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In the event of a default by CAPP and the PPA's termination, part of the Seller Termination Payment CAPP will be required to pay will be an amount relating to New Governmental Charges. It is important to understand that a termination of the PPA under circumstances of a CAPP default may result in a substantial portion of the CAPP bonds remaining outstanding. In the event of a default by Seller and the PPA's termination, CAPP will not be responsible for any continuing New Governmental Charges. Risk o Non-Appropriation bv Participating Members The capacity payment from CAPP to Seller under the PPA purchases the electric capacity associated with the contract electricity and is approximately 3/5 of the total cost of electricity under the agreement. The annual capacity charge paid by each Participating Member under the Member Contract will be used to support the CAPP contract revenue bonds. These annual capacity charges will be secured by a pledge of the Participating Member's ad valorem taxes, will be debt under State law and will not be subject to non-appropriation. The annual energy payment, that is the remaining approximately 2/5 of the total cost of electricity under the PPA, is not secured by taxes, but is subject to annual appropriation by each Participating Member. Under the PPA, CAPP is obligated to purchase electric energy on an annual basis and pay for such electric energy. Under the Member Contract, a Participating Member will make its annual determination whether to purchase such electric energy to which it is entitled (pursuant to its acquisition of a portion of the electricity rights CAPP has obtained under the PPA). This purchase is subject to annual appropriation and dependent on each Participating Member appropriating funds in its annual budget for its share of electric energy under the Member Contract. If a Participating Member fails to appropriate in any year, CAPP should have three options to either mitigate or eliminate the potential negative consequences of any such non- appropriation. CAPP presently believes its options include: (i) selling the available electric energy to other Participating Members (or the non-appropriating Participating Member assigning its rights to a willing and appropriating Participating Member); (ii) selling the electric energy into the ERCOT wholesale market through a series of short-term sales; or (iii) requesting Seller to resell the energy. It is anticipated that these options should effectively mitigate the risk of isolated non-appropriation of a small amount of CAPP's electric energy load (recognizing that only 2/5 of the electric energy's cost needs to be realized through such mitigating options). These mitigating options, however, only contemplate isolated non-appropriation by a small number of Participating Members. If non-appropriation occurs by a significant number of the Participating Members affecting a significant portion of CAPP's aggregated electric load under the PPA, such occurrence may result in CAPP defaulting under the PPA. The most likely reason for such wide scale non-appropriations would be that the cost of the electric energy portion under the PPA and the CAPP-Participating Member Contract is more than the then projected market price for electric energy for an extended period. 7