credit provider in respect of the outstanding amount of any
construction period letter of credit loan.
At the time the collateral agent is to make a distribution under the
immediately preceding paragraph, the collateral agent shall deposit into two
separate trust accounts to be maintained by the collateral agent as follows:
o in the first account, an amount up to the amount available to be
drawn under the debt service reserve letter of credit, and not represented by a
debt service reserve letter of credit loan, a debt service reserve term loan or
debt service reserve bond, and
o in the second account, an amount up to the amount available to be
drawn under any construction period letter of credit, and not represented by a
construction period letter of credit loan; provided, however, if funds available
are insufficient to make all payments required under clause second of the first
paragraph of this section and the required deposits provided for in this
sentence, distribution of funds shall be made ratably to the specified
recipients. The collateral agent shall hold the funds in such separate account
until receipt of a written notice or notices from the debt service reserve
letter of credit provider and/or the construction period letter of credit
provider, as the case may be, to the effect that either (1) a drawing has been
made on the letter of credit or (2) the letter of credit has expired or
terminated without a drawing being made thereunder. Upon receipt of a notice or
notices specified in clause (1) in the preceding sentence, the collateral agent
shall distribute to the debt service reserve letter of credit provider and/or
construction period letter of credit provider, as the case may be, that
proportionate share of the amount in the relevant separate account referred to
above, equal to such drawing's proportionate share of the letter of credit
collateralized by such account. Upon receipt of a notice or notices specified in
clause (2) in the second preceding sentence, the collateral agent shall
distribute from the relevant separate account to the appropriate persons an
amount equal to the amount in such separate account.
Exercise of Rights Under Security Documents
The collateral agency agreement provides, among other things, that:
o if a Trigger Event shall have occurred and be continuing, and only
in such event, upon the written request of the required senior creditors
contained in senior creditor certificates, the collateral agent, on behalf of
the trustee, the debt service reserve letter of credit provider, the
construction period letter of credit provider and any other senior creditor that
is a party to the collateral agency agreement, will be permitted to take any and
all actions and to exercise any and all rights, remedies and options which it
may have under the security documents or the collateral agency agreement;
provided, however, that if the underlying event which caused the Trigger Event
is a bankruptcy event in respect of us of which the collateral agent shall have
received written notice, no written request of the required senior creditors
shall be required in order to permit the collateral agent following such Trigger
Event to take any and all actions and to exercise any and all rights, remedies
and options which it may have under the security documents or the collateral
agency agreement;
o the senior creditors will give each other and the collateral agent
written notice of the occurrence of an event of default and of a Trigger Event
as soon as practicable after the occurrence;
o the senior creditors acknowledge and agree that all funds held by
the trustee in the indenture accounts are held for the benefit of the
bondholders;
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o the senior creditors acknowledge and agree that all funds held in
the debt service reserve account by the collateral agent is held for the
benefit of the trustee on behalf of the bondholders;
o no senior creditor and no class or classes of senior creditors
shall have any right (1) to direct the collateral agent to take any action in
respect of the collateral other than in accordance with the collateral agency
agreement or (2) to take any action with respect to the collateral either
independently of the collateral agent or other than to direct the collateral
agent in writing to take action in accordance with the collateral agency
agreement; and
o the senior creditors acknowledge and agree that if (1) there is an
event of default under the indenture and such event of default is not caused
directly or indirectly by a default or event of default under the power purchase
agreement and (2) they direct the collateral agent to accelerate the bonds, the
collateral agent shall be obligated to provide Williams Energy the opportunity
for 90 days to purchase our facility for an amount equal to the greater of (x)
the fair market value of our facility and (y) all financing liabilities due and
owing to the senior creditors and any subordinated debt provider, and if
Williams Energy offers to purchase our facility for such amount within such
period, the collateral agent shall take such actions as required to consummate
such sale as directed by the required senior creditors in senior creditor
certificates.
In giving directions and otherwise exercising rights under the security
documents and the collateral agency agreement, the trustee shall vote, or
otherwise represent, that portion of the combined credit exposure represented by
all bonds then outstanding according to the votes of a majority of the principal
amount of bonds held by responding bondholders. The trustee shall not make
requests, give directions or vote on a proportional basis.
Application of Foreclosure Proceeds
Following the receipt of proceeds under the guaranty provided by The
Williams Companies, Inc. as a result of a termination of the power purchase
agreement or a foreclosure or other exercise of remedies following a Trigger
Event, the proceeds of any sale, disposition or other realization by the
collateral agent or by a senior creditor upon the collateral under the security
documents shall be distributed in the following order of priorities:
first, to the collateral agent, the trustee, the debt service reserve
letter of credit provider and the construction period letter of credit provider,
ratably, all administrative fees, costs and expenses owed to such parties under
the financing documents;
second, to the senior creditors, ratably, based on the amount owing to
the specified recipients, an amount equal to the unpaid amount of all financing
liabilities owed to or required to be deposited for the account of such senior
creditors by us;
third, to any subordinated debt providers, ratably, an amount equal to
the unpaid obligations owed to or required to be deposited for the account of
such subordinated debt providers by us under any subordinated loan agreement;
and
fourth, to us or to whomever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct, any surplus remaining
after giving effect to clauses first, second and third above.
Subordination Provisions
Any subordinated debt shall be subordinate and subject in right of
payment to the prior payment of all senior debt. Unless and until all senior
debt, whether of principal of and interest and premium or prepayment or
liquidation penalty on such senior debt and fees and expenses incurred with
enforcement of the same, has been paid in full in cash, (1) no payment on
account of any subordinated debt shall be made to any subordinated debt provider
by us or by the collateral agent or the depositary bank on behalf of us and (2)
no subordinated debt provider shall ask, demand, sue for, take or receive from
us, by set-off or any other manner, or seek any other remedy allowed at law or
in equity against us for breach of our obligations under any instrument
representing subordinated debt.
Upon any insolvency, bankruptcy or similar proceeding relating to us or
our creditors, or any liquidation, dissolution or other winding-up, or any
assignment for the benefit of creditors or any other marshaling of our assets
and liabilities, the senior creditors shall be entitled to receive payment in
full in cash of all amounts due or to become due on or in respect of all senior
debt, or provision shall be made for such payment, before any subordinated debt
provider shall be entitled to receive any payment with respect to subordinated
debt.
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Subject to the payment in full in cash of all senior debt, the
subordinated debt providers shall be subrogated to the rights of the senior
creditors to receive payments and distributions of cash, property and securities
applicable to the senior debt until such subordinated debt shall be paid in full
in cash.
Debt Service Reserve Letter of Credit and Reimbursement Agreement
Dresdner Bank AG, New York Branch, under a debt service reserve letter
of credit and reimbursement agreement, has agreed to provide the debt service
reserve letter of credit for use by us in connection with our project. The
financing documents require that the debt service reserve account be funded in
an amount equal to the debt service reserve account required balance on or
before the anticipated commercial operation date. Accordingly, we have entered
into the debt service reserve letter of credit and reimbursement agreement in
order to satisfy such obligation.
The debt service reserve letter of credit provider will issue the debt
service reserve letter of credit on or before the earlier to occur of the
commercial operation date, the guaranteed completion date or December 31, 2002
for our account in an amount up to $17,529,452, the maximum stated amount, to be
held by the collateral agent to serve as a debt service reserve facility for our
project. There will be no condition precedent to the debt service reserve letter
of credit provider's obligation to issue the debt service reserve letter of
credit, other than the occurrence of the earliest of the dates specified in the
first sentence of the following paragraph.
The collateral agent shall have the right to make drawings on the debt
service reserve letter of credit beginning on the earliest of (1) the commercial
operation date, (2) the Guaranteed Completion Date and (3) December 31, 2002.
The collateral agent may make drawings under the debt service reserve letter of
credit upon the occurrence of the following events: (1) there being insufficient
monies in the bond payment account on any interest payment date or principal
payment date to pay interest or principal then due, after application of funds
from the debt service reserve account; (2) upon receipt of a notice from us that
the long-term debt rating of such debt service reserve letter of credit provider
is less than "A" as determined by Standard & Poor's or "A2" as determined by
Moody's and the debt service reserve letter of credit has not been replaced
within the time period specified therein; (3) if a Trigger Event under the
collateral agency agreement shall have occurred and be continuing; (4) upon
receipt of a notice from the debt service reserve letter of credit provider that
the debt service reserve letter of credit will not be extended or replaced by
the close of business on the day 45 days prior to its stated expiration date;
and (5) if, subsequent to the commercial operation date, moneys transferred to
the debt service reserve letter of credit provider from the revenue account are
insufficient to repay the interest on any debt service reserve letter of credit
loans. The collateral agent will apply the proceeds of each such drawing: (a) in
the case of clauses (1) and (5) of the preceding sentence, to payment of the
relevant obligation and (b) in the case of clauses (2), (3) and (4) of the
preceding sentence, to the debt service reserve account until there shall be
deposited therein an aggregate amount equal to the debt service reserve account
required balance.
Subject to the conditions of drawing, the debt service reserve letter
of credit will, unless extended, mature, expire or terminate on the earlier to
occur of (1) five years from the date of issuance of the debt service reserve
letter of credit and (2) the occurrence of an event of default under the debt
service reserve letter of credit; provided, however, that the debt service
reserve letter of credit shall not be terminated upon the occurrence of an event
of default under the debt service reserve letter of credit without the debt
service reserve letter of credit provider first giving the collateral agent and
the trustee written notice at least 60 days prior to such termination during
which period the collateral agent shall be entitled to draw on such debt service
reserve letter of credit as described above under "--Collateral Agency
Agreement--Debt Service Reserve Account." The debt service reserve letter of
credit provider shall also provide a copy of such written notice to us at the
time such notice is given to the collateral agent and the trustee.
We shall have the right to terminate or reduce the debt service reserve
letter of credit upon the receipt by the debt service reserve letter of credit
provider of notice from the trustee consenting to such termination or reduction.
The debt service reserve letter of credit is subject to renewal for
additional periods of one or more years at the sole discretion of the agent
under the debt service reserve letter of credit and reimbursement agreement.
The amount available for drawing under the debt service reserve letter
of credit will be reduced upon (1) making draws thereunder, (2) the reduction of
the debt service reserve account required balance and (3) certain deposits of
cash in the debt service reserve account.
Debt Service Reserve Letter of Credit Loans
Each drawing on the debt service reserve letter of credit shall
constitute the making by the debt service reserve letter of credit provider of a
loan to us. We shall pay interest on the unpaid principal amount of each
outstanding debt
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service reserve letter of credit loan from the date such debt service reserve
letter of credit loan is made until such principal amount has been repaid in
full at a rate per annum equal, at our option, to either (1) the adjusted base
rate plus 1% or (2) the Eurodollar rate plus the applicable margin. The adjusted
base rate shall equal the higher of (1) the federal funds rate plus 50 basis
points and (2) the rate of interest officially announced or published by the
debt service reserve letter of credit provider as its "prime" or "reference"
rate. The Eurodollar rate shall be determined by reference to the offered rates
that appear on Telerate page 3750 for deposits in dollars two London banking
days prior to the date on which such rate is to become applicable to a debt
service reserve letter of credit loan.
Each debt service reserve letter of credit loan will be evidenced by a
note in favor of the debt service reserve letter of credit provider. We shall
pay the interest on any debt service reserve letter of credit loan out of cash
available in the revenue account at the same level in the flow of funds as
interest on other senior debt and shall repay the principal amount of any debt
service reserve letter of credit loans out of cash available in the revenue
account after payment of debt service on all senior debt other than principal of
debt service reserve letter of credit loans. Each debt service reserve letter of
credit loan will mature five years after the date such debt service reserve
letter of credit loan is made.
Unless the debt service reserve letter of credit is not extended or
replaced or unless there has been an event of default under the debt service
reserve letter of credit as described under "--Debt Service Reserve Letter of
Credit and Reimbursement Agreement," amounts available for drawing under the
debt service reserve letter of credit shall be reinstated immediately to the
extent of any reimbursement of principal of debt service reserve letter of
credit loans, but not debt service reserve bonds or debt service reserve letter
of credit term loans.
Non-Renewal of Debt Service Reserve Letter of Credit
If the debt service reserve letter of credit is not extended or
replaced at least 45 days prior to its termination date, or the credit rating of
the debt service reserve letter of credit provider is less than the required
rating and we do not within 45 days replace the debt service reserve letter of
credit with a letter of credit issued by a financial institution which meets the
required rating, the collateral agent will draw on the debt service reserve
letter of credit, such drawing due to non-extension or non-replacement of the
debt service reserve letter of credit, a "debt service reserve letter of credit
term loan", in an amount equal to the lesser of (1) the amount available to be
drawn under such letter of credit and (2) the difference between (x) the debt
service reserve account required balance and (y) amounts then on deposit in the
debt service reserve account, and will deposit such drawing into the debt
service reserve account. A debt service reserve letter of credit term loan will
amortize under a "mortgage-style" amortization Schedule and the maturity date of
any debt service reserve letter of credit term loan shall be 10 years after the
date such loan is made. Interest on and principal of any debt service reserve
letter of credit term loan will be paid, respectively, at the same levels as
interest on and principal of the bonds.
Conversion into Debt Service Reserve Bonds
If by the date 30 months after the making of a debt service reserve
letter of credit loan, we have failed to repay at least 50% of the original
amount of such debt service reserve letter of credit loan, or if by the maturity
date of such debt service reserve letter of credit loan we shall have failed to
repay such debt service reserve letter of credit loan in full, then from and
after the applicable date, such debt service reserve letter of credit loan may,
at the option of the debt service reserve letter of credit provider, be
converted into a new security, a debt service reserve bond, having a principal
amount equal to the remaining principal amount of the debt service reserve
letter of credit loan so converted. Each debt service reserve bond shall be
amortized on the same amortization schedule as the bonds and mature on the same
maturity date as the bonds. Interest on and principal of any debt service
reserve bond will be paid, respectively, at the same levels as interest on and
principal of the bonds.
Covenants
The covenants contained in the indenture shall be incorporated by
reference, with appropriate substitution of parties, in the debt service reserve
letter of credit and reimbursement agreement as if set forth in full in the debt
service reserve letter of credit and reimbursement agreement.
Debt Service Reserve Letter of Credit Events of Default
Each of the following shall be an event of default under the debt
service reserve letter of credit and reimbursement agreement: (1) any amount due
under the debt service reserve letter of credit and reimbursement agreement or
any debt service reserve letter of credit note is not paid in full within 15
days after the due date ; (2) an
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"event of default" under the indenture shall occur and be continuing or (3) an
"event of default" under the construction period letter of credit and
reimbursement agreement shall occur and be continuing.
Remedies
Upon the occurrence and during the continuation of an event of default
under the debt service reserve letter of credit, at the request of the banks
holding 66-2/3% or more of the debt service reserve letter of credit commitment,
the debt service reserve letter of credit provider may (1) after notice as
required in the financing documents, terminate the debt service reserve letter
of credit, (2) declare all amounts owing under the debt service reserve letter
of credit and reimbursement agreement and any debt service reserve letter of
credit note to be forthwith due and payable, including amounts not yet advanced
under the debt service reserve letter of credit, which shall upon being so
advanced be and become immediately due and payable, whereupon such obligations
shall become and be due and payable, without presentment, demand or protest; (3)
terminate our ability to cause the reinstatement of the stated amount through
the reimbursement of drawings; and (4) terminate our ability of to continue any
debt service reserve letter of credit loans as, or to convert debt service
reserve letter of credit loans to, Eurodollar rate loans; provided, that the
debt service reserve letter of credit provider shall not have the right to
exercise any other remedies except in accordance with the provisions of the
collateral agency agreement.
Construction Period Letter of Credit and Reimbursement Agreement
Dresdner Bank AG, New York Branch, under a construction period letter
of credit and reimbursement agreement, issued the construction period letter of
credit for our account in the amount of $30,000,000 and in favor of Williams
Energy. Williams Energy may make drawings under the construction period letter
of credit if our facility has not achieved the commercial operation date by the
date specified in the power purchase agreement, as such date may be extended in
accordance with the provisions of the power purchase agreement.
Subject to the conditions of drawing, the construction period letter of
credit will mature, expire or terminate on the earliest to occur of (1) the date
on which the construction period letter of credit provider receives notice from
Williams Energy that the commercial operation date has occurred; (2) four years
from the date of issuance of the construction period letter of credit; and (3)
the occurrence of an event of default under the construction period letter of
credit; provided, however, that the construction period letter of credit shall
not be terminated upon the occurrence of an event of default under the
construction period letter of credit without the construction period letter of
credit provider first giving the collateral agent and Williams Energy written
notice at least 45 days prior to such termination. The construction period
letter of credit provider shall also provide a copy of such written notice to us
at the time such notice is given to the collateral agent and Williams Energy.
We shall have the right to terminate or reduce the construction period
letter of credit upon the receipt by the construction period letter of credit
provider of notice from Williams Energy consenting to such termination or
reduction. The amount available for drawing under the construction period letter
of credit will be reduced upon making draws thereunder.
Construction Period Letter of Credit Loans
Each drawing on the construction period letter of credit shall
constitute the making by the construction period letter of credit provider of a
loan. We shall pay interest on the unpaid principal amount of each outstanding
construction period letter of credit loan from the date such construction period
letter of credit loan is made until such principal amount has been repaid in
full at a rate per annum equal, at our option of, to either (1) the adjusted
base rate plus the applicable margin or (2) the Eurodollar rate plus the
applicable margin. The adjusted base rate shall equal the higher of (1) the
federal funds rate plus 0.50% and (2) the rate of interest officially announced
or published by the construction period letter of credit provider as its "prime"
or "reference" rate. The Eurodollar rate shall be determined by reference to the
offered rates that appear on Telerate page 3750 for deposits in dollars two
London banking days prior to the date on which such rate is to become applicable
to a construction period letter of credit loan.
The construction period letter of credit loan will be evidenced by a
note in favor of the construction period letter of credit provider. We shall pay
the interest on and repay the principal amount, based on mortgage-style
amortizations, of any construction period letter of credit loan out of cash
available in the revenue account at the same level as interest on and the
principal of the bonds. Each construction period letter of credit loan will
mature 10 years after the date such construction period letter of credit loan is
made.
102
<PAGE>
Covenants
The covenants contained in the indenture shall be incorporated by
reference, with appropriate substitution of parties, in the construction period
letter of credit and reimbursement agreement as if set forth in full in the
construction period letter of credit and reimbursement agreement.
Construction Period Letter of Credit Events of Default
Each of the following shall be an event of default under the
construction period letter of credit and reimbursement agreement: (1) any amount
due under the construction period letter of credit and reimbursement agreement
or any construction period letter of credit note is not paid in full within 15
days after the due date; (2) an "event of default" under the indenture shall
occur and be continuing; and (3) an "event of default" under the debt service
reserve letter of credit and reimbursement agreement shall occur and be
continuing.
Remedies
Upon the occurrence and during the continuation of an event of default
under the construction period letter of credit, at the request of the banks
holding 66-2/3% or more of the construction period letter of credit commitment,
the construction period letter of credit provider may (1) terminate the
construction period letter of credit, (2) declare all amounts owing under the
construction period letter of credit and reimbursement agreement and any
construction period letter of credit note to be forthwith due and payable,
including amounts not yet advanced under the construction period letter of
credit, which shall upon being so advanced be and become immediately due and
payable, whereupon such obligations shall become and be due and payable, without
presentment, demand or protest and (3) terminate our ability to continue
construction period letter of credit loans as or to convert construction period
letter of credit loans to Eurodollar rate loans; provided, that the construction
period letter of credit provider shall not have the right to exercise any other
remedies except in accordance with the provisions of the collateral agency
agreement.
Equity Subscription Agreement
Under an equity subscription agreement entered into by and among us,
AES Ironwood, Inc. and the collateral agent, AES Ironwood, Inc. has agreed to
contribute equity, or make or cause to be made subordinated loans, to us from
time to time during the construction period (each loan, an "equity
contribution") at the request of the collateral agent, if the amounts then on
deposit in the construction account are insufficient to make the transfers
required to pay project costs as specified in the collateral agency agreement.
The obligation of AES Ironwood, Inc. to make equity contributions is supported
by bonds issued by an insurance company. The AES Corporation is obligated to
repay the insurance company any amounts drawn under such bonds. If AES Ironwood,
Inc. fails to pay any amounts due under the equity subscription agreement, the
collateral agent can draw on these insurance company bonds for payment of such
amount. AES Ironwood, Inc.'s obligation to make equity contributions will
commence when all proceeds of the offering of the old bonds have been utilized
but will not at any time exceed, in the aggregate, $50,149,285. All equity
contributions will be deposited in the construction account and applied as set
forth under "--Collateral Agency Agreement--Construction Account."
The equity subscription agreement also provides that upon the
occurrence of an event of default under the indenture, AES Ironwood, Inc. will
be obligated to make an equity contribution to us in an amount equal to
$50,149,285 less the aggregate of all equity contributions previously deposited
into the construction account. Any such equity contribution following an event
of default will be deposited in the construction account and may be used to
prepay bonds and other outstanding senior permitted indebtedness in accordance
with the terms of the collateral agency agreement.
Subject to specified conditions under the equity subscription
agreement, any "excess" equity which remains committed but unfunded at Final
Acceptance may be canceled. Conditions to the cancellation of such "excess"
equity commitments include (1) the absence of any default or event of default
under the indenture or any other financing document, (2) achievement of final
completion, (3) the occurrence of the commercial operation date and (4) funding
of all accounts, including the debt service reserve account, under, and to the
extent required by, the indenture and the collateral agency agreement.
Consents to Assignments
In connection with the collateral assignment of all contract rights
held by us, including rights under our project contracts, the collateral agent
will receive an executed consent to assignment from third parties party to such
project contracts. In each such consent, the applicable third party will, in
respect of our project contracts to which it is a party, among other matters,
(1) consent to the collateral assignment to the collateral agent on behalf of
the senior creditors,
103
<PAGE>
(2) agree to pay all amounts, if any, receivable by us thereunder directly into
the revenue account created under the collateral agency agreement, (3) agree to
matters concerning the exercise of remedies by the collateral agent upon an
event of default under the collateral agency agreement and (4) agree to the
exercise by the senior creditors of specific cure rights with respect to our
project contracts.
Mortgage
We, as mortgagor, will enter into the mortgage and will mortgage and
grant a security interest to the collateral agent for the benefit of the senior
creditors all of our rights, titles and interests in and to all real property
interests, including fee interests, easement interests and leasehold interests,
if any, to the facility site, our facility and any easements and all fixtures,
equipment and improvements, all accounts, subject to the terms of the indenture,
and personal property now owned or hereafter acquired. our rights in any leases
affecting such real property, including rights to receive income, will be
assigned by us to the collateral agent under the assignment of leases and
income.
The events of default under the mortgage incorporate by reference those
provided in the indenture. Under the terms of the mortgage, the collateral agent
may, upon the occurrence and during the continuance of an event of default and
satisfaction of conditions contained in the collateral agency agreement, take
possession of all collateral covered by the mortgage.
Proceeds from the exercise of remedies under the mortgage will be
applied in accordance with the security documents and the collateral agency
agreement.
Security Agreement
We will enter into the security agreement with the collateral agent for
the benefit of the senior creditors providing for the granting of a security
interest in all of our personal property interests including, but not limited
to, all contract rights, equipment, receivables, accounts, insurance proceeds,
eminent domain proceeds, rights under any governmental approval, to the extent
permitted by applicable law, and patents and trademarks, including all proceeds
and all documents evidencing all monies and investment therein. Upon the
occurrence of a Trigger Event under the collateral agency agreement, remedies
may be exercised under the security agreement.
Under the terms of the security agreement, the collateral agent may,
upon the occurrence and during the continuance of an event of default and
satisfaction of conditions contained in the collateral agency agreement, take
possession of all of the collateral covered by the security agreement.
Proceeds from the exercise of remedies under the security agreement
will be applied in accordance with the security documents.
Pledge Agreement
Under the pledge agreement to be entered into by AES Ironwood, Inc. in
favor of the collateral agent, AES Ironwood, Inc. will pledge to the collateral
agent, acting on behalf of the senior creditors, all of its ownership interests
in our company, and all rights under or derived therefrom, currently owned or
later acquired and all distributions, cash, instruments and other property and
proceeds, and all rights associated therewith, from time to time receivable or
otherwise distributable with respect to or in exchange for such ownership
interests.
104
<PAGE>
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
exchange offer in connection with a distribution of the new bonds. Each
broker-dealer that receives new bonds for its own account under the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of the new bonds. Based on SEC staff interpretations, a broker-dealer
could use this prospectus, as it may be amended or supplemented from time to
time, in connection with resales of new bonds received in the exchange offer
where the beneficial interests in old bonds for which they were exchanged were
acquired as a result of market-making activities or other trading activities. we
have agreed that for a period not to exceed 270 days, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until 120 days after the
consummation of the exchange offer, all dealers effecting transactions in the
new bonds may be required to deliver a prospectus.
The information set forth above concerning SEC staff interpretations is
not intended to constitute legal advice, and broker-dealers should consult their
own legal advisors with respect to these matters.
We will not receive any proceeds from the exchange offer or any sale of
new bonds by broker-dealers. New bonds received by broker-dealers for their own
account under the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new bonds or a combination of those methods of
resale, at market prices prevailing at the time of resale, at the time of
resale, at prices related to those prevailing market prices or negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of any new bonds. Any
broker-dealer that resells new bonds that were received by it for its own
account under the exchange offer and any broker or dealer that participates in a
distribution of the new bonds may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any resale of new bonds and any
commissions or concessions received by any of those persons may be deemed to be
underwriting compensation under the Securities Act. Any broker or dealer
registered under the Exchange Act who holds old bonds that were acquired for its
own account as a result of market-making activities or other trading activities,
other than old bonds acquired directly from us, may exchange those old bonds
under the exchange offer; however, that broker or dealer may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the new bonds received by the broker or dealer in
the exchange offer. This prospectus delivery requirement may be satisfied by the
delivery by that broker or dealer of this prospectus. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay the expenses of registration of the new bonds and
will indemnify the holders of the new bonds, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
Prior to the exchange offer, there has been no public market for the
old bonds. we do not intend to apply for listing of the new bonds on any
securities exchange. There can be no assurance that an active market for the new
bonds will develop. To the extent that a market for the new bonds develops, the
market value of the new bonds will depend on market conditions (including yields
on alternative investments general economic conditions) our financial condition
and other conditions. Those conditions might cause the new bonds, to the extent
that they are actively traded, to trade at a significant discount from face
value. we have not entered into any arrangement or understanding with any person
to distribute the new bonds to be received in the exchange offer.
We have not agreed to compensate broker-dealers who effect the exchange
of old bonds on behalf of holders.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Because the new bonds will be identical to the old bonds in all
relevant economic respects, the exchange of the old bonds for the new bonds will
not be treated as an exchange for United States federal income tax purposes.
Consequently, there will be no United States federal income tax consequences to
the exchange, and holders of the new bonds will continue to account for the
bonds for such purposes as if the exchange had not taken place.
LEGAL MATTERS
The validity of the new bonds will be passed upon for us by Hunton &
Williams, New York, New York.
105
<PAGE>
EXPERTS
The independent engineer's report included as Annex B to this
prospectus has been prepared by Stone & Webster and is included herein in
reliance upon the authority of such firm and its affiliates as experts in the
review of the design, construction and operation of electric generating
facilities. The independent power consultant's report included as Annex C to
this prospectus has been prepared by Hagler Bailly and is included herein in
reliance upon the authority of such firm as experts in the analysis of power
markets, including future market demand, future market prices for electric
energy and capacity and related matters, for electric generating facilities.
This document has been prepared by the management of our company and
includes financial statements audited by Deloitte & Touche LLP as stated in
their independent auditors' report accompanying those financial statements.
These financial statements are included in this prospectus in reliance upon the
independent auditors' report of such firm given upon their authority as experts
in accounting and auditing. The management of our company is responsible for the
accuracy and completeness of this document, including the "Prospective Financial
Information" appearing in Annex B, and Deloitte & Touche LLP makes no warranty
as to any of the information contained herein, nor any representations except as
contained in its independent auditors' report.
WHERE YOU CAN FIND MORE INFORMATION
Upon consummation of the exchange offer, we will be subject to the
informational requirements of the Exchange Act and, in accordance, will file
reports and other information with the SEC. Reports and other information filed
by us with the SEC can be inspected without charge and copied, upon payment of
prescribed rates, at the public reference facilities maintained by the SEC
located at Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the
regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and the Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material and any part
will also be available by mail from the Public Reference Section of the SEC,
located at 450 Fifth Street, NW, Washington, DC 20549, at prescribed rates.
The AES Corporation and The Williams Companies, Inc. are subject to the
informational requirements of the Exchange Act and, in accordance, file
reports, proxy statements and other information, including financial statements,
with the SEC. Such reports, proxy statements and other information may be
inspected without charge and copied, upon payment of prescribed rates, at the
offices of the SEC located at Room 1024, 450 Fifth Street, NW, Washington, DC
20549, and at the regional offices of the SEC located at 7 World Trade Center,
13th Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material and any part will also be available by mail from the Public Reference
Section of the SEC, located at 450 Fifth Street, NW, Washington, DC 20549.
The SEC also maintains a Website that contains reports and other
information regarding registrants that file electronically with the SEC. The
address of that site is (http:\\www.sec.gov).
106
<PAGE>
AES IRONWOOD, L.L.C.
(A Development Stage Enterprise, An Indirect Wholly-Owned
Subsidiary of the AES Corporation, Inc.)
Index to Financial Statements for the Period
from June 25 through September 30, 1999
Page
----
Independent Auditors' Report.......................................... F-2
Balance Sheet......................................................... F-3
Statement of Operations............................................... F-4
Statement of Changes In Member's Deficit.............................. F-5
Statement of Cash Flows............................................... F-6
Notes to Financial Statements......................................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Member of AES Ironwood, L.L.C.:
We have audited the accompanying balance sheet of AES Ironwood, LLC, (a
development stage enterprise) (the Company), which is an indirect wholly-owned
subsidiary of the AES Corporation, as of September 30, 1999, and the related
statements of operations, changes in member's equity, and cash flows for the
period from June 25, 1999 (inception) through September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of AES Ironwood, LLC, as of September 30, 1999,
and the results of its operations and its cash flows for the period from June
25, 1999 (inception) through September 30, 1999, in conformity with generally
accepted accounting principles.
McLean, VA
November 12, 1999
F-2
<PAGE>
AES IRONWOOD, LLC (A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
SEPTEMBER 30, 1999
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 573
Interest receivable 492
---------
Total current assets 1,065
LAND 528
CONSTRUCTION IN PROGRESS 216,139
CERTIFICATE OF DEPOSIT 385
DEFERRED FINANCING COSTS, net of accumulated amortization of $23 2,290
INVESTMENTS HELD BY TRUSTEE, at cost which approximates market value 99,590
---------
TOTAL ASSETS $ 319,997
=========
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 724
Accrued interest 2,429
Payable to AES 430
Payable to affiliates 541
---------
Total current liabilities 4,124
RETENTION PAYABLE 9,231
BONDS PAYABLE 308,500
---------
Total liabilities 321,855
---------
COMMITMENTS (Notes 4, 5, 6, and 7)
MEMBER'S DEFICIT:
Common stock ($1 par value, 10 shares authorized, none issued or outstanding) -
Accumulated deficit (1,858)
---------
Total member's deficit (1,858)
---------
TOTAL LIABILITIES AND MEMBER'S DEFICIT $ 319,997
=========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
AES IRONWOOD, LLC (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
(In Thousands)
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
General and administrative costs $ (162)
-------
Operating loss (162)
OTHER INCOME/EXPENSE:
Interest income 1,999
Interest expense (3,695)
-------
NET LOSS $(1,858)
=======
See notes to financial statements.
F-4
<PAGE>
AES IRONWOOD, LLC (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN MEMBER'S DEFICIT
FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30,1999
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance, June 25, 1999 - $ - $ - $ -
Net loss - - (1,858) (1,858)
----------- ----------- -------- --------
Balance, September 30, 1999 - $ - $ (1,858) $ (1,858)
=========== =========== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
AES IRONWOOD, LLC (A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
(In Thousands)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (1,858)
Amortization of deferred financing costs 23
Change in:
Interest receivable (492)
Accrued interest 1,219
---------
Net cash used in operating activities (1,108)
---------
INVESTING ACTIVITIES:
Payments for construction in progress $(204,388)
Payments for land (528)
Payments to debt service reserve (99,590)
---------
Net cash used in investing activities (304,506)
---------
FINANCING ACTIVITIES:
Proceeds from project debt issuance 308,500
Payments for deferred financing costs (2,313)
---------
Net cash provided by financing activities 306,187
---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 573
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 573
=========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 4,933
=========
See notes to financial statements.
F-6
<PAGE>
AES IRONWOOD LLC (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 25, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
AES, Ironwood, LLC (the Company) was incorporated on October 30, 1998, in
the state of Delaware, to develop, construct and operate a 705 megawatt
(MW) gas-fired combined cycle electric generating facility in South
Lebanon Township, Pennsylvania (the Plant). The Company was considered
dormant until June 25, 1999 at which time the Project Financing and
certain related agreements were consummated (hereinafter, inception.) The
Plant, currently under construction, will consist of two Westinghouse 501
G combustion turbines, two heat recovery steam generators and one steam
turbine. The Plant will produce and sell electricity, as well as provide
fuel conversion and ancillary services, solely to Williams Energy
Marketing and Trading Company (Williams) under a power purchase agreement
(the PPA), with a term of 20 years, that will commence on the Plant's
anticipated commercial operation date, June 30, 2001 (see Note 5).
The Company is in the development stage and is not expected to generate
any operating revenues until the Plant achieves commercial operations. As
with any new business venture of this size and nature, operation of the
Plant could be affected by many factors. Management of the Company
believes that the assets of the Company are realizable.
The Company is a wholly-owned subsidiary of AES Ironwood, Inc. (Ironwood),
which is a wholly-owned subsidiary of The AES Corporation (AES).
On June 25, 1999, the Company issued $308.5 million in senior secured
bonds (see Note 4) for the purpose of providing financing for the
construction of the Plant and to fund, through the construction period,
interest payments to the bondholders.
Pursuant to an Equity Subscription Agreement, Ironwood has agreed to
contribute up to approximately $50.1 million to the Company to fund
construction after the bond proceeds have been fully utilized (see Note
4).
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers unrestricted cash on
hand, deposits in banks, and investments with original maturities of three
months or less to be cash and cash equivalents for the purpose of the
statement of cash flows.
Investments Held by Trustee - The Company is required to maintain a
construction funding account for the payment of certain qualifying
construction costs and a construction interest account from which
quarterly interest payments are to be made. As of September 30, 1999,
these amounts were fully invested in money market accounts. The balances
in the construction funding account and the construction interest account
were approximately $53 million and $47 million, respectively, as of
September 30, 1999.
Construction in Progress - Costs incurred in developing the Plant,
including progress payments, engineering costs, management and development
fees, interest, and other costs related to construction are capitalized.
Total interest capitalized on the project financing debt was approximately
$3.7 million,
F-7
<PAGE>
through September 30, 1999. Certain costs related to construction
activities were paid by AES prior to the issuance of the bonds. These
amounts include approximately $105.4 million of construction progress
payments and $20.1 million in other incurred costs and fees. These costs
are reflected within construction in progress, and were reimbursed to AES
out of the bond proceeds.
Deferred Financing Costs - Financing costs are deferred and are being
amortized using the straight-line method over the expected period for
which the financing was obtained, which does not differ materially from
the effective interest method of amortization.
Accounts Payable and Contract Retention Payable - Amounts currently
payable for construction billings and those amounts billed by the
Contractor in accordance with the engineering, procurement and
construction contracts but retained by the Company until construction is
complete are included in accounts payable and contract retention payable,
respectively. These liabilities are expected to be paid from restricted
cash balances (bond proceeds) or equity funding from Ironwood.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Income Taxes - The Company is a limited liability corporation and is
treated as a partnership for tax purposes. Therefore, it does not pay
income taxes, and no provision for income taxes has been reflected in the
accompanying financial statements.
Comprehensive Income - In 1999 the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130)
which establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on the Company's
financial statements as it had no items of other comprehensive income.
Start-Up Costs - In 1999 the Company adopted AICPA Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-Up Activities which requires
that start-up and organization costs be expensed as incurred. As such, no
costs to which the Statement applies have been capitalized in the
accompanying balance sheet.
Fiscal Year End - The Company's fiscal year will end on December 31.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which established standards
for the accounting and reporting of derivative financial instruments and
hedging activities. The standard will be adopted by the Company during
fiscal year 2001. The Company is currently evaluating the impact of the
adoption of SFAS No. 133.
4. BONDS PAYABLE
On June 25, 1999, the Company issued $308.5 million of 8.857% senior
secured bonds due 2025 (the Bonds) to qualified institutional buyers
and/or institutional accredited investors, pursuant to a transaction
exempt from registration under the Securities and Exchange Act of 1933
(the Act) in accordance with Rule 144A of the Act. The net proceeds of the
bonds (after deferred financing costs), approximately
F-8
<PAGE>
$306 million, are to be used to fund the construction of the Plant and,
during the construction period, for interest payments to bondholders.
Interest on the Bonds is payable quarterly in arrears. Quarterly principal
payments on the Bonds will commence on February 28, 2002. The final
maturity date for the Bonds is November 30, 2025.
Principal & Interest Repayment Schedule - (in thousands)
<TABLE>
<CAPTION>
Year Principal and Interest
- ---- ----------------------
<S> <C>
1999 (including amounts paid through September 30, 1999) $ 11,847
2000 27,324
2001 27,324
2002 29,233
2003 31,742
2004 32,780
2005-2025 617,500
---------
Total Payments 777,750
Less Interest portion (469,250)
---------
Principal $ 308,500
=========
</TABLE>
Future Maturities of Debt - Scheduled maturities of the bonds at December
31 are (in thousands):
1999 $ -
2000 -
2001 -
2002 1,974
2003 4,751
2004 and thereafter 301,775
---------
TOTAL $ 308,500
=========
Optional Redemption - The Bonds are subject to optional redemption, in
whole or in part, at any time at a redemption price equal to 100% of the
principal amount plus accrued interest, together with a premium calculated
using a discount rate equal to the interest rate on comparable U.S.
Treasury securities plus 50 basis points.
Mandatory Redemption - The Bonds are subject to mandatory redemption, in
whole or in part, at a redemption price equivalent to 100% of the
principal amount plus accrued interest under certain situations pursuant
to receiving insurance proceeds or liquidating damages from failure under
the engineering, procurement, and construction contract, or in certain
instances in which payments are made under the PPA with Williams under the
event of default, at which time the Company has terminated the PPA.
Registration Rights - The Company is obligated to register the Bonds under
the Act with the Securities and Exchange Commission within 220 days of the
initial sale of the Bonds. Failure to register the Bonds under the Act
will result in the interest rate payable on the Bonds, currently fixed at
8.875%, to increase by 50 basis points.
F-9
<PAGE>
Collateral for the Bonds consists of the Plant and related facilities, all
agreements relating to the operation of the project, the bank and
investment accounts of the Company, and all ownership interests in the
Company, as prescribed under the Bond Indenture Agreement (the Indenture).
The Company is also bound by a collateral agency agreement (the Collateral
Agreement) and an equity subscription agreement (the Equity Subscription
Agreement).
Indenture Agreement - The Indenture contains limitations on the Company
incurring additional indebtedness, granting liens on the Company's
property, distributing equity and paying subordinated indebtedness issued
by affiliates of the Company, entering into transactions with affiliates,
amending, terminating or assigning any of the Company's contracts and
fundamental changes or disposition of assets.
Collateral Agreement - The Collateral Agreement requires the Company to
fund or provide the funding for a debt service reserve fund, which is
expected to commence on June 30, 2001. The amount required for funding the
debt service reserve fund is equal to six months scheduled payments of
principal and interest on the bonds.
Equity Subscription Agreement - The Company, along with Ironwood, has
entered into an Equity Subscription Agreement, pursuant to which Ironwood
has agreed to contribute up to approximately $50.1 million to the Company
to fund project costs. This amount is secured by an acceptable bond issued
by Ironwood. Ironwood will fund these amounts as they come due upon the
earlier of (a) expenditure of all funds that have been established for
construction or (b) the occurrence and during the continuation of an event
of default, as defined under the Indenture. A portion of this equity
requirement may be made in the form of affiliate debt, between Ironwood
and the Company, which is subordinate to the Bonds.
Covenants - The Indenture, Collateral Agreement, and Equity Subscription
Agreement contain specific covenants and requirements to be met by the
Company.
5. POWER PURCHASE AGREEMENT
The Company and Williams have entered into a PPA for the sale of all
electric energy and capacity produced by the Plant, as well as ancillary
services and fuel conversion services. The term of the PPA is 20 years,
commencing when the construction of the Plant is complete and the Plant is
commercially viable to produce electricity and related capacity, as well
as to provide ancillary and fuel conversion services. Payment obligations
to the Company are guaranteed by The Williams Companies, Inc. Such payment
obligations under the guarantee are capped at an amount equal to 125% of
the sum of the principal amounts of the bonds plus the maximum debt
service reserve account required balance. The Company has provided
Williams a guaranty issued by AES of specific payment obligations should
the Plant not achieve commercial operation, by June 30, 2001. AES's
liability under the guaranty is capped at $30 million. The Company has the
option, and may be required under specific conditions described in the
PPA, to replace the guaranty issued by AES with a letter of credit issued
by a commercial bank. In such case, the repayment obligations with respect
to drawings under the letter of credit are to be a senior debt obligation
of the Company.
Fuel Conversion and Other Services - As instructed by the Company,
Williams has the obligation to deliver, on an exclusive basis, all
quantities of natural gas and fuel oil required by the Plant to generate
electricity or ancillary services, to start-up or shut-down the Plant, and
to operate the Plant during any period other than a start-up, shut-down,
or required dispatch by Williams for any reason.
F-10
<PAGE>
6. COMMITMENTS
Turnkey Construction Agreement - The Company has entered into a
fixed-price turnkey agreement with Siemens Westinghouse (the Contractor)
for the design, engineering, procurement and construction of the Plant.
The Contractor will provide the Company with specific combustion turbine
maintenance services and spare parts for an initial term of between eight
and ten years under a maintenance service agreement. As of September 30,
1999, the Company was liable to the contractor for a retention payment as
part of the total contract price due at the completion of the contract for
approximately $9.2 million.
Water Supply - The Company has entered into a contract with the City of
Lebanon Water Authority (the Authority) for the purchase of 50 percent of
the water use of the Plant. The contract has a term of 25 years. Costs
associated with the use of water by the Plant under this contract are
based on gallons used per day at prices specified under the contract
terms. The Company has also entered into an agreement with Pennsy Supply
Quarry (Pennsy) which will provide the remaining 50 percent of the water
use of the Plant.
Interconnection Agreement - The Company has entered into an
interconnection agreement with GPU Energy (GPU) to transmit the
electricity generated by the Plant to the transmission grid so that it may
be sold as prescribed under the Company's PPA. The Agreement is in effect
for the life of the Plant, yet may be terminated by mutual consent of both
GPU and the Company, under certain circumstances as detailed in the
Agreement. Costs associated with the Agreement are based on electricity
transmitted via GPU at a variable price, the PJM (Pennsylvania/New
Jersey/Maryland) Tariff, as charged by GPU to the Company, which is
comprised of both service cost and asset recovery cost, as determined by
GPU and approved by the Federal Energy Regulatory Committee (FERC).
Letter of Credit - The Company also has a letter of credit agreement
outstanding to fund the construction of an access road to the Plant under
construction. In connection with this letter of credit, the Company has
made a deposit as collateral for approximately $385,000 into a certificate
of deposit account, which equals the amount available under this
agreement.
Surety Bond Agreement - Ironwood has a surety bond agreement for $50.1
million in relation to its equity subscription agreement. Annual
commitment fees will be assessed based on the amount outstanding during
the year.
7. RELATED PARTY TRANSACTIONS
Effective June, 1999 the Company entered into a 27-year development and
construction management agreement with AES Prescott, LLC (Prescott),
another wholly-owned subsidiary of Ironwood, to provide certain support
services required by the Company for the development and construction of
the Plant. Under this agreement Prescott will also provide operations
management services for the Plant once commercial operation is attained.
Minimum amounts payable under the contract during the construction period
are $125,000 per month. Once commercial operation is achieved, payments
for operations management services will be approximately $400,000 per
quarter.
During the construction period, the construction management fees will be
paid to Prescott from the restricted cash balance or from equity funding.
Through September 30, 1999, $500,000 in construction management fees were
incurred, were charged to construction in progress, and are payable to
Prescott.
F-11
<PAGE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments have been
determined using available market information. The estimates are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The fair value of the Company's restricted investments approximates their
carrying value. The estimated fair value of the Bonds as of September 30,
1999, based on quoted market prices of similarly rated bonds with similar
maturities, does not differ materially from their carrying value.
9. SEGMENT INFORMATION
Under the provisions of Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information,
the Company's business is expected to be operated as one reportable
segment, with operating income or loss being the measure of performance
evaluated by the chief operating decision maker. As described in Notes 1
and 5, the Company's primary customer will be Williams Energy Marketing
and Trading Company, which is expected to provide all of the revenues of
the Company during the term of the PPA.
* * * * * *
F-12
<PAGE>
- --------------------------------------------------------------------------------
ANNEX A
GLOSSARY OF TECHNICAL TERMS
- --------------------------------------------------------------------------------
<PAGE>
II. GLOSSARY OF TECHNICAL TERMS
The following terms shall have the following meanings and such meanings
are equally applicable to both the singular and plural forms of the terms
defined. Any term defined below by reference to any agreement or instrument
shall have such meaning whether or not such agreement or instrument is in
effect. Unless otherwise specified, any agreement or instrument defined or
referred to below shall include any amendments, modifications and supplements
and waivers made in accordance with the terms of such agreement or instrument.
Any reference to a person includes the successors and permitted assigns of such
person.
"Change Order" means a written change order by either us or Siemens
Westinghouse, acceptable to the other party, requesting changes within the scope
of the maintenance services agreement.
"Combustion Turbine" means one of our facility's two 501G combustion
turbines furnished by Siemens Westinghouse under the construction agreement or
any replacement 501G combustion turbine furnished by Siemens Westinghouse or one
of its affiliates under the construction agreement.
"Completed Power Purchase Agreement Output Test" means, with respect
to our facility, any Power Purchase Agreement Output Test established as a
Completed Power Purchase Agreement Output Test in accordance with the
construction agreement.
"Completed Performance Tests" means, with respect to our facility, any
Performance Test established as a Completed Performance Test in accordance with
the provisions of the construction agreement.
"Construction Progress Milestone Dates" means the dates, as specified
in the construction agreement, by which the Construction Progress Milestones are
required to have been fully completed in accordance with the standards of
performance set forth in the construction agreement.
"Construction Progress Milestones" means the construction progress
milestones specified in the construction agreement.
"Delay LD SubCap" means the sub-limit on Siemens Westinghouse's
liability under the construction agreement for delays in completion of our
facility, the aggregate amount of which is equal to 20% of the contract price.
"Dispatch Period" means a period of time during which the Williams
Energy has requested delivery of Net Electric Energy and/or the provision of
ancillary services under the power purchase agreement starting with a beginning
requested dispatch hour and concluding with an ending requested dispatch hour. A
Dispatch Period may continue for more than one calendar day.
"EBH" means the calculated result of equivalent base load hours
incurred by the Combustion Turbines as determined in accordance with the
maintenance services agreement.
"Electric Delivery Point" means the physical point at which Net
Electric Energy and/or ancillary services are delivered and measured.
"Electric Metering Equipment" means the electric meters and associated
equipment, including metering transformers and meters for measuring
kilowatt-hours and reactive volt-ampere hours, owned by Metropolitan Edison,
which will be operated and maintained in accordance with the interconnection
agreement and which will be utilized in determining the amount of Net Electric
Energy and/or ancillary services delivered by us to the Electric Delivery Point
under the power purchase agreement.
"Electrical Output Guarantee" means the guarantee by Siemens
Westinghouse to us that, with respect to the Completed Performance Test, if
Provisional Acceptance or Interim Acceptance occurs prior to Final Acceptance,
at the earlier to occur of Provisional Acceptance or Interim Acceptance, the
average net electrical output of our facility during such Completed Performance
Test will be greater than or equal to the applicable electrical output guarantee
as set forth in the Warranty Data Sheet.
"Equipment" means all of the materials, apparatus, structures, tools,
supplies or other goods provided by Siemens Westinghouse or any subcontractor
which are incorporated into our facility or provided by Siemens Westinghouse as
part of the Services and retained by us after Final Acceptance in accordance
with the construction agreement.
"Equivalent Starts" means the calculated result of equivalent starts
determined in accordance with the maintenance services agreement.
A-1
<PAGE>
"Final Acceptance Certificate" shall mean the certificate submitted by
us to Siemens Westinghouse stating that the final Acceptance requirements under
the construction agreement have been satisfied.
"Final Acceptance" means the achievement or deemed achievement of our
facility's performance under the construction agreement.
"Final CO Date" means December 31, 2001.
"First Paid Extension Option" means our option to extend the commercial
operation date to December 31, 2001, by giving Williams Energy written notice of
such extension no later than April 30, 2001, and paying to Williams Energy a
specified amount by no later than June 30, 2001.
"Free Extension Option" means our option to extend the commercial
operation date to December 31, 2001, if we provide an opinion to Williams Energy
from a third-party engineer that the commercial operation date will occur no
later than December 31, 2001.
"Gas Interconnection Facilities" means the interconnection and delivery
facilities necessary for delivery of natural gas (including the Gas Metering
Equipment, but excluding compressors).
"Gas Metering Equipment" means gas meters and associated equipment
utilized in determining the amount of natural gas delivered to us by the
Williams Energy under the power purchase agreement, and the amount of natural
gas consumed by our facility.
"Guaranteed Completion Date" means the date which is 24 months after
the delivery by us to Siemens Westinghouse of the notice to proceed under the
construction agreement.
"Guaranteed Emissions Limits" means the standards for emission by our
facility of all gaseous, particulate, liquid and noise pollutants as set forth
in the Warranty Data Sheet and such other or more stringent standards (if any)
under all applicable laws and applicable permits.
"Guaranteed Final Acceptance Date" means twelve (12) months after the
Guaranteed Provisional Acceptance Date, unless on or before the end of such
twelve (12) month period (1) our facility has achieved Interim Acceptance or (2)
our facility has achieved Provisional Acceptance and Siemens Westinghouse shall
have submitted a Plan to us and the independent engineer that demonstrates to
our reasonable satisfaction and to that of the independent engineer that Siemens
Westinghouse will achieve Interim Acceptance of our facility on or before the
date that is twenty-four (24) months after the Guaranteed Provisional Acceptance
Date, in either of which cases the Guaranteed Final Acceptance Date shall be
twenty-four (24) months after the Guaranteed Provisional Acceptance Date and in
any case which date is subject to adjustment as expressly provided in the
construction agreement.
"Guaranteed Provisional Acceptance Date" means February 28, 2001, which
date is subject to adjustment as expressly provided in the construction
agreement.
"Heat Rate Guarantee" means the guarantee by Siemens Westinghouse to us
that if Provisional Acceptance and/or Interim Acceptance occurs prior to Final
Acceptance, at such Provisional Acceptance and Interim Acceptance of our
facility, the net heat rate of our facility during such Completed Performance
Test, calculated in BTUs per kilowatt-hour, shall be equal to or less than the
applicable heat rate guarantee as set forth in the Warranty Data Sheet.
"Initial Start-Up Testing" means the operation and testing of our
facility prior to the commercial operation date, including performance tests, to
determine, among other things, the operating characteristics of our facility,
our facility's capacity and our facility's ability to meet our obligations under
the power purchase agreement.
"Interconnection Facilities" means all structures, facilities,
equipment, auxiliary equipment, devices and apparatus including the Protective
Apparatus directly or indirectly required and installed to interconnect and
deliver Net Electric Energy and ancillary services from our facility to the
Electric Delivery Point including electric transmission and/or distribution
lines, transformation, switching, Electric Metering Equipment, any other
metering equipment, communications, and safety equipment, including equipment
required to protect (1) the Metropolitan Edison's electrical system and its
customers from faults occurring at our facility and (2) our facility from faults
occurring on Metropolitan Edison's electrical system or on the electrical
systems of others to which the Metropolitan Edison's electrical system is
directly or indirectly connected.
"Interim Acceptance Certificate" shall mean the certificate submitted
by us to Siemens Westinghouse stating that the Interim Acceptance requirements
under the construction agreement have been satisfied.
"Interim Acceptance" means the achievement of performance of the
"Services" under the construction agreement.
A-2
<PAGE>
"Interim Period" means the period of time, if any, commencing with the
earlier to occur of Provisional Acceptance or Interim Acceptance of our facility
and ending at Final Acceptance.
"Mechanical Completion Certificate" means the certificate submitted by
us to Siemens Westinghouse stating that the Mechanical Completion requirements
under the construction agreement have been satisfied.
"Mechanical Completion" means the mechanical completion of our facility
under the provisions of the construction agreement.
"Miscellaneous Hardware" means miscellaneous hardware items including
but not limited to pins, springs, studs, gaskets, tie wires, fasteners, screws,
washers, nuts, bolts which are required to roll out and roll in the Program
Parts which is supplied by Siemens Westinghouse under the maintenance services
agreement or in accordance with a Change Order.
"Net Electric Energy" means the gross amount of electric energy
generated by our facility at the direction of the Williams Energy, less station
service requirements and any transformation and transmission line losses to the
Electric Delivery Point, and delivered by us to the Metropolitan Edison's
electric system at the Electric Delivery Point.
"New Program Parts" means the Program Part(s) which are supplied by
Siemens Westinghouse under maintenance services agreement, when they are new and
unused.
"Notice of Final Acceptance" means the notice delivered by Siemens
Westinghouse to us stating that it believes that it has achieved Final
Acceptance of our facility.
"Notice of Interim Acceptance" means the notice delivered by Siemens
Westinghouse to us stating that it believes that it has achieved Interim
Acceptance of our facility.
"Notice of Mechanical Completion" means the notice delivered by Siemens
Westinghouse to us stating that it believes that it has achieved Mechanical
Completion of our facility.
"Notice of Project Completion" means the notice delivered by Siemens
Westinghouse to us stating that the Project Completion requirements under the
construction agreement have been satisfied.
"Notice of Provisional Acceptance" shall mean the notice delivered by
Siemens Westinghouse to us stating it has achieved Provisional Acceptance of the
Facility.
"Notice of Reliability Guarantee Achievement" shall mean the notice
delivered by Siemens Westinghouse to us stating it has achieved the Reliability
Guarantee.
"Oil Delivery Point" means the physical point at which fuel oil is
delivered and measured.
"Oil Metering Equipment" means the oil meters and associated equipment
utilized in determining the amount of fuel oil delivered to us by Williams
Energy and the amount of fuel oil consumed by our facility.
"Payment and Milestone Schedule" means the schedule of payments and
milestones as set forth in the construction agreement.
"Performance Guarantee" means the guarantee by Siemens Westinghouse to
us that (1) our facility will be capable of achieving all the applicable
performance specifications referred to in the construction agreement during a
Completed Performance Test at the earlier to occur of Provisional Acceptance or
Interim Acceptance of our facility and (2) our facility will be capable of
achieving all the applicable performance specifications referred to in the
construction agreement during a Completed Performance Test at Final Acceptance
of our facility.
"Performance Guarantee Payments" means the payments by Siemens
Westinghouse to us as rebates if (1) our facility fails to achieve the natural
gas-based Heat Rate Guarantee during the period, if any, commencing with the
earlier to occur of Provisional Acceptance and Interim Acceptance of our
facility and continuing until Final Acceptance of our facility, (2) our facility
fails to achieve the natural gas-based Electrical Output Guarantee during the
period, if any, commencing with the earlier to occur of Provisional Acceptance
and Interim Acceptance and continuing until Final Acceptance of the Facility, or
(3) our facility fails to achieve any of the applicable natural gas-based and
fuel oil-based Performance Guarantees at Final Acceptance of our facility, as
the case may be.
"Performance Tests" means the operation of our facility by or on behalf
of Siemens Westinghouse in accordance with the provisions of the construction
agreement and in accordance with applicable laws, applicable permits, the
electrical interconnection requirements and the Power Purchase Agreement
Operating Requirements, for the purpose of determining the compliance with the
Guaranteed Emissions Limits and the level of achievement of the Performance
Guarantees.
A-3
<PAGE>
"Plan" shall mean a written plan prepared by Siemens Westinghouse to
accelerate the performance of the Services as necessary in order to achieve
Final Acceptance of our facility no later than the Guaranteed Final Acceptance
Date.
"Power Factor" means the ratio of real power expressed in watts to
apparent power, expressed in volt-amperes.
"Power Purchase Agreement Operating Requirements" means those
procedures and requirements relating to the operation and maintenance of our
facility set forth in the power purchase agreement.
"Power Purchase Agreement Output Tests" means the operation of our
facility by or on behalf of Siemens Westinghouse in accordance with the
construction agreement and in accordance with applicable laws, applicable
permits, the electrical interconnection requirements and the Power Purchase
Agreement Operating Requirements for the purpose of determining the level
achievement of Electrical Output Guarantee.
"Program Part(s)" means the number and type of part(s) of the
Combustion Turbine that are listed in the maintenance services agreement.
"Project Completion Certificate" means the certificate delivered by us
to Siemens Westinghouse stating that the Project Completion requirements under
the construction agreement have been satisfied.
"Project Completion Deadline" means one hundred eighty (180) days after
Final Acceptance of our facility.
"Project Completion Payment" means shall have the meaning set forth in
Section 4.7.4 hereof.
"Project Completion" means the acceptance by us of the completed
project from Siemens Westinghouse in accordance with the construction agreement.
"Protective Apparatus" means such equipment and apparatus on our side
of the Electric Delivery Point, including, but not limited to, protective
relays, circuit breakers, necessary or appropriate to isolate our facility from
Metropolitan Edison's electrical system consistent with accepted electrical
practices.
"Protective Gas Apparatus" means such equipment and apparatus on our
side of the Gas Delivery Point necessary to maintain the safety of our facility
consistent with standard gas industry practices.
"Provisional Acceptance" means the achievement of performance pursuant
to the provisions of the construction agreement.
"Provisional Acceptance Certificate" means the certificate delivered by
us to Siemens Westinghouse stating that the Provisional Acceptance requirements
under the construction agreement have been satisfied.
"Punch List" means the list prepared by us with the full cooperation
of Siemens Westinghouse, which list shall set forth all items of work which
remain to be performed in order to ensure that our facility fully complies with
all of the standards and requirements set forth in the construction agreement.
"Reliability Guarantee" means the guarantee by Siemens Westinghouse to
us that, in no event later than the occurrence of Final Acceptance of our
facility, our facility shall have successfully completed the Reliability Run.
"Reliability Run" means the operation of our facility for forty-five
(45) consecutive days in accordance with applicable laws, applicable permits,
the Guaranteed Emissions Limits, the instruction manual, the electrical
interconnection requirements, the Power Purchase Agreement Operating
Requirements and the construction agreement.
"Retainage" means an amount equal to 5% of each of our scheduled
payments, other than our project completion payment, to Siemens Westinghouse
under the construction agreement, which we may withhold until after Final
Acceptance if the independent engineer fails to confirm the matters certified to
by Siemens Westinghouse in its payment request.
"Risk Transfer Date" means the earlier to occur of (1) delivery by us
of the Provisional Acceptance Certificate the Interim Acceptance Certificate in
the Final Acceptance Certificate or (2) the earlier transfer of our facility to
us upon termination of the Construction Agreement.
"Scheduled Outage" means a planned outage of the applicable Combustion
Turbine, scheduled by us and Siemens Westinghouse, during which the applicable
TFA Services described in the maintenance services agreement will be performed.
A Scheduled Outage will commence when the Combustion Turbine breaker is opened
and will end when Siemens Westinghouse has completed its applicable TFA Services
for the given Scheduled Outage and Siemens Westinghouse has submitted to us
written notice of completion and we have concurred.
A-4
<PAGE>
"Scope Change Order Notice" means a written notice to us issued by
Siemens Westinghouse indicating that we believes a Scope Change Order is
required in connection with the performance of the Services.
"Scope Change Order Request" means a written notice proposal issued and
signed by us requesting a Scope Change, submitted to Siemens Westinghouse by us
pursuant to the construction agreement.
"Scope Change Order" means a written order to Siemens Westinghouse
issued and signed by us authorizing a Scope Change and, if appropriate, an
adjustment in one or more of the contract price, the Guaranteed Completion
Dates, the Payment and Milestone Schedule, the Construction Progress Milestone
Dates, the Project Schedule and the Performance Guarantees or any other
amendment of the terms and conditions of the construction agreement.
"Scope Changes" means any material addition to, deletion from,
suspension of or other modification to our facility or to the quality, function
or intent of our facility, including any such addition, deletion, suspension or
other modification which requires a change in one or more of the contract price,
the Guaranteed Completion Dates, the Payment and Milestone Schedule, the
Construction Progress Milestone Dates, the Project Schedule and the Performance
Guarantees.
"Second Paid Extension Option" means our option to extend the Final CO
Date to and including December 31, 2002 by giving Williams Energy written notice
of the estimated extension required no later than October 31, 2001 and paying to
Williams Energy specific amounts for each day of such extension.
"Services" means the services provided by Siemens Westinghouse under
the construction agreement.
"Shop Repair" means shop repair/refurbishment work performed by Siemens
Westinghouse on Program Parts at its manufacturing plant, its services facility
or a suitable facility selected by Siemens Westinghouse.
"Shutdowns" means an actual shutdown of a unit of our facility, as
evidenced by the opening of its Combustion Turbine's breaker, or our facility,
as evidenced by the opening of all of its breakers, immediately following the
ending requested dispatch hour of a Dispatch Period or pursuant to an early
shutdown notice.
"Start-Up Testing Date" means the date our facility would be prepared
to begin Initial Start-Up Testing.
"Start-Ups" means a successful Start-Up of our facility or a unit
necessary to comply with the schedule or request by Williams Energy for a
Dispatch Period for our facility immediately preceding a beginning requested
dispatch hour.
"TFA Services" means the advise and consultation given to our
personnel by a field service representative of Siemens Westinghouse under the
maintenance activities performed by others at the facility site and (2) any of
Siemens Westinghouse's recommended quality assurance procedures for activities
performed at the facility site; provided, however, that TFA Services do not
include management supervision or regulation of our personnel, agents or
contractors.
"Total LD SubCap" means the limitation Siemens Westinghouse's total
liability for delays in completion together with its liability for any
performance shortfalls, the aggregate amount of which is equal to 45% of the
contract price.
"Transmission System" means the electric transmission facilities amend,
controlled operated by Metropolitan Edison.
"Trigger Event" means (1) an "event of default" under the Indenture and
an acceleration of the indebtedness issued thereunder; (2) an "event of default"
under the debt service reserve letter of credit and reimbursement agreement and
an acceleration of the indebtedness incurred by us thereunder; (3) an "event of
default" under the construction period letter of credit and reimbursement
agreement and an acceleration of the indebtedness incurred by us thereunder; (4)
an "event of default" or the equivalent under any working capital facility and
an acceleration of the indebtedness incurred by us thereunder; or (5) a
bankruptcy event in respect of us and the expiration of the shortest applicable
grace period.
A-5
<PAGE>
- --------------------------------------------------------------------------------
ANNEX B
INDEPENDENT ENGINEER'S REPORT
- --------------------------------------------------------------------------------
<PAGE>
[GRAPHIC OMITTED]
Stone & Webster
Management Consultants, Inc.
- --------------------------------------------------------------------------------
Independent Technical Consultant's Report
on the
AES Ironwood, L.L.C.. Power Project
June 18, 1999
Prepared by
Stone & Webster Management Consultants, Inc.
B-1
<PAGE>
LEGAL NOTICE
This report was prepared by Stone & Webster Management Consultants, Inc. with
the assistance of its affiliated company, Stone & Webster Engineering
Corporation, together hereafter referred to as Stone & Webster, expressly for
Lehman Brothers Inc. ("Lehman Brothers"). Neither Stone & Webster, Lehman
Brothers, nor any person acting on their behalf: (a) makes any warranty, express
or implied, with respect to the use of any information or methods disclosed in
this report; or (b) assumes any liability with respect to the use of any
information or methods disclosed in this report.
B-2
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Executive Summary.............................................................................5
1.1 PROJECT DESCRIPTION...........................................................................6
1.2 CONCLUSIONS...................................................................................7
2. Scope of Work................................................................................12
3. Facility Design..............................................................................13
3.1 FACILITY DESCRIPTION.........................................................................13
3.2 SITE LOCATION AND DESCRIPTION................................................................13
3.3 COMBUSTION TURBINE GENERATOR.................................................................14
3.4 HEAT RECOVERY STEAM GENERATOR................................................................20
3.5 STEAM TURBINE................................................................................20
3.6 ELECTRIC GENERATOR...........................................................................21
3.7 BALANCE OF PLANT SYSTEMS.....................................................................21
3.8 FUEL SYSTEMS.................................................................................26
3.9 ELECTRICAL SYSTEMS...........................................................................28
3.10 SWITCHYARD...................................................................................28
3.11 INSTRUMENT AND CONTROL SYSTEMS...............................................................29
3.12 CIVIL AND STRUCTURAL DESIGN..................................................................29
3.13 INTERCONNECTIONS.............................................................................32
4. Environmental and Permitting.................................................................36
4.1 ENVIRONMENTAL SITE ASSESSMENT................................................................36
4.2 PERMITTING...................................................................................36
5. Project Agreements...........................................................................40
5.1 POWER PURCHASE AGREEMENT.....................................................................40
5.2 INTERCONNECTION AGREEMENT....................................................................43
5.3 ENGINEERING, PROCUREMENT, AND CONSTRUCTION SERVICES..........................................43
5.4 MANAGEMENT AND OPERATIONS AGREEMENT..........................................................48
5.5 SERVICES AGREEMENT...........................................................................49
5.6 EFFLUENT SUPPLY AGREEMENT....................................................................49
5.7 AGREEMENT RELATING TO REAL ESTATE............................................................50
5.8 MAINTENANCE PROGRAM PARTS, SHOP REPAIRS AND SCHEDULED OUTAGE TFA SERVICES CONTRACT...........50
6. Principal Project Participants...............................................................52
6.1 AES IRONWOOD, LLC............................................................................52
6.2 AES PRESCOTT, LLC............................................................................52
6.3 WILLIAMS ENERGY MARKETING & TRADING COMPANY..................................................52
6.4 SIEMENS WESTINGHOUSE POWER CORPORATION.......................................................53
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7. Assessment of Projected Operating Results....................................................54
7.1 OVERVIEW.....................................................................................54
7.2 PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS.....................................................54
7.3 PROJECT COST.................................................................................56
7.4 POWER PRODUCTION.............................................................................57
7.5 REVENUES.....................................................................................58
7.6 OPERATING EXPENSES...........................................................................59
7.7 FINANCING ASSUMPTIONS........................................................................61
7.8 PROJECTED OPERATING RESULTS..................................................................62
7.9 SENSITIVITY ANALYSES.........................................................................62
7.10 LIQUIDATED DAMAGES ANALYSES..................................................................65
</TABLE>
Exhibit I
Base Case
Increased O&M Sensitivity (Case #1)
Increased Heat Rate Sensitivity (Case #2)
Decreased Availability Sensitivity (Case #3)
Hagler Bailey High Gas Price Sensitivity (Case #4)
Hagler Bailly Low Demand Growth Sensitivity (Case #5)
Exhibit II
Document Log
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<PAGE>
1. Executive Summary
Stone & Webster Management Consultants, Inc. is pleased to provide this report
(the "Report") which summarizes our independent technical review (the "Review")
of the proposed AES Ironwood Project (the "Project"). The Project will consist
of a nominal 705 megawatt ("MW") net combined cycle electric generating facility
(the "Facility") to be located in South Lebanon Township, Pennsylvania and the
associated Project documents and agreements.
The Review was conducted by Stone & Webster Management Consultants, Inc. with
the assistance of Stone & Webster Engineering Corporation (collectively, "Stone
& Webster"). The Review was conducted by Stone & Webster for the purpose of
producing this Report on behalf of Lehman Brothers as Initial Purchaser of
certain bonds (the "Bonds") to be issued by AES Ironwood, LLC ("AES Ironwood"),
pursuant to Rule 144A under the Securities Act of 1933, as amended, to finance
the construction and initial start-up and testing of the Facility. The Bonds are
to be offered in the United States to qualified institutional buyers and
institutional accredited investors and in offshore transactions complying with
Regulation S under the Securities Act of 1933 as amended.
The scope of the Review included the conceptual design and interfaces of the
Project; the proposed Siemens Westinghouse Power Corporation ("SWPC") 501G
combustion turbine technology; the projected performance of the Project; the
Phase I site assessments for the Project; the issued permits for the Project;
the technical assumptions utilized in the Pennsylvania/New Jersey/Maryland
("PJM") Market Study prepared by Hagler-Bailly Consulting Inc. ("Hagler Bailly")
and dated June 1, 1999; and the Project's projected operating results through
validation of the Project pro forma and verification of the model results (the
"Projected Operating Results").
Stone & Webster also reviewed the principal contracts and agreements associated
with the Project. These included the Power Purchase Agreement dated February 5,
1999 ("PPA"), the Generation Facility Transmission Interconnection Agreement
with Metropolitan Edison Company ("MET-ED") dated March 23, 1999
("Interconnection Agreement"), the Engineering, Procurement and Construction
Services Agreement dated September 23, 1998 as amended ("EPC Contract"), the
Effluent Supply Agreement dated March 3, 1998 ("ESA"), the Maintenance Program
Parts, Shop Repairs and Scheduled Outage TFA Services Contract dated September
23, 1998 ("Maintenance Services Agreement") and the Agreement Relating to Real
Estate dated October 22, 1998 (collectively the "Project Agreements"). Stone &
Webster reviewed the Project Agreements from a technical and economic standpoint
to assess the adequacy, compatibility, and reasonableness of their terms and
conditions. Stone & Webster made no determination as to the validity and
enforceability of the Project documents and permits. However, for the purposes
of this Report, we have assumed the Project Agreements and contracts will be
fully enforceable in accordance with their respective terms and that all parties
will comply with the provisions of their
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respective agreements. Stone & Webster also conducted a site visit on October
21, 1998 and made general field observations, specifically the existing above
ground condition of the site.
1.1 Project Description
The Project is being developed and will be owned, operated, and maintained by
AES Ironwood. AES Ironwood is a limited liability company, organized and
existing under the laws of Delaware. AES Ironwood was formed to develop,
construct, own, and operate the Project. AES Ironwood is a special purpose
project company and a wholly owned subsidiary of AES Ironwood Inc. AES Ironwood
Inc. is a wholly owned subsidiary of The AES Corporation ("AES"). AES, which was
founded in 1981, is one of the world's largest global power companies and owns
or has an interest in 97 electric generating plants totaling over 26,000 MW in
18 countries. AES also distributes power in Brazil, El Salvador and Argentina,
and heat in Kazakhstan. AES operates gas-fired, oil-fired, hydropower and solid
fuel plants and employs approximately 40,000 people around the world. As of
December 31, 1998, AES had assets worth $10.8 billion. AES Prescott, L.L.C,
("AES Prescott"), a Delaware limited liability company and a wholly owned
subsidiary of AES Ironwood, Inc., will manage the development and construction
of the Project pursuant to a development and construction management agreement
between AES Prescott and AES Ironwood.
The Facility will have a nominal 705 MW designed electric generating capacity
and will be comprised of the following major equipment: two SWPC model 501G
combustion turbines (the "501G") with hydrogen cooled generators, two unfired,
three pressure level reheat heat recovery steam generators ("HRSGs"), one
multicylinder reheat condensing steam turbine with hydrogen cooled generator,
one water cooled condenser using a forced draft cooling tower, one integrated
control system, and a 230 kV switchyard. The combustion turbines, the steam
turbine, and their associated generators will be located indoors. The two HRSGs
and associated auxiliary equipment will be located outdoors.
The Facility will be designed for base load and/or cyclic operation capable of
startup and shutdown on a dispatchable basis. The combustion turbines will
primarily burn natural gas supplied by way of a pipeline with provisions to burn
Jet A ("fuel oil") as a backup fuel. Each combustion turbine will be coupled
with a three pressure level reheat HRSG that will generate steam to operate the
steam turbine. Electrical generators connected to the two combustion turbines
and the steam turbine will be connected to the switchyard through individual
generator step up transformers. These transformers will raise the generated
voltage to 230 kV for connection into the PJM interconnected electrical system.
The Facility will be designed as a zero liquid discharge facility with its raw
water supply requirements coming from two sources: the adjacent Pennsy Supply,
Inc. quarry and the City of Lebanon Wastewater Treatment Plant ("WWTP") by way
of an approximately 6.5 mile effluent ("makeup water") pipeline. Potable water
will also be supplied by the City of Lebanon Authority (the "Authority").
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Stone & Webster reviewed the TRC Environmental Corporation ("TRC") Phase 1
Environmental Site Assessment Reports performed for the site consisting of the
Martin property and the RESCO Products property. The assessment for the Martin
property revealed no evidence of recognized concerns to the subject property.
The only environmental condition identified for the RESCO Products property is
the presence of asbestos in two roofing materials: the tar coating of the Butler
Building/add-on roof and the roof tar paper of a small attached shed at the rear
of the Butler Building. Stone & Webster agrees with TRC's opinion that removal
of these structures and the asbestos is not considered a major environmental
issue.
Electrical power produced by the Project will be sold to Williams Energy
Marketing & Trading Company ("Williams") under the terms of a 20 year PPA. The
PPA calls for Williams to purchase Facility capacity, ancillary services, and
fuel conversion services pursuant to the terms of the PPA. In addition, the PPA
provides for the supply and transport of the natural gas and fuel oil to the
Facility by Williams. The natural gas will be supplied by way of a pipeline to
the site boundary. The fuel oil will be supplied by truck. A two-day fuel oil
supply will be stored in the Facility's fuel oil storage tank.
Following expiration of the 20-year term of the PPA, the Facility will be
operated as a merchant power plant. AES Ironwood will be responsible for the
procurement of fuel and will sell its output directly into the PJM power pool
(or pursuant to bilateral contracts).
Under the terms of the EPC Contract, SWPC, a wholly owned subsidiary of Siemens
Corporation, will act as the primary Contractor and will be responsible for the
engineering, procurement, and construction of the Project on a turnkey, lump-sum
basis. All of SWPC's obligations under the EPC Contract are unconditionally
guaranteed by Siemens Corporation. Siemens Corporation is a wholly owned
subsidiary of Siemens AG and is the entity through which Siemens AG conducts all
of its U.S. business.
The Provisional Notice to Proceed ("PNTP") was provided to SWPC on September 23,
1998 and several milestones have been achieved to date by SWPC. The full Notice
to Proceed ("NTP") will occur at or before financial closing of AES Ironwood.
The Project Guaranteed Provisional Acceptance date is 23 months and two weeks
following NTP.
AES personnel will operate the Facility pursuant to a Management and Operations
Services Agreement ("Operations Agreement") between AES Prescott and AES
Ironwood. The Project will purchase combustion turbine parts, shop repairs, and
scheduled outage services from SWPC.
1.2 Conclusions
Set forth below are the principal findings and conclusions which Stone & Webster
has reached regarding the Project. For a complete understanding of the
estimates, assumptions, and
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calculations upon which these findings and conclusions are based, this Report
should be read in its entirety.
1. The Facility design, as specified in the EPC Contract, is in accordance
with standard industry practice. SWPC possesses the organization and
personnel to execute its obligations under the EPC Contract and the
Maintenance Services Agreement, and is familiar with the construction and
maintenance of large electrical generation facilities. The Project
construction schedule proposed by SWPC is achievable and is consistent
with the terms of the PPA.
2. Stone & Webster views the SWPC 501G combustion turbine as an
advancement in high-temperature advanced technology combustion turbines
for SWPC and is typical of the normal design evolution for manufacturers.
Many of the design concepts incorporated in the 501G are rooted firmly in
the 501 series and are complemented by improvements which have been
tested in the 501F series or predicted by extensive modeling or full
scale testing. The first 501G unit is expected to begin commercial
operation later in 1999. The various 501G components and designs have
been individually shop tested and computer analyzed. SWPC's 501G is
gaining commercial acceptance as demonstrated by the fact that 17 of
SWPC's 501Gs have been sold to date in the United States.
3. The combustion turbines for the Project are scheduled to become the
third and fourth 501Gs in operation. As a result the Project will benefit
from approximately 25 months of facility startup, extensive testing, and
operating experience of the first installation of 501Gs (McIntosh
Project) and approximately nine months of such experience from the second
installation of 501Gs (Millenium Project). Because the 501G has no
commercial operating experience, the initial unit availability of the
501G may be lower in the early years of operation than is the case with
combustion turbine units currently in operation that use mature
technology. Lower initial unit availability has been reflected as in the
Base Case and a sensitivity case has been included in the Projected
Operating Results utilizing lower availability than that set forth in the
Base Case.
4. A sustained period of commercial operation at full load conditions
followed by an inspection of the combustion turbine is necessary to
predict with any certainty the types of startup and operational problems,
if any, that the 501G may encounter. However, the Project will benefit
from the startup testing and inspection programs implemented by SWPC at
the McIntosh and Millenium units. SWPC has also invested in and has
stated that it will make available to the Project a complete set of risk
parts for the entire combustion turbine gas path. In addition, under the
Maintenance Services Agreement SWPC will provide combustion turbine spare
parts to the Project. This full set of gas path risk parts to be made
available by SWPC and the Maintenance Services Agreement long term spare
parts program will minimize the duration of any unscheduled combustion
turbine-related outages that require the replacement of parts by having
the most commonly replaced parts
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<PAGE>
readily available. In addition, SWPC has the resources and capabilities
to resolve any problem that may arise with the 501Gs.
5. The steam turbine and electrical generator designs are acceptable and in
accordance with standard industry practice.
6. If designed and constructed in accordance with the EPC Contract and
operated and maintained in accordance with the Maintenance Services
Agreement and the Operations Agreement, the Facility should be capable of
meeting the net output contract requirements specified in the Projected
Operating Results.
7. The liquidated damages provisions of the EPC Contract are reasonable.
The one year warranty period is acceptable based on the commercial terms
of the EPC Contract in conjunction with the one year warranty in the
Maintenance Services Agreement. These two agreements, although
independent, are complementary and afford the Project a greater degree of
protection than is available from the EPC Contract alone. Under both
agreements, SWPC is obligated to notify AES Ironwood of any engineering
or design defects that may be manifested in any of SWPC's fleet of 501Gs.
In addition, the risk of a component failure occurring after the one year
EPC Contract warranty is mitigated because the Projected Operating
Results indicate the Project will have adequate revenues to insure the
purchase of components that can be reasonably assumed to require
replacement. Component failures associated with casualty events are
generally covered by insurance policies. The Performance Testing Plan, as
specified in the EPC Contract, is acceptable, customary, and should
adequately demonstrate the Project's performance.
8. Williams possesses the organization and personnel to execute its
obligations under the PPA, and is familiar with the provision of fuel to,
and purchase of electricity from, large electrical generation facilities.
9. Williams has executed certain agreements with Texas Eastern Transmission
Corporation ("TETCO") to provide natural gas delivery services to AES
Ironwood. These agreements require TETCO to construct own and operate an
approximate three-mile pipeline from the TETCO mainline to the Facility.
Stone & Webster, however, has not independently verified the design of
the natural gas pipeline which will interconnect the Facility to the
interstate gas pipeline that will serve the Facility nor its proposed
construction schedule.
10. The Facility can feasibly be electrically integrated into the PJM system,
and no known transmission limitations will inhibit the feasible
evacuation of the Facility's full net capacity both under summer and
winter conditions.
11. Stone & Webster will independently verify the design of the make-up water
supply pipeline when it becomes available. The proposed pipeline
construction schedule appears reasonable and achievable. Stone & Webster
does not know of any reason why the City of Lebanon Authority should be
unable to perform its obligations under the ESA.
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12. AES Prescott, as an affiliate of AES and with the assistance of SWPC
under the terms of the Maintenance Services Agreement, should be capable
of operating and maintaining the Facility in accordance with standard
industry practices.
13. The technical requirements described in the Project Agreements are
comprehensive, reasonable, and achievable as well as consistent within
and between the various documents.
14. The Phase I environmental site assessments conducted by TRC which
indicated no significant environmental issues were performed in
accordance with standard industry practice and their results appear
reasonable.
15. A majority of the Project's required permits have been acquired and the
Project's permit acquisition plan for those permits not yet required is
reasonable.
16. AES Ironwood has received a determination that the Facility is an Exempt
Wholesale Generator ("EWG") under the applicable rules of Federal Energy
Regulatory Commission ("FERC").
17. Assuming the Facility is constructed, operated, and maintained in
accordance with the terms of the EPC Contract, PPA, the Operations
Agreement, and the Maintenance Services Agreement then it is reasonable
to assume that the Facility will be able to operate in a manner
consistent with applicable permit limits for a period at least equal to
the term of the Bonds.
18. The Project's EPC Contract price is competitive relative to similar
facilities and the Project's proposed operating and maintenance expenses
are consistent with other comparable projects.
19. The technical assumptions utilized in the Hagler Bailly PJM Market Study
Analysis are reasonable.
20. Stone & Webster reviewed the technical and commercial assumptions and the
calculation methodology of the Project financial pro forma model. The
technical assumptions assumed in the Projected Operating Results are
reasonable and are consistent with the Project Agreements. The financial
pro forma model fairly presents, in our judgment, projected revenues and
projected expenses under the Base Case Assumptions. Therefore, the
Projected Operating Results are a reasonable forecast of the Company's
financial results under the Base Case Assumptions.
21. The principal amount of the Bonds, when combined with the equity
contributions and interest earned during the construction period, should
be sufficient to pay the costs of constructing the project and interest
on the Bonds through the end of the construction period.
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22. The projected revenues from the sale of capacity are more than adequate
to pay the annual operating and maintenance expenses (including
provisions for major maintenance), other operating expenses, and debt
service based on Stone & Webster's studies and analyses of the Project
and the assumptions set forth in this Report. The average and minimum
debt service coverage ratios ("DSCR's") for the full term of the Bonds
are 2.30x and 1.45x, respectively. The average and minimum DSCRs during
the PPA period are 1.46x and 1.45x, respectively. The average and minimum
DSCRs during the merchant period for the debt are 5.81x and 5.77x,
respectively.
23. Assuming deficiencies of up to 6% for heat rate and 5% for capacity, the
average DSCRs over the term of the Bonds, after payment of the liquidated
damages due to a failure to achieve heat rate and capacity guarantees,
are projected to remain approximately the same as the DSCRs in the Base
Case.
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2. Scope of Work
Stone & Webster was retained to perform a review of the Project in accordance
with a September 30, 1998 agreement with AES Ironwood, Inc. The review was
conducted by Stone & Webster for the purpose of producing this Report on behalf
of Lehman Brothers as Initial Purchaser of certain Rule 144A bonds to be offered
in the United States by AES Ironwood pursuant to rule 144A under the Securities
Act of 1933 as amended to finance the construction and initial start-up and
testing of the Facility, which bonds are to be issued to qualified institutional
buyers and institutional accredited investors and in offshore transactions
complying with Regulation S under the Securities Act of 1933. The scope of the
Review included the following:
o SWPC 501G combustion turbine proposed as the technology basis of the
Project
o Projected performance of the Project
o Projected Operating & Maintenance ("O&M") expenses
o Conceptual design and interfaces of the Project
o Project Phase I site assessments
o Issued permits for the Project
o Technical assumptions utilized in the PJM market study of June 1,
1999, prepared by Hagler Bailly
o Projected operating results in the Project financial pro forma model
Stone & Webster also reviewed the PPA, the Interconnection Agreement, the EPC
Contract, the ESA, the Maintenance Services Agreement, and the Agreement
Relating to Real Estate from a technical and economic standpoint to assess the
adequacy and reasonableness of their terms and conditions. Stone & Webster has
made no determination as to the validity and enforceability of the Project
Agreements. However, for the purposes of this Report, we have assumed the
Project Agreements will be fully enforceable in accordance with their respective
terms and that all parties will comply with the provisions of their respective
agreements.
Stone & Webster conducted a site visit on October 21, 1998 and made general
field observations, specifically the existing above ground condition of the
site. During the review, Stone & Webster reviewed Project information and
interviewed representatives of both AES and SWPC to verify the adequacy of the
Facility design and reasonableness of the technical assumptions.
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3. Facility Design
Stone & Webster reviewed the design of the Facility and its major components and
interface designs, as specified in Appendix A of the EPC Contract. In general,
Stone & Webster is of the opinion that the Facility design, as specified in the
EPC Contract, is in accordance with standard industry practice and that, if
designed and constructed in accordance with the EPC Contract and operated and
maintained within standard industry practices, the Facility should be capable of
meeting the net output contract requirements specified in the Projected
Operating Results.
3.1 Facility Description
The Facility is designed to have a nominal 705 MW (net) electric generating
capacity and will consist of the following major equipment: two SWPC model 501G
combustion turbines with hydrogen cooled generators, two unfired, three pressure
level reheat HRSGs, one SWPC multi-cylinder reheat condensing steam turbine with
hydrogen-cooled generator, one water cooled condenser using a forced draft
cooling tower, one integrated control system, and a 230 kV switchyard. The
combustion turbines, the steam turbine, and their associated generators will be
located indoors. The two HRSGs and associated auxiliary equipment will be
located outdoors.
The Facility will be configured as a 2 x 1 combined cycle facility designed for
base load and/or cyclic operation capable of startup and shutdown on a
dispatchable basis. The Facility can be operated at various part load conditions
and with one combustion turbine out of service.
3.2 Site Location and Description
The Project site is located in South Lebanon Township approximately one mile
east of the City of Lebanon, adjacent to the Pennsy Supply, Inc. quarry, south
of Route 422 and west of Prescott Road. The site is actively farmed and there
are no wetland resource areas on the site. The site is approximately 35 acres of
industrially zoned land and is landlocked and relatively flat. It is surrounded
by Pennsy Supply quarry tailing piles to the east and north, active quarry pits
to the west and the Conrail mainline to the south. Access to the site will be by
way of a driveway to be constructed by SWPC on Prescott Road, which is a State
Highway that runs north to south. A 50-foot easement has been obtained by AES
Ironwood from Prescott Road across the former Resco Products property that is
parallel to the Conrail tracks. A railspur for the transportation of heavy
equipment to the site will be constructed by the Project to facilitate the
delivery of heavy equipment to the site in this easement.
The October 21, 1998 site visit noted above, which also included a visit to the
WWTP, combined with a review of Project documents provided by AES formed the
basis for our opinion regarding the site. In particular, Stone & Webster relied
on the geotechnical reports prepared by Schnabel in September and October of
1998.
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3.3 Combustion Turbine Generator
The 501G is the latest product offering from SWPC in the design evolution of the
(formerly Westinghouse) 501 series combustion turbine generator. The 501G
combines the latest advancements in SWPC's low NOx combustion technology,
compressor design, blade designs and cooling schemes, with proven fundamental
design concepts of the SWPC 501 series such as two-bearing single-shaft
construction, cold end drive, horizontally split casings, and axial exhaust. The
resulting combustion turbine is an advanced design, more powerful,
high-temperature, highly efficient, low emission producing derivative of the 501
series that is based on design concepts that have evolved with the development
of the 501 series combustion turbines. The result is a derivative that is based
on demonstrated concepts of the 501 series and improvements in design, high
temperature metallurgy, efficiency and lower emissions.
While many of the fundamental design concepts of the 501F combustion turbine
remain unchanged in the 501G, some new component designs are utilized in the
501G combustion turbine. The most significant changes are the introduction of a
steam cooled transition piece and a redesign of the first row turbine blades.
SWPC reports that the design concepts and design criteria as well as some of the
design codes used in the 501G design are the same as in the 501F and that to
produce state-of-the-art compressor and turbine designs, additional aero
industry engine-derived computer codes were used in the 501G design. These codes
were verified against test rig and combustion turbine test results, including
501F shop test results.
Stone & Webster views the 501G combustion turbine as an advancement in
high-temperature advanced technology combustion turbines for SWPC and is typical
of the normal design evolution for manufacturers. Many of the design concepts
are rooted firmly in the 501 series and are complemented by improvements which
have been tested in the 501F series with further refinements predicted from
extensive modeling or full scale testing. Although we note that the combustion
turbine does not have any commercial operating experience as an assembled unit,
the Project will benefit from the testing and monitoring of other 501G units
scheduled to begin commercial operation well before the Project's scheduled
commercial operation date.
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SWPC provided Stone & Webster with a listing of seventeen customers that have
committed to purchasing the 501G. This listing is provided in the following
table:
<TABLE>
<CAPTION>
=======================================================================================================================
501G Customer Listing
=======================================================================================================================
Anticipated Commercial
Number of Units Name of Plant Owner Operation Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 McIntosh #5 City of Lakeland, Florida 7/10/99
- -----------------------------------------------------------------------------------------------------------------------
1 Millenium Millenium Power Partners 8/20/00
(U.S. Generating Company)
- -----------------------------------------------------------------------------------------------------------------------
2 AES Ironwood AES Ironwood 5/15/01
- -----------------------------------------------------------------------------------------------------------------------
2 Magic Valley Calpine Corporation 4/01/01
- -----------------------------------------------------------------------------------------------------------------------
11 Letters of Intent Confidential Clients Various
=======================================================================================================================
</TABLE>
The combustion turbines for the Project are currently scheduled to become the
third and fourth 501G combustion turbines in operation. An extensive testing
program for the McIntosh #5 unit began operation in April of 1999. This testing
program will include testing of the engine performance, emissions, thermal and
mechanical performance of components, and other key performance parameters with
over 2000 engine instruments. The engine will then be inspected and engine
instrumentation will be removed prior to commercial operation which will begin
in July of 1999 to satisfy summer peak power needs. This will provide
approximately 25 months of facility start up, extensive testing, and operating
experience prior to AES Ironwood's anticipated COD.
SWPC provided Stone & Webster with an overview of the test instrumentation that
will be utilized at the McIntosh Project. The operations monitoring will employ
1200 temperature, 500 pressure, and 200 strain gauges, which will monitor key
areas of the turbine. The test plan is focused on thermal and performance data
including emissions data, combustion mapping, and thermal paint testing. The
McIntosh #5 program will also include scheduled inspections after the first 200
and 400 equivalent starts to observe the durability of the unit in simple cycle
in cyclic operation. SWPC indicates that it has developed detailed risk
mitigation plans to implement the results of the McIntosh testing program,
including how to best utilize the lessons learned during this testing into the
AES Ironwood and other 501G units. The extensive testing program at the McIntosh
unit should reduce technical risks for the Project because it will provide an
opportunity to validate the 501G design through both testing and actual
operating experience prior to operating the Project's 501G units.
In addition, U. S. Generating Company's Millenium plant, a 1x1 501G combined
cycle unit is scheduled to go into base load operation in mid-2000. As a result,
there will also be approximately nine months of start-up testing amid base load
operation at that unit prior to Ironwood's scheduled COD.
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Because the 501G combustion turbine has no commercial operating experience,
initial unit availability of the 501G may be lower in the early years of
operation than the availability of units, which use more mature technologies.
While SWPC's 501F combustion turbine has reportedly experienced availability
factors greater than 90%, Stone & Webster believes that conservative
availability assumptions should be used for early operation of the 501G. Thus,
we have assumed a conservative availability factor (85%) in the Project
financial pro forma model sensitivity case for the first two years of commercial
operation.
3.3.1 Compressor Section
The purpose of the compressor section of the combustion turbine is to produce
sufficient volumes of pressurized air to support combustion at the combustors,
provide cooling air to various components, and to generate rotational energy by
increasing mass-flow through the turbine section.
The compressor section for the 501G is composed of a 16-stage axial flow design
with a pressure ratio of approximately 19.5:1. The compressor includes
inter-stage bleeds for starting and component cooling in various down-stream
locations. While the compressor design is new, it has conventional variable
inlet guide vanes for improved low-speed surge characteristics and part load
performance. The new design also maintains the use of the inner shroud sealing
system and abradable seals currently in use on the model 501F combustion
turbines.
SWPC developed the new compressor for the 501G using three-dimensional flow
field computer codes through a licensing agreement with Rolls Royce. The new
compressor was designed with the same number of stages as in the 501F
predecessor combustion turbine, but has increased the final pressure ratio and
flow by approximately 25%. To accommodate the increase in flow, SWPC has
increased the mean diameter of the compressor stages. All rotor blades have the
same root design that were used on the 501F, which allows the blades to be
removed with the rotor in place (with the covers off) and should aid in the
maintenance of the machine.
Additionally, the rear stages of the new 501G compressor have larger diameters
than the 501F, which SWPC represents helps balance spindle thrust. The sixteen
stages of compressor blades are fabricated in two 180 degree diaphragms, same as
for the 501F, to facilitate field removal. While the new compressor design does
not have any commercial operating experience, SWPC has undertaken extensive
full-scale testing of the new compressor and the results have met SWPC's
performance expectations and demonstrated the mechanical integrity of the
compressor in a full scale testing environment.
The full scale W501ATS compressor, which is the 501G compressor with four stages
added at the rear, was extensively tested to verify its operational
characteristics, aerodynamic performance and mechanical integrity. The
compressor was instrumented with more than 500 individual sensors. The test
program included starting characteristics optimization, variable stator
optimization,
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design point performance optimization, compressor map definition, blade
vibration and diaphragm strain gauge measurements. The test results confirmed
aerodynamic performance and mechanical predictions. Test results on selected
blades and diaphragms showed excellent correlation of vibration characteristics
between prediction and measurement.
3.3.2 Combustor Section
The combustor section of the combustion turbine mixes and burns the supplied
fuel and compressed air (from the compressor discharge) and produces hot gases
used to rotate the downstream turbine. The combustion system consists of 16
individual combustor "cans" that are mounted circumferentially around the
combustion turbine. The combustors are of the dry low NOx ("DLN") type, have
dual fuel capability, and incorporate recent design changes to eliminate the
coking problems of the 501F when firing oil. This is accomplished through the
use of dual direction water purging and a design change that incorporates an oil
piping configuration that eliminates any trapped oil in the combustor.
Additional design modifications to the dual fuel nozzles or "rockets" improve
flame temperature consistency, thereby eliminating local hot spots within the
flame region.
The latest DLN combustor is a modified version of previous DLN combustors. SWPC
reports that the new combustor has reportedly undergone successful lab tests at
the high pressure facilities located in the Arnold Engineering Development
Center of the U.S. Air Force, in Tullahoma, Tennessee, and SWPC has similar
(though not identical) DLN combustors installed at several locations.
The DLN combustion system and the selective catalytic reduction ("SCR") system
in the HRSG both act to reduce NOx emissions, which are a byproduct of the
combustion process. The system is designed to achieve 4 ppmvd on natural gas and
10 ppmvd on fuel oil, both at 15% O2 at the exhaust stack of the HRSG under base
load conditions.
Another design improvement is the addition of supplementary gas injectors in the
"top hat" section for use while firing in the gaseous fueled mode. According to
SWPC, the "top hat" section promotes better fuel-air mixing and more homogeneous
fuel-air ratios, leading to lower NOx and CO emissions with improved combustor
stability.
The length of the 501G combustor is reduced from its predecessor, the 501F. The
air-cooled aft section of the 501F combustor has been eliminated and
incorporated into a new steam cooled transition piece. This provides two
advantages: steam-cooled transition walls operate cooler than air-cooled walls;
and the air formerly used for cooling is now routed to the head end of the
combustor to make it run leaner while increasing mass flow, output and
efficiency. The new steam cooled transition piece of the 501G is made of Inconel
617 material, and is a significant change from the 501F combustion turbine. The
transition piece is also provided with cooling passages around the
circumference, and in passages on each side of weld seams. The steam
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cooled transition piece receives steam from the intermediate pressure ("IP")
section of the three-pressure HRSG. The transition piece is over-cooled by
approximately 25% at part loads to accommodate an increase in cooling
requirements during a large load increase. The IP boiler is designed for a
capacity 30% greater than the maximum expected transition-cooling requirements.
This conservative design capacity should provide adequate margin to ensure the
security of the steam flow to the transition piece during transient load
conditions. During normal operation at base load (non-transient conditions), the
excess capacity is dumped by way of a control valve to the cold reheat system.
In order to provide even cooling over the length of the transition piece, SWPC
supplies both ends of the transition with steam and collects the heated (hotter)
steam near the center of the transition piece in a collection ring.
The burner outlet temperature of the 501G is approximately the same as the 501F
combustion turbine, but the rotor inlet temperature ("RIT") is approximately
140(degrees)F higher. This increase in rotor inlet temperature is accomplished
through the use of the aforementioned steam cooled transition piece and
improvements in turbine material and cooling improvements, which will be
discussed later in this section.
3.3.3 Turbine Section
The turbine section of the combustion turbine produces the rotational energy
required to drive the compressor and generate electrical power. This is
accomplished in the 501G combustion turbine with approximately 15% fewer turbine
parts than in the 501F.
The 501G combustion turbine has a four-stage turbine section, which incorporates
improved cooling throughout and uses its directional solidified ("DS") blades in
rotating rows one and two. The aerodynamic airfoil shapes were optimized using a
three-dimensional flow analysis.
SWPC has incorporated a series of improvements for the cooling of blades and
vanes in the turbine section which include: use of turbulators; serpentine
cooling passages; shaped film cooling holes; and a more extensive use of an
improved thermal barrier coating application.
The Row 1 vane cooling design is an enhancement of the 501F design, using three
impingement inserts in combination with an array of film-cooling holes and
trailing edge pin-fin system. All three cavities take direct compressor
discharge air to maximize the available pressure head. "Shower Head" cooling is
used at the leading edge of the row one vane, while film cooling is used at
selected pressure and suction side locations which limits vane wall thermal
gradients and external surface temperatures. SWPC represents that the low cycle
fatigue design criteria is satisfied by the control of wall gradients. The Row 2
vane cooling uses twin impingement inserts with film-cooling holes and trailing
edge pin-fin system. Row 3 vanes are convection-cooled by the admission of
cooling air into the airfoil's three-cavity multipass center. Row 4 vanes are
not internally cooled. The metal temperatures of the 501G airfoils are greater
than those of the 501F
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combustion turbine. However, according to SWPC improvements in cooling designs
help maintain metal temperatures safely below metal temperature limits.
The first and second stage blades are manufactured from DS material, and are
cooled by a combination of convection techniques by way of multipass serpentine
passages and trailing edge cooling air ejection. While the DS blades used in
Rows 1 and 2 represent SWPC's first commercial use of this material, this
technology is not new. Rolls Royce, the manufacturer of the SWPC DS blades, has
successfully manufactured DS blades for use in several other manufacturer's
combustion turbines.
Similar to the analysis of the compressor blades and vanes, the design of the
turbine blades and vanes uses three-dimensional flow analysis developed by Rolls
Royce for the development and verification of the aerodynamic airfoil shapes.
3.3.4 Risk Mitigation
SWPC has followed a conservative design process for the 501G combustion turbine,
executed a risk analysis as part of a plan designed to ensure mechanical
integrity, and has invested in a complete set of "risk parts" for the combustion
turbine's entire gas path. This set of "risk parts" alone amounts to an
investment by SWPC of over $10,000,000. This set of risk parts is in addition to
the long-term spare parts program that is included pursuant to the Maintenance
Services Agreement. The risk parts include the compressor blades and diaphragms,
the turbine blades and vane segments, and the combustor system (nozzles,
baskets, and transitions). This investment is significant not only in monetary
terms, but also in terms of unit availability and manufacturer commitment. The
full set of gas path risk parts made available by SWPC and the Maintenance
Services Agreement long term spare parts program will minimize the duration of
any unscheduled combustion turbine-related outages that require the replacement
of parts by having the most commonly replaced parts readily available.
SWPC's risk mitigation program for the 501G Program goes beyond what is
typically utilized during the introduction of a manufacturer's latest model
design. It is strongly supported by a dedicated manufacturing team with stated
component procurement plans, an established parts supply chain, and a proactive
monitoring program designed to quickly incorporate design changes into the parts
inventory program.
3.3.5 CTG Conclusions
A sustained period of operation at full load conditions followed by an
inspection of the combustion turbines is necessary to predict with any certainty
the types of startup and operational problems, if any, that may be encountered
with the 501Gs. However, SWPC has made significant financial and organizational
investments in the 501G technology. Stone & Webster
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believes that SWPC has the resources and capabilities to resolve any problems
that may arise with the 501G.
Because the 501G combustion turbine has no commercial operating experience
initial unit availability of the 501G may be lower in the early years of
operation than the availability of units using mature technologies. While SWPC's
501F combustion turbine has reportedly experienced availability factors greater
than 90%, Stone & Webster believes that conservative availability assumptions
should be used for early operation of the 501G. It is not uncommon in the
industry for new combustion turbines to experience availability factors during
the first years of operation in the mid-eighty percent range. Thus, we have
assumed a conservative availability factor (85%) in the Project financial pro
forma model sensitivity case for the first two years of commercial operation.
3.4 Heat Recovery Steam Generator
Stone & Webster reviewed the functional specification and scope of supply
provided in the EPC Contract and understands that Hangjung has been selected as
the HRSG vendor and that the detailed design specifications will be reviewed by
Stone & Webster. The scope of supply for the HRSG includes the HRSG internals,
ducting, and insulation, the stack, the SCR, the ammonia storage system, the
continuous emissions monitoring system ("CEMS"), and the associated piping,
valves and instrumentation. The CEMS scope includes oxygen, CO, and NOx
analyzers.
The functional specification describes the two HRSG's as being of the horizontal
gas path (vertical tubes), natural water circulation, three pressure level,
reheat type. Each HRSG will have high pressure ("HP"), IP, and low pressure
("LP") superheaters, reheaters, economizers, and evaporator sections. Each HRSG
will be equipped with an SCR system to reduce the stack NOx emission levels and
a spool piece for the possible future addition of a CO catalyst. The HRSGs will
have no duct firing capability. The HRSGs will be designed in accordance with
the ASME Code Section I for pressure parts and ANSI/ASME B31.1 for power piping.
Stone & Webster is of the opinion that HRSG scope description is suitable for
the Project and in accordance with standard industry practice.
3.5 Steam Turbine
The steam turbine will be a model 2F32 two case tandem compound design with a
side exhaust double flow low pressure element. The steam turbine will be
directly connected by rigid coupling to a hydrogen inner-cooled generator, which
produces electrical power.
The steam turbine will consist of a primary turbine inlet, combined HP/IP
turbine, and the double flow LP turbine. The two primary steam supply sources to
the turbine are main and reheat steam. The steam flow to the turbine is
controlled by the main steam and reheat steam inlet valves. The
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HP/IP turbine receives steam from the main steam and reheat steam supply and
converts it to rotational power to drive the generator. The LP turbine receives
steam from the IP exhaust by way of the crossover piping and converts it to
rotational power to drive the generator. The last stage blade design is a model
72R. This design has a 32.1 inch vane section and a 63.4 square foot exhaust
annulus area.
With respect to operational experience, SWPC provided a sample list showing four
existing units of similar configuration but with different loadings or ratings.
SWPC reports an exhaust flow rate of 1,398,070 lb/hr, which leads Stone &
Webster to believe that the exhaust velocity would approach 786 ft/sec. This
rate is within SWPC's experience and is considered by Stone & Webster to be
acceptable. Stone & Webster is of the opinion that the steam turbine design is
acceptable and in accordance with standard industry practice.
3.6 Electric Generator
The three electric generators are designated by SWPC as model 2-97x134. The
generators will be hydrogen inner-cooled synchronous 3600 rpm, 60 Hz machines
rated at 288,000 kVA at 16 kV. The generators will be designed for a leading
power factor of 0.95 and a 0.90 lagging power factor at the generator terminals
at 60 psig hydrogen gas pressure. The generators will have Class F insulation
with Class B temperature rise for both the stator and the rotor. The generators
will have a short circuit ratio of 0.53 at nominal capacity and are to be
fabricated in accordance with ANSI standards C50.10, C50.13, and C50.14, as
appropriate.
Despite the fact that the generator, as described in the EPC Contract, utilizes
a design with little operating experience, it appears to be sized properly. The
proposed generator was first utilized on the Hines Energy Project for Florida
Power Corp. (2 x 2 x 1 - combined cycle) and is expected to begin commissioning
in early 1999. According to SWPC, thirteen generators of this design have been
sold. The generator design (2-97x135) from which the proposed generator was
developed was first introduced in 1958 and was offered until 1975. A total of 26
units were sold ranging from 200 MVA to 270 MVA. Stone & Webster is of the
opinion that the generator design is acceptable and in accordance with standard
industry practice.
3.7 Balance of Plant Systems
Stone & Webster reviewed the general configuration of the Facility balance of
plant ("BOP") systems identified in this section. These systems although
important do not generally take on as high a degree of risk significance as the
main power island, which consists of the combustion turbines, HRSGs, and the
steam turbine. Stone & Webster's BOP system review focused on ensuring that the
specific system designs were consistent with standard industry practice.
As is typical of a project at this phase in design, the detailed system and
component technical information that is developed during the detailed design
phase and is required to independently verify a system's capabilities was not
available for Stone & Webster's review. The conceptual
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description of the BOP systems and Stone & Webster's opinions are described in
the following sections.
In general, Stone & Webster is of the opinion that the BOP systems described
below are consistent with standard industry practice and any individual issues
identified during our review are presented in their respective sections. AES
Ironwood has informed us that after the individual system and component vendors
have been selected and the individual system designs and component
specifications are available, the Project will conduct a detailed BOP design
review to ensure compliance.
3.7.1 Condensate and Feedwater System
The condensate and feedwater systems are auxiliary systems supporting the HRSG.
Condensate is collected in the hotwell of the condenser and pumped by two of
three 50% capacity pumps to the suction side of the feedwater pumps. Each HRSG
is equipped with one 100% capacity feedwater pump that delivers feedwater to the
HRSG. The feedwater pumps will be either split-case or segmented ring section
design. The pump is electric motor driven and is located adjacent to the HRSG. A
demineralized condensate water storage tank is provided to allow for 12 hours of
base load operation.
The condenser will have titanium tubes and will consist of two segregate shells
with the hotwells connected by an equilibrium line. The condenser will be
designed to accommodate the exhaust from the steam turbine plus the
miscellaneous drains from the steam system and to allow for 100% steam bypass of
the steam turbine.
The single feedwater pumping system configuration proposed for the Project is
becoming widely used in combined cycle plants, as the cost of the
reconfiguration generally outweighs the assumed benefit. Stone & Webster has
been informed that the single pump configuration is part of the SWPC reference
plant design. The current configuration is such that the failure of either of
the feedwater pumps will result in shutting down the corresponding combustion
turbine, its associated HRSG, and the power loss associated with losing
approximately half of the steam input to the steam turbine. Stone & Webster has
recommended increased feedwater pump redundancy. As a result, the Project has
committed to carrying one complete spare pump, including casing in store plus
normal spares. This will reduce the equipment outage and downtime associated
with a feedpump failure.
3.7.2 Cycle Makeup System
The cycle makeup system supplies and stores demineralized water for makeup to
the HRSG and also supplies water for the combustion turbine water injection and
water washing. The system consists of one condensate storage tank, two 100%
capacity cycle makeup pumps designed for normal makeup to the cycle when water
is not being injected into the combustion turbine, and one
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100% capacity pump designed to handle makeup to the unit including water
injection to the combustion turbine.
The water supply to the system is provided from the cycle makeup treatment
system. The demineralized water from the mixed bed exchangers discharges to the
condensate storage tank. Two 100% capacity cycle makeup pumps are provided for
normal system operations without water injection to the combustion turbine. The
cycle makeup pumps take suction from the condensate storage tank. An automatic
recirculation control valve is provided for each cycle makeup pump for minimum
flow recirculation to prevent overheating and cavitating the pumps during
startup and low flow operation.
The system is designed to provide makeup water under all normal operating
conditions. The two 100% cycle makeup pumps are sized to provide adequate flow
and pressure for normal system operations. The single 100% capacity cycle makeup
pump is designed to provide adequate water flow and pressure. The intention is
to use the pump during combustion turbine water injection operation.
3.7.3 Condenser Air Removal System
The condenser air removal system evacuates the condenser steam space of
noncondensable gases during steam turbine generator operation and rapidly
reduces the condenser pressure from atmospheric pressure during plant startup.
The vacuum breaker valve allows air to enter the condenser to reduce the coast
down time of the steam turbine generator after shutdown. The system will consist
of two stage, twin element steam jet air ejectors with inter and after
condensers for holding operation, a hogging steam jet air ejector for startup,
and one vacuum breaker valve.
3.7.4 Raw Water System
The Facility raw water requirements will be supplied from the Pennsy Supply
quarry pits located adjacent to the site and the WWTP located approximately 6.5
miles west of the site. A waterline and pumping equipment will be constructed as
part of the EPC Contract will transport the raw water from the Pennsy Supply
quarry pits. The WWTP supply will be transported by way of a pumping station and
an 18-inch diameter pipeline.
The raw water system provides water for cooling tower makeup, cycle makeup,
evaporative cooler supply, fire water and miscellaneous plant services such as
washdown. The raw water system consists of the following major components:
quarry water supply, WWTP water supply, two 100% (1500 gpm each) raw water
forwarding pumps, raw water/fire water storage tank, and the associated piping,
valves, and instrumentation.
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3.7.5 Circulating Water System
The circulating water system will consist of two 50% capacity circulating water
pumps, a double shell water-cooled condenser, and a direct contact, mechanical
draft cooling tower. Water from the cooling tower basin will be pumped by the
circulating water pumps to the condenser and then to the cooling tower in a
single pressurized piping circuit. The heated cooling water will be cooled in a
mechanical draft, direct contact cooling tower. The underground circulating
water piping will be welded steel pipe with an internal epoxy coating and an
external asphalt blanket and the above ground piping will be uncoated carbon
steel.
The circulating water pumps will be designed in accordance with requirements of
the Hydraulic Institute Standards, and the condenser will be designed in
accordance with the requirements of the Heat Exchange Institute Standards for
Steam Surface Condensers. The design capacity of each circulating water pump
will be based on 50% of the circulating water flow at the contract plant
performance guarantee points, rounded to the next higher 1000 gpm.
The cooling tower will be a wood frame, counterflow mechanical draft cooling
tower constructed on top of the concrete cooling tower basin or at SWPC's option
a concrete tower structure may be used. Each of the two pumps takes suction from
the cooling tower basin and discharges into a common circulating water header.
This main header is divided into smaller headers, which feed the condenser and
auxiliary cooling water system. The heated discharge from each header is
recombined and the heated water is returned to the cooling tower. At the cooling
tower, the return line is divided into equally sized lines, each of which
services one cooling tower cell. The circulating water pump pit will be located
at the end of the basin. A trash rack, removable for cleaning, will be located
upstream of the circulating water pump pit to protect the circulating water
pumps from debris in the cooling tower basin. The tower also includes a fire
protection system and a lightning protection system.
3.7.6 Auxiliary Cooling Water System
The auxiliary closed loop cooling water system will supply cooling water for
various equipment heat exchangers. The system will consist of two 100% capacity
auxiliary cooling pumps, two plate and frame type closed cooling water heat
exchangers, and the associated piping, valves, piping and instrumentation.
The auxiliary cooling water pumps supply water to the Facility's various cooling
loads. The heated cooling water flows to the closed cooling water heat
exchanger, which is cooled by circulating water from the open loop. The loop is
completed as the cooled water flows to the suction of the auxiliary cooling
pumps.
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3.7.7 Fire Protection Systems
Fire protection is provided by a ring header, hydrants and hose stations
supplied from the raw/fire water tank. The fire protection system gives a visual
indication of actuation at the local control panel. There are two independent
systems. An automatically actuated dry chemical type system is provided for the
exhaust bearing area of the turbine. The system consists of temperature sensing
devices, spray nozzles, dry chemical tank, and interconnecting piping and
wiring. In accordance with the U.S. National Fire Protection Agency ("NFPA")
standards there is an FM-200 based fire protection system for total flooding
protection of the turbine enclosure and the electrical and control units. .
3.7.8 Wastewater System
The Facility wastewater system will be designed as a zero discharge system
("ZDS") to eliminate liquid waste streams. All treated wastewater to the
Facility will be discharged as cooling tower evaporation or vapor through
Facility vents. The solids, in the waste water or introduced as chemical
additives, will be removed by the system which will first concentrate the waste
and then produce a chemical precipitate which is filtered to dryness for
ultimate disposal in a landfill. AES Ironwood represents that the sludge, which
has a high proportion of calcium carbonate, has commercial use as feed stock for
FGD systems. AES Ironwood is currently negotiating a commercial agreement to
sell the sludge and avoid landfilling.
Stone & Webster understands that the Project is still evaluating options for the
design of the ZDS and that SWPC has offered the Project alternative ZDS systems.
The maximum requirements for the ZDS system will be experienced when the
Facility is operating at full load on fuel oil during the winter months. The
alternatives being evaluated depend on whether the proposed design is based on
normal gas operations or on oil operation. If the Project accepts the gas
option, then it will be responsible for obtaining portable demineralizer
trailers to meet the oil fired case requirements. The Project is examining
proposals for portable demineralizers with second pass RO units. These proposals
would ensure at least 100 hours operation per demineralizer trailer between
regenerations. The Project expects to resolve this issue in early 1999. The
Project has been advised by SWPC that the net power guarantee includes the net
parasitic load for the ZDS. AES Ironwood represents that once a system design
has been selected, it will be reviewed to ensure operational conformance.
Stone & Webster also understands that SWPC has proposed the use of one 100%
brine concentrator and one 100% crystalizer. The vendor selection of these two
key components should emphasize equipment reliability due to the lack of
redundancy in this key system.
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3.7.9 Compressed Air System
The compressed air system will supply compressed air at the required capacity
and pressure for service air and instrument air requirements. The instrument air
system supplies dry instrument quality air at the required pressure and capacity
to all pneumatic controls, transmitters, instruments, and valve operators. The
system will consist of two 100% capacity, air cooled, motor driven air
compressors, one service air receiver, one instrument air receiver, and two 100%
skid mounted refrigeration type air dryers, with electric motor driver and two
coalescing filters for each dryer. The instrument air will be designed to
conform to the Instrument Society of America ("ISA") Quality Standards for
Instrument Air. During normal operation, either air compressor can provide
compressed air to the system.
3.7.10 Compressed Gas Storage System
The compressed gas storage system will consist of the hydrogen gas system, the
carbon dioxide system, and the nitrogen system. The hydrogen system supplies
hydrogen gas to the hydrogen cooled generators. The carbon dioxide system stores
and transfers carbon dioxide gas to the generator cooling and purge systems for
generator purging. The nitrogen system supplies nitrogen for inerting the HRSGs
and main cycle piping during an extended outage. The compressed gas system will
consist of a hydrogen tube trailer, hydrogen valve manifold, carbon dioxide
valve manifold, a nitrogen valve manifold, and the associated piping and
instrumentation.
3.7.11 Ammonia Storage and Forwarding System
The ammonia storage and forwarding system will store and supply ammonia for the
SCR. The system will consist of two 10,000 gallon aqueous ammonia storage tanks,
one for each HRSG, that provide approximately a seven day supply of ammonia, two
ammonia forwarding pumps, an ammonia injection skid, and associated piping and
instrumentation.
3.8 Fuel Systems
The Facility will be designed with natural gas fuel as the primary fuel for the
combustion turbines with fuel oil as the backup fuel supply. It is projected
that the Facility will operate a majority of the time on natural gas but may
operate up to 31 days per year on fuel oil pursuant to the terms of the PPA. The
Project pro forma financial model assumes 12 days operation on fuel oil during
the PPA period based on estimates by CC Pace, the Project's independent fuel
consultant. The PPA incorporates the natural gas and fuel oil specifications
consistent with EPC Contract specifications.
With respect to natural gas pressure, the EPC Contract assumes that the natural
gas line is able to supply a minimum of 450 psig at the Facility boundary. The
PPA defines natural gas as being at
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a pressure equal to the pressure on the Texas Eastern pipeline, data from the
pipeline demonstrates that the pressure is generally in excess of 700 psig.
3.8.1 Fuel Gas System
The fuel gas system receives natural gas supplied from the natural gas supply
pipeline at the Facility boundary and transports it to the combustion turbines.
The system will consist of the fuel gas filter separators provided locally at
each combustion turbine, fuel gas heater, knock out drums, and associated piping
and instrumentation.
Natural gas will be supplied to the system by a natural gas pipeline to a single
connection located at the Facility boundary. A shutoff valve and duplex strainer
will be provided in the gas supply piping. Individual fuel gas heaters will be
provided for heating the fuel gas supply to the respective combustion turbines.
Natural gas fuel will be heated using IP feedwater to approximately
440(degrees)F. A liquid separator/leak detector will be installed downstream of
the fuel gas heater to detect any water in the gas supply resulting from a
leaking fuel gas preheater. On detection of fuel gas heater leakage, the
isolation valves will close and a bypass valve will open automatically to
isolate and bypass the fuel gas heater. Control valves provided with the
combustion turbine packages will regulate gas pressure to the combustion turbine
fuel nozzles. A valving arrangement will provide positive isolation of the fuel
supply system at the combustion turbine. The fuel gas supply pressure required
for the combustion turbines will be at least 650 psig at the combustion turbine
connection. If required, the combustion turbines can be switched over from
natural gas to fuel oil online without shutting down the Facility.
3.8.2 Fuel Oil System
The fuel oil system receives, stores, and transports fuel oil for operating the
combustion turbines. The fuel oil system consists of one 2,300,000 gallon fixed
roof fuel oil storage tank on a ring wall foundation, a fuel oil tank truck
unloading area, a fuel oil truck unloading skid, air eliminators, and
accessories including flame arrestor with conservation vent, fuel oil metering
skid, and a lined berm containment.
Fuel oil will be delivered to the site by truck and unloaded at the unloading
station to the fuel oil storage tank. Duplex fuel oil strainers will be provided
at the inlet to the unloading station. An air eliminator and flow totalizing
meter will be provided at the discharge of the unloading station to verify fuel
oil deliveries. The fuel oil storage tank will be a cone roof, double wall with
double bottom carbon steel tank on a ring wall foundation. The fuel oil storage
tank will be constructed in accordance with American Petroleum Institute ("API")
Standard 650.
Fuel oil will be supplied to the fuel oil forwarding pumps from the fuel oil
storage tank. The fuel oil forwarding system will be equipped with two 100%
capacity forwarding pumps. Fuel oil pressure and flow to the combustion turbines
will be controlled by a recirculation valve in the
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combustion turbine fuel oil skid which will control the fuel oil supply pressure
by recirculating fuel back to the fuel oil storage tank.
3.9 Electrical Systems
Stone & Webster reviewed the general configuration of the Facility electrical
systems identified in this section. Stone & Webster's electrical system review
focused on ensuring that the individual system designs were consistent with
standard industry practice. As is typical of a project at this phase of design,
the detailed system and component technical information that is developed during
the detailed design phase and is required to independently verify a systems
capabilities was not available for Stone & Webster's review. The conceptual
description of the electrical systems as well as Stone & Webster findings are
provided in the following sections.
In general, Stone & Webster is of the opinion that the electrical systems
described below are consistent with standard industry practice. AES Ironwood has
stated that when the individual system and component vendors have been selected
and the individual system designs and component specifications are available, a
design review will be conducted by the Project to ensure compliance.
3.9.1 Normal Station Service Power
Two station auxiliary transformers will provide power from the switchyard to the
Facility auxiliary loads. Station auxiliary transformers step down the voltage
from 230 kV to 6.9 kV to 480 V and lower voltage levels suitable for equipment
needs. A medium voltage switchgear bus will supply power to medium voltage
motors, and medium to low voltage transformers. These transformers feed low
voltage switchgear, motor control centers, and other loads.
3.9.2 Emergency Power
Emergency power systems also exist to assist Facility operations. The emergency
systems include uninterruptible power supplies and direct current ("DC") power.
Uninterruptible power and DC/battery power are provided for equipment that must
operate under all conditions, such as lube oil pumps and turning gear to ensure
a proper cool down process of the turbines during an emergency trip. The
Facility does not have black start capability. Startup of the Facility is by way
of electrical backfeed through the station auxiliary transformer off the 230 kV
utility grid system.
3.10 Switchyard
Electrical power generated through the combustion turbine and steam turbine
generators at 16 kV is transformed to 230 kV for delivery to the switchyard. The
Facility will electrically interconnect with the PJM electrical system through
an existing MET-ED 230 kV transmission line located
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approximately 0.25 mile to the west of the Facility which will tie into the
Facility's switchyard.
Three main transformers will be provided for this service. The combustion
turbine generators and the steam turbine generator will be connected to its own
two winding, oil filled step up transformer which increases the voltage from the
generator terminals to the interconnecting voltage at the high side terminals.
Synchronization and protection of the combustion turbine generator and the steam
turbine generator are achieved by power circuit breakers in the switchyard.
These circuit breakers isolate the power generating station from the
interconnecting system. The combustion turbine generators and steam turbine
generator will be connected to their step-up transformers by an isolated phase
bus duct.
The switchyard will have a 230 kV conventional, outdoor, open air, radial design
featuring a provision for two outgoing transmission lines. The switchyard will
extend from the high voltage terminals of the generator step-up transformers and
station auxiliary transformers to the interface with MET-ED's two outgoing
transmission circuits. The transmission line protective relays and the remote
terminal units ("RTUs") that will interface with the Transmission/Distribution
Control Center and the Energy Control Center will be provided by MET-ED. This
equipment will be installed in the switchyard control building.
The EPC Contract states that optional switchyard arrangements, metering, and
protective relaying schemes can be provided and that SWPC will work with the
Project and MET-ED to establish the specific requirements for the switchyard and
Facility interfaces with MET-ED. The switchyard requirements will also be
further defined as part of the Project Interconnection Agreement, which is
currently under negotiation between AES Ironwood and GPU Energy, Inc. ("GPU").
3.11 Instrument and Control Systems
Stone & Webster understands that the original Project instrument and control
system design was based on the Westinghouse Distributed Processing Family
("WDPF") Control System. Since the Westinghouse Power Generation acquisition by
Siemens, SWPC now utilizes and would prefer to provide to the Facility a Siemens
Control System. Stone & Webster believes that either of these two systems would
be acceptable and in accordance with standard industry practice.
3.12 Civil and Structural Design
The Project's civil and structural design parameters have been appropriately
specified in accordance with the geotechnical investigations conducted on-site
to date, as well as applicable engineering codes and standards relating to the
type of construction proposed at the site. It is noted that SWPC has accepted
the risk of any additional foundation requirements as necessary based on a
detailed geotechnical investigation to be performed during the detailed design
phase of the Project. The structural design criteria outlined in the EPC
Contract appear adequate to comply with the Project requirements. The materials
of construction specified in the building
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finish schedule are appropriate for the intended application. The minimum
required strength of materials, stipulated in the design criteria, are
consistent with industry standards. The established loadings and maximum design
conditions comply with the referenced codes, site development requirements and
foundation design criteria. Stone & Webster are of the opinion that the
structural design is reasonable and adequate for operation of the Facility as
contemplated in the Project Agreements.
3.12.1 Geotechnical Evaluation
The bedrock units beneath the site are dolomite and limestone. Sinkhole
development has been identified near the site area. Laboratory testing was
performed to classify the soils. The geotechnical investigation indicated that
the subsurface soils are very soft to very stiff residual soils, which are
overly poor to moderate quality dolomite bedrock. The residual soils are
classified as high plasticity sandy clays and silts. The thickness of the
residual soil varies; however, the soil deposit is generally about 20 feet deep
in the site area. The exploration borings and resistivity surveys indicate that
the underlying bedrock is highly variable in quality and depth. The bedrock
surface is expected to be quite variable and have high points, due to the
weathering characteristics of the carbonate bedrock units. Exploration borings
and probe holes were drilled in suspect solution areas that were identified by
the resistivity survey. No large underground solution cavities or clay filled
features were identified to the depths explored at the location of critical
structures.
Blasting operations at the Pennsy Supply quarry adjacent to the site can be
performed within 25 feet of the property line. Pennsylvania law limits the
blasting. In addition under the EPC Contract, SWPC acknowledges that prior to
the execution of the EPC Contract SWPC has made a complete and careful
examination of the nature and character of the soils and terrain of the site
that might affect SWPC's ability to construct the Facility.
Stone & Webster believes that the exploration and testing programs were
conducted in accordance with good engineering practice and were appropriate for
the planned Facility and anticipated site conditions. Stone & Webster is of the
opinion that the Project site is suitable for the Facility provided that the
site construction is performed incorporating the recommendations of the Schnabel
Report of September 1998. These recommendations are discussed in Section 3.12.5
of this report.
3.12.2 Groundwater
Groundwater was not encountered during the drilling at the test boring
locations. Based on these observations, the groundwater level is believed to be
below the depth of the excavations proposed for this Project. Groundwater is
present at a depth below the site and dewatering operations at the adjacent
Penney Supply quarry presently controls the level.
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<PAGE>
3.12.3 Water Supply
Stone & Webster reviewed a number of documents in its evaluation of the
availability of raw water to the Project including: the approvals from the
Susquehanna and Delaware River Basin Commission, the Final Hydrologic Analysis,
Availability of Groundwater from the Pennsy Supply Quarry, Proposed Ironwood
Power Plant, Lebanon, Pennsylvania by Schnabel Engineering Associates, February
26, 1998, and the Application for Water Withdrawal for AES Ironwood Power Plant,
Submitted to the Delaware River Basin Commission and the Susquehanna River
Basin, by TRC Environmental Corporation, April, 1998.
The make-up water supply for the Project will be obtained from the WWTP and from
the current dewatering operations at the adjacent Pennsy Supply quarry. Under
normal operating conditions, 1.44 MGD of water from the WWTP will be pumped to
the Facility through a pipeline. The remaining 2.16 MGD of water required by the
Facility will be obtained from the quarry dewatering operations. When the
Facility is operating on fuel oil, 2.16 MGD of water may be diverted from the
WWTP and the remainder 2.16 MGD will be obtained from the quarry dewatering
operations.
A review of documents provided to Stone & Webster indicates that an adequate
make-up water supply is available to meet the Facility generation demands. The
split for providing make-up water from both the WWTP and the Pennsy quarry
satisfies the river basin commissions environmental requirements. Approval has
been obtained from the Delaware River Basin Commission on April 24, 1998 and the
Susquehanna River Basin Commission on June 9, 1998 for this proposed make-up
water supply approach.
Should quarry operations cease in the future or supply from the WWTP need
adjustment, an adequate make-up water supply could be obtained from groundwater
sources at or near the site or pumped from a flooded quarry. New agreements with
the commissions would have to be worked out at that time and are considered by
Stone & Webster to be attainable, if they are required.
3.12.4 Site Grading and Drainage System
The site grading and drainage system will be designed to comply with all
applicable federal, regional, and local regulations. Topographic modifications
to the site area may be required to provide positive overall drainage. Surface
drainage onsite will consist of overland and open channel flow. Channels and
ditches will generally be trapezoidal in cross section, of sufficient width to
facilitate easy cleaning, and mildly sloping so that erosion is prevented. The
storm drainage system will be designed for a rainfall intensity of five inches
per hour. Site specific drainage facilities will be designed for the flow
resulting from a 25 year rainfall or regional and local code requirements,
whichever is greater. The Facility main complex area will be moderately graded
for effective drainage.
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3.12.5 Foundations
The site is considered suitable for development of the Project. The proposed
structures can be placed on mat or spread foundations. Recommendations are
provided in the Schnabel Report for deep and shallow foundation systems. The
Schnabel Report recommends that foundations for the larger, heavier structures
be supported on compacted dense graded crushed stone structural fill. All
residual soil and boulders should be removed beneath the foundation area.
Placement of the structural fill will start at the contact with the weathered
bedrock or very hard residual soil. An allowable bearing pressure of 10,000 psf
is expected for structures supported in this manner. Adequate quantities of
quality structural fill materials are available from the rock quarries in the
vicinity of the site.
The support buildings and other lightly loaded structures can be supported on
spread foundations on suitable stiff to hard natural soils or compacted fill,
using an allowable bearing pressure of at least 2,000 psf. The above ground
storage tanks can be supported on the stiff to hard residual soils, weathered
rock, or structural fill.
The exploration program indicates that some rock excavation may be required for
installation of the circulating water lines. The Schnabel Report also includes
recommendations for site preparation and inspections that should be performed
beneath critical structures to preclude development over an area of potential
solution activity. Subsequent to the date of the Schnabel Report, SWPC obtained
additional data on quarry blasting operations and has indicated that it is
revising its foundation design criteria to reflect that additional data.
3.12.6 Stack
The common stack height will be 175 feet and is to be constructed in accordance
with ASME/ANSI standards and will be made from carbon steel. The location of
test ports and sampling platform will meet USEPA siting criteria of 40 CFR 60.
3.13 Interconnections
3.13.1 Fuel Interconnection
The natural gas fuel supply to the Facility will be transported by way of a
pipeline that will be designed to supply a minimum of 700 psig at the Facility
boundary as discussed in Section 3.8 of this Report. Fuel will be supplied to
the Facility by Williams in accordance with the PPA as discussed in Section 5 of
this Report. Williams is responsible for the construction of all gas
interconnection and delivery facilities necessary for delivery of natural gas.
Pipeline permitting, design, and construction is also the responsibility of
Williams. The fuel oil will be supplied by truck, and a two-day supply will be
stored in the Facility's fuel oil storage tank.
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<PAGE>
Williams has executed certain agreements with TETCO to provide natural gas
delivery services to the Facility. These agreements require TETCO to construct
own and operate an approximate three-mile pipeline from the TETCO mainline to
the Facility. Under these agreements, TETCO is required to have the lateral
completed by September 1, 2000. Stone & Webster has not independently verified
the design of the pipeline, however we know of no reason why Williams should be
unable to perform its obligations under the PPA.
3.13.2 Electrical Interconnection
The Project electrical interconnection design was previously discussed in the
Switchyard Section of this Report. In addition, Stone & Webster reviewed
available information to assess the general feasibility (from an electrical
standpoint) of integrating the Project into the PJM power transmission system.
The review focused on assessing whether there were additional steady-state
transmission constraints, which could be attributed to the Project. The review
relied primarily on information in the public domain provided by the
Mid-Atlantic Area Council ("MAAC") reliability council of the North American
Electric Reliability Council ("NERC") in filings before the FERC. The MAAC
region consists of 15 full time members and 31 associate members serving over 22
million people in a 48,700 square-mile area. The region includes all of Delaware
and the District of Columbia, major portions of Pennsylvania, New Jersey, and
Maryland, and a small part of Virginia. All utilities in the PJM system are a
part of MAAC. In particular, the following information, submitted to the FERC as
part of the 1998 Form 715 filing, was reviewed:
o Transmission planning reliability criteria of the MAAC region
(Part 4 of Form 715)
o Transmission planning assessment practices of MAAC (Part 5 of Form
715)
o Evaluation of transmission system performance of the MAAC system
(Part 6 of Form 715)
o Transmission planning reliability criteria of the GPU utilities
(Part 4 of Form 715)
o Transmission planning assessment practices of the GPU utilities
(Part 5 of Form 715)
o Evaluation of transmission system performance of the GPU utility
system (Part 6 of Form 715)
o Load flow simulations of the MAAC system for the following
conditions: (1) 1998 summer, (2) 1998/99 winter, (3) 1999 summer,
(4) 1999/2000 winter, (5) 2002 summer, (6) 2002/03 winter, (7)
2007 summer
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<PAGE>
Stone & Webster also reviewed a report titled "Reliability Assessment
1998-2007", prepared by NERC and dated September, 1998, and a letter report from
GPU to AES Ironwood dated February 4, 1999, regarding the results of system
studies (the "System Study Report").
The Project was modeled by GPU in the planning of its transmission system for
the period 1998-2007 and simulated in all load flow cases for years 2002 and
beyond, but not before, since: (1) FERC Form 715 instructions explicitly
indicate that load flow cases that are submitted as part of the filing should be
those "regularly used by the utility in its own planning", and (2) the Project
is scheduled to come on-line in 2001. Thus, 2002 is the first year in which the
Project appears in the simulations.
The Project is modeled in the load flow cases as three separate generators (at
buses 1736 "AES-GEN1", 1737 "AES-GEN2", and 1738 "AES-GEN3", all at 230 kV).
These buses are in turn connected to the Prescott 230 kV bus, and from there to
the South Lebanon and Jonestown 230 kV buses (1163 and 1175, respectively). In
all cases (i.e., summer and winter), each unit is modeled as generating 212 MW,
for a combined production of 636 MW. The generators are in area 27 of the load
flow (area "MET-ED"), which in year 2002 exports about 246 MW.
GPU has represented that it has confirmed that the transmission system will
accept the Facility output of up to 662 MW (summer) and 797 MW (winter).
Based on this representation, Stone & Webster is of the opinion that the Project
can be feasibly integrated into the PJM system and that no known transmission
limitations will inhibit the feasible evacuation of the Project's full net
capacity both under summer and winter conditions.
3.13.3 Water Interconnection
The Project has agreements in place to draw water for cooling the Facility from
two independent sources. The Pennsy Supply quarry, located directly adjacent to
the Project site on Prescott Road, and an agreement with the City of Lebanon
Authority to use treated effluent water from their facility, located on Ridge
View Road. Access to both water sources will be designed and constructed to
serve the full Facility needs from either or both sources. An approximately 6.5
mile pipeline will be designed and constructed to transport the water from the
WWTP to the Facility.
In order to construct the pipeline, which will be owned and operated by the
Authority, Rights-of-Way ("ROW") must be acquired from eleven landowners. The
ROWs provide the Project with the permission to utilize the various landowners'
property to construct the pipeline beneath the surface of the property. Most of
the ROWs are represented to be within an already-existing utility easement.
Gannett Fleming, Inc. has surveyed all the properties and the Project has
secured ten of the eleven ROWs. The last ROW is expected to be secured in June
1999.
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<PAGE>
Applications for the road crossings, county occupancy permits, and railroad
crossings have been submitted and are currently awaiting approval.
Stone & Webster will independently verify the design of the pipeline when it
becomes available. The proposed construction schedule appears to be reasonable
and achievable. We do not know of any reason why the Authority should be unable
to perform its obligations under the ESA.
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<PAGE>
4. Environmental and Permitting
4.1 Environmental Site Assessment
Stone & Webster reviewed the Environmental Site Assessment of Martin/Ziegler
Property and the Environmental Site Assessment and Preliminary Asbestos Survey
of RESCO Products Property by TRC Environmental Corporation, of March 1998 and
April 1998. The assessment for the Martin property revealed no evidence of
recognized concerns to the subject property. The only environmental condition
identified for the RESCO Products property is the presence of asbestos in two
roofing materials; the tar coating of the Butler Building/add-on roof and the
roof tar paper of a small attached shed at the rear of the Butler Building.
Removal of these structures and the asbestos is not considered to be a major
environmental issue. Both property locations may have radon presence in
groundwater that might be obtained from wells. Radon is characteristic of the
geologic units in the area for groundwater wells.
The past and present land use of these properties and the adjacent properties
are not anticipated to create any conditions that would result in a major
environmental concern. Groundwater beneath the Project site area drains into the
adjacent quarry and is presently pumped to surface drains. No contamination has
been identified within this groundwater regime.
Stone & Webster is of the opinion that the assessments reviewed were performed
in accordance with standard industry practice and their results appear
reasonable.
4.2 Permitting
The EPC Contract (Appendix F) sets forth a list of applicable permits and
approvals that are required by federal, state, and local agencies. This list
also identifies who is responsible for obtaining the permit or approval. The
Project has represented that this list is comprehensive and that no other
permits other than possibly some ministerial permits are required for the
construction and operation of the Project.
SWPC and AES Ironwood are individually or jointly responsible for obtaining the
permits and authorizations described in the following table. Stone & Webster has
relied upon the Project to confirm that all necessary permits or authorizations
have been identified and that the permits have either been obtained or will be
granted in a timely manner without adversely affecting the Project's schedule.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
Applicable Permits and Approvals
====================================================================================================================
Agency Applicable Permits Status
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Energy Regulatory Exempt Wholesale Generator Issued March 29, 1999
Commission Certification
- --------------------------------------------------------------------------------------------------------------------
PaDEP PSD/State Air Permit Final March 29, 1999
- --------------------------------------------------------------------------------------------------------------------
U.S. Dept. of Energy, Office Fuel Use Act Certification Approved
of Fossil Energy
- --------------------------------------------------------------------------------------------------------------------
PaDOT Roadway Access Permits from Approved
Prescott Road to site
- --------------------------------------------------------------------------------------------------------------------
PaDEP NPDES, PAG-2 Approved
- --------------------------------------------------------------------------------------------------------------------
PaDEP NPDES General Permits #4, # 4 #5 Approved
#7
- --------------------------------------------------------------------------------------------------------------------
PaDEP NPDES Part 1 Construction Approved
- --------------------------------------------------------------------------------------------------------------------
Pa Dept of Labor and Industry Onsite Oil Storage Tank Part of
(1) Permission to construct SWPC Construction Permit
(2) Permit for construction
- --------------------------------------------------------------------------------------------------------------------
Delaware River Basin Water Use Approval as per Section Approved
3.8 of DRDC regulations
- --------------------------------------------------------------------------------------------------------------------
Susquehanna River Basin Water Use Approval Approved
Commission
- --------------------------------------------------------------------------------------------------------------------
Lebanon County Soil Erosion and Sediment Control Approved
Conservation District Approval
- --------------------------------------------------------------------------------------------------------------------
Conrail/Norfolk Southern Railroad Crossing Approval and Approval Agreements Pending
Railspur Construction
- --------------------------------------------------------------------------------------------------------------------
Lebanon Zoning Hearing Stack Height Variance Approval for Approved
Board Power Plant
- --------------------------------------------------------------------------------------------------------------------
South Lebanon Board of Land Development Approval for Approved
Supervisors Power Plant
- --------------------------------------------------------------------------------------------------------------------
South Lebanon Board of Subdivision Approval for Access Approved
Supervisors Road
- --------------------------------------------------------------------------------------------------------------------
South Lebanon Onsite septic approval for sanitary Conceptually Approved
Township/Lebanon County discharge
- --------------------------------------------------------------------------------------------------------------------
City of Lebanon Authority Agreement for Supply of treated Approved
effluent and construction, operation
and maintenance of pipeline
- --------------------------------------------------------------------------------------------------------------------
Lebanon County Building Permit To be acquired prior to construction
Planning Department
- --------------------------------------------------------------------------------------------------------------------
Federal Aviation Notice of Alteration or Proposed Approved
Administration Construction for AES Ironwood
Facility Stack
====================================================================================================================
</TABLE>
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<PAGE>
Stone & Webster is of the opinion that the permits and authorizations that have
been granted are consistent with the Project's present phase of development.
Stone & Webster has reviewed the permits and approvals identified in this
section. Stone & Webster is of the opinion that if this facility is constructed,
operated and maintained in accordance with the terms of the EPC Contract, PPA,
and the Maintenance Services Agreement, and if the natural gas and fuel oil
provided by Williams are within the quality limits specified in the EPC
Contract, then it is reasonable to assume that the Project should satisfy the
permit limitations of the issued permits and have a useful life beyond the final
maturity date of the Bonds.
Stone & Webster notes that the quantity of ammonia to be stored on site (two
10,000 gallon tanks of aqueous ammonia) is sufficient to subject this Facility
to the risk management and reporting programs administered by the EPA and OSHA.
However, compliance with these programs should not have any effect on either
project cost or schedule.
4.2.1 Prevention of Significant Deterioration Permit
The Project submitted the Prevention of Significant Deterioration Permit ("PSD")
air permit application forms to the Pennsylvania Department of Environmental
Protection ("PaDEP") in May 1998 as part of the Plan Approval Application for
the AES Ironwood Facility (the "Plan Approval Application"). The application was
deemed complete in August 1998, a draft PSD Air Permit was issued on December
23, 1998 and a public hearing was held on February 18, 1999. The final PSD Air
Permit was issued to AES Ironwood on March 29, 1999.
The application form sets forth atmospheric emissions limits for NOx, CO, and
volatile organic compounds ("VOC") which are consistent with or above the EPC
Contract emissions warranties. With respect to VOC and particulate matter
("PM"), the permitted emissions will be based upon stack test results and/or
vendor guarantees. Emissions of SO2 will be determined by fuel sulfur sampling
and mass balance calculations.
The Plan Approval Application includes a summary of proposed permit limits.
Stone & Webster reviewed the Pennsylvania modified Chapter 139 PM sampling
protocol report of 1998 which reports only the "front-end" portion of the
sampling train emissions. AES Ironwood's environmental consultant also advised
Stone & Webster that the calculated permit limits for ammonia salts (from the
SCR) are to be included in the total emissions of PM. These amounts are
reflected in the emission tables provided to TRC by SWPC for the 501G emissions.
We believe that this is a conservative approach to estimating the emissions as
measured under the current Pennsylvania PM sampling protocol as represented by
AES Ironwood's environmental consultant.
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<PAGE>
Although the manufacturer for the SCR system has yet to be selected, Stone &
Webster has reviewed the design criteria for the SCR system, discussed the
emissions testing performed on the 501G combustor nozzles with SWPC, and
analyzed the similarities in the turbine firing temperatures of the 501F and
501G gas turbines. Based on these actions coupled with our knowledge of the 501F
gas turbine, Stone & Webster believes that the 501G will be able to achieve and
maintain compliance with the Project's Air Permit during full load operation.
The PSD Permit expires on June 30, 2002, by which time AES needs to have
completed construction, start-up, commissioning, environmental testing and
performance testing, and begun commercial operation. During this period of time,
AES is required to compile its initial emissions testing report and submit an
application to the PaDEP for an "operating" permit. In addition, Condition 3.c
of the PSD Permit authorizes "temporary" operation for a period of 180 days from
the date of "commencement of operation". This 180-day period should be
sufficient for start-up, commissioning, environmental testing, performance
testing and operating permit application compilation and submittal.
4.2.2 Exempt Wholesale Generator Status
AES Ironwood filed for certification of the Facility as an EWG under the
applicable rules of the FERC on February 24, 1999. AES Ironwood has received a
determination that the Facility is an EWG under the applicable rules of FERC.
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<PAGE>
5. Project Agreements
Stone & Webster reviewed the primary contracts and agreements associated with
the Project. These included the PPA, the EPC Contract, the ESA, and the
Maintenance Services Agreement. Stone & Webster reviewed the agreements from a
technical and economic standpoint to assess the adequacy and reasonableness of
their terms and conditions. Legal, financial, and other important aspects of the
agreements associated with the project were not considered under this review.
This Report describes only portions of the Project Agreements as needed for the
discussion of the Facility's related issues. A complete description or legal
evaluation of the contracts and documents related to the Facility is beyond the
scope of this report, and Stone & Webster is not providing legal counsel
opinions regarding the legal interpretation of any contract language. Adherence
to industry standards and good engineering practice was assessed where
appropriate. Provided below is a summary of our findings for each of the
reviewed agreements.
5.1 Power Purchase Agreement
Stone & Webster reviewed the PPA. Certain of the provisions of the PPA are
discussed below. For a summary of the material terms of the PPA, reference is
made to "Description of Project Contracts - Power Purchase Agreement" in the
Offering Memorandum of AES Ironwood with respect to the Bonds to which the
Report is appended (the "Offering Circular").
5.1.1 Term
The term of the PPA is for a period of 20 years after the Contract Anniversary
Date that is the last day of the month in which the Commercial Operation Date
("COD") occurs. If the COD has not occurred prior to June 30, 2001, subject to
the extension as described below except for a Force Majeure or a delay caused by
Williams, Williams has the right to terminate the PPA without liability or
responsibility unless AES Ironwood has either:
o Demonstrated to Williams that the COD will occur no later than
December 31, 2001, or
o Was unable to execute an Interconnection Agreement with GPU. to
maintain the Facility construction schedule ("Interconnect Delay")
In these cases AES Ironwood has the right to extend the COD to December 31, 2001
("Free Extension Option"). In the event the above described conditions are not
met then AES Ironwood has the right to extend the COD to and including December
31, 2001, by giving Williams a written notice of extension no later than April
30, 2001 and paying Williams a specified amount no later than June 30, 2001.
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<PAGE>
In the event AES Ironwood qualifies and elects the Free Extension Option but the
COD does not occur by December 31, 2001 then AES Ironwood can elect to:
o extend the COD up to and including December 31, 2002 by making
certain daily payments, and
o pay Williams an amount equal to the lesser of:
>>actual damages Williams suffers or incurs after December 31,
2001, or up to a specified cap
In the event AES Ironwood qualifies for the Free Extension Option or elects the
First Paid Extension Option and the COD has not occurred prior to December 31,
2001, except for a delay caused by Williams, a Force Majeure delay, or an
Interconnect Delay then Williams has the right to terminate the PPA without
liability or responsibility, provided that AES Ironwood has the right to extend
the final COD to December 31, 2002, by giving Williams written notice of the
extension no later than October 31, 2001, and making Williams certain daily
payments.
In the event AES Ironwood elects the Second Paid Extension Option and the COD
does not occur by December 31, 2002 for any reason except as a result of an
Interconnect Delay, Force Majeure, or a delay caused by Williams, then Williams
has the absolute right to terminate the PPA without liability or responsibility.
The Provisional NTP was provided to SWPC on September 23, 1998 and several
milestones have been achieved to date by SWPC. The Full NTP will occur on or
about June 1, 1999. Pursuant to the terms of the PPA, AES Ironwood has the
option to extend the COD to December 31, 2001 by paying Williams a specified
amount if there is a delay in the June 30, 2001 COD. The Delay in Financial
Closing/SWPC Continued Performance Agreement between SWPC and AES Ironwood
extends the date by which the Commencement Date must occur to June 1, 1999. Not
withstanding the above stated provisions SWPC agreed in a letter to AES Ironwood
dated May 12, 1999 to not exercise its right to suspend its performance of
services between June 1, 1999 and June 21, 1999. The Guaranteed Provisional
Acceptance Date is 23 months and two weeks following full NTP.
Based on the EPC Contract, if SWPC fails to achieve the Provisional, Interim, or
Final a specified amount per day. If Provisional, Interim, or Final Acceptance
occurs six months after the Guaranteed Provisional Acceptance Date, AES Ironwood
would receive liquidated damages, which amount, together with contingencies and
prefunded IDC, is sufficient to cover the amounts AES Ironwood would be required
to pay Williams to extend the COD to December 31, 2001, plus approximately 190
days in debt service after the Guaranteed Provisional Acceptance Date beyond
December 31, 1999. Based on the EPC Contract, the total liquidated damages
associated with a delay in the Guaranteed Provisional Acceptance Date is a
maximum of 20% of the contract price. If the COD is delayed to December 31,
2002, AES Ironwood would receive liquidated damages,
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<PAGE>
which amount, together with contingencies and prefunded IDC, is sufficient to
cover the additional payments to Williams plus approximately one year in debt
service after the Guaranteed Provisional Acceptance Date.
5.1.2 Fuel Conversion and Associated Services
Williams is obligated to supply and transport the fuel (natural gas and fuel
oil) to generate net electric energy, perform start-ups and shutdowns, and
operate the Facility during any period other that during a dispatch period.
Williams is responsible for all costs and expenses related to the supply and
transportation of the natural gas and fuel oil to the fuel delivery point(s).
AES Ironwood is responsible for all costs and expenses related to the supply and
transportation of the natural gas and fuel oil from the fuel delivery point(s)
to the Facility. AES Ironwood is required to provide fuel oil storage capacity
sufficient to operate the plant at full output for at least 2 days. If AES
Ironwood elects to use offsite fuel oil storage, then AES Ironwood is
responsible for arranging transportation to the Facility from that remote
location. AES Ironwood is not obligated to operate the Facility on fuel oil for
more than 31 days or 744 hours per year.
Williams is responsible for the construction of the Gas Interconnection
Facilities. In the event that the Gas Interconnection Facilities have not been
constructed or Williams is unable to deliver gas to the Facility to support the
initial start-up testing, Williams will pay AES Ironwood certain specified
amounts for each day of the delay from the date on which the Facility would
otherwise (but for the absence of gas) be ready for start-up testing until the
gas is delivered to the site.
5.1.3 PPA Payments
Williams will pay AES Ironwood for facility capacity, fuel conversion services,
and ancillary services. Each monthly billing payment is the sum of the total
fixed payment, fuel conversion payment, and the start-up payment. For each month
of the PPA term Williams is responsible to pay AES Ironwood for the fixed
payments for facility capacity, fuel conversion services and ancillary services
at the rates specified in Appendix 1 of the PPA. The PPA also includes certain
heat rate bonus and penalty payments, startup cost payments and penalties
payable by AES Ironwood for failure to be available for dispatch under certain
conditions.
5.1.4 Interconnection and Metering Equipment
AES Ironwood at its cost and expense will design, construct, install, own, and
maintain the Interconnection Facilities and Protective Gas Apparatus needed to
deliver the net electric energy to the electricity delivery point. AES Ironwood
is also responsible for the negotiation and execution of an Interconnection
Agreement with the host utility. The host utility will own and be responsible
for the design, installation, construction, and maintenance of the electric
metering equipment and any transmission equipment and related facilities
necessary to interconnect with
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<PAGE>
the host utility at the electric delivery point. Williams is required to
reimburse AES Ironwood up to a specified amount for reasonable costs incurred by
the host utility under the Interconnection Agreement. Williams is responsible
for installing, maintaining, calibrating, and testing the gas and oil metering
equipment. Net electric energy will be metered on an hour-by hour basis at the
metering point. Williams will pay to AES Ironwood the net amount shown on the
monthly statement within 30 days following the end of the applicable billing
month.
5.2 Interconnection Agreement
Stone & Webster reviewed the Interconnection Agreement by and between MET-ED
d/b/a GPU and AES Ironwood. Certain provisions of the Interconnection Agreement
are discussed below. For a summary of the material terms of the agreement,
reference is made to "Description of Project Contracts - Interconnection
Agreement" in the Offering Circular.
In general, Stone & Webster found that the Interconnection Agreement is
comparable to other similar agreements with which Stone & Webster is familiar.
In addition, the technical requirements for operating the transmission
interconnection (Appendix C of the Agreement) and system protection and control
(Appendix D), and for the installation of the interconnection (Appendix E)
appears to be reasonable.
5.3 Engineering, Procurement, and Construction Services
Stone & Webster reviewed the executed EPC Contract between AES Ironwood and
SWPC. Certain provisions of the EPC Contract are discussed below. For a summary
of the material terms of the agreement, reference is made to "Description of
Project Contracts - EPC Agreement" in the Offering Circular.
The EPC Contract is for a 705 MW combined cycle facility to be located in South
Lebanon Township near Lebanon, Pennsylvania. SWPC will provide a Facility which
is intended to have at least a 25-year useful life (when operated and maintained
in accordance with the Instruction Manual, the PPA, and the manufacturers'
recommendations. We believe the EPC Contract scope adequately describes the
services to be performed and is technically complete. SWPC's scope of services
is presented in detail in Appendix A of the EPC Contract. Our assessment of
SWPC's scope of services and the technical descriptions are presented in Chapter
3 of this report. This price includes agreed to and estimated price changes for
scope changes agreed to by AES Ironwood through the date of this Report, but
does not include certain scope changes currently under discussion, the price of
which are included in "Other Hard Costs" as described in Section 7.3. The total
current contract price is $238.0 million.
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5.3.1 SWPC Responsibilities
SWPC's responsibilities under the EPC Contract include the design, engineering,
procurement, and construction of the facility; startup, training, and testing;
and the supply of all machinery, equipment (excluding operational spare parts),
tools, construction fuels, chemicals, etc. to complete the Project. SWPC will be
responsible for all tasks necessary to complete the Project other than those
specifically assigned to AES Ironwood in Appendix A. SWPC will also prepare a
Quality Assurance Plan (Appendix K). SWPC will use this plan to ensure that the
construction and engineering methods and standards required are adhered to or
achieved. SWPC will develop a list of recommended operational spare parts and a
price list. This will be delivered to AES Ironwood at least 12 months prior to
the scheduled date for PA.
SWPC also has certain obligations with respect to labor and personnel,
permitting and permitting support, inspection and expediting, personnel
training, cleanup and waste disposal, security, coordination with other
contractors, and management and supervision of its subcontractors. Stone &
Webster believes that these areas of contractor responsibility have been
addressed adequately in the EPC Contract. SWPC is required to coordinate its
functions with other contractors involved with the Project. SWPC is also
required to arrange for construction-period water supply facilities, but the EPC
Contract does not address the disposal of construction-period sanitary waste
disposal.
SWPC will provide training to AES Prescott's operation staff. Beginning six
months prior to the Project Guaranteed Provisional Acceptance Date, SWPC will
provide on-site classroom training for AES Prescott's O&M staff. The training
curriculum is more completely described in Appendix A of the EPC Contract. In
addition to SWPC's own training it will also coordinate any Subcontractor
training sessions in a manner sufficient to provide the personnel with an
adequate understanding of the O&M aspects of each dimension of the Project as an
integrated whole. Stone & Webster agrees with this overall approach to preparing
and training the O&M staff.
Within 60 days of the Guaranteed Provisional Acceptance Date, SWPC will submit
to AES Ironwood a detailed electronic construction schedule consistent with the
schedule outlined in Appendix C of the EPC Contract. As soon as practical but no
later than 120 days after the Guaranteed Provisional Acceptance Date, SWPC will
provide AES Ironwood with a critical path method ("CPM") schedule for the
Project including activity duration for each major component of the Services
provided by SWPC.
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5.3.2 AES Ironwood Responsibilities
AES Ironwood is responsible for certain services associated with the EPC
Contract. These activities relate to: the appointment of an Owner's
representative; acquisition of the Facility site and access for SWPC;
acquisition of all applicable permits and real estate rights for the facility;
providing startup personnel; arranging for certain construction utilities (waste
disposal after the risk transfer date), fuel, and electrical interconnection
facilities on the utility side. These responsibilities are reasonable and
customary for this type of transaction.
5.3.3 Construction Schedule
AES Ironwood issued a Provisional Notice to Proceed as of September 23, 1998,
which required SWPC to begin the Services, including a full release of the
engineering, manufacturing, and procurement of the equipment on the date
specified. AES Ironwood is obligated to pay SWPC for all pre-Commencement Date
Services actually performed.
Stone & Webster reviewed the sequencing of events necessary to achieve Final
Acceptance of the Project and the criteria of each milestone. We believe that
the milestone criteria are technically reasonable. The significant milestones
are Mechanical Completion, Provisional Acceptance, Interim Acceptance, Final
Acceptance, and Project Completion. The Performance Tests and the PPA Output
Tests are conducted after Mechanical Completion in order to meet Provisional
Acceptance. The Reliability Run is required in order to meet Final Acceptance.
Project Completion occurs after Final Acceptance.
Interim Acceptance ("IA") is a milestone more specific to this agreement. IA
occurs when the gas-based electrical output and heat rate guarantee is not less
than those levels demonstrated during the completed performance test at
Provisional Acceptance.
5.3.4 Contract Price and Payment Schedule
The contract price (as adjusted for scope changes) will be paid out to SWPC in
installments over the construction schedule. The payments began with Provisional
Notice to Proceed and continue through construction according to the Payment and
Milestone Schedule (Appendix B). Retainage in the amount of 5% is withheld from
each scheduled payment except for the project completion payment. Stone &
Webster generally experiences retainage in the order of 5-10% of the contract
price. Upon achieving Final Acceptance of the Facility and the receipt of
documentation that all requirements have been satisfied, all the retainage may
be paid to the Contractor, except that AES Ironwood can hold back an amount
equal to $1 million and 150% of the punch list. Within 30 days after the Project
Completion all remaining retainage will be paid to SWPC.
AES Ironwood may deduct and set-off against any part of the balance due or to
become due from SWPC to AES Ironwood in connection with this agreement. If this
set-off amount is later
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determined not to have been due from SWPC, then SWPC will be entitled to
interest on the set-off amount. The EPC Contract allows for change orders that
may be initiated by AES Ironwood or SWPC. The change order protocol allows for
adjustments to both pricing and schedule. The protocol utilized in this EPC
Contract is similar to other contracts with which we are familiar and is
technically acceptable.
5.3.5 Performance Testing Plans
To demonstrate Final Acceptance, SWPC must demonstrate 100% of the gas-based and
fuel oil-based electrical output and heat rate guarantees during the performance
test, or demonstrate in a completed PPA output test the achievement of 100% of
the gas-based electrical output guarantee and satisfy AES Ironwood that the
capabilities outlined in Part B of Appendix B are achieved. In addition,
Mechanical Completion must be satisfied and the Reliability Guarantee achieved.
Also, the reliability run must be completed no later than the occurrence of
Final Acceptance of the Facility.
Stone & Webster reviewed the performance testing plan. The performance tests
will be performed in accordance with PTC-46, the test code for overall plant
performance testing. A plant specific performance test procedure will be written
by SWPC and submitted to AES Ironwood 90 days prior to the test. Stone & Webster
believes that the performance testing plan as specified in the EPC Contract
Appendix D is acceptable, customary, and should adequately demonstrate the
Project's performance.
AES Ironwood can elect Final Acceptance. In this scenario, SWPC has no liability
to AES Ironwood for any performance guarantee payments arising thereafter for
failure of the Facility to achieve any or all of the performance guarantees
applicable. SWPC can elect Final Acceptance. In this case SWPC must have
completed a performance test which demonstrates at least a level of 95% of the
gas-based and fuel oil-based electrical output and 108% of the gas-based and
fuel oil-based heat rate. SWPC is then obligated to pay all of the performance
guarantee payments as determined by the final or most recent completed
performance test. SWPC also must pay any Provisional Acceptance late completion
payments required.
5.3.6 Performance Guarantees
SWPC is required to design and construct the Facility to achieve certain
guaranteed performance levels in regards to capacity, heat rate, and
reliability.
The Performance Guarantees are designed to ensure that the Project's performance
meets or exceeds the minimum operating parameters of the PPA.
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5.3.7 Warranty Period
The EPC Contract provides a warranty for all machinery, engineering and design,
and for situations involving corrections, additions, repairs or replacements.
With respect to all machinery, equipment, materials, systems, supplies and other
items comprising the Project, the warranty period is the earlier to occur of (i)
12 months following the first to occur of Provisional Acceptance, Interim
Acceptance and Final Acceptance and (ii) with respect to the machinery,
equipment, materials, systems, supplies and other items comprising each unit,
the date on which such unit has operated for 8,000 equivalent operating hours
following the first to occur of Provisional Acceptance, Interim Acceptance, and
Final Acceptance.
With respect to the engineering and design of the Project and its components, 12
months following the first to occur of Provisional Acceptance, Interim
Acceptance and Final Acceptance; and in the case of any correction, addition,
repair or replacement to any machinery, equipment, materials, systems, supplies
or other items, including without limitation the engineering or design thereof,
during any existing warranty period, with respect to such machinery, equipment,
materials, systems, supplies or other items, twelve months after the date of
such correction, addition, repair or replacement, but in no event later than 24
months after the originally scheduled expiration date of the applicable initial
warranty period.
In addition, the EPC Contract states that SWPC warrants and guarantees that the
design of the Facility is based on a useful life design objective for a period
not less than 25 years from the COD.
Stone & Webster is of the opinion that the warranty period is acceptable based
on the commercial terms of the EPC Contract in conjunction with the Maintenance
Services Agreement. These two agreements, although independent, are
complementary and afford the Project a greater degree of protection that is
available from the EPC Contract alone. The risk posed by the possibility of a
component failure that occurs after the expiration of the one year EPC Contract
warranty has been mitigated because the revenues presented in the Projected
Operating Results are sufficient to allow the purchase of replacement
components. Component failures associated with catastrophic failures are
generally covered by insurance policies.
5.3.8 Liquidated Damages
If there is a shortfall in either electrical output or heat rate SWPC will pay
AES Ironwood rebates for failure to meet both interim and final performance
requirements. SWPC guarantees to AES Ironwood to demonstrate a performance level
equivalent to the performance guarantees at least by Final Acceptance. SWPC
agrees to pay a specified amount per kilowatt for each kilowatt less than the
gas-based electrical output guarantee and a specified amount per kilowatt for
each kilowatt less than the fuel oil-based output guarantee, as of Final
Acceptance. The output rebate
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for the gas-based operation is sufficient to motivate SWPC to meet their
gas-based electrical output guarantee.
SWPC will pay to AES Ironwood specified rebate amounts for each Btu/kWh that the
heat rate exceeds the heat rate guarantees for gas and Jet A fuel, including
interim rebates for heat rate while firing gas during the period from interim
acceptance until Final Acceptance. The heat rate rebates are sufficient to
motivate SWPC to meet their heat rate guarantees.
SWPC guarantees that at least one of the Provisional Acceptance, Interim
Acceptance, or Final Acceptance will occur on or before the Guaranteed
Provisional Acceptance Date, and that Final Acceptance will occur on or before
the Guaranteed Final Acceptance Date. If SWPC fails to achieve the Provisional,
Interim or Final Acceptance by the Guaranteed Provisional Acceptance Date, then
SWPC will pay AES Ironwood a specified dollar amount per day. If SWPC does not
achieve Provisional, Interim, or Final Acceptance within 40 days of the
Guaranteed Provisional Acceptance Date, then SWPC must provide an acceptable
plan to achieve acceptance within 12 months after the Guaranteed Provisional
Acceptance Date and the Final Acceptance of the Facility by the Guaranteed Final
Acceptance Date. The Provisional Acceptance Late Completion Payments cannot
exceed 20% of the contract price. If Final Acceptance does not occur on or
before the Guaranteed Final Acceptance Date, the Provisional Acceptance Late
Completion Payments, together with contingencies and prefunded IDC, will be
sufficient to cover the Williams payment plus debt service commitment for
approximately one year after the Guaranteed Provisional Acceptance Date.
The total aggregate Performance Guarantee Payment is equal to the lesser of the
aggregate total of the Performance Guarantee Payments or the total liquidated
damages subcap less all Provisional Acceptance Late Completion Payments. The
total liquidated damages subcap, including the Performance Guarantee Payment and
all Provisional Acceptance Late Completion Payments, cannot exceed 45% of the
contract price.
Stone & Webster believes, based on its review, that the liquidated damages
provisions are sufficient to motivate SWPC to meet their contractual
obligations.
5.4 Management and Operations Agreement
Stone & Webster reviewed the Operations Agreement and Services Agreement between
AES Ironwood and AES Prescott. Certain provisions of the agreement are discussed
below. For a summary of the material terms of the agreement, reference is made
to "Description of the Project Contracts - Operations Agreement" in the Offering
Circular.
Under the Operations Agreement AES Prescott is obligated to supply personnel and
support services required by AES Ironwood to supervise the development and
construction of the Project until the COD and to maintain and operate the
Facility following the COD through the remaining
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term of the agreement. The agreement commences on the execution date and
terminates the last day of the month in the 27th anniversary of the execution
date.
Stone & Webster is of the opinion that the Operations Agreement is reasonable
and believes that each Party is capable of fulfilling all of its obligations
therein.
5.5 Services Agreement
Stone & Webster reviewed the Services Agreement between AES and AES Prescott.
Certain provisions of the agreement are discussed below. For a summary of the
material terms of the agreement, reference is made to "Description of the
Project Contracts - Services Agreement" in the Offering Circular.
AES will provide certain personnel and support services to AES Prescott in order
for AES Prescott to perform its obligations under the Services Agreement. The
Services Agreement commences on the execution date and terminates the last day
of the month in the 27th anniversary of the execution date.
Stone & Webster is of the opinion that the Services Agreement is reasonable and
believes that each Party is capable of fulfilling all of its obligations
therein.
5.6 Effluent Supply Agreement
Stone & Webster reviewed the ESA between AES Ironwood and the City of Lebanon
Authority. Certain provisions of the agreement are discussed below. For a
summary of the material terms of the agreement, reference is made to
"Description of the Project Contracts - Effluent Supply Agreement" in the
Offering Circular.
The agreement was executed on March 3, 1998. The City of Lebanon Authority
operates a publicly owned wastewater treatment facility for the handling,
treatment, and disposal of wastewater, which meets applicable governmental
requirements. The City of Lebanon Authority is willing to provide this treated
effluent to the Project for use at the Facility. The term of this Agreement is
25 years with no more than four successive five-year extensions. The makeup
water will be delivered to the Project by way of a nominal 6.5 mile pipeline
with pumphouse and ancillary facilities. The pipeline is about 18 inches in
diameter and is designed for a capacity of 3,000 gallons per minute. The point
of delivery is located at or inside the Project property. In addition to the
treated effluent the City of Lebanon Authority will also supply potable water to
the Project.
Stone & Webster is of the opinion that the ESA is technically reasonable and
believes that each Party is capable of fulfilling all of its obligations
therein.
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5.7 Agreement Relating to Real Estate
Stone & Webster reviewed the Agreement Related to Real Estate between AES
Ironwood and Pennsy Supply, Inc. ("Pennsy"), dated October 22, 1998. Certain
provisions of the agreement are discussed below. For a summary of the material
terms of the agreement, reference is made to "Description of Project Contracts
Agreement Relating to Real Estate" in the Offering Circular.
AES is the equitable owner of the 35-acre property on which it intends to build
the Project. Pennsy currently owns tracts of land that border the AES property.
The agreement addresses certain real estate transfer, access and easement
agreements, and water pumping arrangements.
Additionally, the agreement confers preferred vendor status upon Pennsy for the
supply of certain construction materials to AES Ironwood. Responsibilities of
the parties regarding applications and permits including associated fees and
costs of construction and maintenance are delineated in the agreement and appear
reasonable. Based on other real estate agreements evaluated by Stone & Webster,
the terms of this agreement appear reasonable.
5.8 Maintenance Program Parts, Shop Repairs and Scheduled Outage
TFA Services Contract
Stone & Webster reviewed the executed Maintenance Services Agreement between AES
Ironwood and SWPC for the Project. Certain provisions of the agreement are
discussed below. For a summary of the material terms of the agreement, reference
is made to "Description of Project Contracts - Maintenance Program Parts, Shop
Repairs and Scheduled Outage TFA Services Contract" in the Offering Circular.
SWPC agrees to provide the parts and technical advice required to conduct the
major maintenance for the combustion turbines. SWPC provides a warranty for its
parts and the advice it provides in exchange for a fee paid by AES Ironwood.
Under the terms of the Maintenance Services Agreement, all major maintenance and
parts are to be provided by SWPC, even if the particular item is not covered by
the original equipment warranty or some provision of this services agreement.
The Maintenance Services Agreement obligates SWPC to notify AES Ironwood of any
engineering or design defects that develop in the 501G fleet and provide
remedial action.
The Maintenance Services Agreement provides combustion turbine major maintenance
(including all scheduled outages) and spare parts for this Project in a
reasonable manner for approximately the initial eight years of operation. This
service provided by an a affiliate of the combustion turbine supplier reduces
the risk of using improper parts or maintenance being conducted improperly on
the combustion turbines due to the close involvement of the original equipment
manufacturer's trained personnel. The Maintenance Services Agreement provides
risk mitigation by providing a warranty on parts provided as part of the
Agreement. The warranty period ends
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with the earlier of one year from date of installation of the part, 8000
equivalent base hours of operation, or 100 starts of the combustion turbine. The
Maintenance Services Agreement levelizes the major maintenance parts costs and
indexes costs to the type of combustion turbine operation in a reasonable and
consistent fashion. Under the agreement, AES Ironwood is responsible for labor
and supervision of labor for the major maintenance activities and the normal and
routine maintenance for the combustion turbines. These costs are included in the
operation and maintenance budget and accounted for in the Project's Projected
Operating Results. The Maintenance Services Agreement also obligates SWPC to
notify AES Ironwood of any engineering or design defects that develop in the
501G fleet and to provide remedial action. SWPC's scope of supply requirements
under the Maintenance Services Agreement are reasonable and consistent with
standard industry practice.
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6. Principal Project Participants
Stone & Webster reviewed the major Project participants and believe each should
be capable of fulfilling their obligations to one another as specified in the
various contracts and agreements of the Project.
6.1 AES Ironwood, LLC
AES Ironwood is a limited liability company, organized and existing under the
laws of Delaware. AES Ironwood was formed to develop, own, and operate the
Project. AES Ironwood is a special purpose project company and a subsidiary of
AES Ironwood, Inc.. AES Ironwood Inc. is a wholly owned subsidiary of The AES
Corporation ("AES"). AES is one of the world's largest global power companies
owning or having an interest in 97 plants totaling over 26,000 MW in 16
countries.
AES was founded in 1981 and has 18 years of experience developing and operating
large, complex power generating facilities. AES also distributes power in
Brazil, El Salvador and Argentina and heat in Kazakhstan. AES operates
gas-fired, oil-fired, hydropower, and solid-fuel plants, and employs
approximately 40,000 people around the world. AES currently owns assets worth in
excess of $10 billion. AES end-of-year 1998 revenue was $2.5 billion with a net
income of $308 million.
Stone & Webster believes that AES Ironwood, as an affiliate of AES and with the
assistance of SWPC under the terms of the Maintenance Services Agreement, should
be capable of operating and maintaining the Facility in accordance with standard
industry practices.
6.2 AES Prescott, LLC
AES Prescott is a Delaware limited liability company and a wholly owned
subsidiary of AES Ironwood, Inc. AES Prescott will manage the development and
construction of the Project pursuant to a development and construction
management agreement between AES Prescott and AES Ironwood. Stone & Webster
believes that AES Prescott, as an affiliate of AES, should be capable of
managing the development and construction of the Project.
6.3 Williams Energy Marketing & Trading Company
Williams is the Project's power purchaser and fuel supplier. Williams is a
corporation organized and existing under the laws of the State of Delaware and
is a wholly owned subsidiary of the Williams Companies. The Williams Companies,
through its subsidiaries, is engaged in the transportation and sale of natural
gas and petroleum products, and is engaged in energy commodity trading and
marketing. For the nine months ended September 1998, revenues were $5.64 billion
with a net income of $160 million.
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Stone & Webster believes that Williams possesses the organization and personnel
to execute its obligations under the PPA, and is familiar with the provision of
fuel and purchase of electricity from large electrical generation facilities.
6.4 Siemens Westinghouse Power Corporation
SWPC is the Project's EPC contractor. SWPC is a newly formed Delaware
corporation that was formed in 1998 when Siemens Corporation acquired the
Westinghouse Power Generation business from the CBS Corporation in August 1998.
SWPC, headquartered in Orlando, Florida, is the regional business division for
the Americas and operates engineering and manufacturing centers in North
America.
Siemens Corporation owns all of the SWPC stock and is an industry leader in
telecommunications; energy and power; transportation; information systems and
other products. For the first nine months of fiscal year 1997/1998 Siemens' U.S.
businesses, with more than 55,000 employees, recorded sales of $7.0 billion.
Siemens AG, based in Berlin and Munich, owns all of the Siemens Corporation
stock and is one of the world's largest electrical engineering and electronics
companies and employs over 400,000 people worldwide in more than 190 countries.
Stone & Webster believes that SWPC possesses the organization and personnel to
execute its obligations under the EPC Contract, and is familiar with the
construction of large electrical generation facilities. Stone & Webster also
believes SWPC considers the 501G technology advancement as being extremely
important to its continued participation in the advanced combustion turbine
market and therefore will ensure that the initial project installations are
closely supported.
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7. Assessment of Projected Operating Results
7.1 Overview
The Projected Operating Results consist of a pro forma financial model for AES
Ironwood (the "Base Case"). Stone & Webster has reviewed the assumptions, data,
and the calculations necessary to support the cash flow projections of cash flow
available for debt service. Stone & Webster has verified that the underlying
model assumptions are consistent with the expected performance and the
commercial terms of the Project Agreements. Stone & Webster has validated key
calculations to ensure that the resulting revenues, expenses, cash flow, and
DSCRs were correctly calculated. Stone & Webster has reviewed the Projected
Operating Results and compared them to data provided in the Project Agreements,
data provided to Stone & Webster and power industry public information. Stone &
Webster has not reviewed the tax and depreciation assumptions, which were
provided by AES Ironwood, and financing assumptions, including the amortization
schedule and interest rates, which were provided by Lehman Brothers.
Lastly, Stone & Webster performed several sensitivities to determine the impact
of certain variables on the DSCRs. The Projected Operating Results for the Base
Case and the sensitivity cases are included in Exhibit I of this Report. The
Projected Operating Results are calculated in nominal dollars based on an
assumed inflation rate of 3% per annum.
7.2 Principal Considerations and Assumptions
In preparing this Report and the conclusions contained herein, Stone & Webster
has made certain assumptions with respect to the conditions, which may exist, or
events, which may occur in the future. While Stone & Webster believes these
assumptions to be reasonable for the purpose of this Report, they are dependent
on future events, and actual conditions may differ from those assumed. In
addition, Stone & Webster has used and relied on information provided to us by
sources that we believe to be reliable. Stone & Webster believes that the use of
this information and assumptions is reasonable for the purposes of our Report.
However, some assumptions may vary significantly due to unanticipated events and
circumstances. To the extent that actual future conditions may differ from those
assumed in this Report, or provided to us by others, the actual results will
vary from those forecast. This Report summarizes our work up to the date of the
Report and changes in conditions occurring or that became known after such date
could affect the Projected Operating Results.
The principal considerations and assumptions related to the Projected Operating
Results are listed below:
1. Stone & Webster has assumed that the Project will be designed and
built in accordance with the design specifications and the construction
schedule dictated in the EPC contract.
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2. The electricity market energy and capacity price projections, which
are relevant during the post PPA period were prepared by Hagler Bailly
for Lehman Brothers, in its capacity as Initial Purchaser, using a market
simulation model. Stone & Webster reviewed the technical inputs to the
Hagler Bailly model and found them to be reasonable. Stone & Webster did
not independently verify the methodology used by Hagler Bailly to develop
the energy or capacity price forecasts nor verify the accuracy of the
forecasts.
3. Stone & Webster has made no determination as to the validity and
enforceability of any contract, agreement, rule, or regulation as
applicable to the Facility and its operations. For the purposes of this
Report, Stone & Webster has assumed that all contracts, agreements,
rules, or regulations will be valid and fully enforceable in accordance
with the terms and that all parties will comply with the provisions of
their respective agreements.
4. Williams will arrange for the procurement and delivery of the fuel to
the Facility and will purchase all available capacity, ancillary
services, and energy from AES Ironwood in accordance with the PPA.
5. Stone & Webster has reviewed the capital and O&M budgets for AES
Ironwood. We have assumed that the Facility will operate and be
maintained in accordance with the Operations Agreement, O&M and capital
budgets, standard industry practice, and in a safe and environmentally
responsible manner.
6. Stone & Webster has assumed for purposes of the Projected Operating
Results that AES Ironwood will operate the Facility pursuant to the PPA
through the end of the first quarter of 2021 and as a merchant plant for
the term of the Bonds.
7. Stone & Webster has assumed that the maintenance will be performed by
AES Prescott in accordance with the Operations Agreement and by SWPC in
accordance with the Maintenance Services Agreement.
8. The natural gas and fuel oil prices are inputs to the Hagler Bailly
model. Stone & Webster reviewed the fuel price forecasts provided by the
independent fuel consultant, CC Pace. It is assumed that the fuel will be
available in sufficient quantities and at the prices forecasted for the
period covered in the Projected Operating Results.
9. Stone & Webster has assumed that all licenses, permits, and approvals
required to construct and operate the Project which have not been
obtained will be obtained in a timely basis and any changes that may be
required to any permits will not materially affect the design, operation,
cost, or maintenance of the Project.
10. Stone & Webster has assumed that AES Ironwood will be able to
purchase emission allowances, to the extent any are required, on an as
needed basis to comply with the emission limits. We have assumed that
emission offsets will be available for purchase at the prices forecasted
in the Projected Operating Results. Stone & Webster has not evaluated the
feasibility or cost of AES Ironwood implementing alternate strategies for
complying with its emission limits.
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11. Stone & Webster has not evaluated the non-operating expenses
projected by AES Ironwood including property and capital franchise taxes,
insurance, and general and administrative expenses.
7.3 Project Cost
Stone & Webster evaluated AES Ironwood's estimate for the total Project costs
included in the pro forma financial model. The Projected Operating Results Base
Case total Project construction costs are estimated to be $342 million
(excluding contingency) or approximately $485/kW (net) in the pro forma
financial model. The breakdown of the total Project costs is provided in the
following table:
<TABLE>
<CAPTION>
========================================================================
Total Project Costs
($ million)
========================================================================
<S> <C>
EPC Contract $238.00
Other Hard (Construction-Related) Costs 13.94
Other Development and Construction Costs 21.35
Initial Working Capital 1.80
Net Interest During Construction 51.14
Start-up and Other Soft Costs 15.42
Company's Contingency 17.00
------------------------------------------------------------------------
Total Project Costs $358.65
========================================================================
</TABLE>
Stone & Webster evaluated the Project's lump sum fixed price for the EPC
Contract of $238.0 million (including adjustments), which is equivalent to
approximately $338/kW (net). The EPC Contract price is very competitive relative
to similar facilities.
The non-EPC portion of the total Project cost includes construction management
costs, start-up costs, insurance, financing costs including IDC as well as
lenders, legal, and consultants fees, and working capital. The subtotal of the
non-EPC portion of the total Project cost, excluding contingency, equals $104
million, or 29% of the total Project costs, which is within the range of other
similar projects.
The Project development costs represent slightly less than 5% of the total
Project cost, which is reasonable for a project of this type. The Base Case
assumes $1.8 million for the initial working capital, which is equivalent to 45
days of non-fuel O&M expenses. The financial model assumes
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a 4.7% contingency in the total Project cost, which based on our experience, is
typical of similar projects.
The financial model currently has $1.85 million in its capital budget for the
initial spare parts. AES Ironwood intends to designate those operational spare
parts approximately one year before commercial operations. In addition, there
are $5.4 million worth of combustion turbine maintenance spares imbedded in the
Maintenance Service Agreement, which will be available during the first 8000
EBH. SWPC has committed to stock one complete set of hot gas path parts for
every four combustion turbines sold.
7.4 Power Production
Stone & Webster evaluated the technical assumptions associated with the
performance of the Project for electricity production. The Base Case assumes a
705 MW net Facility capacity at site conditions, a 92.5% average availability
factor ("AF"), and 88.1% average capacity factor over the 26-year term of the
Bond issue. AF is defined as the total hours in a year (i.e., 8760) minus
planned maintenance hours and forced outage hours. Capacity factor is defined as
the actual hours of operation (i.e., dispatched) over the year.
The Base Case assumes that the Facility will continue to operate as a merchant
facility after the expiration of the 20-year PPA. Under the merchant operation
the Facility capacity is assumed to operate at a degraded net full load Facility
capacity at site conditions ranging from 698 MW while operating on natural gas
to 621 MW while operating on fuel oil.
7.4.1 Power Plant Availability
Power plant availability is a function of many variables, including design and
construction quality, operation and maintenance practices, and fuel quality. In
order to be conservative, the Base Case assumes a lower AF in years one and two
than in subsequent years. AES Ironwood projects the AF to be 90.4% in the first
two years and an average of 92.7% in subsequent years.
7.4.2 Capacity Factor
The Facility capacity factor is based on Hagler Bailley's economic dispatch of
AES Ironwood within the context of its PJM market study. Stone & Webster did not
independently verify the methodology that Hagler Bailly used to develop the
capacity factor nor verify the accuracy of the forecast. Hagler Bailly projected
for the Base Case that the AES Ironwood will have an average capacity factor of
88.1% during the term of the PPA and the post PPA period.
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7.4.3 Capacity
The Base Case Projected Operating Results are based on the net Facility capacity
operating on natural gas at site conditions adjusted to 92(degrees)F and
including degradation. The Base Case model assumes a 4% degradation factor for
output over the six-year maintenance cycle, which is standard for similar
facilities. Stone & Webster considers the assumed degradation to be within the
range of expected degradation for such power generation facilities.
7.5 Revenues
Williams is obligated for a period of 20 years from the COD to purchase the
Facility capacity, approximately 655 MW +/-10% (summer capacity) at 92(degrees)F
when firing on natural gas pursuant to the PPA. Williams will pay AES Ironwood
for the Facility capacity, fuel conversion services, and ancillary services
provided under the PPA. The Project revenues are calculated based on the pricing
and payment structure defined in Appendix 1 of the PPA. The revenues for the
first full calendar year (Year 2002) are $60.2 million.
The Total Fixed Payment is based on a Fixed Capacity Rate, which has a set
schedule for the 20-year term of the PPA. If the Project Equivalent Availability
Factor ("EAF") as defined in Appendix 1 to the PPA is greater than 85%, there is
an Annual Availability Energy Adjustment ("AAEA") payable to AES Ironwood. The
Annual Availability Capacity Adjustment ("AACA") will be calculated as a credit
to Williams each year based on the EAF if the EAF is lower than 85%. For the
Base Case there is no AACA projected for the 20-year term of the PPA. The AAEA
and AACA are paid in the first quarter of the operating year following the end
of the previous year.
Williams provides fuel to the Project for conversion into energy. Consequently,
the Project is not responsible for the cost of fuel. Rather Williams pays a fee
to AES Ironwood to convert the fuel into energy. The Fuel Conversion Rates are
escalated annually at the Gross Domestic Product Implicit Price Deflator
("GDPIPD"). The Base Case assumes a GDPIPD of 3%.
In addition to the fuel conversion revenue, Williams is required to pay AES
Ironwood an energy efficiency bonus or penalty ("HRB/HRP"). The energy
efficiency bonus or penalty is based on the difference between the Heat Rate
Target ("HRT") while operating on natural gas and the actual Facility Heat Rate
("FHR"), net electric energy delivered, and the natural gas price index.
The Base Case assumes a 2% degradation factor for heat rate over the six-year
maintenance cycle, which is standard for similar facilities. Stone & Webster
considers the assumed degradation to be within the range of expected degradation
for such power generation facilities. After 20 years from COD at the end of the
PPA term, the Base Case assumes that the Project net capacity and energy will be
sold into the PJM system for a period through and beyond the maturity of the
Bonds. Hagler Bailly estimated the Base Case first merchant operating year
B-58
<PAGE>
(2021) AES Ironwood plant-specific energy and capacity market price projections
in 1996 dollars at $27.16/MWh and $5.38/MWh, respectively. The total operating
revenue for the first full merchant calendar year (Year 2022) is $379 million,
which includes AAEA revenues earned in the final operating year of the PPA term.
7.6 Operating Expenses
The estimated Project expenses during the PPA period consist of non-fuel fixed
and variable expenses. The natural gas and fuel oil will be supplied and
transported to the Project under the terms established in the PPA. During the
PPA period, Williams will arrange for the procurement and delivery of the
natural gas and fuel oil to the applicable Facility fuel delivery point. After
the PPA period, AES Ironwood will be responsible for the procurement and
delivery of all the fuel to the Facility.
In the pro forma, the estimated O&M expenses are in nominal dollars reflecting
an assumed 3% inflation per year. The first full calendar year (Year 2002) fixed
and variable non-fuel O&M expenses, which total $17.2 million, and are detailed
in the following table.
<TABLE>
<CAPTION>
===========================================================================
Estimated Non-Fuel O&M Expenses
(2002 $ ,000)
===========================================================================
<S> <C>
Fixed O&M $13.2
Variable O&M 2.1
Administration 0.3
Operating Insurance 0.6
Property Taxes 0.9
---------------------------------------------------------------------------
Total Non-Fuel O&M Expenses $17.2
===========================================================================
</TABLE>
Stone & Webster reviewed the O&M assumptions utilized in the Projected Operating
Results. The information reviewed included assumptions and forecasts for unit
performance; staffing functions and levels; annual O&M budget summary; and unit
overhaul plans and schedules. Stone & Webster compared the information with its
experience with plants of similar configuration and Utility Data Institute cost
and staffing information for similar plants. Stone & Webster considers these
Project assumptions to be reasonable and comparable to other facilities of
similar design.
B-59
<PAGE>
7.6.1 Maintenance Schedule
All maintenance work and spare parts replacement for the combustion turbine
during the first eight years of the Facility operations will be provided by SWPC
through the Maintenance Services Agreement and thereafter will be the
responsibility of AES Ironwood. The O&M schedule and budget assumes that each
combustion turbine accumulates 8000 EBH each year. SWPC's recommended frequency
for annual inspections, hot gas path inspections, and major overhauls are being
used. In addition, AES Ironwood has included in the schedule and budget a "cover
lift" for every hot gas path inspection in order to restore any performance
degradation experienced since the previous major overhaul. Stone & Webster
believes that AES Ironwood's planned overhaul and maintenance schedule is
reasonable and adequate to support its operational and business objectives.
7.6.2 Operations and Maintenance Budget
Stone & Webster reviewed the non-fuel fixed, variable, and major maintenance
expenses in the Projected Operating Results. Stone & Webster believes that the
O&M budget is sufficient to support the planned staffing level, the maintenance
and overhaul schedule, and the project's performance and business objectives.
7.6.3 O&M Staffing Levels
AES Ironwood's planned functional positions and staffing levels were reviewed
and are considered satisfactory to operate and maintain the Facility safely in
accordance with the operational and regulatory requirements. The staffing levels
compare favorably with and are typical of those found in similarly configured
plants that Stone & Webster has reviewed. Our review also included the resume of
the proposed Project Plant Manager, who appears to have relevant experience in
similar plants and has previously demonstrated the requisite skills to perform
satisfactorily for AES Ironwood. Stone & Webster believes that the staffing
levels are adequate to support AES Ironwood's operational and business
objectives.
7.6.4 Emission Compliance Costs
The Projected Operating Results include an emission compliance limit cost. AES
Ironwood will be required to purchase allowances equal to one ton per year for
all SO2 emitted from the Facility and for all NOx emitted from the Facility
during the summer ozone season (defined as May through September). The Base Case
assumes that the Project will need approximately 150 tons of NOx allowances per
year at the current market value of $2,200 per ton for a vintage 2001 allowance.
The Project has already secured NOx allowances for the first two years of
operation and has capitalized these costs. NOx allowance costs in the year 2003
are projected to be $0.4 million. The Base Case assumes that the Project will
need approximately 198 tons of SO2 allowances per year, commencing at COD in
year 2001, at the current market value of $200 per
B-60
<PAGE>
ton. The SO2 allowance cost for 2001 is $0.02 million. Both the NOx and SO2
allowance costs are projected to increase at 3% per annum.
7.6.5 Fuel Expense
In operating year 21, the term of the PPA will end and AES Ironwood will be
responsible for providing the fuel for the Facility to operate as a merchant
plant. The Base Case assumes that the fuel will be purchased at the price
stipulated in the CC Pace Fuel Forecast. The delivered natural gas price will
start at $2.44/mmBtu in real 1996$'s in year 2001 and increases to $2.64/mmBtu
in real 1996$'s in the first merchant operating year, 2021. Per the terms of the
PPA, Williams will supply Jet A fuel oil to the Facility throughout the 20-year
PPA. Following the PPA period, the Facility will purchase No. 2 fuel oil. The
No. 2 fuel oil price is projected by CC Pace to be $3.69/mmBtu in 1996$ in 2021.
The fuel expense assumed during the post PPA period is based on the Facility
heat rate at ISO conditions, the Facility capacity factor, and the unit cost of
fuel. The fuel expense for the first full calendar year of merchant operation is
$219.2 million. When AES Ironwood becomes a merchant plant, the fuel expense
will be the single largest expense.
The CC Pace Fuel Forecast is given in 1998$'s. The Hagler Bailly report assumes
that the fuel expenses are in 1996$'s and are escalated at 2.5%. The unit fuel
costs used in the CC Pace Fuel Forecast are shown in the following table.
<TABLE>
<CAPTION>
==========================================================================================
Fuel Price Forecast
==========================================================================================
Delivered Natural Gas Delivered No. 2 Fuel Oil
Year ($1996/mmBtu) ($1996/mmBtu)
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2021 2.64 3.69
2022 2.65 3.69
2023 2.67 3.69
2024 2.68 3.69
2025 2.69 3.69
==========================================================================================
</TABLE>
The CC Pace Fuel Forecast for the PJM area is consistent with Stone & Webster's
forecasts for fuels.
7.7 Financing Assumptions
Lehman Brothers provided the financing assumptions for the $358.65 million
Project cost. The source of funds will consist of $50.15 million in equity and
$308.5 million. The capital cost items are allocated monthly during the
construction period to calculate releases of Bond proceeds and interest during
construction ("IDC"). The combined annual debt service (principal plus
B-61
<PAGE>
interest, annual administrative and LOC fees) during the post construction
period ranges from a low of $16.3 million in 2001 to a high of $35.4 million in
2008.
7.8 Projected Operating Results
The Projected Operating Results are shown in Exhibit I of this Report. On the
basis of our studies and analyses of the Project, the Project Agreements and the
assumptions set forth in this Report, the projected revenues from the sale of
fuel conversion services, capacity, and ancillary services are more than
adequate to pay the annual O&M expenses (including provisions for major
maintenance), other operating expenses, and debt service.
The Base Case indicate the following DSCRs:
<TABLE>
<CAPTION>
==================================================================================
Base Case
Debt Service Coverage
==================================================================================
Minimum Average
----------------------------------------------------------------------------------
<S> <C> <C>
PPA Period
----------------------------------------------------------------------------------
1.45x 1.46x
----------------------------------------------------------------------------------
Post PPA Term
----------------------------------------------------------------------------------
5.77x 5.81x
----------------------------------------------------------------------------------
Full Term of the Bonds
----------------------------------------------------------------------------------
1.45x 2.30x
==================================================================================
</TABLE>
7.9 Sensitivity Analyses
Due to uncertainties necessarily inherent in relying on assumptions and
projections, it should be anticipated that actual operating results would
differ, perhaps, materially, from those assumed and described herein. In order
to demonstrate the impact of certain circumstances on the Projected Operating
Results, certain sensitivity analyses have been developed by Stone & Webster. It
should be noted that other examples could have been considered, and those
presented are not intended to reflect the full extent of possible impacts on the
Project.
Stone & Webster performed several sensitivity analyses using the pro forma
financial model by varying the following Project specific key input parameters
including power plant availability, heat rate degradation factors, and O&M
costs.
7.9.1 Project Sensitivities
The three Project sensitivities include increasing the Base Case O&M costs,
increasing the Base Case heat rate, and decreasing the Base Case AF.
B-62
<PAGE>
Operation and Maintenance Cost Sensitivity - The Base Case O&M costs were
increased by 15%. The resulting average and minimum DSCRs for the PPA term, the
post PPA term, and the full term of the Bonds are summarized in the following
table.
<TABLE>
<CAPTION>
==================================================================================
Sensitivity Case 1
Operation and Maintenance
Debt Service Coverage Ratios
==================================================================================
Minimum Average
----------------------------------------------------------------------------------
<S> <C> <C>
PPA Term
----------------------------------------------------------------------------------
1.29x 1.38x
----------------------------------------------------------------------------------
Post PPA Term
----------------------------------------------------------------------------------
5.58x 5.64x
----------------------------------------------------------------------------------
Full Term of the Bonds
----------------------------------------------------------------------------------
1.29x 2.20x
==================================================================================
</TABLE>
Heat Rate Degradation Factors - To test the sensitivity of the Projected
Operating Results to heat rate, Stone & Webster increased the Base Case heat
rate by 5% (ignoring liquidated damages "by-downs'). The resulting average and
minimum DSCRs for the PPA term, the full term, and the post PPA term are
summarized in the following table.
<TABLE>
<CAPTION>
==================================================================================
Sensitivity Case 2
Heat Rate Degradation
Debt Service Coverage Ratios
==================================================================================
Minimum Average
----------------------------------------------------------------------------------
<S> <C> <C>
PPA Term
----------------------------------------------------------------------------------
1.11x 1.24x
----------------------------------------------------------------------------------
Post PPA Term
----------------------------------------------------------------------------------
5.26x 5.29x
----------------------------------------------------------------------------------
Full Term of the Bonds
----------------------------------------------------------------------------------
1.11x 2.02x
==================================================================================
</TABLE>
Availability Factor Sensitivity - To test the pro forma sensitivity the Base
Case AF assumption was changed. The Base Case AF is 90.4% for the first two
years and ranges from 89.2% to 93.7% for the remaining life of the Facility. Due
to the evolutionary nature of the 501G gas turbine design Stone & Webster took a
more conservative approach and estimated the Facility AF to be approximately 85%
in the first two years and to increase to 90% in the remaining years of the term
of the Bonds. The resulting average and minimum DSCRs for the PPA term, the full
term, and the post PPA term are summarized in the following table.
B-63
<PAGE>
<TABLE>
<CAPTION>
==================================================================================
Sensitivity Case 3
Availability Factor
Debt Service Coverage Ratios
==================================================================================
Minimum Average
-----------------------------------------------------------------------------------
<S> <C> <C>
PPA Term
-----------------------------------------------------------------------------------
1.41x 1.43x
-----------------------------------------------------------------------------------
Post PPA Term
-----------------------------------------------------------------------------------
5.70x 5.73x
-----------------------------------------------------------------------------------
Full Term of the Bond
-----------------------------------------------------------------------------------
1.41x 2.26x
==================================================================================
</TABLE>
7.9.2 Hagler Bailly Sensitivities
In addition, sensitivity of the Project results was assessed for the two
downside alternatives, Low Demand Growth Case and a High Gas Price Case. The
High Gas Price and Low Demand Growth scenarios were taken from the Hagler Bailly
forecasts. Stone & Webster applied the two Hagler Bailly "macroeconomic"
downside sensitivities to the Base Case.
High Gas Price - The natural gas prices were uniformly increased by $0.50 per
mmBtu (in 1996$) above the CC Pace forecast levels. The resulting average and
minimum DSCRs for the post PPA term are summarized in the following table.
<TABLE>
<CAPTION>
=====================================================================================
Sensitivity Case 4 - High Gas Price
Debt Service Coverage Ratios
=====================================================================================
Minimum Average
-------------------------------------------------------------------------------------
<S> <C> <C>
Post PPA Term
-------------------------------------------------------------------------------------
4.98x 5.13x
=====================================================================================
</TABLE>
B-64
<PAGE>
Low Demand Growth - The demand growth rates were reduced by a third, compared to
the Base Case, for the period 2017 through 2025. In this case the peak and total
demand grew at only 0.50% and 1.00% per annum, respectively beginning in 2017,
while new capacity building remained per the Hagler Bailly base case. The
resulting average and minimum DSCRs for the post PPA term are summarized in the
following table.
<TABLE>
<CAPTION>
=====================================================================================
Sensitivity Case 5 - Low Demand Growth
Debt Service Coverage Ratios
=====================================================================================
Minimum Average
-------------------------------------------------------------------------------------
<S> <C> <C>
Post PPA Term
-------------------------------------------------------------------------------------
4.70x 4.93x
=====================================================================================
</TABLE>
7.10 Liquidated Damages Analyses
Stone & Webster reviewed the impact on the average DSCRs if SWPC fails to pass
certain performance tests and there is a long-term performance deficiency over
the term of the Bonds. It was assumed that the performance liquidated damages
paid to AES Ironwood by SWPC would be used to buy down the Bonds on a pro rata
basis. The analysis was performed to demonstrate that the liquidated damages for
the guaranteed net electrical output and guaranteed net heat rate are sufficient
to maintain the DSCRs at the same level as projected in the Base Case.
It is projected that the average DSCRs over the term of the Bonds, after payment
of the liquidated damages due to a failure to achieve the guaranteed net
electrical output and the guaranteed net heat rate, will generally remain at the
same level as the average DSCRs in the Base Case for deficiencies up to
approximately 5% in net electrical output and 6% in net heat rate.
SWPC is required to pay liquidated damages for a delay in the Facility
completion. SWPC will pay AES Ironwood $110,000 for each day after the required
Facility completion date that the Facility completion is not achieved. The
liquidated damages for a delay in the Facility completion cannot exceed 20% of
the contract price. Such payment, together with contingencies and prefunded IDC,
will be sufficient to cover the Williams payment plus debt service commitment
for approximately one year after the Guaranteed Provisional Acceptance Date.
B-65
<PAGE>
Exhibit I
Base Case
Increased O&M Sensitivity (Case #1)
Increased Heat Rate Sensitivity (Case #2)
Decreased Availability Sensitivity (Case #3)
Hagler Bailey High Gas Price Sensitivity (Case #4)
Hagler Bailly Low Demand Growth Sensitivity (Case #5)
B-66
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Base Case
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 7.0 13.2 9.5 10.6 12.3 9.8 11.5 13.4 11.2 10.6 10.6
Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0
Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4
Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4
Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 8.9 17.2 14.1 15.4 17.3 17.7 18.9 19.0 16.9 16.6 16.8
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 26.3 43.2 46.6 48.2 48.3 47.5 49.4 51.4 47.4 46.8 49.2
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.61x 1.46x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
---------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 27.5
Merchant Revenues - - - - - - - - - 215.3
---------------------------------------------------------------------------
Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 242.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2
---------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 123.4
Fixed O&M 13.3 13.5 11.5 11.7 12.8 12.6 15.7 16.1 13.7 13.6
Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1
Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5
Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9
Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
---------------------------------------------------------------------------
Total Operating Expenses 22.9 22.3 18.2 18.7 20.1 20.1 27.3 26.9 22.0 146.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 43.0 45.3 49.3 46.4 46.4 46.2 36.0 37.8 43.0 97.1
---------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
---------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Annual Debt Service Coverage 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 3.81x
---------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues - - - -
Merchant Revenues 378.9 389.7 391.5 416.2
-----------------------------
Total Operating Revenues 378.9 389.7 391.5 416.2
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2
-----------------------------
Operating Expenses ($million)
Fuel 219.2 228.8 226.8 238.4
Fixed O&M 13.3 14.9 19.3 18.7
Variable O&M 4.2 4.4 9.1 7.9
Administration 0.5 0.5 0.5 0.6
Insurance 1.9 2.0 2.0 2.1
Property Taxes 1.6 1.7 1.7 1.8
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 242.4 254.6 262.4 273.2
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 136.8 135.7 129.4 143.3
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
-----------------------------
Annual Debt Service Coverage 5.81x 5.81x 5.80x 5.77x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.81.
Average Debt Coverage During PPA 1.46x
Minimum Debt Coverage During PPA 1.45x
Average Debt Coverage Post PPA 5.81x
Minimum Debt Coverage Post PPA 5.77x
Average Debt Coverage During 2.30x
Bond Term
B - 67
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Increased O&M Sensitivity (Case #1)
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 7.4 13.9 9.7 11.0 13.1 10.3 12.1 14.2 12.5 12.2 12.2
Variable O&M 1.4 2.5 2.5 2.7 2.8 6.0 5.2 3.1 3.1 3.2 3.4
Administration 0.2 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Insurance - 0.7 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Property Taxes 0.6 1.0 1.1 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.4
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 9.6 18.5 14.9 16.5 18.8 19.3 20.5 20.6 19.0 19.0 19.2
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 25.7 41.9 45.7 47.1 46.8 45.9 47.7 49.8 45.3 44.5 46.8
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.57x 1.42x 1.43x 1.42x 1.41x 1.40x 1.40x 1.41x 1.39x 1.38x 1.38x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
----------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 27.5
Merchant Revenues - - - - - - - - - 215.3
----------------------------------------------------------------------------
Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 63.0 64.4 64.6 242.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.3 0.3 0.6 0.3 0.3 0.5 0.3
----------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 123.4
Fixed O&M 15.3 15.4 13.2 13.5 14.7 14.5 18.1 18.5 15.8 15.8
Variable O&M 7.3 6.3 3.7 3.8 4.0 4.2 8.7 7.6 4.6 4.7
Administration 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6
Insurance 1.6 1.7 1.7 1.8 1.8 1.9 2.0 2.0 2.1 2.1
Property Taxes 1.4 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
----------------------------------------------------------------------------
Total Operating Expenses 26.3 25.5 20.9 21.5 23.0 23.1 31.4 30.7 25.2 149.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 39.6 42.0 46.6 43.6 43.5 43.4 32.0 33.9 39.8 93.7
----------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
----------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual Debt Service Coverage 1.34x 1.35x 1.37x 1.36x 1.36x 1.36x 1.29x 1.30x 1.34x 3.68x
----------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues - - - -
Merchant Revenues 378.9 389.7 391.5 416.2
-----------------------------
Total Operating Revenues 378.9 389.7 391.5 416.2
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.4 0.2
-----------------------------
Operating Expenses ($million)
Fuel 219.2 228.8 226.8 238.4
Fixed O&M 15.5 17.1 22.2 21.4
Variable O&M 4.9 5.0 10.5 9.1
Administration 0.6 0.6 0.6 0.6
Insurance 2.2 2.3 2.3 2.4
Property Taxes 1.9 1.9 2.0 2.1
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 245.9 258.1 267.3 277.8
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 133.4 132.2 124.5 138.6
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
-----------------------------
Annual Debt Service Coverage 5.66x 5.67x 5.58x 5.59x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.68.
Average Debt Coverage During PPA 1.38x
Minimum Debt Coverage During PPA 1.29x
Average Debt Coverage Post PPA 5.64x
Minimum Debt Coverage Post PPA 5.58x
Average Debt Coverage During 2.20x
Bond Term
B - 68
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Increased Heat Rate Sensitivity (Case #2)
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 32.3 55.4 55.5 58.2 59.9 59.6 62.2 64.0 58.0 56.6 58.6
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 32.3 55.4 55.5 58.2 59.9 59.6 62.2 64.0 58.0 56.6 58.6
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 5.6 12.3 9.4 10.5 12.2 9.8 11.4 13.2 11.2 10.5 10.4
Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0
Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4
Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4
Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 7.6 16.3 14.0 15.3 17.2 17.7 18.7 18.8 16.9 16.4 16.6
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 24.9 39.3 41.7 43.1 42.9 42.0 43.7 45.4 41.3 40.5 42.5
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.53x 1.33x 1.30x 1.30x 1.29x 1.28x 1.28x 1.28x 1.26x 1.26x 1.25x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
----------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 58.6 60.0 59.4 57.0 57.8 57.2 54.4 55.3 54.9 23.5
Merchant Revenues - - - - - - - - - 215.3
----------------------------------------------------------------------------
Total Operating Revenues 58.6 60.0 59.4 57.0 57.8 57.2 54.4 55.3 54.9 238.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2
----------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 129.6
Fixed O&M 13.3 13.3 11.3 11.6 12.6 12.5 15.7 15.9 13.5 16.3
Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1
Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5
Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9
Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
----------------------------------------------------------------------------
Total Operating Expenses 22.9 22.1 18.0 18.6 19.9 20.0 27.3 26.6 21.7 154.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 36.1 38.2 41.8 38.6 38.3 37.7 27.4 29.0 33.6 84.1
----------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
----------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
----------------------------------------------------------------------------
Annual Debt Service Coverage 1.22x 1.23x 1.23x 1.21x 1.20x 1.18x 1.11x 1.11x 1.13x 3.30x
----------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues - - - -
Merchant Revenues 378.9 389.7 391.5 416.2
-----------------------------
Total Operating Revenues 378.9 389.7 391.5 416.2
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2
-----------------------------
Operating Expenses ($million)
Fuel 230.2 240.2 238.1 250.3
Fixed O&M 15.3 14.9 19.3 18.7
Variable O&M 4.2 4.4 9.1 7.9
Administration 0.5 0.5 0.5 0.6
Insurance 1.9 2.0 2.0 2.1
Property Taxes 1.6 1.7 1.7 1.8
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 255.3 266.0 273.8 285.1
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 123.8 124.2 118.1 131.3
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
Annual Debt Service Coverage 5.26x 5.32x 5.29x 5.29x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.30.
Average Debt Coverage During PPA 1.24x
Minimum Debt Coverage During PPA 1.11x
Average Debt Coverage Post PPA 5.29x
Minimum Debt Coverage Post PPA 5.26x
Average Debt Coverage During 2.02x
Bond Term
B - 69
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Decreased Availability Sensitivity (Case #3)
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 35.1 59.9 59.9 62.8 64.6 64.2 67.3 69.3 63.2 62.3 64.7
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 35.1 59.9 59.9 62.8 64.6 64.2 67.3 69.3 63.2 62.3 64.7
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 7.0 13.1 9.4 10.7 12.3 9.8 11.6 13.4 11.2 10.6 10.6
Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0
Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4
Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4
Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 8.9 17.1 13.9 15.5 17.3 17.7 18.9 19.0 16.9 16.6 16.8
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 26.3 43.0 46.1 47.5 47.5 46.7 48.6 50.6 46.6 46.0 48.3
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.61x 1.45x 1.44x 1.43x 1.43x 1.43x 1.43x 1.43x 1.42x 1.43x 1.42x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
----------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 64.6 66.4 66.2 63.8 65.2 64.8 61.8 63.3 63.4 26.4
Merchant Revenues - - - - - - - - - 213.7
----------------------------------------------------------------------------
Total Operating Revenues 64.6 66.4 66.2 63.8 65.2 64.8 61.8 63.3 63.4 240.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2
----------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 122.4
Fixed O&M 13.2 13.5 11.5 11.6 12.9 12.5 15.6 16.2 13.7 13.6
Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1
Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5
Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9
Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
----------------------------------------------------------------------------
Total Operating Expenses 22.8 22.3 18.2 18.6 20.2 20.1 27.2 26.9 22.0 144.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 42.1 44.3 48.4 45.4 45.4 45.2 34.9 36.7 41.9 95.4
----------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
----------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual Debt Service Coverage 1.42x 1.42x 1.42x 1.42x 1.42x 1.42x 1.41x 1.41x 1.41x 3.74x
----------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues (0.1) - - -
Merchant Revenues 373.5 381.8 387.8 411.3
-----------------------------
Total Operating Revenues 373.4 381.8 387.8 411.3
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2
-----------------------------
Operating Expenses ($million)
Fuel 215.8 223.4 224.2 235.1
Fixed O&M 13.7 14.9 19.3 18.7
Variable O&M 4.2 4.3 9.0 7.8
Administration 0.5 0.5 0.5 0.6
Insurance 1.9 2.0 2.0 2.1
Property Taxes 1.6 1.7 1.7 1.8
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 239.4 249.0 259.8 269.8
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 134.3 133.3 128.3 141.7
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
-----------------------------
Annual Debt Service Coverage 5.70x 5.71x 5.75x 5.71x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.74.
Average Debt Coverage During PPA 1.43x
Minimum Debt Coverage During PPA 1.41x
Average Debt Coverage Post PPA 5.73x
Minimum Debt Coverage Post PPA 5.70x
Average Debt Coverage During 2.26x
Bond Term
B - 70
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Hagler Bailly High Gas Price Sensitivity (Case #4)
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 34.8 59.4 59.6 62.5 64.3 63.9 67.0 68.8 62.6 61.8 64.3
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 34.8 59.4 59.6 62.5 64.3 63.9 67.0 68.8 62.6 61.8 64.3
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 7.0 13.1 9.4 10.6 12.2 9.8 11.6 13.3 11.1 10.7 10.6
Variable O&M 1.2 2.0 2.1 2.2 2.3 5.1 4.4 2.5 2.5 2.7 2.8
Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4
Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4
Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 8.9 17.0 13.8 15.3 17.1 17.5 18.8 18.8 16.6 16.4 16.6
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 26.0 42.6 45.9 47.4 47.4 46.6 48.4 50.4 46.2 45.7 48.1
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.60x 1.44x 1.43x 1.43x 1.43x 1.42x 1.42x 1.42x 1.41x 1.42x 1.42x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
----------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 64.2 66.2 66.0 63.6 65.3 65.1 61.9 63.4 63.7 26.7
Merchant Revenues - - - - - - - - - 225.7
----------------------------------------------------------------------------
Total Operating Revenues 64.2 66.2 66.0 63.6 65.3 65.1 61.9 63.4 63.7 252.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2
----------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 141.6
Fixed O&M 13.2 13.5 11.4 11.6 12.9 12.6 15.6 16.2 13.8 13.5
Variable O&M 6.2 5.3 3.1 3.2 3.4 3.5 7.5 6.5 3.9 4.0
Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5
Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9
Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
----------------------------------------------------------------------------
Total Operating Expenses 22.6 22.3 18.1 18.4 20.1 20.0 27.1 26.8 22.0 163.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 41.9 44.2 48.4 45.4 45.5 45.6 35.2 36.8 42.2 88.6
----------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
----------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual Debt Service Coverage 1.42x 1.42x 1.42x 1.42x 1.42x 1.43x 1.42x 1.41x 1.42x 3.48x
----------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues - - - -
Merchant Revenues 398.8 407.0 405.7 432.2
-----------------------------
Total Operating Revenues 398.8 407.0 405.7 432.2
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2
-----------------------------
Operating Expenses ($million)
Fuel 251.5 261.6 259.5 273.5
Fixed O&M 13.7 14.9 19.3 18.7
Variable O&M 4.2 4.3 9.0 7.9
Administration 0.5 0.5 0.5 0.6
Insurance 1.9 2.0 2.0 2.1
Property Taxes 1.6 1.7 1.7 1.8
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 275.0 287.3 295.1 308.2
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 124.2 120.3 110.9 124.2
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
-----------------------------
Annual Debt Service Coverage 5.27x 5.15x 4.98x 5.00x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.48.
Average Debt Coverage During PPA 1.43x
Minimum Debt Coverage During PPA 1.41x
Average Debt Coverage Post PPA 5.13x
Minimum Debt Coverage Post PPA 4.98x
Average Debt Coverage During 2.14x
Bond Term
B - 71
<PAGE>
Confidential
Exhibit I
AES Ironwood Projected Operating Results
Hagler Bailly Low Demand Growth Sensitivity (Case #5)
<TABLE>
<CAPTION>
PPA Period
------------------------------------------------------------------------------------
Year Ending December 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
Merchant Revenues - - - - - - - - - - -
------------------------------------------------------------------------------------
Total Operating Revenues 35.1 60.2 60.4 63.4 65.4 65.0 68.0 70.1 64.1 63.1 65.5
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.5
------------------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - - -
Fixed O&M 7.0 13.2 9.5 10.6 12.3 9.8 11.5 13.4 11.2 10.6 10.6
Variable O&M 1.3 2.1 2.2 2.3 2.4 5.2 4.5 2.7 2.7 2.8 3.0
Administration 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4
Insurance - 0.6 1.1 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.4
Property Taxes 0.5 0.9 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2
Local Taxes 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Operating Expenses 8.9 17.2 14.1 15.4 17.3 17.7 18.9 19.0 16.9 16.6 16.8
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 26.3 43.2 46.6 48.2 48.3 47.5 49.4 51.4 47.4 46.8 49.2
------------------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 308.5 306.5 301.8 295.4 288.4 281.2 272.1 260.7 251.1 241.1 228.4
Principal and Interest 15.9 29.2 31.7 32.9 33.0 32.5 33.7 35.1 32.4 32.0 33.6
LOC & Administrative Fees 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
------------------------------------------------------------------------------------
Total Debt Service 16.3 29.6 32.0 33.2 33.3 32.8 34.0 35.4 32.7 32.3 33.9
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Annual Debt Service Coverage 1.61x 1.46x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x
------------------------------------------------------------------------------------
<CAPTION>
PPA Period
----------------------------------------------------------------------------
Year Ending December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues 65.6 67.3 67.1 64.8 66.2 65.8 62.8 64.2 64.3 27.3
Merchant Revenues - - - - - - - - - 203.5
----------------------------------------------------------------------------
Total Operating Revenues 65.6 67.3 67.1 64.8 66.2 65.8 62.8 64.2 64.3 230.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Earned on Accounts ($million) 0.3 0.3 0.4 0.2 0.3 0.5 0.3 0.3 0.4 0.2
----------------------------------------------------------------------------
Operating Expenses ($million)
Fuel - - - - - - - - - 122.8
Fixed O&M 13.3 13.5 11.5 11.7 12.8 12.6 15.6 16.1 13.7 13.6
Variable O&M 6.3 5.5 3.3 3.3 3.5 3.6 7.6 6.6 4.0 4.1
Administration 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5
Insurance 1.4 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.9
Property Taxes 1.2 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.6
Local Taxes 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.9
----------------------------------------------------------------------------
Total Operating Expenses 22.9 22.3 18.2 18.7 20.1 20.1 27.2 26.8 22.0 145.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow Available for Debt Service ($million) 43.0 45.3 49.3 46.4 46.4 46.2 35.9 37.6 42.8 85.7
----------------------------------------------------------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 219.0 207.1 191.2 175.9 159.2 141.1 128.6 113.8 93.7 76.1
Principal and Interest 29.3 30.8 33.7 31.7 31.7 31.6 24.5 25.8 29.5 25.2
LOC & Administrative Fees 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2
----------------------------------------------------------------------------
Total Debt Service 29.6 31.1 34.0 32.0 32.0 31.9 24.8 26.0 29.7 25.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual Debt Service Coverage 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.45x 1.44x 1.44x 3.36x
----------------------------------------------------------------------------
<CAPTION>
=============================
Post PPA Period
-----------------------------
Year Ending December 31, 2022 2023 2024 2025
-----------------------------
<S> <C> <C> <C> <C>
Net Operating Revenues ($million)
PPA Revenues - - - -
Merchant Revenues 359.0 370.1 367.6 385.8
-----------------------------
Total Operating Revenues 359.0 370.1 367.6 385.8
-----------------------------
-----------------------------
Interest Earned on Accounts ($million) 0.3 0.6 0.3 0.2
-----------------------------
Operating Expenses ($million)
Fuel 217.6 226.3 224.1 234.7
Fixed O&M 13.5 14.9 19.3 18.7
Variable O&M 4.2 4.3 9.0 7.8
Administration 0.5 0.5 0.5 0.6
Insurance 1.9 2.0 2.0 2.1
Property Taxes 1.6 1.7 1.7 1.8
Local Taxes 1.6 2.3 3.0 3.8
-----------------------------
Total Operating Expenses 240.9 252.0 259.7 269.4
-----------------------------
-----------------------------
Cash Flow Available for Debt Service ($million) 118.4 118.6 108.3 116.6
-----------------------------
Annual Debt Service ($million)
Facility Bonds
B-O-Y Balance Outstanding 59.0 40.5 21.3 0.0
Principal and Interest 23.3 23.1 22.1 22.5
LOC & Administrative Fees 0.2 0.2 0.2 0.2
-----------------------------
Total Debt Service 23.6 23.3 22.3 22.7
-----------------------------
-----------------------------
Annual Debt Service Coverage 5.03x 5.08x 4.86x 4.70x
=============================
</TABLE>
* The first five months of 2021 include PPA cash flow and the last seven months
of 2021 include Post PPA cash flow. The resulting blended DSCR is 3.36.
Average Debt Coverage During PPA 1.46x
Minimum Debt Coverage During PPA 1.44x
Average Debt Coverage Post PPA 4.93x
Minimum Debt Coverage Post PPA 4.70x
Average Debt Coverage During 2.13x
Bond Term
B - 72
<PAGE>
[GRAPHIC OMITTED]
Stone & Webster AES Ironwood Project
Management Consultants, Inc. Independent Technical Review
- --------------------------------------------------------------------------------
Exhibit II
Document Log
B - 73
<PAGE>
[GRAPHIC OMITTED]
Stone & Webster AES Ironwood Project
Management Consultants, Inc. Independent Technical Review
- --------------------------------------------------------------------------------
Exhibit II
Document Log
- --------------------------------------------------------------------------------
No. Reference
- --------------------------------------------------------------------------------
1. Draft property lease between Consolidated Rail Corporation and AES
Ironwood
- --------------------------------------------------------------------------------
2. Draft Sidetrack Agreement between Consolidated Rail Corporation and AES
Ironwood
- --------------------------------------------------------------------------------
3. Draft Rail Corporation License Agreement for Undergrade Watermain
Occupation
- --------------------------------------------------------------------------------
4. Agreement relating to real estate dated October 22, 1998
- --------------------------------------------------------------------------------
5. EWG Application
- --------------------------------------------------------------------------------
6. Effluent Supply Agreement
- --------------------------------------------------------------------------------
7. Amended and Restated Operating Agreement of PJM Interconnection, LLC
dated June 2, 1997
- --------------------------------------------------------------------------------
8. Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA
Services Contract last revised November 19, 1998
- --------------------------------------------------------------------------------
9. Draft Generation Facility Transmission Interconnection Agreement
between Metropolitan Edison Company d/b/a AES Ironwood LLC
- --------------------------------------------------------------------------------
10. Amended and Restated Power Purchase Agreement by and between AES
Ironwood LLC and Williams Energy Marketing & Trading Company
- --------------------------------------------------------------------------------
11. Agreement for Engineering, Procurement and Construction Services
between AES Ironwood, Inc. ("Owner") and Siemens Westinghouse Power
Corporation dated September 23, 1998
- --------------------------------------------------------------------------------
12. Report on MHI 501G for KEPCO Ilijan Power Project
- --------------------------------------------------------------------------------
13. Draft report on MHI 501G Combustion Turbine Generator dated December
14, 1998
- --------------------------------------------------------------------------------
14. Hagler Bailly Report prepared for Lehman Brothers on the Projected
Competitiveness of the Ironwood Power Project in the PJM Market dated
February 1999 and draft report dated October 1998
- --------------------------------------------------------------------------------
15. Agreement for Engineering, Procurement and Construction Services
- --------------------------------------------------------------------------------
16. EPC Appendix A
- --------------------------------------------------------------------------------
17. Effluent Supply Agreement with City of Lebanon Authority
- --------------------------------------------------------------------------------
18. Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA
Services Contract
- --------------------------------------------------------------------------------
19. SWPC Engineering Flow Schematics Drawings F8210010-F8210480-10/01/98
- --------------------------------------------------------------------------------
20. NPDES Permit # PAR-10-P082
- --------------------------------------------------------------------------------
21. Letter dated November 18, 1998 from K. Friederich Updergrafe to Ian
Miller re POTW Water Supply Pipeline and Pumping Station
- --------------------------------------------------------------------------------
22. Fax to Debra Richert dated April 22, 1999 from Alicia Sinn re the final
plan approval for the Ironwood facility issued by PaDEP on 3/29/99
- --------------------------------------------------------------------------------
23. Copy of letter to Patricia Rollin dated February 3, 1999 concerning the
Delay in Financial Closing
- --------------------------------------------------------------------------------
24. Letter to John Garvey from Jeffrey Jacobsohn dated November 16, 1998 re
the Facility Emission Rates for PSD Application
- --------------------------------------------------------------------------------
25. Memo to John Garvey from Bart Rossi dated November 25, 1998 regarding
the AES Ironwood Emissions Data
- --------------------------------------------------------------------------------
26. Specification For A Heat Recovery Steam Generator for the AES Ironwood
Project received by SWMCI in Boston on February 24, 1999
- --------------------------------------------------------------------------------
27. Williams Fuel Plan for AES Ironwood fax dated February 5, 1999
- --------------------------------------------------------------------------------
28. Fax to John Garvey from Ian Miller dated March 12, 1999 regarding the
Gas Pressure and Compressors
- --------------------------------------------------------------------------------
29. Fax copy of the PJM Regional Fuel Forecast 1998 - 2031 for AES Ironwood
dated January 19, 1999
- --------------------------------------------------------------------------------
B - 74
<PAGE>
[GRAPHIC OMITTED]
Stone & Webster AES Ironwood Project
Management Consultants, Inc. Independent Technical Review
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
30. Draft Evaluation Report of Oil Combustion profile for AES Ironwood
Prepared for AES Corporation by CC Pace Resources dated February 25,
1999
- --------------------------------------------------------------------------------
31. Letter to Bart Rossi from Jeffrey Jacobsohn regarding Stone & Webster's
questions dated March 2, 1999 received by fax
- --------------------------------------------------------------------------------
32. Letter to Bart Rossi from Jeffrey Jacobsohn regarding Combustion
Turbine degradation dated March 1, 1999 received by fax
- --------------------------------------------------------------------------------
33. Fax from Gary Dzikowski to Ian Miller regarding DLN Combustors dated
February 16, 1999
- --------------------------------------------------------------------------------
34. Fax from Jeffrey Jacobsohn to Bart Rossi regarding the Revised Warranty
Data sheet dated February 12, 1999 received by Fax
- --------------------------------------------------------------------------------
35. Letter to Steve Dahm from Jeffrey M. Jacobsohn dated January 29, 1999
regarding Information for Financial Closing received by Fax
- --------------------------------------------------------------------------------
36. Faxed memo dated January 19, 1999 from Siemens Westinghouse concerning
Stone & Webster Issues
- --------------------------------------------------------------------------------
37. Faxed memo dated January 21, 1999 from Gary Dzikowski at Siemens
Westinghouse to Ian Miller concerning Fleet Risk Management Spares
received by Fax
- --------------------------------------------------------------------------------
38. Letter dated December 11, 1998 to John Garvey from Jeffrey M. Jacobsohn
regarding Degradation of the Combustion Turbine
- --------------------------------------------------------------------------------
39. Fax memo to John Garvey from Jeff Jacobsohn dated December 2, 1998
regarding the revised Heat Balance information
- --------------------------------------------------------------------------------
40. Letter dated November 16, 1998 to John Garvey from Jeffrey Jacobsohn
regarding the Facility Emission Rates for PSD Application
- --------------------------------------------------------------------------------
41. Letter dated November 12, 1998 to John Garvey from Jeffrey Jacobsohn
regarding Additional Responses to Various S&W information requests
- --------------------------------------------------------------------------------
42. Letter dated November 4, 1998 to John Garvey from Jeffrey Jacobsohn
regarding Responses to S&W AES Ironwood Additional Information Requests
from S&W dated November 3, 1998
- --------------------------------------------------------------------------------
43. Letter received from Jeffrey M. Jacobsohn in response to a S&W fax
dated October 29, 1998 regarding water balances
- --------------------------------------------------------------------------------
44. Letter to John Garvey dated November 3, 1998 from Jeffrey Jacobsohn
regarding Responses to S&W Request for Additional Information on a
letter and fax dated October 29, 1998
- --------------------------------------------------------------------------------
45. Letter to John Garvey dated November 5, 1998 in response to our letter
for IE Information in our letter dated October 28, 1998
- --------------------------------------------------------------------------------
46. Letter to John Garvey in response to our Letter Dated October 26, 1998
for additional information regarding Technical Questions
- --------------------------------------------------------------------------------
47. Letter to Robert Golden dated December 7, 1998 with a copy to John
Garvey enclosing one set each of the approved Land Development Plan for
Prescott Road
- --------------------------------------------------------------------------------
48. Fax to John Garvey from Eileen Cates transmitting the Outstanding
Issues dated January 29, 1999
- --------------------------------------------------------------------------------
49. Memo from Gary Dzikowski to Ian Miller dated January 14, 1999 providing
responses to questions concerning the HRSG Spec
- --------------------------------------------------------------------------------
50. Memo from Ian Miller to Gary Dzikowski dated December 14, 1998
regarding ZDS and demin water.
- --------------------------------------------------------------------------------
51. Letter from Patricia Rollin to GPU Energy dated January 11, 1999
concerning the AES Ironwood Interconnection
- --------------------------------------------------------------------------------
52. Letter to Patricia Rollin from GPU Energy referring to the letter of
January 11, 1999 concerning the AES Ironwood Interconnection
- --------------------------------------------------------------------------------
53. Letter to Steve Dahm from Jeffrey Jacobsohn regarding the minutes of
January 21, 1999 meeting
- --------------------------------------------------------------------------------
54. Letter dated January 26, 1999 to Ian Miller from GPU regarding the
Preliminary Interconnection facilities Cost
- --------------------------------------------------------------------------------
B - 75
<PAGE>
[GRAPHIC OMITTED]
Stone & Webster AES Ironwood Project
Management Consultants, Inc. Independent Technical Review
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
55. Letter dated March 3, 1999 to John Garvey from Anthony P. Letizia at
TRC regarding the confirmation of Revised Pennsylvania Title 25 Chapter
139
- --------------------------------------------------------------------------------
56. Letter to Ian Miller dated October 7, 1998 from the Lebanon County
Conservation District concerning the General Permit Issuance, NPDES
Permit #: PAR-10-PO82
- --------------------------------------------------------------------------------
57. Fax copy of the Petition for an interpretation and variance dated
February 11, 1998
- --------------------------------------------------------------------------------
58. Letter to Buck Applewhite & John Garvey dated September 30, 1998 from
Eileen Cates dated September 30, 1998 concerning the technical
information that will be used for this report
- --------------------------------------------------------------------------------
59. Copy of a fax listing the required permits and approvals for AES
Ironwood dated November 6, 1998
- -------------------------------------------------------------------------------
60. Letter from Paula B. Ballaron to Patricia L. Rollin from the
Susquehanna River Basin Commission approving the project
- --------------------------------------------------------------------------------
61. Notice of Commission Action Docket NoD-97-45 for the Surface Water
Withdrawal/Importation
- --------------------------------------------------------------------------------
62. Letter received by fax dated April 22, 1999 from the United States
Environmental Protection Agency regarding the review of the draft plan
approval for AES Ironwood
- --------------------------------------------------------------------------------
63. Letter received dated April 7, 1999 between Jeffrey Jacobsohn and
Patrician Rollin regarding AES Ironwood Payment Schedule Revision I
Letter Agreement
- --------------------------------------------------------------------------------
64. Letter received dated March 31, 1999 between Jeffrey Jacobsohn and
Patricia Rollin regarding AES Ironwood Financial Closing Later than
March 31, 1999 Continued Performance Letter Agreement
- --------------------------------------------------------------------------------
65. Letter dated March 24, 1999 to Bart Rossi from Jeffrey M. Jacobsohn re
CO Catalyst Emissions Warrantly
- --------------------------------------------------------------------------------
66. Letter dated April 22, 1999 to Patricia Rollin from Jeffrey M.
Jacobsohn re Gas Specifications Clarification Letter
- --------------------------------------------------------------------------------
67. Letter dated May 12, 1999 to Patricia Rollin from Jeffrey Jacobsohn re
Delay in Commencement Date after June 1, 1999
- --------------------------------------------------------------------------------
68. Letter dated May 19, 1999 to Patricia Rollin from Philip Scalzo re
Williams executed certain agreements with Texas Eastern Transmission
Corporation
- --------------------------------------------------------------------------------
69. Memo from Jeffrey Jacobsohn of SWPC to Patty Rollin of AES concerning
the estimated performance impact of the gas compressor deletion
- --------------------------------------------------------------------------------
B - 76
<PAGE>
------------------------------------------------------------
ANNEX C
INDEPENDENT POWER
CONSULTANT'S REPORT
------------------------------------------------------------
<PAGE>
PROJECTED COMPETITIVENESS
OF THE IRONWOOD POWER PLANT
IN THE PJM MARKET
Privileged and Confidential
Prepared for:
Lehman Brothers
3 World Financial Center
New York, NY 10285-1600
Prepared by:
Hagler Bailly Consulting, Inc.
1776 Eye Street, NW
Suite 500
Washington, DC 20006
(202) 223-6665
Contact:
Alan L. Madian
June 1, 1999
C-1
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
Foreword ................................................................................................6
Executive Summary
S.1 The Project.....................................................................................7
S.2 PJM Market Structure............................................................................7
S.2.1 Procedure..............................................................................8
S.3 Key Base Case Assumptions and Sensitivity Cases.................................................9
S.4 Forecasted Results.............................................................................11
S.5 Conclusions....................................................................................17
Chapter 1 Introduction
1.1 Background.....................................................................................18
1.2 Organization of the Report.....................................................................18
Chapter 2 Ironwood Project
2.1 The Ironwood Project...........................................................................20
Chapter 3 Proposed Market Structure In PJM
3.1 Background.....................................................................................22
3.2 The PJM Market.................................................................................23
3.2.1 The Spot Energy Market................................................................23
3.2.2 Installed Capacity Market.............................................................25
Chapter 4 Approach To Market Price Forecasting
4.1 Introduction...................................................................................27
4.2 Issues in Predicting Market Prices.............................................................27
4.2.1 Issues in the Capacity Markets........................................................27
4.2.2 Ancillary Services....................................................................29
4.3 Approach to Market Price Forecasting...........................................................30
4.3.1 Market Characteristics................................................................31
4.3.2 Predicting Energy Prices and Dispatch.................................................31
4.3.3 Predicting Capacity Prices: The Capacity Market Simulation Model......................32
4.3.4 Market Entry and Exit.................................................................33
</TABLE>
C-2
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Chapter 5 Market Price Forecasting: Assumptions and Assumption Development
5.1 Introduction...................................................................................35
5.2 Production Cost Model Input Assumptions........................................................35
5.2.1 Existing Generation Units.............................................................37
5.2.2 Load Growth...........................................................................40
5.2.3 Fuel Prices...........................................................................42
5.2.4 Energy Import/Export Forecast.........................................................44
5.2.5 Transmission Constraints..............................................................45
5.3 Capacity Market Simulation: Model Input Assumptions...........................................46
5.3.1 Existing Units Going-Forward Costs....................................................46
5.3.2 New Generating Capacity...............................................................47
Chapter 6 Market Price Forecasts
6.1 Introduction...................................................................................49
6.2 PJM Capacity and Energy Price Forecasts........................................................49
6.2.1 Base Case.............................................................................49
6.3 Implications for AES Ironwood..................................................................56
Chapter 7 Conclusions....................................................................................62
</TABLE>
C-3
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
TABLES
<TABLE>
<S> <C>
Executive Summary
S.1 Delivered Fuel Prices (1996 $/MMBtu)...........................................................10
S.2 PJM All-In Average (Energy + Capacity) Prices (1996 $).........................................12
Chapter 5 Market Price Forecasting: Assumptions and Assumption Development
5.1 Variable Operating Costs (1996 $ per MWh)......................................................38
5.2 Nuclear Unit Retirement Dates..................................................................40
5.3 Delivered Fuel Prices (1996 $/MMBtu)...........................................................42
5.4 Imports and Exports (1996 $ per MWh)...........................................................45
5.5 Emergency Imports..............................................................................45
5.6 New Generating Unit Characteristics (1996 $)...................................................48
Chapter 6 Market Price Forecasts
6.1 PJM Capacity Additions and Retirements.........................................................51
6.2 PJM Unweighted Average Energy Prices (1996 $/MWh)..............................................53
6.3 PJM Capacity Prices (1996 $/kW-yr).............................................................54
6.4 PJM All-In Average (Energy + Capacity) Prices (1996 $).........................................55
</TABLE>
C-4
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
FIGURES
<TABLE>
<S> <C>
Executive Summary
S.1 PJM Unweighted Average Energy Prices 1996 $....................................................13
S.2 AES Ironwood Capacity Factors..................................................................14
S.3 PJM Supply Curves (1996 $/MWh).................................................................15
Chapter 4 Approach to Market Price Forecasting
4.1 Approach to Developing Capacity and Energy Prices..............................................30
4.2 Example Supply and Demand Curve................................................................33
Chapter 5 Market Price Forecasting: Assumptions and Assumption Development
5.1 Forecast of Allowance Prices (1996 $ per Ton)..................................................39
5.2 Cumulative Demand Growth in PJM................................................................41
5.3 Delivered Natural Gas Prices 1996 $............................................................43
5.4 PJM Generation Weighted Average Delivered Coal Prices 1996 $...................................44
Chapter 6 Market Price Forecasts
6.1 PJM Unweighted Average Energy Prices 1996 $....................................................52
6.2 AES Ironwood Capacity Factors..................................................................56
6.3 Ironwood's Energy Revenue vs. PJM's Time-Weighted Average
Energy Price 1996 $ ...........................................................................58
6.4 PJM Supply Curves (1996 $/MWh)..............................................................59-61
</TABLE>
C-5
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
FOREWORD
This report presents Hagler Bailly's analysis of the market for power in the
Pennsylvania, New Jersey, Maryland (PJM) power pool.
i. Some information in the report is necessarily based on predications and
estimates of future events and behaviors.
ii. Such predictions or estimates may differ from that which other experts
specializing in the electricity industry might present.
iii. The provision of a report by Hagler Bailly does not obviate the need
for potential investors to make further appropriate inquiries as to the
accuracy of the information included therein, or to undertake an
analysis of its own.
iv. This report is not intended to be a complete and exhaustive analysis of
the subject issues and therefore will not consider some factors that
are important to a potential investor's decision-making.
v. Hagler Bailly and its employees cannot accept liability for loss
suffered in consequence of reliance on the report. Nothing in our
report should be taken as a promise or guarantee as to the occurrence
of any future events.
FOREWORD o C-6
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
Hagler Bailly Consulting, Inc. (Hagler Bailly) was retained by AES Ironwood,
Inc., on behalf of, and to prepare this report solely for, Lehman Brothers, as
Initial Purchaser of certain Rule 144A bonds to be offered by AES Ironwood, LLC
to finance the construction, initial start-up and testing of the Ironwood
facility. We have been retained to independently forecast future market prices
for electric capacity and energy in the Pennsylvania, New Jersey, Maryland (PJM)
power pool and to assess the competitive position of the AES Ironwood Facility
in PJM during the term of the bonds. This document presents the results of our
analysis.
S.1 THE PROJECT
AES Ironwood, LLC ("AES Ironwood"), a wholly owned subsidiary of the AES
Corporation ("AES"), proposes to build and operate a 705 MW (net) gas
combined-cycle power station ("the Project"). The AES Ironwood power station
will employ Siemens Westinghouse 5O1G technology and will be fueled primarily by
natural gas. The facility will sell its entire output to the Williams Energy
Marketing and Trading Company under a fixed price 20 year power purchase
agreement ("PPA") and will operate as a merchant plant (or under bilateral
contracts) from the expiration of the PPA. The facility will be located in South
Lebanon Township, Pennsylvania in the Central region of the Pennsylvania, New
Jersey, Maryland (PJM) power pool.
S.2 PJM MARKET STRUCTURE
The PJM market may be characterized on the supply side as competitive except for
the limited hours when transmission is constrained. New capacity is expected to
be composed predominantly of gas-fueled combined cycle units, though simple
cycle combustion turbines ("peakers") will be added, especially in areas with
substantial base load capacity.
We have modeled the future PJM market with both an energy market and a capacity
market. This is not to say that a separate capacity market will necessarily
continue well into the future. However, in the absence of a separate installed
capacity market, an at least equivalent revenue increase would be required in
the energy or ancillary services market to maintain reserve margins at levels
prospectively thought to be essential by system operators and regulators.
FOREWORD o C-7
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
We have assumed that energy market participants will base dispatch and payment
in the PJM market upon competitive energy bidding and that the bidding will
shortly cease to be cost-based for investor owned utilities (IOUs), as is
currently required by regulation.
The PJM Independent System Operator (ISO), which became operational at the
beginning of 1998, has set reserve generation capacity requirements on all
load-serving entities (LSEs). These reserve requirements require that
load-serving entities that are short of capacity acquire it from others. The PJM
ISO has established a capacity market to facilitate capacity provision but
bilateral arrangements are also accommodated.
Transmission constraints within PJM play a modest role in the operation of the
PJM market. There are three defined regions within PJM, West, Central, and East
(see Maps 5-1 and 5-2). Each of the historic utilities functions as a control
area. Nodal pricing (i.e., pricing that reflects location-specific factors, such
as transmission constraints) has been implemented recently. The direction of
power flow within PJM is generally from the west, which has a preponderance of
the pool's lower-cost coal units, to the east. Transmission capacity is not
expected to expand significantly within PJM, but no additional important
constraints are forecast.
S.2.1 Procedure
In our analysis, we have used the RealTime(TM) model to simulate future market
conditions and operation. RealTime(TM), a chronological production cost model,
was used to estimate energy prices and revenues through the year 2025. In each
hour the model schedules the units in a least-cost manner based upon fuel cost,
start-up cost, emission cost, and variable O&M cost. The hourly marginal cost is
determined by the cost of the least-expensive unit available to follow
increasing load, which becomes the market price for that hour. Given that
production cost modeling is inherently cost-based, conservative adjustments were
made to the model to account for expected upward pressure on price resulting
from the evolving bid-based system and market power phenomena./1
PowerWorld(TM), a load flow model, was used to determine if Ironwood would
impose additional burdens on the PJM transmission system and if the plant's
location would lead to its being dispatched less than anticipated due to
transmission constraints. The model was also used to assess whether Ironwood
could expect to receive higher revenues due to contributions to voltage support
or for transmission constraint-reducing flows.
To address capacity revenue requirements, Hagler Bailly utilized a model that
calculates the additional revenue, above that earned from energy sales, needed
to meet the revenue requirement
- ----------
1 Market power occurs when strategic behavior is possible. This can
occur, for example, when a single plant bids just under the price of
the next highest cost plant in the stack, or when operators of multiple
plants withdraw one or more in order to increase the total revenue they
will receive from those that remain on. Market power can be the result
of collusion, but collusion is not necessary for market power to be
present.
FOREWORD o C-8
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
of the marginal plant entering the market. Plants at the end of their useful
lives, and those that do not recover their going-forward costs are retired.
Based on that model, we have estimated capacity payments necessary to maintain
an installed capacity margin of approximately 18 percent including the PJM
authorized curtailable load margin. The revenue requirement of a new plant
equals the net revenue needed to cover operating costs, taxes, interest and
payment of a target return on equity.
The results from these models provide the basis for the evaluation of the
competitiveness of the Ironwood plant during and after the PPA period, including
the determination of the PJM market revenues to AES Ironwood under merchant
operation.
S.3 KEY BASE CASE ASSUMPTIONS AND SENSITIVITY CASES
The key assumptions that drive the results in this analysis include demand
growth, fuel prices, capacity additions and reserve margin requirements, and the
retirement of nuclear stations. Assumptions were developed for a Base Case and
two downside sensitivities, a Low Demand Growth Case and a High Gas Price Case.
The Base Case represents the most probable market scenario and consequently what
Hagler Bailly believes to be the most likely performance forecast and
competitive position for Ironwood. The sensitivity cases are intended to test
the Project under significantly more adverse circumstances.
Demand
Our load forecast is based upon the actual 1995 PJM hourly load profile. Hagler
Bailly has forecast that PJM peak demand (load) will grow at 1.00% annually
through 2009 and at 0.75% thereafter. Annual energy growth has been forecast at
1.50% through 2002, at 2.00% from 2003 to 2009, and at 1.50% thereafter.
Fuel prices
CC Pace Consulting, LLC ("CC Pace") provided our fossil fuel price forecasts.
Coal price projections were assessed on a plant by plant basis, while gas and
oil were based upon regional zones. Table S-1 summarizes the fuel price
forecasts used in the Base Case.
FOREWORD o C-9
- ---------------------------------Hagler Bailly---------------------------------
Privileged and Confidential
<PAGE>
Table S-1
Delivered Fuel Prices (1996$/MMBtu)/1
<TABLE>
<CAPTION>
Average
Annual %
Fuel 1998 2005 2010 2020 2025 Change/4
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas - PJM East/2 $2.57 $2.48 $2.52 $2.63 $2.69 0.17%
- -------------------------------------------------------------------------------------------
Natural Gas - PJM West $2.47 $2.38 $2.43 $2.53 $2.60 0.18%
- -------------------------------------------------------------------------------------------
Residual #6 $2.10 $2.41 $2.41 $2.41 $2.41 0.51%
- -------------------------------------------------------------------------------------------
Distillate #2 $3.20 $3.69 $3.69 $3.69 $3.69 0.53%
- -------------------------------------------------------------------------------------------
Jet A $3.40 $3.89 $3.89 $3.89 $3.89 0.50%
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Coal/3 $1.36 $1.15 $1.09 $1.03 $1.04 -1.00%
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</TABLE>
1 Fuel price estimates are left in real 1996$s to maintain consistency with a
proprietary Hagler Bailly RealTime(TM) database.
2 Ironwood is forecast to use PJM East natural gas. The Henry Hub to PJM East
basis (transportation) differential is approximately $0.52 per MMBtu.
3 Coal prices were provided on a plant specific basis. Average prices represent
the average for all the coal consumed in a given year. The 1998 price is for
the period Oct. 1997 - Sept. 1998.
4 Calculated from 1998 to 2025.
Capacity Additions
It is our belief that PJM will continue to impose a required reserve margin with
a target of 18%. Actual reserve levels will not remain constant but instead will
fluctuate around this value. We anticipate net capacity additions of 13,221 MW
between 1999 and 2025. All of the new capacity is gas-fired combustion turbines
(CT) or combined cycle (CC) units.
Nuclear Retirements
The retirement dates for PJM nuclear units are based on the expiration dates of
current operating licenses, with the exceptions of Oyster Creek 1, which GPU
Energy ("GPU") intends to retire toward the end of 2000, and Salem-2, which we
retire at the end of 2002.
Sensitivity Assumptions
As noted above, we considered two sensitivity cases:
o In the Low Demand Growth Case, the growth rates are reduced by a third,
compared to the Base Case, for the period 2017 through 2025. In this
case peak and total demand grow at only 0.50% and 1.00% per annum,
respectively, beginning in 2017.
o In the High Natural Gas Price Case, natural gas prices are uniformly
$0.50 per MMBtu (in 1996 $) above the CC Pace forecast levels.
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Except as noted above, the assumptions underlying all three cases are identical.
S.4 FORECASTED RESULTS
Hagler Bailly used the RealTime(TM) production cost model and other analytical
tools to forecast energy and capacity prices for PJM. The resulting PJM "all-in"
price (i.e., capacity price plus energy price) forecast for the Base Case is
$27.70/MWh in 2002, $27.96/MWh in 2012, and $29.98/MWh in 2022 (all in constant
1996 dollars/2). Table S-2 (on the next page) summarizes the price forecasts.
Forecasted energy prices for PJM are shown in Figure S-1. In the Base Case,
energy market prices show a steady, slow price growth throughout the study
period. Prices (time-weighted) begin at $22.05 per MWh in 2001 and gradually
increase to $25.86 by 2025. In the High Gas Price Case, energy prices are
approximately $.60 to $1.20 per MWh above the Base Case throughout the forecast
period. In the Low Demand Growth Case, the impact of the reduction in demand
growth in 2017 can be clearly seen as a break in the price trend. By the end of
the forecast period the Low Demand Growth Case prices are about $2.00 per MWh
below the Base Case./3
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2 Fuel price estimates are left in real 1996$s to maintain consistency
with a proprietary Hagler Bailly RealTime(TM) database.
3 Note that while energy prices in the Low Demand Growth Case are below
the Base Case, this is due to prices remaining essentially flat in real
terms rather than significantly declining. This flat trend in real
prices is maintained although the Low Demand Growth Case assumes no
adjustment to the schedule of capacity additions and retirements in
reaction to the decline in demand growth.
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Table S-2
PJM West/Central Average
All-In Prices
(1996 $)/1
Low Demand
Base Case High Gas Case Growth Case
2001 $27.28 $28.25 $27.28
2002 $27.70 $28.59 $27.70
2003 $26.66 $27.28 $26.66
2004 $27.65 $28.32 $27.65
2005 $26.90 $27.84 $26.90
2006 $27.21 $28.24 $27.21
2007 $27.36 $28.24 $27.36
2008 $27.96 $28.67 $27.96
2009 $27.77 $28.43 $27.77
2010 $28.02 $28.89 $28.02
2011 $28.33 $29.18 $28.33
2012 $27.96 $29.18 $27.96
2013 $28.51 $29.38 $28.51
2014 $28.81 $29.81 $28.81
2015 $28.89 $30.08 $28.89
2016 $29.54 $30.40 $29.54
2017 $29.55 $30.39 $29.11
2018 $29.70 $30.36 $29.27
2019 $29.67 $30.98 $29.05
2020 $29.41 $30.56 $28.87
2021 $30.70 $31.79 $29.08
2022 $29.98 $31.17 $28.91
2023 $30.50 $30.94 $29.29
2024 $30.68 $31.40 $28.76
2025 $31.09 $31.70 $29.05
1 All-In prices include energy and capacity payments. Assumes a 100% capacity
factor in calculating the capacity price per MWh. This assumption has the
effect of understating the capacity price; for capacity factors below 100%
the capacity payment per MWh increases. Fuel price estimates are left in real
1996$s to maintain consistency with a proprietary Hagler Bailly RealTime(TM)
database.
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Figure S-1
PJM West/Central Average Energy Prices
1996$
[GRAPHIC OMITTED]
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The expected operating regime of the Ironwood plant over the 25-year time frame
is indicated by the trend in capacity factor (see Figure S-2)./4 The figure
illustrates the consistent growth in utilization experienced by the Project in
the Base Case.
Figures S-2
AES Ironwood Capacity Factors
[GRAPHIC OMITTED]
The average annual capacity factor is also shown in Figure S-2 for the
sensitivity cases. In both downside cases the model forecasts that Ironwood's
capacity utilization decreases somewhat from the Base Case. Nevertheless,
Ironwood's position in the stack, in terms of costs, is expected to allow it to
effectively compete with other PJM power generators. In the High Gas Price Case,
by the end of the forecast period the utilization of the plant is virtually the
same as in the Base Case. In the Low Demand Growth Case, utilization during the
merchant tail (i.e., the period beginning in the second quarter of 2021 when the
Williams PPA will expire and the plant will find new buyers for its output) is
also very similar to the Base Case. What the analysis
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4 Capacity factor is a measure of plant utilization. It is the ratio of
actual plant output in MWh to the theoretical maximum output that would
result from running the plant at full load every hour of the year
(i.e., 8760 hours). The sawtooth pattern in the graph reflects major
(every sixth year) and minor (every third year) planned maintenance
outages.
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indicates is that the growth in demand, combined with unit retirements, creates
a "floor" that provides stabile economics for the Project during the merchant
period.
Figure S-3 illustrates the position of Ironwood in the PJM supply curve in 2002,
2012, 2022 for the Base Case. The figure illustrates that Ironwood is
positioned, in all years, well below the highest cost coal unit. These results
are consistent with the high utilization of the plant shown in Figure S-2./5
Figure S-3
PJM Supply Curves (1996 $/MWh)
2002
[GRAPHIC OMITTED]
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5 Units positioned below the lowest cost coal unit include nuclear and
hydro. Units positioned above the highest cost coal unit include oil
and gas-fired steam units and combustion turbines and other peakers.
Note that the supply curves exclude emergency power. Emergency power is
incorporated within the RealTime(TM) model in the estimation of energy
prices.
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Figure S-3 (cont'd)
PJM Supply Curves (1996 $/MWh)
2012
[GRAPHIC OMITTED]
2022
[GRAPHIC OMITTED]
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S.5 CONCLUSIONS
Based on our analysis, we believe that the facility's dispatch position on the
supply curve will be highly competitive and well below the highest priced
baseload coal plant during the post-PPA period (and during the term of the power
purchase agreement) due to the facility's high efficiency, low production costs,
and the influence of demand growth in conjunction with unit retirements.
The facility is expected to have an average capacity factor of 90.7% during the
post-PPA period. The addition of new, more efficient gas-fired power generation
facilities in PJM over time will not adversely affect the facility's dispatch.
Even in the two macroeconomic "downside sensitivity" cases of low demand growth
and high gas prices, the Facility's average capacity factor remains
significantly high at 89.6% during the post-PPA period.
During the term of the power purchase agreement, the economics of the Project
are not sensitive to fuel prices because the costs of fuel are the
responsibility of the power purchaser under the power purchase agreement's fuel
tolling provisions.
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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
Hagler Bailly Consulting, Inc. (Hagler Bailly) was retained by AES Ironwood on
behalf of, and to prepare this report solely for Lehman Brothers as Initial
Purchaser of certain Rule 144A bonds to be offered by AES Ironwood, LLC to
finance the construction, start-up and initial testing of the Ironwood Facility.
We have been retained to independently assess the competitiveness of the planned
AES Ironwood power plant given forecast market prices for electric energy and
capacity in the Pennsylvania, New Jersey, Maryland (PJM) power pool. This
document presents the results of our analysis.
The Northeast power markets are undergoing profound change. Many of the
vertically integrated utilities are divesting their generation assets, and tight
pools (such as the New England Power Pool (NEPOOL), New York Power Pool ( NYPP)
and PJM) are changing as well. Historically, these pools were formed to obtain
the benefits of economic dispatch and coordinated planning. The tight pools are
being replaced by independent system operators (ISOs) with responsibility for
both system operations and market operations. Through the creation of the new
market institutions, the market participants intend to create a liquid and
vibrant market where buyers and sellers of generation services will be able to
transact business efficiently.
It is in this evolving environment that the competitive assessment presented in
this report is made. There is little doubt that forward-price forecasting is
more challenging in a changing market. Our approach is to examine the
fundamental economic prospects of AES Ironwood in the context of the planned and
forecast market.
1.2 ORGANIZATION OF THE REPORT
The remainder of this report is organized as follows:
o Chapter 2 describes the Ironwood project.
o Chapter 3 describes the proposed structure of the markets in PJM.
o Chapter 4 presents our approach to developing forward-price forecasts
for generation services.
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o Chapter 5 discusses the development of assumptions and data to describe
the PJM marketplace.
o Chapter 6 presents market price forecasts for a base case and two
downside sensitivity cases.
o Chapter 7 presents our conclusions.
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CHAPTER 2
THE IRONWOOD PROJECT
2.1 THE IRONWOOD PROJECT
AES Ironwood, LLC proposes to build and operate a 705 MW (net) power plant
("Ironwood") in south Lebanon Township, Pennsylvania. South Lebanon is in the
central region of PJM. The PJM ISO will operate this region's energy market and
transmission system. Ironwood will be a combined cycle power plant using Siemens
Westinghouse 501G technology.
The entire output of Ironwood will be sold to the Williams Energy Marketing and
Trading Company under a 20 year, fixed price power purchase agreement ("PPA").
It is assumed that the Ironwood facility will operate as a merchant power plant
and sell directly into the PJM market upon expiration of the PPA.
AES Ironwood expects seasonal maximum generating capacities of at least 788 MW
in winter, 705 MW in spring and fall, and 655 MW in summer. The power purchase
agreement envisages that in ordinary circumstances Ironwood will be dispatched
at 100% of available. The economics of AES Ironwood assure a high frequency of
commitment and operation at high capacity factors.
Ironwood has a ramp rate of 10 MW/minute. It is considered to have a minimum
uptime of eight hours and no minimum downtime.
A fuel conversion payment of $1.86/MWh (1996 $) is payable to the Ironwood plant
under the PPA. Ironwood's projected actual variable O&M cost is $1.71/MWh (1996
$).
Ironwood is modeled as a dual-fuel plant, generally burning natural gas but
consuming fuel oil during 25 of the highest load days of the winter./6 Since the
RealTime(TM) production cost model employed for this study must be given
specific time periods for each fuel type, we have chosen the high-load winter
days as those most likely to have tight gas supply, necessitating the use of
fuel oil to optimize economics. The plant's forced outage rate is conservatively
assumed to be 10.0% during the first year, 8.0% during the second year, and 5.0%
per year thereafter.
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6 The PPA requires Ironwood to use Jet A during fuel oil operation. Once
the plant enters merchant operation in 2021, the model assumes the
alternative fuel will be distillate fuel oil. Also note that the PPA
permits up to 31 days of annual operation on fuel oil.
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The PPA target heat rate (contractual heat) while operating on natural gas is
higher than Ironwood's heat rate under its EPC contract.
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CHAPTER 3
THE PROPOSED MARKET STRUCTURE IN PJM
One of the key factors that affect prices is the structure and institutions of
the market. This chapter describes the expected structure of generator services
for PJM.
There are a variety of power market models that are currently being considered,
and the PJM market may evolve over time to a structure that differs from that
described here. In addition, revenue and cost streams can be significantly
affected by arrangements made between the owners of generation assets and the
buyer of the plant's generation and capacity. Hagler Bailly's assessment of the
PJM market over the near to mid-term is intended to establish the context for
considering the range of variables relevant to the modeled performance of
Ironwood. In all cases, the description of the PJM market represents the most
recent intelligence, research and expert judgment of Hagler Bailly.
3.1 BACKGROUND
The PJM power pool was one of the first centrally dispatched power pools in the
United States and is one of the largest in the world. Along with other "tight
pools," the PJM power pool demonstrated that centralized dispatch and reserve
sharing among a large number of utilities could result in increased reliability
and provide cost savings for all of the participants.
As policy has shifted toward introducing greater competition in the electric
industry, tight pools such as the PJM power pool have been encouraged by the
Federal Energy Regulatory Commission (FERC) to transform themselves into
Independent System Operators. In its Open Access Rule,/7 FERC ordered public
utilities that are members of tight pools to file an open access transmission
tariff and to open membership in the pool on a nondiscriminatory basis.
In response to the FERC order, the members of the PJM power pool developed a
restructuring proposal and a pool-wide open access tariff. This restructuring
proposal created an ISO to operate the regional bulk power system, maintain
system reliability, administer specified electricity markets, and facilitate
open access to the regional transmission system under the PJM tariff. The PJM
electricity market uses market pricing for generation services, thereby
facilitating the development of a more efficient and more competitive wholesale
electricity market.
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7 Order No. 888, FERC Stats. & Regs. Paragraph 31,036 at 31,726-27.
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PJM was the first power pool to have its open access transmission tariff
approved by FERC. The PJM bid-based energy market was initiated on April 1,
1997. PJM Interconnection, LLC was certified as an ISO by FERC on November 25,
1997. Locational marginal pricing took effect on April 1, 1998. An installed
capacity (daily capacity) market was launched on October 15, 1998.
As PJM shifts to a more competitive environment, many additional changes are
expected. In order to assess Ironwood's competitive position, a number of
critical factors were addressed. Chief among these are the market structure and
rules which define the way in which plant owners will bid and be compensated for
the energy and generation capacity that they provide to the market. Assumptions
about these market conditions were used to determine unit utilization, energy
prices and capacity prices.
3.2 THE PJM MARKET
The wholesale market structure includes the following markets for the services
of generators:
o Spot energy market
o Installed capacity market
Note that ancillary services do not currently have separate bid-based markets,
although such markets are under consideration, as recommended by FERC. Payments
for providing regulation are grounded in cost-based formulas. Payments for
providing operating reserves are included in an energy market daily
reconciliation.
3.2.1 The Spot Energy Market
The ISO runs the spot energy market. The closing time for submitting bids to the
ISO is noon for the energy markets the following day (for example, noon on
Tuesday for bids on energy to be generated on Wednesday). A bid to supply
generation consists of an incremental energy bid curve. For each generation
level, the curve represents the minimum price a bidder is willing to accept to
be dispatched at that generation level. The bid curve is specified by up to 10
price-quantity pairs. The same curve is used for all 24 hours of dispatch.
Bidders also specify operating constraints on their units (minimum up time,
minimum down time, ramp rates) as well as start-up costs and no-load costs.
The ISO determines location-specific market-clearing energy prices for each
hour. Prices are in dollars per megawatt-hour (MWh). Prices are based on bids
for generation, actual loads, and scheduled bilateral transactions. The ISO
constructs a commitment based upon day-ahead bids. Real-time dispatch is
conducted by the ISO by sending price signals to those generators on the margin.
These marginal generators then respond by ramping up or ramping down. The ISO
can also command units to change their output.
Settlement prices are currently calculated after the fact using dispatch data.
PJM has acquired a new energy management system that is to include a security
constrained unit commitment and
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dispatch module. At the time that this system is implemented, the current
procedures for calculating energy prices will be replaced with calculations from
the security constrained dispatch model.
The location-specific market-clearing prices include any charges for
transmission congestion. (The ISO intends in the future to also include charges
for transmission losses.) Congestion occurs when the transmission system becomes
constrained, and some generating capacity is dispatched while other generating
capacity with lower bids is not dispatched. The result is that the
market-clearing prices may differ from location to location. The locational
market-clearing prices ("locational marginal prices" in the jargon of the PJM
ISO) capture any costs associated with the out-of-order dispatch.
Important features of the spot energy market include the following:
o Only the incremental energy bid curve is used in determining the
market-clearing prices.
o Generators that do not recover their start-up and minimum load costs
over the course of a day's operations are compensated for the shortfall
in net revenue ("negative cycle costs") with payments which ensure that
a plant does not lose money by being required to operate by the PJM
ISO./8
o Aside from some interruptible load and exports, bidding is only allowed
by generation resources.
o Bilateral transactions are not subject to the market-clearing prices.
However, they are subject to the same charges for transmission
congestion included in the market-clearing prices.
o Fixed transmission rights (FTRs) allow generators, load-serving
entities, and others to hedge the costs associated with transmission
congestion. An FTR has a financial analogue (transmission congestion
credit or TCC) which is a financial right entitling holders of FTRs to
the congestion charges associated with the difference in prices from a
point of power injection to a point of delivery. When one obtains an
FTR, one also acquires a TCC. TCCs thus may be used to offset the costs
of transmission congestion. FTR's are obtained through two means:
subscription to network service, where FTR's are assigned to the load
based upon the location of the capacity resource and the load, or
through purchase of firm point-to-point transmission service. In
addition, PJM has petitioned the FERC for authority to conduct a
periodic auction of uncommitted FTRs, and a secondary market for these
rights is expected to develop.
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8 In any 24-hour period beginning at midnight, a generator may not lose
money as a result of being dispatched by the ISO. If a generator does
not recover its costs through market payments, then the amount of the
operating loss is paid to the generator by the ISO. This means that a
generator can not lose money from operating on any given day.
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o Investor-owned utilities do not currently have FERC authorization for
market-based pricing. Unless utility participants have authority for
market-based pricing, their bids are capped at cost.
3.2.2 Installed Capacity Market
PJM has imposed generation capacity reserve requirements on all LSEs. These
requirements are expected to lead to an active capacity market. LSEs are defined
as entities providing electricity services to end-use customers under state law.
The PJM conducts an annual reliability study to determine the PJM Reserve
Requirement, defined as the level of installed reserves needed for PJM to meet
the installed generating capability requirements established within the control
area. Historically, the required reserve margin has been decreasing due mainly
to reductions in forced outage hours, and has averaged 18% to 20% over the past
five years./9
To ensure that sufficient capacity is available in the market to meet
reliability standards, PJM requires load-serving entities to own or contract
with physical generation capacity to cover their peak demand. Important features
of the installed capacity market include the following:
o There are two capacity obligations. A load-serving entity's installed
capacity obligation is determined two years in advance by PJM, based on
forecast conditions. This obligation remains in place, and is known as
the "planned-for" obligation. The planned-for obligation is then
adjusted for actual conditions; this adjusted obligation is known as
the "accounted-for" obligation. Capacity acquired in the installed
capacity market satisfies the "accounted-for" obligation.
o The amount of capacity each generator can supply is determined by a
12-month rolling average of availability, calculated two months in
advance of the period for which the capacity is supplied.
o There is a day-ahead installed capacity market, and monthly markets
extending 12 months into the future.
o Each installed capacity market has a single market-clearing price for
each day the market is in operation.
o Capacity may be acquired by a load-serving entity through bilateral
transactions with generators or other load-serving entities. PJM
operates a bulletin board to facilitate bilateral transactions.
If a load-serving entity fails to meet its capacity requirement, a penalty is
assessed.
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9 "1997 MAAC Reliability Assessment," June 1998, Final Report, Prepared
by PJM Interconnection, L.L.C., System Coordination Division.
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Current projections of committed new generating capacity within PJM are
insufficient to meet a reserve requirement of nearly 20% after the year 2000.
The focus of capacity planning has shifted from large, base load coal-fired
generation projects to combustion turbines and combined-cycle plants, which can
be planned and constructed in relatively short periods. However, based on
forecast reserve margins, PJM will require new capacity on line by the 2000
planning period./10
Additional elements of the evolving market for capacity in PJM are described in
the next chapter of this report.
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10 It should be noted that most LSE's in PJM have discontinued reporting
planned capacity additions so as to avoid divulging information related
to strategic business plans to competitors within the system. In spite
of this understanding, it is apparent that maintenance of historical
levels of reserve capacity may not be economically viable. The apparent
shortage of reserve capacity supports our projection that even with an
active capacity market reduced reserve margins are likely.
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CHAPTER 4
APPROACH TO MARKET PRICE FORECASTING
4.1 INTRODUCTION
This chapter discusses our approach to forecasting forward prices for the
services of generation units. The first section discusses general issues related
to the capacity and ancillary services markets. The second section describes the
specific approach employed in this analysis to develop the energy and capacity
price forecasts.
4.2 ISSUES IN PREDICTING MARKET PRICES
By far the most important element of the power market is the energy market,
which will account for the vast majority of revenue. Although there is the
possibility that generators can capture margins in all markets within the PJM
pool, some of these other markets are much more difficult to assess. The
following section of the report discusses issues involved in evaluating the
value of capacity and ancillary services.
4.2.1 Issues in the Capacity Markets
What Is the Purpose of a Capacity Market?
The Northeast markets, i.e., PJM, NYPP and NEPOOL, have all incorporated a
market for capacity as one of the key elements of the new wholesale market
design. In all three of these pools, load-serving entities have an
administrative obligation to purchase, own or control capacity. The capacity
market provides a mechanism for covering any shortfalls in the positions of load
serving entities with respect to their administrative obligations to the pool.
These three pools represent a departure from how other restructured markets have
dealt with the issue of capacity. In other markets that include some
compensation for capacity, notably the England and Wales pool, capacity payments
are determined administratively and are collected through an "uplift" charge
(basically a surcharge) that is added by the pool administrator to the
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price of power from the pool. The PJM, NYPP and NEPOOL markets, to our
knowledge, are the first markets to attempt to institute a bid market for
capacity./11
What is the purpose of capacity compensation? Capacity payments have been
included in the market designs for several purposes:
o Capacity payments can serve as a mechanism to encourage investment in
new generation capacity. This was the predominant rationale for
including capacity payments in the England and Wales pool. The premise
is that a competitive energy market (one that tends to force energy
prices to marginal cost) provides inadequate margins to assure the
construction of sufficient new capacity.
o Some regulators and market designers believe that a capacity payment
will reduce price volatility in the energy market. The premise is that
a fixed capacity payment provides base compensation, the result of
which is to reduce the volatility in energy prices. If revenue
expectations are constant, reduced volatility will reduce risk and
financing costs.
o In the case of PJM, NYPP and NEPOOL the rationale for a bid market in
capacity is due, in part, to gaming that occurred in the England and
Wales pool. There, generators strategically declared their capacity
unavailable in order to raise capacity payments. The designers of the
U.S. capacity markets thought, in part, that a bid market for capacity
might reduce the opportunities for gaming./12
However, many restructured electricity markets have not included a capacity
market or a capacity payment. In fact, California, Norway, New South Wales, and
Victoria all have foregone the option of including a capacity component in the
exchange.
Capacity Revenues Must Be Included in Market Projections
Market institutions evolve and change over time. Given that many debate whether
or not a capacity payment should be a part of the market institutions, is the
revenue we include from capacity prices at risk?
We believe not. Experience in existing energy markets shows that the energy
prices arising from the production cost model (discussed below) understate the
revenue that generators will earn
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11 Regulated electricity markets, including PJM, have provided capacity
compensation. With deregulation, many continue to do so. What is unique
is not the compensation but the effort to establish a bid market.
12 To be specific, capacity payments in the England and Wales pool are
determined on a day-ahead basis by calculating the loss of load
probability (LOLP, which depends on projected load and capacity). The
LOLP is then multiplied by a value of lost load, which was
administratively determined and escalates over time. Significant gaming
occurred in the pool where generators would declare their capacity not
to be available for the next day, thus increasing the LOLP and the
resulting capacity payment, then declare their capacity available the
next day to capture the inflated capacity payment.
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from the energy market. Using a production cost model presumes that energy
prices are driven to short-run marginal cost. The result of this assumption is
that a significant number of generators (most particularly the peaking and
cycling facilities) earn insufficient margins from the energy market to cover
all of their going-forward costs. If no other payments were provided, rather
then incur these losses or retire, these generators would increase their
start-up bids in all hours in which they expected to be dispatched to at least
recover their going-forward costs. The results of this bidding behavior would be
expected to have results very similar to the method we used in projecting
capacity prices from a bid market.
There are a number of ways that these capacity revenues might be recovered.
o First, the installed capacity markets, although unproven, may function
well into the future.
o Second, the installed capacity market could be replaced by an operating
capacity market, which would have different pricing to cover going
forward costs.
o Third, the capacity markets could be replaced with an administrative
market institution such as those found in the U.K. or Argentina.
o Fourth, even if the capacity market were to disappear, generators would
recover any shortfall in their going-forward costs by increasing their
bid prices in the energy market above marginal cost when market
conditions allow. If they could not do so they would exit the market
and prices would need to increase to attract sufficient new entry to
maintain any required capacity margin.
o Fifth, there is a robust bilateral market that currently exists for
capacity that is likely to persist in any new market structure.
How Do We Model Capacity Payments?
Regardless of the ultimate form of capacity markets, we assess prices by
determining the economic worth of capacity. In our analysis, we model what the
market is willing to pay to retain plant (that might otherwise leave the market)
for reliability services. Specifically, our approach is based on a partial
equilibrium analysis that assessed returns from the energy and capacity markets
and dynamically simulated entry and exit decisions. For these reasons, we
believe that the capacity prices reflect returns that will be sustained by the
market.
Our approach to constructing capacity payments is described in more detail later
in this chapter.
4.2.2 Ancillary Services
The PJM ISO provides for revenues for ancillary services. There are,
potentially, material revenues and margins that could be attributed to these
markets. However, it is extremely difficult to predict what the forward price
curve might be in these markets, since they do not yet
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exist in PJM and there is so little experience with bid-based systems for
ancillary services elsewhere. Hence, our price, revenue, and margin projections
have assumed that the going forward costs of the marginal unit would be covered
and that there would be no contribution from ancillary services markets that
would increase the margins of the marginal unit.
4.3 APPROACH TO MARKET PRICE FORECASTING
Figure 4-1 provides a graphical view of Hagler Bailly's process for producing
forward-price forecasts. The process begins with a definition of the
characteristics of the market, including the electric generating units currently
in operation, their production efficiencies (including heat rate curves), a
projection of plant additions (based in part on announcements and in part on an
equilibrium evaluation of market price signals), consumer demand and load, and
fuel prices.
Figure 4-1
Approach to Developing Capacity and Energy Prices
[GRAPHIC OMITTED]
Using these data, energy prices are projected through a comprehensive simulation
which sets energy price to the short run marginal cost, which also yields
estimates of how much each generating unit produces in the market. Capacity
prices are then projected based on our simulation of the capacity market. Next,
total returns to each generating unit are calculated and used to assess whether
market entry and exit occurs. Iteration between these three phases takes place
until stability is achieved in the energy and capacity price forecast.
Thus, this process develops prices based on a dynamic examination of market
entry and exit (including retirement) decisions made by the supply-side actors
in the market.
The following sections briefly discuss Hagler Bailly's approach to each of these
steps.
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4.3.1 Market Characteristics
The first step is to ensure that we understand sufficiently the nature and
parameters of the market and the generation assets that participate in that
market. Hagler Bailly uses a variety of data sources to characterize the market.
These include:
o Data identifying the generating units, consumer demand and load, and
production capacities of existing plants. This included data from
public sources and data extracted from Hagler Bailly's proprietary Ramp
Up(TM) database.
o Fuel price forecasts.
o Planned additions, which are developed based on announced plans of
developers (tracked in the Hagler Bailly IPP Database) and utilities
(contained in planning council reports), weighted by our assessment of
how much capacity will actually be built in the early stages of the
analysis time horizon. Capacity additions subsequent to 2001 are tested
in the entry and exit logic.
o Retirements of nuclear plants. We review the experience of nuclear
power plant operators (tracked in the Hagler Bailly Operating Plant
Experience Code database) to identify the plants most likely to be
retired before the end of their operating license and to estimate early
retirement dates.
4.3.2 Predicting Energy Prices and Dispatch
Hagler Bailly used the RealTime(TM) production cost model to develop the PJM
wholesale market price of energy, plant operating costs, and projected dispatch
on an hourly basis for the years 2001-2025./13 RealTime(TM) incorporates unit
characteristics (e.g., heat rates, minimum and maximum capacities, ramp rate,
and fuel type), fuel costs, emissions, hourly load, imports from (exports to)
adjoining power pools and many other factors in its calculations.
Since RealTime(TM) is an hourly chronological production cost model, it
addresses each hour before moving on to the next hour. Thus, in every hour each
unit has a generation level (MW) and a cost associated with that generation. A
chronological model such as RealTime(TM) more closely simulates reality and its
uncertainties than do non-chronological models.
RealTime(TM) output includes revenue, fuel costs, emission costs, other variable
costs, profit, generation level (and capacity factor), hours connected to the
grid, forced outages, number of hot
- ----------
13 Hagler Bailly has used RealTime(TM) to project market clearing prices
and unit operations in PJM for asset valuations, regulatory
proceedings, and the evaluation of potential merchant plant projects
for a number of clients. Hagler Bailly has also used RealTime(TM)
elsewhere in the country to model prospective production costs.
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and cold starts, and average and load-weighted marginal costs. In addition,
other reports are provided for every fossil, nuclear, and hydroelectric unit in
PJM.
An additional element of the dispatch analysis considered the impact of
transmission system characteristics and constraints. PowerWorld(TM), a load flow
model, was used to determine if Ironwood would impose additional burdens on the
PJM transmission system and if the plant's location would lead to its being
dispatched less than anticipated due to transmission constraints. We also used
the model to assess whether Ironwood could expect to receive higher revenues due
to contributions to voltage support or for transmission constraint-reducing
flows. The analysis showed that the plant's location would ease transmission
constraints from west to east, the predominant direction of flow, within PJM
Central. However, the value of this contribution is too small to measure at
present. In the future, if a nodal pricing regime is retained (i.e.,
location-specific pricing that reflects such factors as transmission
congestion), some revenue may be available for transmission congestion relief;
none is included in our results.
From the energy price analysis, Hagler Bailly determines the energy margin
(price minus variable cost) attributable to each generating unit in the market.
These margins, along with estimates of "going-forward costs," (fixed costs, such
as fixed O&M, property taxes, administrative and general expenses, employee
benefits, and incremental capital expenditures) are used in the Capacity Market
Simulation model to predict capacity prices.
4.3.3 Predicting Capacity Prices: The Capacity Market Simulation Model
Capacity payments are a mechanism for supporting an appropriate amount and mix
of capacity in the system. There are two reasons for including a capacity
payment in a forward-price analysis. First, if generators bid their short-run
marginal costs into an energy market, only inframarginal plants (those not on
the margin) earn a contribution toward their going-forward fixed costs. Plants
at the top of the supply curve receive little, if any, contribution toward their
going-forward costs. In addition, some of the baseload and cycling plants that
are not at the top of the supply curve but have high going-forward costs may not
earn a sufficient operating margin from the energy market alone to cover all of
those costs.
We predict capacity prices using our proprietary Capacity Market Simulation
Model. This model presumes that the market will retain a sufficient amount of
capacity to meet economic reliability targets. In other words, we simulate the
capacity market as consisting of a supply curve and a demand curve for
reliability (or capacity) services. We assume that the organized capacity market
is a competitive market, and that the market-clearing price for capacity is
determined by the intersection of the supply and demand curves. We construct
supply and demand curves for each year of the simulation time horizon.
The supply curve is calculated from the going-forward costs of each generating
unit. The net of going-forward costs and energy market margins, expressed on a
per-kilowatt basis, represents the minimum amount a generating unit needs to go
forward. Ranking these net costs in ascending order produces a supply curve for
capacity.
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Next, the demand curve is estimated. The demand curve is estimated by
representing the capacity associated with a target reliability level. The demand
curve is a vertical line derived using a target reserve margin or target level
of installed capacity.
Finally, the intersection of the demand curve and the supply curve represents
the capacity payment that the market would support in that year. The capacity
price forecast is the capacity payment derived for each year of the study
period. An example supply and demand curve is shown in Figure 4-2.
For the purposes of the AES Ironwood study, Hagler Bailly applied the results of
its most recent capacity valuation studies of the PJM market. The estimated
annual capacity values average $45.19/kW-year (1996 $) for the forecast
period./14 (The annual values are shown in Chapter 6 of the report.)
Figure 4-2
Example Supply and Demand Curve
[GRAPHIC OMITTED]
4.3.4 Market Entry and Exit
It is necessary to assess the feasibility and timing of new capacity additions
as well as the exit of uneconomic existing capacity. Hagler Bailly's proprietary
modeling approach serves two purposes:
- ----------
14 Additional revenues may be available in the future to generators that
provide operating capacity services and other ancillary services, such
as black-start capability. Such revenues are not considered in this
analysis.
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o First, it identifies generating units that are not able to cover their
going-forward costs in the energy market and are therefore at risk of
abandoning the market.
o Second, it provides a rational method for ascertaining the amount,
timing, and type of capacity additions.
Hagler Bailly's approach uses a financial model to assess the decision to add
new capacity and to retire existing capacity. The approach to plant additions is
based on a set of generic plant characteristics, financing assumptions, and
economic parameters, and is an iterative process performed simultaneously with
the development of the energy price forecast and the capacity price forecast.
The methodology assesses the validity of annual capacity additions based on a
Discounted Cash Flow (DCF) model using net energy revenues determined in the
production cost model simulations, and capacity revenues determined from our
Capacity Market Simulation approach. For each increment of new capacity, a "Go"
or "No Go" decision is made based on the resulting financials. In addition,
economic retirement decisions are made at each step in the iterative process
based on the specific financial and operating characteristics of each existing
plant.
The iterative process begins with the addition of new capacity. A production
cost run is executed to determine energy prices, dispatch, and operating costs.
The Capacity Market Simulation is then performed. Financial results for the
energy and capacity markets are combined in the financial model to determine
whether the new unit is a "Go" or "No Go." If the new unit is a "Go," another
new unit is added, and the process repeated. This occurs until the next new unit
returns a "No Go."
Retirements are determined after new units are added. A financial analysis of
each unit is performed, combining the results of the energy and capacity
markets. If the cumulative operating profit (loss) for an existing unit were
negative for any five-year period, it was retired at the end of the third year
of consecutive operating loss. Although the decision criterion was somewhat
subjective, it was interpreted conservatively. Thus, if a unit lost money for
two years, was in the black over the third year, and then lost money for two
more years, the unit was maintained online.
If units were retired, the iterative process would begin again with the addition
of new capacity. In this way, the introduction of new units influences the
retirement of existing units, and the retirement of existing units enables the
introduction of new units. Since the addition of new units is "lumpy," the
iteration generally stops with new generators earning a small increment above
their cost of debt and equity. The addition of one more new unit would then push
many of the previous additions into losses. This approach reflects a game
theoretic concept of a market equilibrium.
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- --------------------------------------------------------------------------------
CHAPTER 5
MARKET PRICE FORECASTING:
ASSUMPTIONS AND ASSUMPTION DEVELOPMENT
5.1 INTRODUCTION
This section of the report describes the key assumptions used in the development
of the PJM capacity and energy market price forecasts and the related models.
The assumptions are presented in two sections. The first section describes the
inputs to the RealTime(TM) production cost model, including: (1) the
characteristics of the existing generating units (thermal, hydro, nuclear), (2)
the demand and energy forecasts, (3) fuel prices, (4) the modeling of
electricity imports/exports in the regions, and (5) intra-PJM transmission
constraints. The second section describes the inputs to the Capacity Market
Simulation Model.
5.2 PRODUCTION COST MODEL INPUT ASSUMPTIONS
As discussed above, to simulate the hourly market-clearing price of energy we
use the RealTime(TM) production-costing model. RealTime(TM) allows the
characterization of multiple transmission areas within a power pool.
Transmission areas for PJM are defined as "PJM-East" and "PJM-Central/West"
(see Map 5-1, below).
Map 5-1
PJM Regions
[GRAPHIC OMITTED]
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Imports and exports are modeled as contracts involving the East Central Area
Reliability Council (ECAR) and the New York Power Pool (NYPP). Map 5-2
illustrates the location of PJM, NYPP, ECAR and other adjacent power pools.
Map 5-2
Eastern Power Pools
[GRAPHIC OMITTED]
Each of the PJM region's major generating units is represented individually in
the production-costing model using unit-specific cost and operating
characteristics. The RealTime(TM) model is used to perform an hour-by-hour
chronological simulation of the commitment and dispatch of generation resources.
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5.2.1 Existing Generating Units
Fossil Units
Each fossil generating unit is characterized using the following parameters:
o Summer and winter net capability
o Heat-rate curve
o Operating characteristics
|_| Minimum capacity
|_| Ramp rate
|_| Minimum uptime
|_| Minimum downtime
o Forced outage rate
o Scheduled maintenance outage rate
o Variable operation and maintenance cost
o Emission costs
o Start fuel.
Units that operate on more than one fuel have characteristics specified for each
fuel. The development of these parameters is discussed below.
Summer and Winter Capabilities. Summer and winter capability values were
obtained from the 1997 Mid-Atlantic Area Council (MAAC) Regional Reliability
Council, EIA-411 Report. (MAAC is contiguous with PJM.)
Heat-Rate Curves for Fossil Units. Heat rate estimates were derived primarily
from Hagler Bailly's Ramp Up(TM) generation database and analysis system. Ramp
Up(TM) contains estimates of unit heat rates based on actual hourly unit
performance, as reported to the U.S. Environmental Protection Agency as part of
the Continuous Emission Monitoring (CEM) program. Where the CEM data was not
available, heat rate curves were estimated, using a proprietary Hagler Bailly
methodology, from the full load heat rates reported to the federal Energy
Information Administration (EIA) on EIA Form 860.
Operating Characteristics. The operating characteristics (minimum capacity, ramp
rate, minimum uptime, minimum downtime, forced and scheduled outage rates) are
derived from Hagler Bailly proprietary databases.
Variable Operation and Maintenance Costs. In RealTime(TM), nonfuel variable O&M
cost, hereafter referred to simply as variable O&M, is treated as if it is
directly proportional to the generation level of each unit. Variable O&M is a
problematic category because, in the short run, the truly variable portion
represents only a small part of total variable O&M costs, as traditionally
reported.
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The variable O&M costs in RealTime are derived from FERC Form 1 data. The model
assumptions are shown below in Table 5-1.
- -------------------------------------------------------------------------------
Table 5-1
Variable Operating Costs (1996 $ per MWh)/15
- -------------------------------------------------------------------------------
Existing Oil, Gas, and Refuse $2.00/MWh
- -------------------------------------------------------------------------------
Coal - Not Scrubbed $3.00/MWh
- -------------------------------------------------------------------------------
Coal - Scrubbed $4.00/MWh
- -------------------------------------------------------------------------------
New CC $1.71
- -------------------------------------------------------------------------------
New CT $3.02
- -------------------------------------------------------------------------------
Sulfur Dioxide Emission Costs. The Clean Air Act Amendments of 1990 (CAAA)
provided for tightened restrictions on the emission of sulfur dioxide (SO2) by
fossil-fired generating stations, with the primary impact falling on coal
plants. In a departure from traditional command-type regulation, the CAAA
established a mechanism by which utilities could buy and sell rights to emit
SO2. This SO2 "allowance" system accordingly establishes a value or cost to a
utility, depending on whether it needs to purchase allowances or, if it emitting
less SO2 than it is authorized per the CAAA, it has excess allowances that it
can sell or bank for future use. Each allowance represents the right to emit one
ton of SO2.
The assumptions related to SO2 costs were based upon forward price forecasts
developed by Putnam, Hayes & Bartlett, Inc. (PHB). For the purposes of our
modeling, we assumed that SO2 emission costs were equal to the number of tons of
SO2 emitted multiplied by the price of allowances in a given year. The resulting
cost was added to the variable cost of each generating unit and included in the
development of the energy price forecast.
SO2 allowances are currently priced at about $190 per ton (1996 $). PHB
forecasts allowance prices escalating to $200 by 2001, and then gradually
ramping up to $400 by 2010, after which prices are flat in real terms (see
Figure 5-1).
Development of NOx Control Costs and Emission Rates
Because of the persistence of a widespread ozone nonattainment problem and the
recognition of NOx emissions as the primary precursor pollutant, EPA has
recently proposed the State Implementation Plan (SIP) Call. The SIP Call seeks a
70% percent reduction in NOx emissions from large NOx point sources (i.e., power
plants and industrial boilers) in 22 states starting in 2003. Despite these
large proposed reductions in NOx emissions, modeling of ozone
- ---------
15 Note: for modeling purposes all operating costs for nuclear, hydro and
pumped storage units are assumed to be fixed.
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concentrations suggests that many areas east of the Mississippi will be in
non-attainment of the 8-hour ozone standard. In order to avoid strict federal
penalties for ozone nonattainment, states will need to obtain further reductions
in NOx emissions. This will result in a continuous reduction in the number of
NOx allowances that are available, which will maintain NOx allowance prices
beyond 2020. The forecast SO2 and NOx price curves are shown below in Figure
5-1.
Figure 5-1
Forecast Of Allowance Prices
(1996$ per Ton)
[GRAPHIC OMITTED]
The forward price curve for NOx emissions begins in 2001 at a price for
summer/16 NOx allowances of $2,150/ton (1996 $). The price of NOx allowances
jumps to $2,500/ton for the first summer of SIP Call regulations in 2003,
reaches $2,900 by 2005, and remains at this level through 2025./17
Hydroelectric Units
The hydroelectric plants in the region are modeled individually, with the
exception of small plants, which are consolidated by utility and categorized as
peaking or baseload. Similar to the
- ----------
16 The summer NOx period is May 1 through September 30.
17 Source of NOx Allowance Prices: PHB Hagler Bailly estimate
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thermal units, the maximum capacity for each unit was taken from sources cited
above for summer and winter capabilities.
Nuclear Units
Table 5-2 lists the shutdown dates for all PJM nuclear units that retire during
the forecast period. The retirement dates are based on the expiration dates of
current operating licenses, with the exceptions of Oyster Creek 1, which GPU
intends to retire at the end of 2000, and Salem-2, which we retire at the end of
2002.
- --------------------------------------------------------------------------------
Table 5-2
Nuclear Unit Retirement Dates
- --------------------------------------------------------------------------------
Unit Retirement Summer Capacity Cumulative Retired
Date (MW) Capacity (MW)
- --------------------------------------------------------------------------------
Oyster Creek-1 10/01/00 619 619
- --------------------------------------------------------------------------------
Salem-2 12/31/02 1,106 1725
- --------------------------------------------------------------------------------
Peach Bottom-2 12/31/14 1,093 2818
- --------------------------------------------------------------------------------
Calvert Cliff-1 12/31/15 840 3658
- --------------------------------------------------------------------------------
Peach Bottom-3 12/31/15 1,093 4751
- --------------------------------------------------------------------------------
T.M. Island-1 12/31/15 786 5537
- --------------------------------------------------------------------------------
Calvert Cliff-2 12/31/17 840 6377
- --------------------------------------------------------------------------------
Salem-1 12/31/17 1,106 7483
- --------------------------------------------------------------------------------
Hope Creek-1 12/31/21 1,031 8514
- --------------------------------------------------------------------------------
Susquehanna 1 12/31/23 1,090 9604
- --------------------------------------------------------------------------------
5.2.2 Load Growth
Our load growth assumptions have an important effect upon the analysis of the
market. With the output of generating plants and imports and exports held
constant, higher load means higher energy prices since units higher in the stack
will be dispatched to cover demand. Load, or demand, growth assessments focus on
aggregate, or total, demand and on load shape, which directly affect forecasts
of peak demand. Changes in the load shape (e.g., peak shaving) may reduce the
energy revenues despite higher aggregate demand. PJM load growth on average is
generally expected to increase at between 1.5% and 2% per annum, with peak loads
growing more slowly to reflect primarily industrial load shifting toward the
less expensive hours of the day.
In the present study, we utilized the actual hourly load variation pattern of
1995. We escalated the total load and peak load at different rates to reflect
our expectation that industrial and commercial peak loads will be shifted in the
future as time-of-day pricing and metering are extended.
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The estimation of load growth through the next two decades is an important input
to the analysis. Hagler Bailly has done extensive work on the subject of demand
forecasting, and has selected load growth rates that are most probable given
this research and analysis. The years 2002-2009 are assigned a higher load
growth rate to reflect increased energy use as utilities finish collecting
stranded costs, making power less expensive. In the present study, the Base Case
assumptions forecast annual demand escalation at the following rates:
o to 2002: 1.5% per annum
o 2003 to 2009: 2.0% per annum
o 2010 to 2025: 1.5% per annum
Our peak load escalation rates are as follows:
o to 2009: 1.00% per annum
o 2010 to 2025: 0.75% per annum
We also tested the economics of Ironwood for a Low Demand Growth Case. In this
scenario both annual average and peak load growth rates for each year after 2016
are reduced by one-third, with no concomitant adjustment to the schedule of
capacity additions or retirements. This encompasses the last four years of the
PPA period and the merchant tail. Figure 5-2 illustrates the growth in average
and peak load under the Base and Low Demand Growth Cases.
Figure 5-2
Cumulative Demand Growth in PJM
[GRAPHIC OMITTED]
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5.2.3 Fuel Prices
Fossil fuel prices for this study were provided and documented by CC Pace. The
forecast for all fossil fuels is shown in Table 5-3, and summary graphs
illustrating the natural gas and coal price forecasts are presented in Figures
5-3 and 5-4.
Note that Figure 5-3 illustrates the natural gas Base Case values and the High
Gas Price Case constructed by Hagler Bailly (a uniform $0.50 per MMBtu increase
in the gas price for each year). Because the plant is gas-fired, the High Gas
Price Case represents the "downside" fuel price sensitivity.
The coal prices shown are the PJM-average delivered price for each year. The
model runs are based on individually determined coal prices for each plant, and
reflect such factors as the specific transportation costs and sulfur content
requirements of each station.
Table 5-3
Delivered Fuel Prices (1996$/MMBtu)/1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Average
Annual %
Fuel 1998 2005 2010 2020 2025 Change/4
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas - PJM East/2 $2.57 $2.48 $2.52 $2.63 $2.69 0.17%
- -----------------------------------------------------------------------------------------------
Natural Gas - PJM West $2.47 $2.38 $2.43 $2.53 $2.60 0.18%
- -----------------------------------------------------------------------------------------------
Residual #6 $2.10 $2.41 $2.41 $2.41 $2.41 0.51%
- -----------------------------------------------------------------------------------------------
Distillate #2 $3.20 $3.69 $3.69 $3.69 $3.69 0.53%
- -----------------------------------------------------------------------------------------------
Jet A $3.40 $3.89 $3.89 $3.89 $3.89 0.50%
- -----------------------------------------------------------------------------------------------
Coal/3 $1.36 $1.15 $1.09 $1.03 $1.04 -1.00%
- -----------------------------------------------------------------------------------------------
1 Fuel price estimates are left in real 1996$s to maintain consistency with a
proprietary Hagler Bailly RealTime(TM) database.
2 Ironwood is forecast to use PJM East natural gas. The Henry Hub to PJM East basis
(transportation) differential is approximately $0.52 per MMBtu.
3 Coal prices were provided on a plant specific basis. Average prices represent the
average for all the coal consumed in a given year. The 1998 price is for the period
Oct. 1997 - Sept. 1998.
4 Calculated from 1998 to 2025.
</TABLE>
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Figure 5-3
Delivered Natural Gas Prices 1996$
[GRAPHIC OMITTED]
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Figure 5-4
PJM Generation Weighted Average Coal Prices 1996$
[GRAPHIC OMITTED]
5.2.4 Energy Import/Export Forecast
In RealTime(TM), we have modeled two electric energy imports into PJM and one
export. The imports are from ECAR and Ohio Edison-Potomac Electric Power Company
(OE-PEPCo), with maximum hourly capacities of, respectively, 4300 and 450 MW.
The export is into NYPP (maximum hourly capacity of 1000 MW). These imports and
exports are utilized when they are economical; electrical energy is imported
when the import price is less than the cost of generating that unit of energy
within PJM, and energy is exported when the price is greater than the cost of
PJM generation. All imports and exports remain in place throughout the model run
with the exception of the OE-PEPCo import, which expires at the end of 2005.
Table 5-4 displays the properties of the two imports and the export.
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Table 5-4
Imports and Exports (1996 $ per MWh)
- ------------------------------------------------------------------------------------------------------------------
On-Peak
Location Price in Off-Peak Annual Price Maximum Hourly Minimum
Import/Export within PJM 2001 Price in 2001 Escalation Capacity (MW) Take (MW)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ECAR Import/18 West & Central 20.75 15.25 See Note 4,300 10
- ------------------------------------------------------------------------------------------------------------------
OE-PEPCO Import West & Central 11.94 11.94 3.0% 450 10
- ------------------------------------------------------------------------------------------------------------------
NYPP Export East 22.04 15.79 1.0% 1,000 10
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Emergency power purchase contracts were modeled on an economy basis using
experience Hagler Bailly has gained in the course of several market studies and
the pricing observed during the past year. Given recent market pricing during
high demand periods, the assumed pricing of the emergency power purchase
contracts is conservative. In all years of the study, the PJM market is assumed
to be able to purchase the following amounts of power for each of the two PJM
regions at the prices shown in Table 5-5. Emergency power is imported from
neighboring control areas using transmission capacity reserved for such purposes
(as provided by the capacity benefit margin).
- --------------------------------------------------------------------------------
Table 5-5
Emergency Imports
- --------------------------------------------------------------------------------
Quantity Available Price (Real 1996 $)
- --------------------------------------------------------------------------------
500 MW $100.00
- --------------------------------------------------------------------------------
500 MW $150.00
- --------------------------------------------------------------------------------
200 MW $250.00
- --------------------------------------------------------------------------------
Additional MW $300.00
- --------------------------------------------------------------------------------
5.2.5 Transmission Constraints
The PJM Central-East interface has transfer capability estimated variously at
between 4,700 and 5,300 MW located near the New Jersey-Pennsylvania border.
Historically, as a consequence of this constraint a price differential exists
between the two sides of the interface about 10% of the time. RealTime(TM)
models transmission flows based on forecast price differentials resulting from
local demand and prices. This PJM East constraint generally becomes binding in
times of moderate to high demand, but not at times of peak demand. The reason
for this is that
- ----------
18 Note: ECAR import price trajectory approximates PJM trends.
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significantly greater base-load and intermediate capacity is located in the West
and Central regions relative to the East. The East, in contrast, contains a
significant quantity of peaking capacity. Thus, as load increases more energy is
transmitted from Central to East until the constraint is reached. However, as
load levels continue to increase to peak levels, many peaking units in the East
are dispatched, lowering transmission demand. This means that plants located in
the West and Central regions receive slightly lower market prices than would be
the case if PJM were simply a single unconstrained pool.
PJM does not expect major new transmission lines to be constructed during the
study period. We have adopted this expectation.
5.3 CAPACITY MARKET SIMULATION MODEL INPUT ASSUMPTIONS
5.3.1 Existing Units Going-Forward Costs
For fossil units, annual fixed O&M costs are determined using FERC data from
1994-1996. For each year, total annual nonfuel production costs are identified.
The fossil fuel experts within Hagler Bailly assume that a reasonable proxy for
attributing nonfuel production costs to fixed and variable components is to
attribute 30% of total nonfuel costs to fixed costs, and the remainder to
variable costs. These fixed costs, in dollars, are then divided by net
capability to arrive at a cost in units of $/kW. These costs are then averaged
across years to determine an annual fixed production cost in $/kW. No
discounting is done to account for inflation, because inflation is a very small
component of the year-to-year variability for the three-year time period.
For steam units, the following adjustments are made. An increment of $4/kW for
annual G&A is added./19 Costs for employee benefits are assumed to be 50% of
total salaries reported in FERC Form 402, lines 18 and 28. Incremental capital
expenditures are assumed to be 20% of total fixed costs. These costs, which are
an important component of going-forward costs, are not reported in the FERC
production accounts.
While some FERC cost data is available at the generating unit level, most of
these data are available only at the power plant or station level. For
generating units lacking FERC data at the generating unit level, total station
annual nonfuel costs are attributed to generating units in proportion to
generating unit capacity. Since fixed production costs are calculated in units
of $/kW, this means that all generating units at a station have the same fixed
production costs per kW, unless production costs for a generating unit are
individually reported in the FERC data.
- ----------
19 An increment for annual G&A is only included for the steam units and
not the remaining units since the steam units are the units that are
more likely to have G&A costs that are not reflected in the FERC fixed
O&M accounts.
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For units not reported in the FERC data, an average value by unit type was
calculated from those units that do report FERC data. Combustion turbines and
gas turbines that were not listed in the FERC data were attributed annual fixed
production costs of $14.50/kW. Combined cycles were assigned a value of
$13.50/kW and steam units a value of $30.50/kW.
Property tax data for each unit was derived by applying a mill rate to an
assumed market value. We assumed a value for generating capacity of $400/kW.
Mill rates were assumed to vary by state and yield values averaging $9.50/kW.
5.3.2 New Generating Capacity
Projected unit characteristics for future combined cycle units (CCs) are based
upon Hagler Bailly estimates. These estimates were confirmed in conversations
with industry sources. These units were assigned seasonal maximum capacities of
788 MW, 705 MW, and 655 MW during the winter, spring/fall, and summer,
respectively. These units ramp up at 10 MW/minute, burn pipeline gas, and have a
variable O&M cost of $1.71/ MWh (1996 $). Their minimum uptime is eight hours
and they have no minimum downtime.
Unlike existing stock (those currently operating) in the model, future CCs are
assigned hot and cold start-up costs expressed in MMBtu. A cold start is defined
as a start after eight or more hours not in operation and has an average cost of
6,172 MMBtu per unit. A hot start is a start after less than eight hours of
inactivity, and its average cost is 2,482 MMBtu per unit.
Heat rates for CCs improve with time (i.e., newer units have superior technology
and performance to earlier units). Table 5-6 shows the heat rates and other key
characteristics of the generic combustion turbines (CTs) and CCs used in the
model.
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- --------------------------------------------------------------------------------
Table 5-6
New Generating Unit Characteristics (1996 $)
- --------------------------------------------------------------------------------
CC CT
- --------------------------------------------------------------------------------
Summer Net Capacity (MW) 655 MW/1 345 MW
- --------------------------------------------------------------------------------
Total Capital Cost $464 $279
($/kW)
- --------------------------------------------------------------------------------
Heat Rate (Btu/kWh, for Units installed 2001-06: 6768
full load summer Units installed 2007-13: 6339 10,400
operation) Units installed 2014-25: 6235
- --------------------------------------------------------------------------------
Variable O&M ($/MWh) $1.71 $3.02
- --------------------------------------------------------------------------------
Fixed O&M ($/kW Year) $9.75 $5.11
- --------------------------------------------------------------------------------
1 The 655 MW (summer capacity) is equivalent to 705 MW average capacity.
Information on fixed costs, depreciation, and taxes is also developed and
incorporated within the DCF analysis to determine the economic viability of the
new unit additions. Environmental costs and overhaul expenses are not included
due to expectations that such expenses would be minimal in early years of
operation. Key economic and financial assumptions include the following:
o Property taxes are assumed to be 1% of the initial capital costs.
Property taxes are escalated over time at the Projected inflation rate.
o Depreciation of the initial all-in cost of the new additions are based
on a standard 20-year MACRS (150% DB) with mid-year convention.
o General inflation is assumed at 2.5%.
o Minimum after-tax return of 13.5%.
o Income tax rate is assumed to be 35% federal and 7% state.
o Financing assumptions of 60% debt, 40% equity.
o Debt interest rate of 8%.
o Debt terms are 20 years for combined cycle units with mortgage-style
amortization.
o Debt terms are 15 years for combustion turbine units.
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CHAPTER 6
MARKET PRICE FORECASTS
6.1 INTRODUCTION
This chapter presents the market price forecasts resulting from our analysis,
and our assessment of Ironwood's dispatch given these forecasts. Three cases
were developed:
o "Base Case," which reflects our best assessment of future market
conditions.
o "High Gas Price Case," a downside sensitivity that tests the effect of
higher prices for gas through a uniform increase of $.50/MMBtu relative
to the Base Case in all years, while leaving all other fuel prices
unchanged.
o "Low Demand Growth Case," a downside sensitivity that tests the effect
of a one-third reduction in PJM average and peak demand growth rates
for each year beginning in 2017. This encompasses the last four years
of the PPA term and each year in the post-PPA period. While demand
growth is reduced, this case includes no corresponding adjustment to
the schedule of capacity retirements and additions.
All three cases use the same schedule of unit additions and retirements. In the
Low Demand Growth Case this conservative assumption has the effect of
overstating the likely reserve margins and exaggerating the downward impact on
energy prices.
The remainder of this chapter of the report is organized as follows:
o Section 6.2 presents our forecasts of power prices in PJM.
o Section 6.3 presents our forecasts of capacity factors and of
Ironwood's competitive position.
6.2 PJM CAPACITY AND ENERGY PRICE FORECASTS
6.2.1 Base Case
The pressing need for capacity in the PJM market is reflected in Table 6-1,
which summarizes PJM market entry and exit. During the study period, 14,744 MW
of capacity is retired and 27,965 MW of new combined cycle (CC) and combustion
turbine (CT) capacity is added, for a
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net increase of 13,221 MW (a 25% increase, compared to current installed
capacity of 52,521 MW). These additions provide for an average reserve margin of
18.1% for the study period./20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Table 6-1
PJM Capacity Additions and Retirements
(MW)
- -----------------------------------------------------------------------------------------------------------------------
Net
Total Capacity Cumulative Reserve
Year CC CT Additions Retirements Cumulative Net Capacity Margin
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2001 655 - 655 (198) 457 457 17.8%
- -----------------------------------------------------------------------------------------------------------------------
2002 - 240 240 - 240 697 17.1%
- -----------------------------------------------------------------------------------------------------------------------
2003 1,310 1,380 2,690 (2,264) 426 1,123 16.7%
- -----------------------------------------------------------------------------------------------------------------------
2004 1,310 1,035 2,345 (1,791) 554 1,677 16.6%
- -----------------------------------------------------------------------------------------------------------------------
2005 1,310 690 2,000 (1,131) 869 2,546 17.1%
- -----------------------------------------------------------------------------------------------------------------------
2006 - 690 690 - 690 3,236 17.2%
- -----------------------------------------------------------------------------------------------------------------------
2007 1,310 - 1,310 - 1,310 4,546 18.4%
- -----------------------------------------------------------------------------------------------------------------------
2008 655 - 655 - 655 5,201 18.8%
- -----------------------------------------------------------------------------------------------------------------------
2009 - 690 690 - 690 5,891 18.9%
- -----------------------------------------------------------------------------------------------------------------------
2010 655 690 1,345 (835) 510 6,401 19.0%
- -----------------------------------------------------------------------------------------------------------------------
2011 - 345 345 - 345 6,746 18.7%
- -----------------------------------------------------------------------------------------------------------------------
2012 - 345 345 - 345 7,091 18.5%
- -----------------------------------------------------------------------------------------------------------------------
2013 655 - 655 - 655 7,746 18.7%
- -----------------------------------------------------------------------------------------------------------------------
2014 - 345 345 - 345 8,091 18.5%
- -----------------------------------------------------------------------------------------------------------------------
2015 1,310 345 1,655 (1,093) 562 8,653 18.6%
- -----------------------------------------------------------------------------------------------------------------------
2016 1,310 1,725 3,035 (2,719) 316 8,969 18.3%
- -----------------------------------------------------------------------------------------------------------------------
2017 - 690 690 - 690 9,659 18.6%
- -----------------------------------------------------------------------------------------------------------------------
2018 1,310 1,035 2,345 (1,946) 399 10,058 18.4%
- -----------------------------------------------------------------------------------------------------------------------
2019 655 - 655 - 655 10,713 18.6%
- -----------------------------------------------------------------------------------------------------------------------
2020 655 - 655 - 655 11,368 18.8%
- -----------------------------------------------------------------------------------------------------------------------
2021 - 345 345 (571) (226) 11,142 17.6%
- -----------------------------------------------------------------------------------------------------------------------
2022 1,310 - 1,310 (1,106) 204 11,346 17.8%
- -----------------------------------------------------------------------------------------------------------------------
2023 655 - 655 - 655 12,001 18.0%
- -----------------------------------------------------------------------------------------------------------------------
2024 1,310 345 1,655 (1,090) 565 12,566 17.9%
- -----------------------------------------------------------------------------------------------------------------------
2025 655 - 655 - 655 13,221 18.1%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL 17,030 10,935 27,965 (14,744) 13,221 Avg. reserve 18.1%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
20 Due to the abundance of inexpensive coal fired generation capacity in
PJM-West, there are no economic additions or retirements in this
region. All the additions in PJM are in the East and Central regions.
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The introduction of this substantial new capacity helps to explain why the PJM
market is characterized by relatively low energy prices and relatively high
capacity prices. When many of the nuclear units are retired, they are
immediately replaced in the model by new CC and CT units to meet system
reliability requirements. These units, like the nuclear plants, have relatively
low variable costs, which perpetuates low prices in the energy market. The going
forward costs of these units, coupled with the relatively low energy market
prices, require additional revenues from the capacity market. This keeps
capacity prices high throughout the study period. By the end of 2005, 5384 MW of
uneconomic generation is retired in PJM. At the same time the system adds 7930
MW of new capacity. This new capacity, composed of both CC and CT units,
replaces the retired nuclear units. New generating capacity is added in every
year of the study period, in order to meet the growing demand for power in the
region.
At the outset of the forecast period coal generation is at the margin for over
half the hours in a year. Over time, as gas-fired units are constructed to meet
load growth and nuclear units are retired (which has the effect of increasing
the base load utilization of coal), gas-fired units become the marginal source
of power for almost a third of the hours. Since Ironwood's costs are lower than
many coal units, Ironwood is "inframarginal" in the vast majority of hours; that
is, its costs are below the costs of the marginal unit.
In the Base Case, energy market prices show a steady, slow price growth
throughout the study period. Energy prices begin at $22.05 (1996 $s/21) per MWh
in 2001 and gradually increase to $25.86 by 2025 (See Figure 6-1 and Table 6-2).
In the High Gas Price Case, energy prices are approximately $.60 to $1.20 per
MWh above the Base Case throughout the forecast period. This sensitivity
represents the "downside" fuel case because of the increase in Ironwood's fuel
costs. In the Low Demand Growth Case, the impact of the reduction in demand
growth in 2017 can be clearly seen as a break in the price trend. By the end of
the forecast period the Low Demand Growth Case prices are about $2.00 per MWh
below the Base Case./22
- -----------
21 Fuel price estimates are left in real 1996$s to maintain consistency
with a proprietary Hagler Bailly RealTime(TM) database.
22 Note that while energy prices in the Low Demand Growth Case are below
the Base Case, this is due to prices remaining essentially flat in real
terms rather than significantly declining. This flat trend in real
prices is maintained although the Low Demand Growth Case assumes no
adjustment to the schedule of capacity additions or retirements in
reaction to the decline in demand growth.
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Figure 6-1
PJM West/Central Average Energy Prices
1996$
[GRAPHIC OMITTED]
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Table 6-2
PJM Average Energy Prices
(1996 $/MWh)
High Gas Low Demand
Base Case Price Case Growth Case
- --------------------------------------------------------------------------------
2001 $22.05 $23.02 $22.05
2002 $22.47 $23.36 $22.47
2003 $21.43 $22.05 $21.43
2004 $22.42 $23.09 $22.42
2005 $21.88 $22.82 $21.88
2006 $22.15 $23.18 $22.15
2007 $22.32 $23.20 $22.32
2008 $22.85 $23.56 $22.85
2009 $23.02 $23.68 $23.02
2010 $22.98 $23.85 $22.98
2011 $23.44 $24.29 $23.44
2012 $22.77 $23.99 $22.77
2013 $23.28 $24.15 $23.28
2014 $23.58 $24.58 $23.58
2015 $23.66 $24.85 $23.66
2016 $24.31 $25.17 $24.31
2017 $24.32 $25.16 $23.88
2018 $24.51 $25.17 $24.08
2019 $24.44 $25.75 $23.82
2020 $24.18 $25.33 $23.64
2021 $25.47 $26.56 $23.85
2022 $24.75 $25.94 $23.68
2023 $25.27 $25.71 $24.06
2024 $25.45 $26.17 $23.53
2025 $25.86 $26.47 $23.82
Table 6-3 presents the annual forecast of capacity values used in the study,
expressed in 1996 dollars per kW-year. Since it can be difficult to separately
assess the effects of capacity and energy prices, we also present in Table 6-4
an "all-in" price forecast that combines energy and capacity prices (calculated
using a 100% load factor). The forecasted all-in price for the Base Case is
$27.70/MWh in 2002, $27.96/MWh in 2012, and $29.98/MWh in 2022 (all in constant
1996 dollars).
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Table 6-3
PJM Capacity Prices
(1996 $/kW-yr)
All Cases
---------------------------------
2001 $45.84
2002 $45.84
2003 $45.84
2004 $45.84
2005 $44.01
2006 $44.34
2007 $44.17
2008 $44.74
2009 $41.65
2010 $44.13
2011 $42.80
2012 $45.49
2013 $45.84
2014 $45.84
2015 $45.84
2016 $45.84
2017 $45.84
2018 $45.46
2019 $45.84
2020 $45.84
2021 $45.78
2022 $45.78
2023 $45.78
2024 $45.78
2025 $45.78
We have used the Base Case capacity values throughout. We do so since the High
Gas Case does not affect capacity requirements and the reduced energy margins
would, all else equal, increase the revenue required for new capacity. With the
Low Demand Growth Case we do not believe that the posited capacity would
actually enter the market. As capacity became overbuilt, new entrants would
delay or cancel their projects. Over some period, the supply and demand for
capacity would return to equilibrium and might go beyond equilibrium to
shortage. The posited continual overbuild is not plausible for more than a brief
period. Thus we consider this
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sensitivity analysis to be a useful stress test for energy prices, but not a
credible capacity scenario.
Table 6-4
PJM West/Central Average
All-In Prices
(1996 $)/1
Low Demand
Base Case High Gas Case Growth Case
- --------------------------------------------------------------------------------
2001 $27.28 $28.25 $27.28
2002 $27.70 $28.59 $27.70
2003 $26.66 $27.28 $26.66
2004 $27.65 $28.32 $27.65
2005 $26.90 $27.84 $26.90
2006 $27.21 $28.24 $27.21
2007 $27.36 $28.24 $27.36
2008 $27.96 $28.67 $27.96
2009 $27.77 $28.43 $27.77
2010 $28.02 $28.89 $28.02
2011 $28.33 $29.18 $28.33
2012 $27.96 $29.18 $27.96
2013 $28.51 $29.38 $28.51
2014 $28.81 $29.81 $28.81
2015 $28.89 $30.08 $28.89
2016 $29.54 $30.40 $29.54
2017 $29.55 $30.39 $29.11
2018 $29.70 $30.36 $29.27
2019 $29.67 $30.98 $29.05
2020 $29.41 $30.56 $28.87
2021 $30.70 $31.79 $29.08
2022 $29.98 $31.17 $28.91
2023 $30.50 $30.94 $29.29
2024 $30.68 $31.40 $28.76
2025 $31.09 $31.70 $29.05
1 Assumes a 100% capacity factor in calculating the capacity price per
MWh. This assumption has the effect of understating the capacity price;
for capacity factors below 100% the capacity payment per MWh increases.
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6.3 IMPLICATIONS FOR AES IRONWOOD
In this section, we discuss capacity factors (CF)/23, energy prices, and
dispatch for Ironwood under the three cases. As shown in Figure 6-2, in the Base
Case the CF gradually rises from the 85% range to over 90% by 2019. This
improvement in utilization reflects an assumed decreased forced outage rate over
time (this is a typical pattern as units move past the "break-in" period), and
increasing demand for power in PJM in conjunction with unit retirements. During
the early years of operation we would expect Ironwood to be backed-down during
low load periods, such as some Spring and Fall weekends and some evening
periods. As load increases the number of backdown periods declines and operation
of the plant is more continuous.
Figure 6-2
AES Ironwood Capacity Factors
[GRAPHIC OMITTED]
- ----------
23 The capacity factor represents how fully used the plant is in a
specific year. It is the ratio of total MWh produced to the total MWh
the plant could have produced if fully utilized every hour of the year
(i.e., 8760 hours).
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The sawtooth pattern in the figure reflects the impact of maintenance outages.
Major maintenance outages take place every six years with less significant
outages at three-year intervals.
Even in the Low Demand Growth Case the capacity factors remain above 90% during
three of the first four years of the merchant tail. In the High Gas Price Case
dispatch is degraded and the capacity factors are under 85% for the early years
of operation. However, as PJM load grows the dispatch of the plant steadily
improves and by the merchant tail is closely tracking the Base Case. In short,
demand growth combined with unit retirements creates a "floor" that stabilizes
the utilization of the Project during the merchant tail.
Simultaneous with its high utilization, the Ironwood plant achieves an average
energy price for its power that is higher than the time weighted PJM market
price for energy (a result shown in Figure 6-3 for the Base Case). AES Ironwood
will receive this higher energy price during the merchant period. (The
discussion that follows deals only with energy prices and does not cover
capacity revenues, which are discussed above.) The reasons the Ironwood plant
receives higher than average energy prices are (i) the plant is not dispatched
in the lowest price hours; (ii) the plant's planned outages are scheduled during
low price periods; iii) ramping from and to shutdown occurs predominantly in low
priced hours; and (iv) compensation is received for negative cycle costs./24
Excluding the lowest priced hours and including reimbursement for the negative
cycle costs raises the average price received by the plant above the PJM
average.
- ----------
24 Negative cycle costs are costs incurred in excess of revenues at times
when a unit is dispatched by the ISO to provide spinning reserve,
transmission system support, or some other service, or is kept on due
to minimum up-time or other constraints or ISO decisions. PJM rules
currently provide for make-whole payments to compensate generators for
negative cycle costs, and this procedure is expected to continue.
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Figure 6-3
Ironwood's Energy Revenue vs PJM's
Average Energy Price 1996$
Base Case
[GRAPHIC OMITTED]
The plant's economics are such that it is inframarginal to (less expensive than)
much coal generation and most other capacity in PJM. Figure 6-4 shows Ironwood's
position on the PJM supply curve for 2002, 2012, and 2022. As new, more
efficient capacity is added over time, Ironwood moves up the supply curve;
however, at the same time the curve is elongated as demand increases. The
overall effect is that Ironwood remains at a favorable point on the supply curve
throughout the study period. The figure illustrates that Ironwood is positioned,
in all years, well below the highest cost coal unit./25 These results are
consistent with the high utilization of the plant shown in Figure 6-2.
- ----------
25 Units positioned below the lowest cost coal unit include nuclear and
hydro. Units positioned above the highest cost coal unit include oil
and gas-fired steam units and combustion turbines and other peakers.
Note that the supply curves exclude emergency power. Emergency power is
incorporated within the RealTime(TM) model in the estimation of energy
prices.
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Figure 6-4
PJM Supply Curves (1996 $/MWh)
2002
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Figure 6-4 (cont.)
PJM Supply Curves (1996 $/MWh)
2012
[OBJECT OMITTED]
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2022
[OBJECT OMITTED]
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- --------------------------------------------------------------------------------
CHAPTER 7
Conclusions
Based on our analysis, we believe that the facility's dispatch position on the
supply curve will be highly competitive and well below the highest priced
baseload coal plant during the post-PPA period (and during the term of the power
purchase agreement) due to the facility's high efficiency, low production costs,
and the influence of demand growth in conjunction with unit retirements.
The facility is expected to have an average capacity factor of 90.7% during the
post-PPA period. The addition of new, more efficient gas-fired power generation
facilities in PJM over time will not adversely affect the facility's dispatch.
Even in the two macroeconomic "downside sensitivity" cases of low demand growth
and high gas prices, the Facility's average capacity factor remains
significantly high at 89.6% during the post-PPA period.
During the term of the power purchase agreement, the economics of the Project
are not sensitive to fuel prices because the costs of fuel are the
responsibility of the power purchaser under the power purchase agreement's fuel
tolling provisions.
In summary, the economics of Ironwood appear to be robust. We cannot, of course,
account for all possible circumstances in the energy and fuel markets. What this
study does indicate is that given the operating parameters, costs, and other
modeling assumptions, and for a range of scenarios which provide a significant
test to the economics of the Project, the AES Ironwood project is financially
viable.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Section 18-108 of the Delaware Limited Liability Company Act provides
that subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may, and shall
have the power to, indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
Section 4.2 of our Limited Liability Company Agreement provides that we
shall indemnify to the fullest extant permitted by the laws of the State of
Delaware, as from time to time in effect, the Directors and Officers of our
company.
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3* Amended and Restated Limited Liability Company Agreement, dated as of October 4, 1999, by AES Ironwood,
L.L.C.
4.1* Indenture and the First Supplemental Indenture, dated as of June 1, 1999, by and among AES Ironwood,
L.L.C., the Trustee and the Depositary Bank.
4.2* Collateral Agency and Intercreditor Agreement, dated as of June 1, 1999, by and among AES Ironwood, L.L.C.,
the Trustee, the Collateral Agent, the Debt Service Reserve Letter of Credit Provider, the Construction Period
Letter of Credit Provider and the Depositary Bank.
4.3* Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of June 1, 1999, by and among
AES Ironwood, L.L.C., the Debt Service Reserve Letter of Credit Provider and the Banks named therein.
4.4* Construction Period Letter of Credit and the Reimbursement Agreement, dated as of June 1, 1999, by and
among AES Ironwood, L.L.C., the Construction Period Letter of Credit Provider and the Banks named therein.
4.5* Global Bonds, dated June 25, 1999, evidencing 8.857% Senior Secured Bonds of AES Ironwood, L.L.C. due 2025
in the principal amount of $308,500,000.
4.6* Equity Subscription Agreement, dated as of June 1, 1999, by and among AES Ironwood, L.L.C., AES Ironwood, Inc.
and the Collateral Agent.
4.7* Security Agreement, dated as of June 1, 1999, by and between AES Ironwood, L.L.C. and the Collateral Agent.
4.8* Pledge and Security Agreement, dated as of June 1, 1999, by and between AES Ironwood, Inc. and the Collateral
Agent.
4.9* Consent to Assignment, dated as of June 1, 1999, by and between Williams Energy and the Collateral Agent,
and consented to by AES Ironwood, L.L.C.
4.10* Consent to Assignment, dated as of June 1, 1999, by and between The Williams Companies, Inc. and AES
Ironwood, L.L.C., and consented to by AES Ironwood, L.L.C.
4.11* Consent to Assignment, dated as of June 1, 1999, by and between Siemens Westinghouse and the Collateral
Agent, and consented to by AES Ironwood, L.L.C. (with respect to the Construction Agreement).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.12* Consent to Assignment, dated as of June 1, 1999, by and between Siemens Westinghouse and the Collateral Agent
and consented to by AES Ironwood, L.L.C. (with respect to the Maintenance Services Agreement).
4.13* Consent to Assignment, dated as of June 1, 1999, by and between Siemens Corporation and the Collateral
Agent, and consented to by AES Ironwood, L.L.C.
4.14* Consent to Assignment, dated as of June 1, 1999, by and between AES Prescott and the Collateral Agent, and
consented to by AES Ironwood, L.L.C.
4.15* Consent to Assignment, dated as of June 1, 1999, by and between Metropolitan Edison Company d/b/a GPU
Energy and the Collateral Agent, and consented to by AES Ironwood, L.L.C.
4.16* Consent to Assignment, dated as of June 1, 1999, by and between City of Lebanon Authority and the
Collateral Agent, and consented to by AES Ironwood, L.L.C.
4.17* Consent to Assignment, dated as of June 1, 1999, by and between Pennsy Supply and the Collateral Agent, and
consented to by AES Ironwood, L.L.C.
4.18* Assignment and Assumption Agreement, dated June 25, 1999, by and between AES Ironwood, Inc. and AES
Ironwood, L.L.C. (with respect to the Construction Agreement).
4.19* Assignment and Assumption Agreement, dated June 25, 1999, by and between AES Ironwood, Inc. and AES
Ironwood, L.L.C. (with respect to the Maintenance Services Agreement).
5** Opinion of Hunton & Williams regarding Legality.
10.1* Guaranty, dated as of February 5, 1999, by and between The Williams Companies, Inc. and AES Ironwood,
L.L.C.
10.2** Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, and Amendment No. 1 to Amended
and Restated Power Purchase Agreement, dated as of June 18, 1999, between AES Ironwood, L.L.C. and Williams
Energy. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.)
10.3** Engineering, Procurement and Construction Services Agreement, dated as of September 23, 1998 (the
"Construction Agreement"), as amended, by and between AES Ironwood, L.L.C. and Siemens Westinghouse.
(Portions of this exhibit have been omitted pursuant to a request for confidential treatment.)
10.4* Guaranty, dated as of September 23, 1998, by and between Siemens Corporation and AES Ironwood, L.L.C.
10.5** Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September
23, 1998, and Amendment No. 1 to Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services
Contract, dated as of January 13, 1999 (the "Maintenance Services Agreement"), by and between AES Ironwood,
L.L.C. and Siemens Westinghouse. (Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.)
10.6* Development and Operations Services Agreement, dated as of June 1, 1999, by and between AES Ironwood,
L.L.C. and AES Prescott.
10.7* Effluent Supply Agreement, dated as of March 3, 1998, by and between AES Ironwood, L.L.C. and City of
Lebanon Authority.
10.8* Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999, by and between AES
Ironwood, L.L.C. and Metropolitan Edison d/b/a GPU Energy.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.9** Agreement Relating to Real Estate, dated as of October 23, 1998, by and between AES Ironwood, L.L.C. and
Pennsy Supply.
10.10** Easements and Right of Access Agreement, dated as of April 15, 1999, by and between AES Ironwood, L.L.C.
and Pennsy Supply.
23.1* Consent of Stone & Webster.
23.2* Consent of Hagler Bailly.
23.3** Consent of Hunton & Williams (contained in Exhibit 5).
23.4* Consent of Deloitte & Touche LLP.
24* Power-of-Attorney (contained on the signature page of this Registration Statement).
25* Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as successor Trustee under
the Indenture.
27* Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Letter to Clients.
99.3* Form of Letter to Registered Holders and DTC Participants.
99.4* Form of Notice of Guaranteed Delivery.
</TABLE>
-----------------------
* Previously filed as an Exhibit to AES Ironwood, L.L.C.'s Registration
Statement on Form S-4 (File No. 333-91391).
** Previously filed as an Exhibit to Amendment No. 1 to AES Ironwood,
L.L.C.'s Registration Statement on Form S-4(File No. 333-91391).
ITEM 22. Undertakings
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the
total dollar value of the securities offered would
not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
C. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in the documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amendment to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lebanon, and State of Pennsylvania, on January 19, 2000.
AES IRONWOOD, L.L.C.
By: /s/ John Ruggirello
------------------------------
John Ruggirello
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Ruggirello President
- -----------------------------------------
John Ruggirello January 19, 2000
/s/ Barry Sharp Vice President and
- ----------------------------------------- Chief Financial Officer
Barry Sharp (and principal accounting,
officer) and Director January 19, 2000
/s/ Dennis Bakke Director January 19, 2000
- -----------------------------------------
Dennis Bakke
/s/ Roger Naill Director January 19, 2000
- -----------------------------------------
Roger Naill
</TABLE>
