05 FinanceCITY COUNCIL AGENDA ITEM BRIEFING SHEET
Submittal Date:
Originating Department:
Presented By:
Agenda Item No.:
12-11-2008
Council Date:
Finance
Gene Anderson
5.
12-15-2008
RECOMMENDED MOTION:
Deliberate and act on an ordinance approving a long term electric power contract with
Cities Aggregation Power Project, Inc. for electrical capacity and energy.
POLICY ISSUE(S):
Fiscal Management.
See attached staff report.
BOARD/COMMISSION RECOMMENDATION:
NONE
EXHIBITS:
Staff report, ordinance, energy sales contract, power purchase agreement, memo on risks and other
considerations.
ACTION: '
BUDGET INFO:
[--j Financial Report ❑ Minute Order
Expense
$NA
❑ Department Report ❑ Resolution
Budgeted Amt.
$NA
❑ Presentation E] Ordinance
Y7'D Actual
$NA
❑ Public Hearing ❑ Other
Acct. Name
NA
Acct. Number
NA
FISCAL NOTES:
None
REVIEWED AND APPROVED BY:
❑ Administration City Clerk ❑ Community Development ❑ EMS/IT ~ Finance ❑ Fire
❑ Municipal Court ❑ Legal ❑ Library ❑ Police ❑ Eng./Public Works ❑ Utilities
City of Paris VA 0 1) 0 0 1 Revised 2/04/08
STAFF REPORT
The City of Paris is a member of the Cities Aggregation Power Project ("CAPP")
a non-profit political subdivision corporation aggregator. Created in 2001 in anticipation
of the deregulation of the Texas retail electric market, CAPP pools members' electric
power needs in order to negotiate lower, more stable prices through bulk purchasing.
CAPP is run by a voluntary 10 member Board of Directors, comprised entirely of city
employees and city officials.
CAPP and its sister political subdivision corporation aggregator, South Texas
Aggregation Project, Inc. ("STAP"), have more than 150 political subdivision members
that purchase in excess of one billion kWh annually. Together CAPP and STAP have
member savings that have surpassed $100 million since the Texas electric market
deregulated in 2002. Historic savings for the City of Paris due to its membership with
CAPP are as follows based comparing actual City cost vs. the price to beat rate.
1.
2002
$160,156
2.
2003
$350,440
3.
2004
$592,988
4.
2005
$326,032
5.
2006
$347,546
6.
2007
not available
CAPP has entered into a Power Purchase Agreement ("PPA") with Luminant
Generation Company LLC, Big Brown Power Company, LLC and Oak Grove
Management Company, LLC (collectively, "Luminant") for approximately 50 MW of
baseload power from seven different units over a 24-year period. CAPP has entered into
the contract on behalf of all CAPP members and STAP members that are willing to be
allocated a portion of approximately 50 MW, corresponding to each participating
member's energy consumption as a percentage of all participating members'
consumption.
The attached ordinance commits the City to purchasing electric power to satisfy a
portion of its annual energy needs (approximately 60-70% initially and declining
thereafter if the City's consumption increases) through the CAPP PPA for 24 years and to
pay a capacity payment equal to its proportionate amount of the debt service obligation
associated with CAPP's prepayment of PPA capacity costs. The estimated annual
capacity payment for Paris would be $492,000. This is not an additional cost but
represents a shift of this portion of the electric bill from an operating expense to a
capacity related expense. The ordinance approves the Energy Sales Contract Between
CAPP and the City (the "Member Contract") and authorizes the City officers and
employees as may be appropriate to take all actions necessary to carry out the terms of
this ordinance and the Member Contract.
CAPP Lonti-Term Contract Background•
Although CAPP member savings are significant, the price volatilitv in the market
makes it difficult for CAPP members to accurately budget for power expenditures from
year to year. This is because power contract options made available to retail customers
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like CAPP, regardless of source have been priced as if the energv was produced
exclusivelv from natural gas-fired plants The price of natural gas is extremelv volatile.
Energy experts, including the Chairman of the Public Utility Commission of Texas, agree
that this trend will continue over the long term.
In 2005, the CAPP Board authorized its consultants to find alternatives to
purchasing the entirety of CAPP power requirements in a market that links the price of all
energy to natural gas prices. The CAPP long-term contract to be approved by this
ordinance is a result of these efforts. Contracting for a 24-vear commitment of
lignite/coal-fired canacitv at a fixed price (with slight escalation over the term of the
contract to serve a portion of inembers' power requirements will lower overall energy
costs and nrovide nolitical subdivisions with an abilitv to more accurately_predict and
stabilize the impact of energy prices on annual budgets
The CAPP long-term contract allows for better, more fiscally responsible budgets
resulting from the stable and predictable long term energy costs that will be available to
CAPP members through the baseload contract. Taxpayers benefit because CAPP
member cities do not have to cut services or pass higher energy costs on through higher
taxes when electricity prices experience volatility and spiking because of fluctuating
market prices.
Puraose of the Ordinance:
This ordinance approves the CAPP Member Contract that commits the City to
purchasing electric power to satisfy approximately 60-70% of its recent energy needs
through the CAPP PPA for up to 24 years and to pay a capacity payment equal to its
proportionate amount of the debt service obligation associated with CAPP's prepayment
of PPA capacity costs. The ordinance acknowledges review of the Member Contract and
the Disclosure Statement and authorizes the City Manager, city officer or city employee
as may be appropriate to sign or modify the Member Contract and to take all necessary
actions to carry out the terms of the ordinance, the Member Contract, and Disclosure
Statement. The Member Contract approved by this ordinance makes certain that capacity
payments (debt service obligation) payable by the City will be public property finance
contractual obligations pursuant to Texas Local Government Code Chapter 271,
Subchapter A, secured by a pledge of such member's ad valorem taxes, which will be
assigned to support debt issued by CAPP to pay the capacity costs of the PPA.
The CAPP Board's recommendation and belief that the long-term contract will result in
lower prices for electricity and member savings was made after carefully weighing the
benefits and risks of this transaction. The benefits and risks inherent in the long-term
contract will impact our respective municipalities. The CAPP Board endorses
participation in the long-term contract as the most economically attractive alternative
despite these identified risks. The decision whether to participate in the long-term
contract must be made by individual CAPP members on or before December 17, 2008.
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ORDINANCE NO.
ORDINANCE OF THE CITY OF PARIS, TEXAS APPROVING AN
ELECTRIC POWER CONTRACT WITH CITIES AGGREGATION
POWER PROJECT, INC. ("CAPP") FOR ELECTRIC CAPACITY
AND ENERGY, PROVIDING CAPACITY PAYMENTS AS PUBLIC
PROPERTY FINANCE CONTRACTUAL OBLIGATIONS OF THE
CITY, PLEDGING AND LEVYING AN AD VALOREM TAX TO
SUCH PAYMENTS, PROVIDING FOR ENERGY PAYMENTS
FOR ELECTRIC ENERGY SUBJECT TO ANNUAL
APPROPRIATION BY THE CITY, PROVIDING FOR THE
ASSIGNMENT OF SUCH CAPACITY PAYMENTS TO SUPPORT
DEBT ISSUED BY CAPP INCURRED TO ACQUIRE ELECTRIC
CAPACITY RIGHTS FROM LUMINANT GENERATION
COMPANY AND RELATED ENTITIES PURSUANT TO A 24-
YEAR POWER PURCHASE AGREEMENT ("PPA");
AUTHORIZING THE CITY MANAGER OR OTHER
APPROPRIATE CITY OFFICER OR EMPLOYEE TO EXECUTE
AND DELIVER THE MEMBER CONTRACT; FURTHER
AUTHORIZING THE CITY MANAGER OR OTHER
APPROPRIATE CITY OFFICER OR CITY EMPLOYEE TO SIGN
ADDITIONAL AGREEMENTS ARRANGED BY CAPP FOR
ELECTRIC POWER NEEDED BY THE CITY IN THE PERIOD
2009-2013 IN EXCESS OF THE AMOUNT OBTAINED UNDER
THE MEMBER CONTRACT; ACKNOWLEDGING,
AUTHORIZING AND DIRECTING THE CITY MANAGER OR
APPROPRIATE CITY OFFICER OR CITY EMPLOYEE TO SIGN
AND RETURN CAPP'S DISCLOSURE LETTER; FURTHER
AUTHORIZING THE CITY MANAGER OR APPROPRIATE CITY
OFFICER OR OTHER CITY EMPLOYEE TO ACCEPT
CONFORMING CHANGES TO THE MEMBER CONTRACT
DEPENDENT ON THE FINAL TERMS OF THE CAPP PPA;
PROVIDING FOR VALIDITY AND SUFFICIENCY OF CITY
EMPLOYEE'S OR CITY OFFICER'S SIGNATURE IF THE
OFFICER OR EMPLOYEE LEAVES OFFICE OR EMPLOYMENT
PRIOR TO THE DELIVERY OF THE MEMBER CONTRACT;
ADOPTING A SAVINGS CLAUSE; DETERMINING THAT THIS
ORDINANCE WAS PASSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE TEXAS OPEN MEETINGS ACT.
WHEREAS, the City of Paris must purchase electricity in order to perform its
proprietary and governmental functions; and
WHEREAS, the price of power sold in the deregulated retail market in Texas has
been directly linked to the daily fluctuations for natural gas futures prices, regardless of
the type of generation fuel; and
w Ui)U0-1,
WHEREAS, natural gas prices are extremely volatile, resulting in an upward cost
trend and significant electric price instability; and
WHEREAS, the City is a member of the non-profit political subdivision
corporation Cities Aggregation Power Project, Inc. ("CAPP"), which has the legal
authority to contract for the purchase of electricity on behalf of more than 100 political
subdivision members; and
WHEREAS, CAPP has endeavored to provide its members with the most
favorable energy pricing available in the market, delivering more than $100 million in
savings for its members since 2002; and
WHEREAS, the CAPP Board of Directors is a voluntary ten-member board
comprised entirely of city employees and city officials that directs the activities of
CAPP's legal and energy advisors; and
WHEREAS, the CAPP Board of' Directors has investigated potential long-term
contracting options to both lower and stabilize electric prices for member political
subdivisions that must prepare annual budgets and require cost predictability for essential
services like electricity; and
WHEREAS, CAPP negotiated a Purchase Power Agreement ("PPA") with
owners of non-gas fired generation for the long-term, fixed price supply of power, which
will allow participating CAPP members ta meet a portion of energy needs (approximately
60 percent) at a stable, known price for a 24-year period; and
WHEREAS, the PPA calls for CAPP to contract with Luminant Generation
Company LLC, Big Brown Power Company, LLC and Oak Grove Management
Company, LLC (collectively, "Luminant") for approximately 150 MW of baseload power
supplied by seven different units over 24 years and pre-paying a portion of the capacity
costs associated with power purchased pursuant to the long-term contract; and
WHEREAS, the City wishes to acquire a portion of its future electric energy
pursuant to the PPA between CAPP and Luminant; and
WHEREAS, to acquire power pursuant to the PPA, the City must enter into an
electric power contract, the Energy Sales Contract Between CAPP and the City of Paris
(the "Member Contract"), substantially in the form attached hereto; and
WHEREAS, CAPP will issue general revenue bonds, with the bond proceeds
used to pre-pay a portion of the 24-year capacity commitment pursuant to the PPA on
behalf of the City and all participating CAPP members; and
WHEREAS, bonds issued by CAPP will be backed by the individual Member
Contracts of each participating CAPP city committing to pay a capacity payment equal to
its proportionate amount of the debt service obligation associated with CAPP's
prepayment of PPA capacity costs; and
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WHEREAS, the City's allocated total maximum capacity payment is $6,052,000
(total maximum monthly capacity payment is $41,000); and
WHEREAS, the Member Contract requires that certain capacity payments
payable by each participating CAPP member will be public property finance contractual
obligations pursuant to Texas Local Government Code Chapter 271, Subchapter A,
secured by a pledge of such member's ad valorem taxes, which will be assigned to
support debt issued by CAPP to pay the capacity costs of the PPA; and
WHEREAS, the fixed capacity component constitutes a long-term, general
obligation tax debt of each participating member that is secured by a pledge of the
member's ad valorem taxes; and
WHEREAS, CAPP must secure an additional "wrap" agreement to arrange for
power deliveries when needed to meet the remaining portion of the City's energy needs
in excess of the baseload power provided under the Member Contract, with said wrap
agreement needing ratification/approval of the City; and
WHEREAS, the resulting power supply blend adds to both stability and savings
for the City; and
WHEREAS, the total capacity and energy to be purchased under the long-term
PPA cannot be known until all CAPP members have acted on their opportunity to
participate in the transaction; and
WHEREAS, a change in total capacity and energy obligated under the PPA will
change the cost of the transaction and may change the percentage of debt service
obligation and energy assigned to participating CAPP members; and
WHEREAS, the PPA is an effort, initiated by CAPP pursuant to direction and
support of its participating members, including the City, to diversify fuel sources and
minimize the risk associated with complete reliance upon electric pricing linked to
natural gas costs that are influenced by unpredictable weather, geo-political and global
economic factors, but nonetheless the PPA involves a number of somewhat unique risks
and uncertainties; and
WHEREAS, CAPP has prepaxed and distributed a Disclosure Statement dated
September 10, 2008, in the form attached hereto that identifies and describes certain risks
(but may not describe all risks) associated with the transactions contemplated by the
Member Contract and the PPA; and
WHEREAS, the Disclosure Statement is to be acknowledged, signed, and
returned to CAPP, prior to pricing of CAPP's bonds, if the Member Contract is approved;
and
WHEREAS, it is hereby officially found and determined that the meeting at
which this ordinance was passed was open to the public, and public notice of the time,
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place and purpose of said meeting was given, all as required by Chapter 551, Texas
Government Code; and
NOW, THEREFORE BE IT ORDAINED BY THE CITY COUNCIL OF
THE CITY OF PARIS, TEXAS THAT:
Section 1. The CAPP Member Contract, attached hereto and incorporated herein for
all purposes is deemed necessary and desirable for the City to meet its proprietary
functions and basic governmental responsibilities and is hereby approved.
Section 2. The City acknowledges that the Member Contract requires that certain
capacity payments payable by the City will be public property finance contractual
obligations pursuant to Texas Local Government Code Chapter 271, Subchapter A,
secured by a pledge of such member's ad valorem taxes, which will be assigned to
support debt issued by CAPP to pay the capacity costs of the PPA; and the City further
acknowledges that the fixed capacity component constitutes a long-term, general
obligation tax debt of the City that is secured by a pledge of the City's ad valorem taxes.
Section 3. The City of Paris hereby acknowledges that it has reviewed the Member
Contract and the Disclosure Statement dated September 10, 2008, and the City Manager,
or other appropriate officer or staff person of the City, is authorized and directed to sign,
date, and return by December 17, 2008, to CAPP both the Member Contract and such
Disclosure Statement.
Section 4. The City Manager, or other appropriate officer or staff person of the City,
is authorized to approve modifications and corrections to the Member Contract that are
necessary to conform to changes to the assigned cost in the PPA after all CAPP members
have made decisions regarding participation in the long-term PPA, so long as no such
changes increase the City's capacity payment obligations in any year from the amounts
reflected in the Member Contract attached hereto.
Section 5. The City Manager, or other appropriate officer or staff person of the City,
is authorized to sign additional agreements arranged by CAPP for the provision of
electricity during the period 2009-2013 that are necessary to meet the City's power needs
that exceed the power arranged through the Member Contract with CAPP, with the
understanding that any agreement for energy beyond 2009 is subject to the right of annual
appropriation.
Section 6. The City Manager, or other appropriate officer or staff person of the City,
is hereby authorized, empowered and directed from time to time and at any time to do
and perform all such acts and things and to execute, acknowledge and deliver in the name
and under the corporate seal and on behalf of the City all such instruments, whether or
not herein mentioned, as may be necessary or desirable in order to carry out the terms and
provisions of this ordinance, the Member Contract and the Disclosure.
Section 7. The City Manager, or other appropriate officer or staff person of the City,
is hereby authorized and directed to approve any changes or corrections necessary to this
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ordinance, the Member Contract or any ancillary agreement, certificate or document,
prior to the initial delivery of the Member Contract in order to (i) correct any ambiguity
or mistake or properly or more completely document the transactions contemplated and
approved by this ordinance, (ii) approve any changes to the Member Contract as
contemplated in the recitals hereto and Section 3 hereto, or (iii) obtain the approval of the
Member Contract (and the debt issued by CAPP relating to the PPA) by the Texas
Attorney General's office.
Section 8. In case any officer of the City whose signature shall appear on the
Member Contract shall cease to be such officer before the delivery of such Member
Contract, such signature shall nevertheless be valid and sufficient for all purposes the
same as if such officer had remained in office until such delivery.
Section 9. That if any one or more sections or clauses of this ordinance is adjudged to
be unconstitutional or invalid, such judgment shall not affect, impair or invalidate the
remaining provisions of this ordinance and the remaining provisions of the ordinance
shall be interpreted as if the offending section or clause never existed.
Section 10. The City hereby finds that the statements set forth in the recitals of this
ordinance are true and correct, and the City hereby incorporates such recitals as a part of
this ordinance.
Section 11. That by a supermajority vote of _ ayes and _ nays, the City Council voted
to suspend the rule requiring two readings before adoption of this ordinance.
Section 12. That this ordinance shall become effective from and after its passage of the
first reading and publication as reyuired by law.
PASSED AND ADOPTED on second and final reading this 15th day of
December, 2008.
Jesse James Freelen, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent McIlyar, City Attorney
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MEMORANDUM
TO: Members of Cities Aggregation Power Project, Inc. and South Texas Aggregation
Power Project, Inc.
FROM: Board of Directors, Cities Aggregation Power Project, Inc. ("CAPP")
Board of Directors, South Texas Aggregation Power Project, Inc. ("STAP")
DATE: September 10, 2008
SUBJECT: Risks and Considerations Disclosure to CAPP and STAP Members Potentially
Participating in the Long Term Power Purchase Agreement MUST BE
ACKNOWLEDGED BY EACH PARTICIPATING MEMBER
This disclosure memorandum is intended to discuss some of the risks and considerations
involved in (i) the proposed long term power purchase agreement ("PPA") between CAPP and
Luminant Generation Company, LLC, Big Brown Power Company LLC and Oak Grove
Management Company, LLC (collectively, "Seller") to provide electric capacity and energy to
the members of CAPP who choose to participate in the financing of the PPA ("Participating
Members") and (ii) the proposed CAPP-Participating Member Energy Sales Contract (the
"Member Contract"), by which a Participating Member participates in the PPA. Such risks and
considerations are not organized in any particular order of importance and each potential
Participating Member must review and assess the whole of this memorandum.
THIS MEMORANDUM IS NOT 1NTENDED TO PROVIDE A DETAILED
EXPLANATION OF THE PPA MEMBER CONTRACT OR CAPP CONTRACT REVENUE
BOND TRANSACTION OR TO PROVIDE; AN ECONOMIC AND BUSINESS ANALYSIS
OF SUCH TRANSACTION.
THIS MEMORANDUM IS NOT, AND IS NOT INTENDED TO BE, A COMPLETE
DISCUSSION OF ALL MATERIAL RISKS AND CONSIDERATIONS INVOLVED WITH
THE PPA AND THE MEMBER CONTRACT. NO REPRESENTATION IS MADE BY
CAPP, STAP OR THEIR RESPECTIVE LE(JAL COUNSELS AND OTHER CONSULTANTS
THAT ALL MATERIAL RISKS AND CONSIDERATIONS ARE DISCUSSED OR
DESCRIBED IN THIS MEMORANDUM.
Each potential Participating Member is advised to undertake its own assessment of the
PPA, the Member Contract and the contemplated transactions described therein and herein.
Copies of the most current forms of the PPA and the Member Contract are available from
CAPP. In addition, this memorandum references certain external documents, reports and filings
which CAPP will assist any potential Participating Member in obtaining; however, neither
CAPP, STAP, their respective legal counsel and other consultants make any representation or
warranty with respect to the information, statements or analysis contained in any such sources, as
of the date of any such source or as of the date of this memorandum.
a UoUulGli
RISKS AND CONSIDERATIONS
PPA
Seller's Leveraged Buvout and Securitv for Seller's ObliQations under PPA
Seller's ultimate parent entity, Energy Future Holdings Company ("EFH"), Energy
Future Competitive Holdings Company ("EFCH") and Texas Competitive Electric Holdings
Company, LLC ("TCEH"), borrowed approximately $46 billion in October 2007 to privately
purchase, through a leveraged buyout, the publicly traded TXU Corp. ("TXU"), formerly the
largest electric utility holding company within ERCOT (the "EFH LBO"). Approximately $26
billion was borrowed from Citibank, N.A., Goldman Sachs Credit Partners L.P., J. Aron &
Company, JPMorgan Chase Bank, N.A., Credit Suisse and other lenders and parties who were
provided a first lien security interest in the assets (excluding assets related to Oncor Electric
Delivery Company, LLC), Seller and the certain other TCEH affiliates and subsidiaries
(collectively, "TCEH Pledged Entities"), including all generation assets formerly owned by
TXU. Another approximately $20 billion was borrowed through unsecured debt of EFH and
TCEH. EFH, TCEH and EFCH each have credit ratings below investment grade or "junk"
ratings.
For a more complete description of the EFH LBO, EFCH and the associated credit
ratings, see the presentation entitled "Energy Future Holdings Post Merger Overview," dated
January 7, 2008; the publicly available filings of EFH with the U.S. Securities and Exchange
Commission (www.energyfutureholdings.com/financial/) (the "SEC Filings"); and the Standard
and Poor's Ratings Service ("S&P") reports of July 15, 2008 and March 21, 2008 (to the extent
not superseded by the July 15, 2008 report) relating to EFH and the S&P report of October 11,
2007 (to the extent not superseded by the July 15, 2008 and March 21, 2008 reports) relating to
TCEH (collectively, the "S&P Reports"). As to the S&P Reports, such reports reflect only the
view of S&P, and CAPP makes no representation as to the appropriateness of such reports. There
is no assurance that any of the facts, views or opinions reflected therein will continue for any
given period of time or that they will not be revised or withdrawn entirely by S&P, if in the
judgment of S&P, circumstances so warrant.
The first lien security interest of the secured lenders/parties are governed by the various
documents related to the EFH LBO financing, including the Credit Agreement, the Intercreditor
Agreement, the Security Agreement, the Guarantee and the Pledge Agreement as well as other
documents (collectively, the "LBO Financing Documents"). The PPA provides, as it relates to
CAPP's rights and security with Seller, as follows (for purposes of this paragraph, undefined
capitalized terms will have the meanings set forth in the aforementioned Intercreditor
Agreement):
1. The PPA is a Secured Commodity Hedge and Power Sales Agreement
under the Intercreditor Agreement and, under the LBO Financing
Documents, the PPA is a Secured Obligation having a first lien security
interest in the pledged assets of the TCEH Pledged Entities pari passu (on
equal footing) with the other secured lenders. Thus, CAPP will have a
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first lien on all pledged assets of the TCEH Pledged Entities including the
Martin Lake, Big Brown and Oak Grove electric generation plants (the
three electric generation facilities from which the unit contingent electric
energy under the PPA are to be provided and collectively refened to as the
"PPA Facilities") as well as Comanche Peak, the two unit nuclear electric
generation plant near Glen Rose, Texas and other electric generating
facilities owned by the TCEH Pledged Entities.
2. Each TCEH Pledged Entity has executed the Guarantee, guaranteeing the
Secured Obligations of any other TCEH Pledged Entity, and such
guarantee obligation is also a Secured Obligation. The PPA, as a Secured
Obligation, is entitled to the benefits of the Guarantee.
3. The obligations of Seller under the PPA will be secured by an additional
guaranty from TCEH.
If Seller defaults under the PPA, CAPP would have a right to allege a default
(under the LBO Financing Documents, e.g., the Credit Agreement) pursuant to the
Intercreditor Agreement. (A payment default by Seller under the PPA is an event of
default under the Credit Agreement to the extent such default exceeds $200 million; it is
assumed that a Seller default under the PPA would exceed such amount through the term
of the Credit Agreement of October 2014.) The Intercreditor Agreement provides,
however, that it will be up to the Collateral Agent to declare a default. The Collateral
Agent could be overruled or as the case may be, directed to initiate proceedings, by a
majority of the secured lenders, but CAPP will likely have no real influence over such
vote. If Seller defaults under the PPA, CAPP, it is assumed, may proceed against Seller,
and against TCEH under its guaranty as an unsecured claim.
The Credit Agreement provides certain protections to the various secured parties
under the LBO Financing Documents, including CAPP, wherein the TCEH Pledged
Entities have covenanted and agreed to certain borrowing and lien structure restrictions
giving the secured parties (and permitted future secured parties) some degree of anti-
dilution protection. Reference is made to Article 10 of the Credit Agreement for the
various negative covenants of the TCEH Pledged Entities relating to future borrowings
and lien structures.
The remaining term of the Credit Agreement is approximately six (6) years and ends in
October 2014. Therefore, prior to October 2014, the EFH LBO must be refinanced and the
secured parties paid (or otherwise participate in such refinancing), with the exception of CAPP.
CAPP, through the PPA, will be the sole secured party under the LBO Financing Documents
whose agreement extends past October 2014 (the term of the PPA is through December 2032).
TCEH has represented that, under the LBO Financing Documents, the TCEH Pledged
Entities have an obligation to repay at least one percent (1 of the secured debt annually. It is
not known how much additional debt the TCEH Pledged Entities may incur between now and
2014, and CAPP can make no assurances with respect thereto.
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If CAPP and Seller each meet their respective obligations under the PPA, the security
provisions related to the Seller's obligations under the PPA should not be an issue, other than
security to CAPP for Seller's future perform.ance under the PPA. The security for the Seller's
obligations under the PPA becomes critically, important if Seller fails to perform under the PPA
or otherwise defaults under the PPA.
Article 9 of the PPA addresses the security for Seller's obligations under the PPA and
reference is made to that article. Within Section 9.2 of the PPA, Seller may, in certain
circumstances, substitute the pledged collateral with other collateral such as letters of credit, cash
or a guaranty from an investment grade rated guarantor ("Substitute Collateral"). Additionally,
Section 9.2 of the PPA provides for Seller to refinance the existing LBO Financing Documents
and replace the existing collateral pursuant to a new financing package with new collateral
("New Collateral Refinancing") which permits some dilution from value of the security under
the LBO Financing Documents existing immediately prior to such refinancing, and which
provides CAPP with a first lien on equal footing with other lenders (subject to other liens which
may be permitted by the documents related to the New Collateral Refinancing).
Seller's Financial Strewth and Resources through the Term ofthe PPA
Fundamental to any decision to participate in the transactions contemplated in the PPA
and the Member Contract is the financial viability of Seller and the TCEH Pledged Entities over
the term of the PPA. While Seller's obligations under the PPA are secured by a first lien security
interest in certain assets of the TCEH Pledged Entities, Seller's ability to meet its obligations
under the PPA are dependent on its financial resources and viability to perform (as well as its
willingness to do so). No assurances can be given regarding the financial strength or viability of
Seller, TCEH or the other TCEH Pledged Entities or the ability of such entities to meet their
obligations with respect to the PPA and the LBO Financing Documents.
Limitation ofRemedies; Damages Available under the PPA
The PPA does not provide for the agreement to be enforced by specific performance
against either party thereto (i.e., a court directing (i) Seller to meet their obligations to provide
electric energy and capacity under the terms of the agreement or (ii) CAPP to accept and pay for
electric energy under the terms of the agreement). To the extent a default is declared and such
default is not cured, Seller and CAPP have limited remedies.
It should be noted that if Seller fails to schedule energy for CAPP from the PPA Facilities
when such facilities are available or to otherwise provide alternate energy, Seller is required to
pay CAPP "liquidated damages" equal to the cost of any replacement energy acquired by CAPP
to replace the electric energy withheld by Seller less the energy price as provided in the PPA
("Replacement Damages"); provided, however, Seller's withholding energy, for extended or
repeated occasions, is a default under the PPA and CAPP may terminate the PPA in such an
event.
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The PPA provides a similar provision if CAPP fails to take and pay for electric energy.
CAPP is required to pay Seller "Resale Damages" equal to the positive difference, if any,
between the energy price as provided in the PPA less the sales price realized by Seller selling
such electric energy; provided, however, CAPP's failure to pay for such electric energy, for
extended or repeated occasions, is a default under the PPA and Seller may terminate the PPA in
such an event. As CAPP will have paid 3/5 of the total electric cost under the PPA as a capacity
payment, CAPP believes it is a remote possibility that Resale Damages will ever occur.
Seller and CAPP have also agreed on liquidated damages that do not reflect the actual
economic loss of either party at the time of termination of the PPA as a result of a default. The
amount of such liquidated damages is explained below.
Upon a Seller default under the PPA and CAPP's election to terminate the PPA, the
parties have agreed to liquidated damages through the payment of a Buyer Termination Payment
(provided in Article 12 of the PPA and reference is made to such article). Liquidated damages,
being the Buyer Termination Payment, is provided to be the amount equal to (i) the percentage
of the principal amount of the outstanding CAPP contract revenue bonds from the initial capacity
payment made to Seller under the PPA related to the total initial principal amount of the CAPP
contract revenue Bonds (Seller is not responsible for any costs of issuance or reserve fund
portions of the CAPP contract revenue bond issue) (such percentage amount is referred to as
"Seller's Bond Portion"), (ii) plus the greater of (a) the "make whole premium" related to the
Seller's Bond Portion or (b) CAPP's economic damages, capped at $120 million ratably
declining over the term of the PPA and (iii) less the aggregate amount of any Replacement
Damages paid by Seller to CAPP over (1) the immediately preceding three (3) year period prior
to any New Collateral Refinancing or (2) the immediately preceding five (5) year period
following a New Collateral Refinancing.
Under the PPA, Seller has the ability to make termination of the agreement more likely
by defaulting if it determines that it can enter a more economically advantageous transaction by
paying CAPP the Buyer Termination Payment.
Upon a CAPP default under the PPA (presumably related to unmitigated non-
appropriations by Participating Members resulting in CAPP's inability to pay Seller for electric
energy under the PPA) and Seller's election to terminate the PPA, the parties have agreed to
liquidated damages through the payment of a Seller Termination Payment (provided in Article
12 of the PPA). Liquidated damages, being the Seller Termination Payment, is provided to be
the amount equal to (i) Seller's economic damages, capped at $120 million ratably declining
over the term of the PPA, (ii) plus the present value of unpaid New Governmental Charges (as
defined below) for which CAPP is responsible, (iii) less the aggregate amount of any Resale
Damages paid by CAPP to Seller over certain time periods in the PPA, and (iv) plus an amount
equal to the unearned portion of the CAPP capacity payment to Seller, determined on a monthly
straight line amortization (as opposed to the actual bond amortization schedule) over the term of
the PPA. In such an event of CAPP default, CAPP would not be able to defease all of its
contract revenue bonds and a portion of each Participating Member's capacity payments under
the CAPP-Participating Member Contract will remain, even though such Participating Members
will not receive any electric energy through the then terminated PPA.
5
0: u0001J
Value oFSeller's First Lien Security Interest Assets
CAPP is not aware of any asset valuation of the TCEH Pledged Entities' collateral
undertaken with respect to the EFH LBO financing and there has been no current valuation
relating to the PPA. CAPP cannot make any representation regarding the current or future value
of collateral pledged under the LBO Financing Documents.
Because the cost of electricity within ERCOT has historically been based on the cost of
natural gas as a fuel source, it is assumed the value of the electric generation facilities
comprising a substantial portion of the collateral pledged under the LBO Financing Documents,
at any point in time, will depend heavily upon the price of natural gas and the assumptions
related to the future prices of natural gas. Natural gas prices have been historically volatile and
no prediction or estimate can be made regarding the future value of pledged collateral of the
TCEH Pledged Entities.
If the value of Seller's assets pledged as security under the PPA decreases, there is no
requirement in the PPA for Seller to provide additional collateral to CAPP, and CAPP could
experience the situation where the value of the collateral under the LBO Financing Documents is
insufficient to cover the Secured Obligations under the LBO Financing Documents, including the
PPA. If in the event of Bankruptcy, CAPP decides to terminate the PPA and collateral is
insufficient to cover CAPP's security, CAPP would not be able to defease all of its contract
revenue bonds and a portion of each Participating Member's capacity payments under the
Member Contract will remain, even though such Participating Member will not receive any
electric energy through the then terminated PPA.
New Governmental Charges
Under Article 20 of the PPA, CAPP and the Participating Members will be responsible
for new governmental charges (taxes and required capital improvements at the PPA Facilities),
which include the cost of potential carban and green house gas remediation and taxes,
assessments and other governmental impositions and compliance costs imposed on the PPA
Facilities ("New Governmental Charges"). Certain taxes, such as income, employment and
margin taxes are excluded.
To the extent these charges are imposed on the PPA Facilities (all of which will be
providing electricity to CAPP under the PPA), CAPP and the Participating Members will be
responsible for a proportionate share of the cost of any such New Governmental Charges in
excess of operating expenses of $100,000 annually or capital expenses greater than $1,000,000
over the term of the PPA. Such share of the PPA Facilities allocated to CAPP is approximately
three percent (3%). To the extent these New Governmental Charges are imposed, the annual
energy cost for which each Participating Member is responsible will increase to cover the
proportionate share of such charges.
6
fm V0 Ll)lIt
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
In the event that CAPP defaults under the PPA as a result of the failure by some
Participating Members to appropriate funds for the purchase of electricity, Seller may declare a
default under the PPA and terminate the agreement. In such event, none of the Participating
Members will receive electricity under the PPA, without regard to whether a particular member
appropriated or non-appropriated for electric energy. Further, no Participating member will have
a claim for damages against CAPP.
If CAPP could not sell the electric energy, as described above, TCEH would have the
ability to terminate the PPA and demand a Buyer Termination Payment from CAPP, as
explained above in the section "PPA - Limitation of Remedies; Damages Available Under the
PPA." This situation would leave the Participating Members with some portion of their debt
under the CAPP Participating Member Contract remaining outstanding and the Participating
Members would not receive any electric energy under the PPA.
Defeasance of CAPP's Bonds Will Not Be Realized ifSeller Defaults in Certain Events
In the event of a Seller default, the Seller will only be responsible for the Seller Bond
Portion and, at least the "make whole redemption premium" related thereto. Funds from a Buyer
Termination Payment will only partially defease the CAPP contract revenue bonds - the portion
of CAPP bonds issued relating to any reserve fund for the CAPP bonds or the portion issued to
pay costs of issuance of the CAPP contract revenue bonds will remain outstanding. Under this
scenario, the Participating Members could be in a situation where they are levying and collecting
an ad valorem tax to make their capacity payment (debt service obligation) to CAPP under the
CAPP-Participating Member Contract, although they may no longer be receiving any energy
under the PPA. If this were to occur, there is the potential for Participating Members to
collectively be responsible for up to approximately $12 million of CAPP's remaining contract
revenue bonds.
Seller has the ability to offset a portion of the Buyer Termination Payment under the PPA
by paying Replacement Damages to CAPP when Seller fails to schedule energy from the units
when such energy is available. Such Replacement Damages paid (1) the immediately preceding
three (3) year period prior to any New Collateral Refinancing or (2) the immediately preceding
five (5) year period following a New Collateral Refinancing will be subtracted from any Buyer
Termination Payment owed by Seller. Seller receives a rolling three to five year credit for such
Replacement Damages payment, while reducing the potential Buyer Termination Payment to
CAPP.
As TCEH=s credit ratings improve, a portion of the amount secured by the first lien
security interest decreases in an amount equal to the Credit Threshold (as defined in the PPA).
Therefore, if TCEH, as guarantor, were to become more credit-worthy and yet still declare
bankruptcy and CAPP terminates the PPA, a portion of the Buyer Termination Payment due to
CAPP (the make-whole price of CAPP=s contract revenue bonds) will be an unsecured claim
(i.e., not secured by the first lien security interest under the LBO Financing Documents) and
CAPP will not have the benefit of the other secured creditors. While the Credit Threshold gives
Seller an economic incentive to improve its financial integrity and thus reduce the financial risk
8
to CAPP, it could also serve to expose CAPP to unsecured credit risk by reducing the amount of
CAPP's first lien security.
New Collateral Reflnancing/Substitute Collateral
As discussed earlier, CAPP cannot control or predict the future ownership or structure of
Seller or the TCEH Pledged Entities. As the LBO Financing Documents expire in October 2014
and will likely be refinanced in some fashion (otherwise the PPA will have been terminated or
otherwise secured by Substitute Collateral), no assurances can be given regarding the financing
structure related to the New Collateral Refinancing, the value and nature of any related new
collateral or the amount and nature of any related debt secured by such collateral. While
provisions relating to Substitute Collateral seem to contemplate substitution that is applicable
only to CAPP, the PPA does not specifically require such.
The New Collateral Refinancing provision in the PPA, Section 9.2(b), provides that the
EFH LBO and the LBO Financing Documents will be refinanced and collateral under the LBO
Financing Documents may be replaced with "substantially similar" collateral (to the collateral
existing immediately prior to such refinancing) on a continuing "pari passu" first lien basis with
other lenders. The PPA provides, however, that such lien may be subject to other liens provided
for in the documents related to the New Collateral Refinancing.
The PPA provides that the collateral related to a New Collateral Refinancing shall be
substantially similar in substance to the collateral existing immediately prior to such refinancing
as reasonably determined by Seller in good faith. Further, collateral meeting prescribed dilution
tests will be automatically deemed to be "substantially similar." While the dilution tests obligate
Seller to maintain an asset valuation to debt ratio equivalent to the ratio in play today, it must be
noted that the test functionally excludes swap and hedge transactions of TCEH Pledged Entities.
Various TCEH Pledged Entities may continuously and actively engage in such transactions.
With such swap and hedge transactions excluded, the protection provided to CAPP by the
dilution test cannot be determined until a New Collateral Refinancing occurs. CAPP may be
obligated to accept the New Collateral Refinancing securing Seller's obligations under the PPA
that may be of less value than the collateral under the LBO Financing Documents immediately
prior to such refinancing.
Additionally, the TCEH guaranty of the Seller's obligations under the PPA is required to
be in place for the entire term of the PPA and it is anticipated such guaranty will be secured by
the collateral relating to the New Collateral Refinancing Substitute Collateral or other acceptable
collateral. However, if such guaranty is not secured, CAPP has potential unsecured credit
exposure to the extent CAPP must rely on such TCEH guaranty for payment of the PPA.
Unit Contingent Nature of PPA • Extended Force Maieure Mav Prevent Realization of Economic
Bene its
Under the PPA, CAPP is entitled to a portion of the electric capacity from each plant
comprising the PPA Facilities. Seller's obligation to provide such capacity and electric energy is
conditioned on the respective PPA Facilities plants being capable of operating. To the extent
9
~ 6. 0 C, c1
there are planned outages or unplanned outages which constitute an event of Force Majeure
under the PPA, Seller is not obligated to provide electric energy to CAPP from such affected
plants. Sellers are required under the PPA (sections 6.3, 12 and 15.6) to operate and maintain the
PPA Facilities according to Prudent Industry Practices, which includes all existing and future
Laws. However, CAPP has not undertaken any examination or inspection of the PPA Facilities.
If an event of Force Majeure occurs, such as the destruction of a portion of the PPA
Facilities contracted for electric supply under the PPA, Seller is partially excused from
performing under the PPA and the rights and obligations under the PPA will be suspended. The
Participating Members would not be receiving a portion of the contract energy under the CAPP-
Participating Member Contract since Seller is not required to provide electric energy to CAPP
under the PPA, and CAPP and the Participating Members would have to find other sources of
electric energy (including a"wrap" contract) in the event of an extended Force Majeure, while
still being liable to pay for its portion of the capacity payment pursuant to the CAPP-
Participating Member Contract.
TCEH/Seller Bankruptcy
If Seller files ba.nkruptcy, this will not happen in a vacuum. It likely will be preceded by
months of negotiation with threats of filing bankruptcy. There likely will be ample time to
renegotiate the PPA if CAPP so desires.
In the event of bankruptcy, the PPA will remain in effect unless it is specifically set aside.
Electricity should continue to be provided by the facilities under contract.
The risks of bankruptcy include:
1. Adequacy of collateral in the event of termination. The PPA contains an ipso
facto clause providing that bankruptcy is a default, giving CAPP the right to terminate the
agreement if it desires. The decision of whether to terminate would depend upon the value of
assets and market prices for electricity at the time, neither of which can be predicted by CAPP.
2. Whether the PPA will be regarded as a forward contract or an executory
agreement. The PPA specifies on its face that it is a"forward contract," but such statement does
not bind a Bankruptcy Court. However, if the contract terms are not honored because the Court
concludes the PPA is "executory," the likely result would be a renegotiated price closer to the
then market rate. CAPP cannot predict what a future judge with broad discretion may rule.
3. The forum for bankruptcy may be Delaware, rather than Texas. TCEH is a
Delaware corporation, but venue for pledged entities may be elsewhere. Competing courts will
likely have to resolve a venue contest.
4. Whether the Court will apply a"business judgment" test (favoring Seller) or a
"public interest" test (favoring CAPP). It is unknown whether courts would apply a heightened
public interest standard for electrical energy supply to political subdivisions.
10
~ 0 O0 0 1~
Other Risks and Considerations
There are other events or developments that could impact the transactions contemplated
in the PPA and Member Contract including:
future regulatory changes, including actions of the State legislature, Public Utility
Commission of Texas and ERCOT affecting the competitive electric utility industry;
future technological advances in electric generation and transmission such as
development of new electric generation resources, including new nuclear power
plants, higher efficiency coal and natural gas generation plants, high efficiency
electric transmission and/or advances in alternative sources of electricity (wind, solar
and etc.);
discovery of additional large scale natural gas reserves or the development of large
scale liquefied natural gas ("LNG") facilities in the United States to utilize overseas
LNG supplies and transportation facilities and/or a sustained long-term decrease of
the price of natural gas;
future environmental regulation of coal-fired electric generation facilities generally
could impact the transaction contemplated in the PPA, including New Governmental
Charges; and
financial markets react to various factors that CAPP can neither predict nor control.
Savings protections related to the PPA are dependent upon financing and debt
issuance costs that in turn will be influenced by interest rates that will depend upon
risk perceptions of financial markets. CAPP can offer no assurances regarding what
rates will be applicable when debt is issued or ultimately repaid.
MEMBER CONTRACT
Effect on a Citv=s Debt/Bonding Capacity
There is a possibility that the contract could have negative credit rating implications on
Participating Members.
General discussions with the various credit rating agencies have occurred and will
continue taking place to inform them of the transaction so they can make educated credit rating
decisions regarding the Participating Members. It is possible that the capacity payment (debt
obligation) of the Participating Members under the Member Contract will adversely impact any
given Participating Member's bonding capacity and credit rating by any or all of the rating
agencies. Each rating agency will have questions and analysis regarding the structure and there
has been no definitive answer regarding how each rating agency will view this obligation. It is
possible that each rating agency may view this obligation differently.
at 0 0 0 01 IS
Subiect to Annual Appropriation Obligation Mav Be Viewed as a General Obli ag tion
In the event of a non-appropriation by a Participating Member, rating agencies may view
the provision of energy to a Participating Member's electric accounts as a governmental
function. The Participating Member's failure to appropriate may be considered a default by one
or more credit rating agency on the Participating Member's general obligation debt, regardless of
the fact that a Participating Member has the choice to appropriate or not. Further risks regarding
non-appropriation were addressed in section "PPA - Risk of Non-Appropriation by Participating
Members" above.
ObliQation to Levy Ad Valorem Tax
As discussed in prior sections above, the Member Contract obligates each Participating
Member to pledge ad valorem taxes to pay for its portion of the capacity payment that CAPP is
paying to Seller to acquire energy capacity over the 24 year term of the PPA. The capacity
payment under the Member Contract is a debt of the Participating Member municipality which is
subject to enforcement by a mandamus action brought by the trustee related to CAPP's contract
revenue bonds against a Participating Member municipality to levy taxes sufficient within the
limits prescribed by law to make such payments.
In the event of a termination of the PPA, there are a number of situations in which CAPP
would not be able to defease all of its contract revenue bonds and a portion of each Participating
Member's capacity payments under the CAPP-Participating Member Contract would remain,
even though such Participating Member will not receive any electric energy through the then
terminated PPA. Such situations are discussed above.
Acknowledgment
This Disclosure Memorandum dated September 10, 2008 is acknowledged and accepted
by the undersigned on behalf of the Participating Member indicated below. The governing body
of such Participating Member has taken official action acknowledging its understanding of the
risks and considerations discussed or described in this Disclosure Memorandum and has formally
authorized and directed the undersigned to execute this Disclosure Memorandum on behalf of
the Participating Member.
Participating Member
By:
Title:
Date:
12
. 0001120
Subiect to Annual Appropriation Obligation Mav Be Viewed as a General Obli a~
In the event of a non-appropriation by a Participating Member, rating agencies may view
the provision of energy to a Participating Member's electric accounts as a governmental
function. The Participating Member's failure to appropriate may be considered a default by one
or more credit rating agency on the Participating Member's general obligation debt, regardless of
the fact that a Participating Member has the choice to appropriate or not. Further risks regarding
non-appropriation were addressed in section "PPA - Risk of Non-Appropriation by Participating
Members" above.
Obligation to Levv Ad Valorem Tcrx
As discussed in prior sections above, the Member Contract obligates each Participating
Member to pledge ad valorem taxes to pay for its portion of the capacity payment that CAPP is
paying to Seller to acquire energy capacity over the 24 year term of the PPA. The capacity
payment under the Member Contract is a debt of the Participating Member municipality which is
subject to enforcement by a mandamus action brought by the trustee related to CAPP's contract
revenue bonds against a Participating Member municipality to levy taxes sufficient within the
limits prescribed by law to make such payments.
In the event of a termination of the PPA, there are a number of situations in which CAPP
would not be able to defease all of its contract revenue bonds and a portion of each Participating
Member's capacity payments under the CAPP-Participating Member Contract would remain,
even though such Participating Member will not receive any electric energy through the then
terminated PPA. Such situations are discussed above.
Acknowledgment
This Disclosure Memarandum dated September 10, 2008 is acknowledged and accepted
by the undersigned on behalf of the Participating Member indicated below. The governing body
of such Participating Member has taken official action acknowledging its understanding of the
risks and considerations discussed or described in this Disclosure Memorandum and has formally
authorized and directed the undersigned to execute this Disclosure Memorandum on behalf of
the Participating Member.
CITY OF PARIS
Participating Member
By:
'Citle:
Date:
Kevin Carruth, City Manager
December 15, 2008
12
09 U00(j2.x.
ENERGY SALES CONTRACT
BETWEEN
CITIES AGGREGATION POWER PROJECT
AND
CITY OF PARIS, TEXAS
K 0 OQO2
ENERGY SALES CONTRACT
BETWEEN
CITIES AGGREGATION POWER PROJECT
AND
CITY OF PARIS, TEXAS
TABLE OF CONTENTS
Table of Contents
Page
ARTICLE 1 DEFINITIONS AND PRINCIPLES OF INTERPRETATION ....................4
1.1
Definitions
.4
1.2
Principles of Interpretation .
11
ARTICLE 2 CAPP'S OBLIGATIONS CONTINGENT UPON PERFORMANCE BY
FACILITY OWNERS L7NDER THE PPA; ASSUMPTION BY MEMBER.......
12
2.1
Nature of CAPP's obligations to Member
12
2.2
CAPP's duty to exercise remedies under the PPA and Guaranty; power
coupled with an interest .
12
2.3
Assumption of PPA by Member .
12
ARTICLE 3 TERM OF CONTRACT AND DELIVERY OF PRODUCTS
13
3.1
Term
13
3.2
Delivery of Products .
13
ARTICLE 4 PAYMENT OF CAPACITY PREPAYMENT TO FACILITY
O WNERS
13
ARTICLE 5 DELIVERY OF CONTRACT ENERGY
13
5.1
Acquisition and Delivery of Product .
13
5.2
Title and Risk of Loss .
14
5.3
Member's Failure to Accept Product .
14
5.4
Failure of Facility Owners to Schedule or Deliver Product to CAPP
14
ARTICLE 6 PRICING OF AND PAYMENT FOR ENERGY
14
6.1
Payment of Member's Monthly Aggregated Energy Payment
14
6.2
Payments through Retail Electric Provider and Designated Agent(s) .
17
6.3
Payments from Available Funds
17
6.4
Intent to Continue Payments
18
6.5
Failure to Appropriate Available Funds .
18
6.6
Assigrunent Upon Failure to Appropriate
18
6.7
Appropriated Energy Payments to be Unconditional .
19
6.8
CAPP as Third Party Beneficiary .
19
6.9
Member's Default of the Energy Payment Covenants and CAPP's
Remedies .
19
ARTICLE 7 CAPACITY PREPAYMEN'T, MEMBER' S MONTHLY CAPACITY
PAYMENT AND PLEDGE OF AD VALOREM TAXES BY MEMBER..........
21
7.1
Capacity Prepayment .
21
7.2
Capacity Payment .
21
IN U00020'
7.3
Interest and Sinking Fund; Tax Levy for Monthly Capacity Payments.
22
7.4
Prepayments based upon Early Termination under the PPA .
22
7.5
CAPP and Trustee as Third Party Beneficiaries
22
7.7
Member's Default on Capacity Prepayment and CAPP's Remedies .
23
ARTICL
E 8 BILLING AND PAYMENT
24
8.1
Invoice and Payment Schedules
24
8.2
Method of Payment
24
8.3
Netting
25
8.4
Disputed Charges
25
8.5
Audits
26
8.6
ERCOT Barred Issue .
26
ARTICLE 9 DESIGNATION OF MEMBER'S DELIVERY POINTS
26
9.1
Designation of Member's Delivery Points .
26
ARTICL
E 10 SECURITY
26
10.1
Security from Facilities Owners .
26
10.2
Collateral Assignment of the Contract to Trustee for Bonds
27
ARTICL
E 11 DEFAULT
27
11.1
Defaults by Facility Owners; Defaults by Participating Members .
27
11.2
Default by CAPP
27
11.3
Default by Member .
27
11.4
Remedies of CAPP in the event of default by Member
28
11.5
Remedies of Member in the Event of Default by CAPP .
29
11.6
No Waiver in Event of Default .
30
ARTICL
E 12 INDEMNIFICATION; LIMITATION OF LIABILITY
30
12.1
Member's Indemnification of CAPP .
30
12.2
Claims arising on Facility Owners side of the Facility Owners' Delivery
Point .
30
12.3
Indemnified Claims
31
12.4
Limitation of Remedies, Liability and Damages .
31
ARTICL
E 13 REPRESENTATIONS
32
13.1
Mutual representations and warranties .
32
ARTICLE 14 NOTICES
33
14.1
Notices
33
ARTICL
E 15 CONFIDENTIALITY .................................................................................34
15.1
ConfidentialInformation
34
ARTICL
E 16 ASSIGNMENT ...........................................................................................34
16.1
Assignment
34
ARTICLE 17 CONTINUING DISCLOStJRE ..................................................................34
17.1
Continuing Disclosure Undertaking of Members .
34
17.2
Financial Statements
34
17.3
Change of Fiscal Year
35
17.4
Failure to Provide Continuing Disclosure
35
17.5
Amendment of Continuing Disclosure .
35
ARTICLE 18 TAX-EXEMPT BONDS
.36
18.1
Tax-Exempt Bonds .
36
18.2
Agreement to Pay Beneficiary .
36
ii
~ «OUU2~t
18.3 Financing ...........................................................................................................37
ARTICLE 19 MISCELLANEOUS ...................................................................................37
19.1 Applicable Law 37
19.2 Counterparts ......................................................................................................37
19.3 Waiver ...............................................................................................................37
19.4 Modification ......................................................................................................37
19.5 Severability 37
19.6 Requirements ....................................................................................................38
19.7 Entirety . 38
19.8 Captions, Titles and Headings . 38
19.9 Forward Contract . 38
19.10 Further Assurances 38
19.11 Survival .............................................................................................................38
iii
~ I~0 0 Ci 2-5
ENERGYSALESCONTRACT
BETWEEN
CITIES AGGREGATION POWER PROJECT
AND
CITY OF PARIS, TEXAS
This Energy Sales Contract ("ContracP') is executed on the date set opposite each
signature below, effective, however, on December 15, 2008 ("Effective Date"), by and
between the Cities Aggregation Power Project, Inc. ("CAPP"), a political subdivision
corporation incorporated in the State of T'exas, and the City of Paris ("Member"). CAPP
and Member are collectively referred to herein as the "Parties", and individually as a
"Parry"
RECITALS:
Capitalized terms used herein not otherwise defined shall have the meanings set
forth in Article 1 hereof.
Member is a political subdivision of the State of Texas.
Member is a member of CAPP.
As the result of adoption of Senate Bill 7, enacted as Chapter 405, Acts of the 76t'
Legislature, Regular Session, 1999, municipalities now have the opportunity to
competitively acquire electricity on more advantageous terms. This opportunity was the
impetus for the creation of CAPP. CAPP was created to assist Member and the
Participating Members in obtaining electricity used in such Members' own buildings and
facilities by aggregating each Participating Member's electric load, and negotiating the
best electric price based on the aggregated load.
Recognizing that all retail sales in the Texas deregulated electric market have
been based on the price of natural gas on the Nymex Futures Market, Member desires to
diversify the sources of its electric supplies in order to mitigate potential price volatility
associated with a single fuel source supply of electric energy.
Member has a need for reliable electric energy at favorable and stable rates to
fulfill its proprietary needs and governmental responsibilities in said buildings and
facilities.
Member desires to increase its bargaining power in the deregulated market for
Energy by relying upon and combining with other participating CAPP member cities
("Participating Members") to negotiate for future sources of electricity. The
Participating Members are listed on Exhibit "A" attached hereto and incorparated by this
reference herein for all purposes.
1
Member has determined to utilize the CAPP aggregation method of electric
energy procurement for meeting the electric energy needs of governmental facilities that
are located within its deregulated jurisdictional boundaries, as provided in this Contract.
CAPP has identified a source of Energy from selected units in the Big Brown
generating station in Freestone County, Texas ("Big Brown Facility"), Martin Lake
generating station located in Rusk County, Texas ("Martin Lake Faciliry"), and Oak
Grove generating station located in Robertson County, Texas ("Oak Grove Facility") that
are owned, respectively, by Big Brown Power Company, LLC, Luminant Generation
Company LLC and Oak Grove Management Company, LLC (collectively, the "Facility
Owners"), and that CAPP believes will assist Member in (i) mitigating potential price
volatility of Energy, and (ii) accessing a wholesale power supply to meet the base load
requirements of Member and Participating Members for twenty-four (24) years,
commencing on January 1, 2009 at 12:00:00 a.m. CPT ("Service Commencement Date")
and ending at one minute before 12:01 a.m. on January 1, 2033 unless the agreement for
the procurement of such Energy is terminated sooner as therein provided ("Term"). The
Big Brown Facility, Martin Lake Facility, and Oak Grove Facility are collectively called
the "Facilities".
CAPP has entered into a Power Purchase Agreement with the Facility Owners in
substantially the form attached hereto as Exhibit "B" and incorporated by this reference
herein for all purposes ("PPA"), pursuant to which PPA, CAPP will contract to obtain
150 megawatts of Contract Capacity ("Contract Capaciry") in the Facilities and access to
wholesale power supplies to meet base load Energy needs of Member and Participating
Members throughout the Term of the PPA.
Certain obligations of the Facility Owners under the PPA have been partially
guaranteed by Texas Competitive Electric Holdings Company, LLC ("TCEH") through
execution of a Guaranty substantially in the form attached to the PPA, and TCEH and its
subsidiaries have guaranteed the original leveraged buyout ("LBO") documents and the
PPA is a secured obligation under such LBO documents and as such is subject to the
guaranty provided therein.
Member desires to acquire its Member Contract Energy Allocation in the Project
from CAPP ("Member Capacity").
All Participating Members, including Member, have collectively contracted for
and reserved the full Contract Capacity in the Facilities from CAPP. The PPA provides
the terms for CAPP's purchase of all Contract Capacity from the Facility Owners for the
benefit and on behalf of Member and Participating Members.
As a result of negotiations with the Facility Owners it has been determined that
substantial savings in energy costs based upon today's energy market and current
forecasts of future market prices can be realized by purchasing capacity rights in the
Facilities from the Facility Owners as provided in the PPA on or before the Service
Commencement Date.
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CAPP has determined that it is in the best interests of Member and the
Participating Members to prepay Facility Owners for Contract Capacity in the Facilities
("Capaciry Prepayrrzent") out of the proceeds of Bonds issued for such purpose by CAPP.
Member and each of the other Participating Members in their respective Participant
Contracts, agree to pay Member's Energy Allocation Percentage of the costs incurred by
CAPP to issue the Bonds, pay the Capacity Prepayment to the Facility Owners, pay
interest costs, establish a reserve, and pay all other costs, fees and charges that CAPP
incurs under the Bonds directly to the Trustee, as hereinafter defined, until the Bonds are
paid in full according to the payment schedule set forth in the Bonds. The Bonds shall be
secured by the collateral assignment of this Contract and all Participant Contracts, as
provided in this Contract, including all rights of collection thereon, to the Trustee. A
copy of the payment schedule is attached hereto as Exhibit "C" and incorporated by this
reference herein for all purposes.
Member acknowledges that CAPP shall additionally provide to Member at
Member's expense, through Designated Agent(s), all services required and necessary to
deliver the Energy from the Facility Owners Delivery Point to Member's Delivery Points,
including all costs of transmission, distribution, and including all necessary tariffs, and
fees as provided herein.
Member agrees to the terms of this Contract, and consents to the terms of the
PPA. In reliance thereon, and in reliance upon the acceptance and agreement of all other
Participating Members, CAPP (i ) has entered or shall enter the
PPA for the benefit of Member and Participating Members, (ii) shall cause the Bonds to
be issued, and (iii) shall cause the Capacity Prepayment to be paid to the Facility Owners
as provided in the PPA.
Accordingly, CAPP and Member have determined that it is in their mutual best
interests to enter into this Contract as the means of providing Member with the Member
Contract Energy Allocation for its base load needs during the Delivery Period described
in Section 3.2, below. Other Participating Members have respectively entered or have
committed to enter into contracts with CAPP that, when aggregated with this Contract,
collectively account for all Contract Energy associated with the Contract Capacity in the
Facilities during the Delivery Period that has or will be acquired by CAPP for the benefit
of all Participating Members under the PPA.
The Public Property Finance Act, Subchapter A, Chapter 271, Local Government
Code, as amended (the "Act"), authorizes Member to execute, perform and make
payments under contracts with any person for the use, acquisition or purchase of personal
property as described in the Act, including the electricity provided for in this Contract.
The Act permits the governing body of Member to execute contracts in any form
deemed appropriate by said governing body in connection with the use, acquisition or
purchase of personal property.
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Member desires to acquire electricity property pursuant to this Contract as
described herein from CAPP, and such personal property is deemed by the governing
body of Member to be necessary, useful, and/or appropriate for the purposes of Member
as contemplated by Section 304.001, Government Code, as amended.
In consideration of the mutual undertakings contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the Parties agree as follows:
ARTICLE 1
DEFINITIONS AND
PRINCIPLES OF INTERPRETATION
1.1 Definitions. The following capitalized terms shall have the following meanings
assigned to them under this Contract unless the context shall clearly indicate otherwise:
"Aggregated Expenses" shall mean the sum of charges to CAPP that are payable
under the PPA to the Facility Owners and under a Wrap Contract for: (a)
adjustments to the Capacity Prepayment under Section 4.2(b) of the PPA, (b)
sums charged to CAPP under Section 3.3 of the PPA, (c) the amount of Disputed
Charges that are payable by CAPP under Section 8.3 of the PPA or as a result of
an Audit under Section 8.4 of the PPA, (d) sums payable by CAPP under Article
10 of the PPA, (e) sums, if any, required for the indemnity of the Facility Owners
under Section 13.1 of the PPA, (f) Governmental Charges payable by CAPP
pursuant to Section 20.1 of the PPA, (g) New Governmental Charges payable by
CAPP pursuant to Section 20.2 of the PPA, (h) the cost of environmental
improvements that are required to be paid by CAPP under the PPA, (i) any
unforeseen non-recurring expenses approved by CAPP, and (j) the amount of any
Seller Termination Payment due by CAPP to the Facility Owners pursuant to
Article 12 of the PPA. The amount of Aggregated Expenses shall be reduced by
(i) credits to the Capacity Prepayment under Section 4.2(a) of the PPA, (ii) credits
under Section 3.4 of the PPA on account of the failure of the Facility Owners to
deliver the Products to CAPP, and (iii) the amount of Disputed Charges that are
payable by the Facility Owners to CAPP under Section 8.3 of the PPA or as a
result of an Audit under Section 8.4 of the PPA.
"Alternate Energy" has the meaning set forth in the PPA.
"Appropriate", "Appropriated", and/or "Appropriation" means, with respect to
any Energy Payment that Member is obligated to make under this Contract during
a Fiscal Year, the adoption by the governing body of Member of a budget for such
Fiscal Year that includes such payment.
"Available Funds" means, when used to describe funds of Member, those funds
of the Member which have been lawfully Appropriated, within the sole and
4
uncontestable discretion of the Member, from current revenues and which may be
expended, during the Fiscal Year for which Appropriated, for the purpose
expressed in such Appropriation.
`Bankrupt" means a Party that: (i) files a petition or otherwise commences,
authorizes or acquiesces in the commencement of a proceeding or cause of action
under any bankruptcy, insolvency, reorganization or similar law, or has any such
petition filed or commenced against it, (ii) makes an assignment or any general
arrangement for the benefit of creditors, (iii) otherwise becomes bankrupt or
insolvent (however evidenced and regardless of whether the bankruptcy or
insolvency is voluntary or involuntary), (iv) has a liquidator, administrator,
receiver, trustee, conservator or similar official appointed with respect to it or any
substantial portion of its property or assets, or (v) is generally unable to pay its
debts as they fall due.
"Base Year" means an annual period determined by CAPP as of the Effective
Date to be representative of the typical total current Energy requirements of all
Participating Members.
"Big Brown Facility" means Unit 1 and Unit 2 of the Big Brown generating
station located in Freestone County, Texas, with an appropriate cumulative Net
Rated Capacity of 1203 megawatts as of the Effective Date.
"Bonds" shall mean all contract revenue bonds issued by CAPP for the purpose
of prepaying and funding the Capacity Prepayment plus cost of issuance of and
reserve funds required to be maintained under such contract revenue bonds, said
bonds to be secured by the pledge and assignment by CAPP to a trustee, pursuant
to a trust agreement between CAPP and such trustee of the Capacity Prepayment
Component of each Participating Member's contract, it being stipulated and
agreed that this Contract and each Participant Contract constitutes a contract
under Subchapter A of Chapter 271, Local Government Code, State of Texas, as
amended, payable from such respective Participating Member's ad valorem taxes
within the limits prescribed by law.
"Business Day" means any Day except a Saturday, Sunday, or a Federal Reserve
Bank holiday. A Business Day shall open at 8:00 a.m. CPT and close at 5:00 p.m.
CPT.
"Capacity Prepayment" has the meaning set forth in Section 7.1, below.
"CAPP" shall mean the Cities Aggregation Power Project, a political subdivision
corporation in Texas organized pursuant to Local Government Code Chapter 304
for the purpose of contracting for electric power for Participating Members and
for assisting in procurement of REP and QSE services for governmental electric
accounts of Participating Members.
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"Code" means Texas Local Government Code, Title 7, Chapter 271, Subchapter
1, Sections 271.151 through 271.160.
"Contract" shall mean this Energy Sales Contract and all related exhibits, as
same may be amended from time to time by the mutual written agreement of the
Parties.
"Contract Capacity" means 150 megawatts, being the Contract Capacity acquired
by CAPP in the Facilities under the PPA on behalf of Member and the
Participating Members.
"Contract Energy" has the meaning set forth in the PPA. Additionally, the
Parties understand that if, in any Settlement Interval, the output of one or more of
the Facilities is less than its Net Rated Capacity, due to a Planned Outage or
Forced Outage as provided in the PPA, the Contract Energy may be reduced. In
such an event, CAPP shall only receive a share of the output as provided in the
PPA. In such event, the reduced amount of output received by CAPP will be
delivered to and apportioned between Member and the other Participating
Members based on their respective Member's Energy Allocation Percentages.
"Contract Price" has the meaning set forth in Section 6.1.
"CPT" means central prevailing time.
"Day" means the consecutive twenty-four (24) hour period beginning at 12:00:00
a.m. CPT on any calendar day and ending at 12:00:00 p.m. CPT on such calendar
day.
"Default" has the meaning set forth in Article 11 hereof.
"Defaulting Member" shall mean one or more Participating Members that default
under a Participant Contract that has been collaterally assigned in whole or in part
as security for the repayment of the Bonds.
"Delivery Month" has the meaning set forth in the PPA.
"Delivery Period" means that period of time in which Energy shall be delivered to
CAPP as agent for Member as the Energy is delivered by the Facility Owners
under the PPA, commencing on January 1, 2009 at 12:01:00 a.m. CPT and ending
on the earlier of: (i) 12:01:00 a.m. CPT on January 1, 2033, (ii) the date and time
that the PPA is terminated in accordance with its terms, or (iii) the date and time
that this Contract is rightfully terminated in accordance with its terms.
"Designated Agent(s)" means service providers such as, but not limited to, REPs,
QSEs, and other market service product providers that are engaged from time-to-
time by CAPP to act as agents for and representatives of CAPP, Member, and/or
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Participating Members for the purposes of: (i) receiving and accounting for
Products delivered by Facility Owners under the PPA, and Energy that is
delivered to Member and Participating Members under this Contract and
Participant Contracts, (ii) remitting payments, including payments of ERCOT
fees, transmission fees, congestion fees, QSE fees, REP charges, and tariffs, (iii)
allocating costs between Member and Participating Members, and/or (iv) billing,
netting, and collecting sums due under this Contract.
"Effective Date" has the meaning set forth in the preamble of this Contract.
"Energy" has the meaning set forth in the PPA.
Energy Payment" means the product of the Energy Price times the number of
megawatt hours delivered to Member.
"Energy Price" has the meaning set forth in Section 6.1(a)(i).
"ERCOT" shall mean the Electric Reliability Council of Texas, or its successor in
function.
"ERCOT Guides" means the then-current ERCOT Operating Guides, Market
Guides, Protocols, Nodal Protocols, Transaction Guides, and/or ISO procedures,
as they may be amended from time to time.
"ESI-IDs" shall mean Electric Service Identifiers as defined in ERCOT
Protocols, or their successor in function, same being the basic identifier assigned
to each service delivery point used in the registration and settlement systems
managed by ERCOT.
"Facilities" means the Big Brown Facility, Martin Lake Facility, and upon COD
of the Oak Grove Unit 1 and Oak Grove Unit 2, the Oak Grove Facility as defined
and described in the PPA, including, with respect to each, the land, structures,
fixtures, equipment, machinery, lignite, and related auxiliary equipment required
to operate each such facility.
"Facility Owner Delivery Points" means the point at a Facility at which Contract
Energy is capable of being injected for the credit of CAPP into the ERCOT high
voltage transmission system with Member and other Participating Members being
fully responsible for reimbursing CAPP for any and all charges and assessments
by ERCOT related to delivery of energy from the Facility Owner's Delivery
Points into the ERCOT high voltage transmission system.
"Facility Owners" shall mean Big Brown Power Company, LLC, Oak Grove
Management Company, LLC, Luminant Generation Company, LLC, and their
respective successors and assigns.
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"Fiscal Year" means the fiscal year of Member.
"Forced Outage" has the meaning set forth in the PPA.
"Governmental Authoriry" has the meaning set forth in the PPA.
"Governmental Charges" has the meaning set forth in the PPA and which are
charged to or payable by CAPP, including those Governmental Charges that
survive the termination of the PPA.
"Guarantor" shall mean Texas Competitive Electric Holdings Company, LLC, a
Delaware limited liability company.
"Guaranty" shall mean that certain Guaranty Agreement executed by Guarantor
and delivered to CAPP at closing.
"Interest and Sinking Fund" means that a special fund or account designated as
the "City of Paris Electric Public Property Finance Contractual Obligation
Interest and Sinking Fund", authorized, established and maintained in a
depository bank of the Member, so long as the contractual obligation to make
Monthly Capacity Payments hereunder are outstanding and unpaid.
"k W ' means kilowatt(s).
"Law" means (i) any law, legislation, statute, act, rule, ordinance, decree, treaty,
regulation, order, judgment, or other similar legal requirement, and (ii) any legally
binding announcement, directive or published practice or interpretation thereof,
including but not limited to, ERC'OT Guides, enacted, issued or promulgated by
any Governmental Authority having jurisdiction over this Contract, the Facilities,
and the delivery of Energy pursuant to this Contract.
"Martin Lake Faciliry" means Unit 1, Unit 2, and Unit 3 of the Martin Lake
generating station located in Rusk County, Texas, with an approximate
cumulative Net Rated Capacity of2,345 megawatts as of the Effective Date of the
PPA.
"Member Contract Energy Allocation" shall equal the product of the Member's
Energy Allocation Percentage and the Contract Energy during each Delivery
Month of the Delivery Period.
"Merriber's Monthly Aggregated Energy Payment" has the meaning set forth in
Section 6.1(a).
"Member's Energy Allocation Percentage" is being calculated by
multiplying 100 by a fraction, the numerator of which is Member estimated
energy required during the Base Year, and the denominator of which is the
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estimated total energy requirement of all Participating Members during the Base
Year.
"Member's Delivery Points" shall be all ESI-IDs accounts that Member has for
receipt of energy to the revenue meters of such Member that are metered and the
light fixtures for street/outdoor lights or other accounts of such Member that are
not metered.
"Member's Unique Delivery Costs" shall have the meaning set forth in Section
6.1(b) hereof.
"Monthly Capacity PaymenY" shall have the meaning set forth in Article 7 below.
"Monthly Energy Payment" means the product of the Monthly Energy Price
times Member's Energy Allocation Percentage times the megawatt hours
delivered to CAPP by the Facility Owners during the Delivery Month.
"Monthly Energy Price" means the price per megawatt hour as set forth in the
PPA.
"MW ' means megawatt.
"MWh" means megawatt hour.
"New Governmental Charges" means (i) any Governmental Charges enacted and
effective after the Effective Date, including without limitation, that portion of any
Governmental Charges or New Governmental Charges that constitutes an increase
or that cause the Facility or Facilities to incur additional or new expenses less
Governmental Charges enacted or imposed prior to the Effective Date that are
replaced by the New Governmental Charge and that become payable by CAPP
under the PPA, (ii) any Law or interpretation thereof, enacted and effective after
the Effective Date resulting in a new or additional expense to the Facility or the
Facilities or the application of any Governmental Charges to a new or different
class of parties and that become payable by CAPP under the PPA.
"Oak Grove Faciliry" means, when the first commercial operation date is
reached, Oak Grove Unit 1 and Oak Grove Unit 2 of the lignite coal- fired power
generation facility known as the Oak Grove Generating Station located in
Robertson County, Texas.
"Ordered Backdown" has the meaning set forth in Section 5.2 of the PPA.
"Participant Contracts" means those individual contracts between CAPP and a
Participating Member under which such Participating Member is acquiring a
portion of the Contract Energy that CAPP is acquiring for the benefit of all
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Members under the PPA. Such term has the same meaning as the term "Member
Output Contract" in the PPA. This Contract is one of the Participant Contracts.
"Participating Members" shall mean those members of CAPP that enter into
contracts with CAPP far the procurement of electric energy from the Facilities. A
list of Participating Members is attached to this Contract as Exhibit "A" and
incorporated by this reference herein for all purposes. Member is one of the
Participating Members.
"Person" means a natural person, corporation, electric cooperative, partnership,
trust, association, joint venture, real estate investment trust or business trust
(including any beneficiary thereof), unincorporated association, Governmental
Authority, and any other form of business or legal entity.
"Planned Outage" has the meaning set forth in Section 6.1 of the PPA.
"PPA" shall mean that certain Power Purchase Agreement between CAPP and the
Facility Owners, a copy of which is attached hereto as Exhibit "B" and
incorporated by this reference herein for all purposes.
"ProducP' or "Products" means Contract Capacity, Contract Energy and
Alternate Energy, if any, received by CAPP from the Facility Owners under the
PPA.
"QSE" means the entity which is responsible for performing the responsibilities
defined far a Qualified Scheduling Entity under the ERCOT Guides, or their
successor in function.
"Regulatory Authorities" has the meaning found in the Utilities Code Vernon's
Texas Codes Annotated.
"REP" means Retail Electric Provider, as defined in ERCOT Protocols.
"REP Services" shall mean all services that a REP provides that are associated
with the provision of electric service to a retail customer by a REP in ERCOT.
"Replacement Price" has the meaning in the PPA.
"Resale Price" has the meaning in the PPA.
"Service Commencement Date" has the meaning set forth in Section 3.2 hereof
and shall be one minute before 12;01 a.m. CPT on January 1, 2009.
"Settlement Interval" has the meaning as set forth in the ERCOT Guides.
"Term" has the meaning set forth in Section 3.1 hereof.
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"Transmission Losses" means losses associated with the transmission of Energy
under this Contract and under the PPA from resources used by (a) the Facility
Owners to the Delivery Points for the respective Facility Owners, and (b) the
Designated Agent(s) from the Facility Owners' Delivery Point to Member's
Delivery Points as determined in accordance with the ERCOT Guides.
"Transmission Service Provider" has the meaning found in the Utilities Code.
"Trustee" means the trustee related to the Bonds pursuant to an indenture of trust
with CAPP.
"Unit" means each of the generating units at the Big Brown Facility, the Oak
Grove Facility and the Martin Lake Facility that are then the subject of the PPA.
"Unit Contingent Energy" means the Contract Energy supplied to CAPP for
delivery to Participating Members from the Facilities under the terms of the PPA,
for which non-delivery is excused i£ (i) a Facility is unavailable as a result of a
Forced Outage or a Planned Outage; (ii) CAPP fails to perform any of its
obligations under the PPA; or (iii) an event of Force Majeure prevents delivery of
such Energy to CAPP.
"Wrap Contract" means any energy service contract executed by CAPP on behalf
of Participating Members for electrical service requirements in addition to the
PPA and other associated and ancillary services necessary to fulfill the full
requirements for each of the Members electric power needs.
1.2 Principles of Interpretation. Unless the context requires otherwise, any
reference in this Contract to any document means such document and all schedules,
exhibits, and attachments thereto as amended and in effect from time to time. Unless
otherwise stated, any reference in this Contract to any Person or Party includes its
permitted successors and assigns and, in the case of any Governmental Authority, any
Person succeeding to its functions and capacities. The words "hereof', "herein" and
"hereunder" and words of similar import when used in this Contract, unless otherwise
expressly specified, refers to this Contract as a whole and not to any particular provision
of this Contract. The singular includes the plural, and the masculine includes the
feminine and neuter genders. Whenever the term "including" is used herein in
connection with a listing of items included within a prior reference, such listing shall be
interpreted to be illustrative only, and shall not be interpreted as a limitation on or
exclusive listing of the items included within the prior reference. The language used in
this Contract is deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party. All times set
forth in this Contract shall be construed to be CPT.
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ARTICLE 2
CAPP'S OBLIGATIONS CONTINGENT UPON
PERFORMANCE BY FACILITY OWNERS UNDER THE PPA;
ASSUMPTION BY MEMBER
2.1 Nature of CAPP's obligations to Member. Member agrees and understands that
CAPP has entered or shall enter the PPA on behalf of Member and all Participant
Members for the purpose of achieving the benefits set forth in the Recitals, above,
including contracting for less than market prices for energy. Member understands that
CAPP is not a power provider or power deliverer. Member agrees and understands that
CAPP's obligation to perform its covenants under this Contract is absolutely contingent
upon the performance of obligations of the Facility Owners and Guarantor to CAPP
under the PPA, including, but not limited to, timely delivery of the Products in the
quantities required under the PPA.
2.2 CAPP's duty to exercise remedies under the PPA and Guaranty; power
coupled with an interest. In the event that the Facility Owners, without an excuse or
right permitted under the PPA, fail to deliver the Products and/or fail to perform their
obligations to CAPP as required under the PPA and Guaranty, then CAPP, on behalf of
itself, Member, and the Participating Members, may exercise one or more of the remedies
available to it under the PPA, the Guaranty, or both, as the Board of Directors of CAPP
shall determine in its sole judgment and discretion. To the fullest extent necessary,
Member hereby irrevocably appoints CAPP as its agent and attorney-in-fact to exercise
such of the remedies available to CAPP under the PPA, that CAPP, in the sole judgment
and discretion of its Board of Directors, believes to be the best interests of the Parties and
Participating Members. Member agrees and understands that the power granted by it to
CAPP in this Section 2.2 is and shall be construed to be a power coupled with an interest
that cannot be revoked during the Term of this Contract. It is further agreed and
understood that Member's obligation to pay the sums set forth in Article 6 and Article 7
on the dates set forth in Article 8, below, shall not be excused, offset, or mitigated on
account of a default by Facility Owners under the PPA or by the failure of Facility
Owners to deliver the Products.
2.3 Assumption of PPA by Member. Member agrees and understands that CAPP
has entered or will enter into the PPA for the benefit of Member and Participating
Members to the extent of their respective Member's Energy Allocation Percentages. For
the consideration set forth in this Contract, Member assumes CAPP's obligations under
the PPA, to the extent of Member's Energy Allocation Percentage, provided, however,
that such rights and obligations shall be exercised on Member's behalf as the Board of
Directors of CAPP shall determine in its sole and absolute discretion.
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ARTICLE 3
TERM OF CONTRACT AND DELIVERY OF PRODUCTS
3.1 Term. The term ("Term") of this Contract shall commence on the Effective
Date, and shall continue until the later o£ (a) January 1, 2033 at 12:00:00 a.m., or (b) the
date that the Bonds have been repaid in full and all covenants required to be performed
and all interest and costs required to be paid by CAPP under the Bonds have been
performed and paid in full by CAPP.
3.2 Delivery of Products. A Member's Contract Energy Allocation of the Products
shall be provided by CAPP to Member as set forth herein at 12:00:00 a.m. CPT on
January 1, 2009 (the "Service CommencementDate") provided that the Products are then
commenced to be delivered by Facility Owners to CAPP under the PPA. Thereafter, the
Products shall be received by CAPP or its Designated Agent(s) for the benefit of and as
agent for Member as the Products are delivered by Facility Owners under the PPA until
the earlier of: (a) one second following 11:59:59 p.m. CPT on December 31, 2032, (b)
the date that the PPA is terminated in accordance with its terms, or (c) the date that this
Contract is terminated in accordance with its terms ("Delivery Period'). In the event that
the Facility Owners fail to deliver all of the Products they are required to deliver under
the PPA, Member shall be entitled to receive only Member's Energy Allocation
Percentage of the Products actually delivered to and received by CAPP, net of
Transmission Losses
ARTICLE 4
PAYMENT OF CAPACITY
PREPAYMENT TO FACILITY OWNERS
Provided that the PPA has not been terminated by CAPP or by the Facility
Owners prior to the Service Commencement Date pursuant to Article 11 of the PPA,
CAPP shall pay or cause the Capacity Prepayment to be paid to Facility Owners on or
before the date described in said Section 4.1(b) of the PPA. CAPP and Member stipulate
and agree that the Capacity Prepayment shall be paid to the Facility Owners as required
by the PPA, in whole or in part, from the proceeds of the Bonds, interest earned while
such Bond proceeds are escrowed, and, as CAPP may elect, funds paid to CAPP by
Member and Participating Members.
ARTICLE 5
DELIVERY OF CONTRACT ENERGY
5.1 Acquisition and Delivery of Product. Upon the Service Commencement Date,
CAPP shall require (i) Facility Owners to provide and deliver the Contract Energy
described in the PPA to the Designated Agent(s) at the Facility Owners' Delivery Point,
and (ii) the Designated Agent(s) to deliver Energy to Member at the Member's Delivery
Points, in both cases from Products generated from the Facilities or acquired by the
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Facility Owners for delivery under the PPA as Alternate Energy pursuant to Section 5.3
of the PPA.
5.2 Title and Risk of Loss. Risk of loss of the Energy provided in accordance with
this Contract shall transfer to CAPP as agent for Member and Participating Members at
the Facility Owners' Delivery Points. Title to the Energy (subject to loss) shall be held
by CAPP as agent for Member and Participating Members between the Facility Owners'
Delivery Points and Member's Delivery Points.
5.3 Member's Failure to Accept Product. If Member fails to accept all or part of
the Product under this Contract and such failure is not excused under the terms of this
Contract or by failure of the Facility Owners to deliver same under the PPA, then
Member shall pay to CAPP or to the Designated Agent(s) from time-to-time designated
by CAPP, on the date payment would otherwise be due with respect to the month in
which the failure occurred, an amount for each MWh of such deficiency equal to the
positive difference, if any, obtained by subtracting the Resale Price from the Contract
Price. The invoice for such amount shall include reasonable detail as to the calculation of
such amount.
5.4 Failure of Facility Owners to Schedule or Deliver Product to CAPP. If one or
more of the Facility Owners fail to schedule and/or deliver all or part of the Product as
required by it under the PPA, and such failure is not excused under the terms of the PPA
or by CAPP's failure to perform, then CAPP or the then-designated Designated Agent(s)
shall, on behalf of all Participating Members, at the expense of and in the proportion of
their respective Member's Energy Allocation Percentages, seek to collect sums from the
Facility Owners that are recoverable pursuant to Section 3.4 of the PPA; provided,
however, that any obligation by CAPP or by the Designated Agent(s), as the case may be,
to pay Member in such event is limited to the amount that CAPP or the Designated
Agent(s) actually collect from the Facility Owners and the Guarantor, net of costs of
collection. For the avoidance of doubt, CAPP shall not be required to pay damages under
this Section 5.4 when the failure to schedule and/or deliver is excused under the
definition of Unit Contingent Energy.
ARTICLE 6
PRICING OF AND
PAYMENT FOR ENERGY
6.1 Payment of Member's Monthly Aggregated Energ,y Payment. In
consideration for the Energy received by it under this Contract, Member shall pay
Member's Monthly Aggregated Energy Payment to CAPP, or to the Designated Agent(s),
as the case may be, on or before the dates for payment set forth in Article 8, below, and
calculated as follows:
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(a) Calculation of Member's Monthlv Energ,y Pavment. Commencing
on the Service Commencement Date, and continuing during each Delivery Month during
the Term, but subject.to annual appropriation therefore by Member during such Member's
Fiscal Year, Member shall pay to CAPP, or to the Designated Agent(s) from time-to-time
designated by it, the Member's Monthly Energy Payment, as computed monthly pursuant
to the provisions of this Section 6.1(a). The Member's Monthly Energy Payment shall be
the sum of (i) the Energy Component of Member's Energy Payment and (ii) the
Aggregated Expenses Component of Member's Energy Payment, both determined as
follows:
(i) Energy Component of Member's Monthly Energy
Pa.yment. The price of Energy deliverable to CAPP under the PPA at the
Facility Owners' respective Delivery Points during the Delivery Month as
provided in the PPA is set forth in the schedule attached hereto as Exhibit
"D" and incorporated herein by reference herein for all purposes. The
Parties recognize that the PPA calls for the Contract Energy to be
delivered to CAPP at the Facility Owners' respective Delivery Points at
which points the Energy Payment is measured and calculated pursuant to
Section 4.1(a) of the PPA. The Wrap Contracts shall provide that the cost
of energy delivered to Member will be measured at Member's Delivery
Points. The price of energy deliverable to CAPP under the Wrap
Contracts shall be at a price determined by negotiations at that time.
Member recognizes that the Energy Component in the monthly invoices
will reflect a blended rate per MWh taking into account the Energy
provided to all Participating Members under all energy procurement
contracts and shall include (1) the cost of Contract Energy; (2) ancillary
services under Section 3.5 of the PPA; (3) the cost of engaging a QSE
under Section 7.1 of the PPA or under any Wrap Contracts; (4) the cost of
engaging a REP under the PPA or under any Wrap Contracts; (5) the cost
of delivering the Contract Energy to the Delivery Points of all
Participating Members from the Facility Owners' respective Delivery
Points; and (6) the cost of energy and other expenses associated with one
or more Wrap Contract. The Energy Component of Member's Monthly
Energy Payment shall be computed as the product of such blended rate
and the total Energy delivered to Member's Points of Delivery during the
billing month.
(ii) Aggregated Expenses Component of Member's Monthlv
Energy Pavment. The total Aggregated Expenses for each Delivery
Month shall be allocated and apportioned between Member and each of
the other Participating Members based upon each Member's Energy
Allocation Percentage. The total amount so allocated to Member shall be
billed to Member on a monthly basis by CAPP or its Designated Agent(s)
as they shall determine appropriate.
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(b) Member's Unique Deliverv Costs. The Parties further recognize
that Member and each of the Participating Members require delivery of the Energy by the
Designated Agent(s) from the Facility Owners Delivery Point to their respective
Member's Delivery Points, the cost of which may vary between Participating Members
based on a number of factors, including, but not limited to, distance from the Facility
Owners Point of Delivery, differing zones into which Energy shall be delivered, different
tariffs that may change from time to time as ordered by Regulatory Authorities, loss of
Energy during transmission, and differing contractual arrangements that must be made to
effect the delivery of Energy to the required points of delivery. In this connection, CAPP
shall, as agent for Participating Members (including Member) (i) enter into one or more
contracts with Designated Agent(s) for delivery of the Products to all Participating
Members from the Facility Owners Delivery Point to each of their respective Member's
Delivery Points, and (ii) require the Designated Agent(s) to separately account to and bill
each Participating Member for the unique costs that are associated with delivery of the
Energy from the Facility Owners Point of Delivery. Commencing on the Service
Commencement Date, and continuing during each Delivery Month during the Term, but
subject to annual appropriation therefore by Member during such Member's Fiscal Year,
Member shall pay to CAPP or to the Designated Agent(s) from time-to-time designated
by it the Member's Unique Delivery Costs. The Member's Unique Delivery Costs shall
be due and payable at the same time that the Member's Aggregated Monthly Energy
Payment is due.
(c) Governmental Charges and New Governmental Charges. Member
shall pay or cause to be paid all Governmental Charges on or with respect to the Product
at and from the Facility Owners' Delivery Points. In the event CAPP and/or the
Designated Agent(s) are required by Law to remit or pay Governmental Charges which
are Member's responsibility hereunder, or in the event that CAPP must remit or pay to
Facility Owners for Governmental Charges that it may pass through to CAPP for
reimbursement under the PPA, CAPP shall notify Member of the amount of
Governmental Charges owed, whether such payment is to Facility Owners or to the
governmental entities that made such Governmental Charges, on Member's behalf. Such
notice shall be provided in a commercially practicable manner and may be provided by a
Designated Agent. Notwithstanding any other provision of this Contract to the contrary,
if a New Governmental Charge (as defined in the PPA) is passed through to CAPP for
reimbursement, including but not limited to New Governmental Charges imposed on all
coal and lignite generating facilities in ERCOT, including the Product, and CAPP's share
of any such New Governmental Charge is greater than the Materiality Threshold set forth
in the PPA (after taking into account the application of any entitlements and the extent of
old charges that are replaced by the New Governmental Charge), such charges shall be
treated as though they were incurred by CAPP for the benefit of all Participating
Members (including Member). All Governmental Charges and New Governmental
Charges shall be apportioned between Member and the Participating Members as an
energy charge reflected on monthly bills from a Designated Agent. If, as, and when
CAPP pays Governmental Charges and New Governmental Charges, it shall be deemed
to have paid same on behalf of Member and all Participating Members in the proportion
stated immediately above, and Member shall pay CAPP and/or the Designated Agent(s)
16
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its proportionate share, subject, however, to Appropriation by Member during Member's
Fiscal Year. The obligation to pay such Governmental Charges and New Governmental
Charges shall continue until such time as reimbursement of Facility Owners therefore are
no longer required by the PPA.
(d) Adjustments. Section 4.2 of the PPA provides for monthly
adjustments if the Equivalent Availability Factor for such month is greater or less than
90%. It is the intention of the Parties to this Contract that (i) such credits and
supplemental payments shall be allocated and passed through to Member and each of the
other Participating Members, on a pro rata basis, in the month payable or credited against
the Energy Payment based on an energy basis and (ii) the Designated Agent responsible
for billing shall net the adjustments under Section 4.2 of the PPA against other amounts
owed. It is understood that Member's obligation to pay any adjustments under this
Section 6.1(d), as part of an Energy Payment or Payments, is subject to appropriation by
Member during Member's Fiscal Year.
(e) Other Adjustments. In the event that inequities arise between
Participating Members or between Member and Participating Members in energy based
allocation of credits and supplemental charges under this or other energy contracts, the
Board of Directors of CAPP, in its sole discretion, may direct further adjustments as
necessary to preserve the integrity of the allocation process and relative economic
position of Member and Participating Members; provided, however, no adjustments shall
affect the obligation to make Capacity Payments under Article 7 of this Contract.
6.2 Payments through Retail Electric Provider and Designated Agent(s). CAPP
reserves the right to bill and invoice Member and Participating Members for the Contract
Price, collect sums due by Member and Participating Members under Article 6, pay sums
to Facility Owners that CAPP is required to pay pursuant to the terms of the PPA, collect
payments and credits due to CAPP by the Facility Owners, and allocate and distribute
credits and payments received from Facility Owners and third parties to Member and
Participating Members as their respective interests appear through a REP or through
Designated Agent(s). Notwithstanding the foregoing, it is expressly agreed and
understood that (a) the Capacity Payments required to be paid by Member pursuant to
Section 7, below, must be paid by Member directly to CAPP or the Trustee, and (b)
payments received by CAPP or by Member from the Facility Owners, Guarantor, or any
of same as a result of Early Tertnination of the PPA as defined in and calculated under
Article 12 of the PPA must be paid by the recipient of such payments directly to CAPP or
the Trustee for application to the Bonds.
6.3 Payments from Available Funds. Notwithstanding any provision herein to the
contrary, the obligations of Member under this Contract to make Energy Payments shall
be payable solely from the Available Funds received in each Fiscal Year during the Term
of this Contract. The obligation of the Member to make any Energy Payments pursuant
to this Contract shall constitute a current expense of Member during each Fiscal Year and
shall not constitute an indebtedness of Member within the meaning of the laws of the
17
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State of Texas. Nothing in this Contract shall constitute a pledge by the Member of any
taxes or other money, other than such funds so Appropriated and received in each Fiscal
Year during the Term of this Contract and constituting Available Funds, to the payment
of any Energy Payment due or to become due hereunder.
6.4 Intent to Continue Payments. Member presently intends to continue this
Contract for the entire Term and to pay all Energy Payments required hereunder.
Member presently intends to Appropriate, from lawfully Available Funds received in
each Fiscal Year, money sufficient to pay the Energy Payments required hereunder.
However, Member has no obligation to, and makes no representation that it will,
Appropriate or seek to Appropriate in any Fiscal Year Available Funds for the payment
of Energy Payments due pursuant to this Contract.
6.5 Failure to Appropriate Available Funds. If, for any Fiscal Year of the
Member, the Member does not Appropriate Available Funds received during such Fiscal
Year to pay the Energy Payments required under this Contract due and payable by
Member during the succeeding Fiscal Year, and if the Member provides CAPP with
written notice of such failure to Appropriate thirty (30) days prior to the expiration of
Member's then-current Fiscal Year, the obligation to take electric Energy from CAPP
under this Contract and make Energy Payments for such electric energy shall tertninate
and be canceled at the end of such current Fiscal Year for the period of the next Fiscal
Year for which the Member has failed to Appropriate Available Funds. The written
notice shall be accompanied by a statement as to whether or not Member has made an
assignment to another Participating Member under Section 6.6 hereof. The Member may
Appropriate Available Funds for any subsequent Fiscal Year for Energy Payments due
during such subsequent Fiscal Year and then shall be entitled to receive electric Energy
from CAPP under this Contract for such F'iscal Year.
6.6 Assignment Upon Failure to Appropriate. For any Fiscal Year which the
Member has failed to Appropriate for Energy Payments (or portion thereof), the Member
may assign to another Participating Member all or a portion of such non-appropriating
Member's right to receive electric energy for such Fiscal Year provided the Participating
Member certifies to CAPP that the assigned electric energy will be utilized by such
Participating Member for its buildings and facilities, in compliance with the Local
Government Code Chapter 304. The Energy Payments associated to such assigned right
to such electric energy shall be calculated according to the terms of this Contract
(assuming the Member was receiving such electric energy). At such time the Member
provides written notice of its failure to Appropriate for Energy Payments for any Fiscal
Year, the Member may also give written notice to CAPP of its assignment of all or a
portion of its right to receive electric energy under this Contract, including a written
agreement between the Member and the Participating Member reflecting the terms and
conditions of such assignment. Prior to the beginning of the relevant Fiscal Year, the
assuming Participating Member must provide CAPP written notice of (i) its
Appropriation for the Energy Payments associated with the assumed electric energy for
the period of the non-appropriating member's Fiscal Year which such non-appropriation
is applicable (or portion thereof), (ii) certification that such assumed electric energy will
18
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be utilized by such Participating Member for its buildings and facilities, in compliance
with the Local Government Code Chapter 304 and (iii) a valid and binding assignment
agreement between the Member and the Participating Member. If the Member failing to
appropriate for Energy Payments does not assign the Energy to another Participating
Member within 30 days following the failure to Appropriate, Member shall assign the
Energy to CAPP, and CAPP shall have the right to assign to a Participating Member, or
to otherwise dispose of the Energy in a commercially practicable manner.
6.7 Appropriated Energy Payments to be Unconditional. Except as provided
herein, including Section 6.3 hereof, the abligation of Member to make Energy Payments
each Fiscal Year from funds that have been appropriated for such purpose when due shall
be absolute and unconditional. Notwithstanding any dispute between Member and CAPP
or any other Participating Member or person, the Member shall make all Energy
Payments required hereunder when due and shall not withhold any such payments
pending final resolution of such dispute, nor shall Member assert any right of set-off or
counterclaim against its obligation to make such payments required under this Contract.
Member's obligation to make Energy Payments during the Term shall not be abated
because of accident or unforeseen circumstances. However, nothing herein shall be
construed to release CAPP from the performance of its obligations hereunder; if CAPP
should fail to perform any such obligation, Member may institute such legal action
against CAPP as Member may deem necessary to compel the performance of such
obligation. Notwithstanding anything to the contrary above, Member's obligation to pay
Energy Payments shall not require it to pay Energy Payments from any source other than
Available Funds specifically appropriated by Member for payment of the Energy
Payments.
6.8 CAPP as Third Party Beneficiary. Member acknowledges that CAPP is an
intended third party beneficiary of all Appropriations made by Member for sums
described in this Article 6. As part of the consideration for this Contract, Member grants
to CAPP and to any Designated Agent(s) appointed by CAPP all rights to enforce, by a
mandamus action against Member and its governing body, such provisions for each
Fiscal Year of Member for which there has been an Appropriation as contemplated in this
Article.
6.9 Member's Default of the Energy Payment Covenants and CAPP's Remedies.
(a) Events of Default. Each of the following occurrences or events for
the purpose of this Contract is hereby declared to be a Default:
(i) The failure to make payment of the Energy Payment when the
same becomes due and payable; or
(ii) Default in the performance or observance of any other
covenant, agreement or obligation of the Member, the failure to perform
which materially, adversel,y affects CAPP, including, but not limited to, its
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prospect or ability to be repaid in accordance with this Contract, and the
continuation thereof for a period of 30 days after notice of such default is
given by CAPP or Trustee to the Member.
(b) Remedies for Default.
(i) Upon the occurrence of a Default, then and in every case,
CAPP or an authorized representative thereof may proceed against the
Member, or any official, officer or employee of the Member in their
official capacity, for the purpose of protecting and enforcing the rights of
CAPP under this Contract, by mandamus or other suit, action or special
proceeding in equity or at law, in any court of competent jurisdiction, for
any relief permitted by law, including the specific performance of any
covenant or agreement contained herein, or thereby to enjoin any act or
thing that may be unlawful or in violation of any right of CAPP hereunder
or any combination of such remedies.
(ii) It is provided that all such proceedings shall be instituted and
maintained for the benefit of CAPP.
(c) Remedies Not Exclusive.
(i) No remedy herein conferred or reserved is intended to be
exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity;
provided, however, that notwithstanding any other provision of this
Contract, the right to accelerate the Energy Payments shall not be
available as a remedy under this Contract.
(ii) The exercise of any remedy herein conferred or reserved shall
not be deemed a waiver of any other available remedy. The failure to
exercise a remedy upon a Default shall not be deemed to be a waiver of
the right to exercise such remedy in the future.
(iii) By accepting the delivery of Energy Payment authorized
under this Contract, CAPP agrees that the certifications required to
effectuate any covenants or representations contained in this Contract do
not and shall never constitute or give rise to a personal or pecuniary
liability or charge against the officers, employees or trustees of the
Member.
(iv) No official or officer, agent, or employee of the Member,
shall be charged personally by CAPP or the Trustee with any liability, or
be held personally liable under any term or provision of this Contract, or
because of a Default or Default under this Contract.
20
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ARTICLE 7
CAPACITY PREPAYMENT, MEMBER'S MONTHLY CAPACITY PAYMENT
AND PLEDGE OF AD VALOREM TAXES BY MEMBER
7.1 Capacity Prepayment. In order to procure Energy at favorable rates produced in
the Facilities by the Facility Owners under the PPA, CAPP, at the request of Member and
the other Participating Members, shall (i) prepay to Facility Owners the sum of
$465,000,000.00 (the "Capacity Prepayment'~ from the proceeds of the Bonds (ii)
establish a reserve fund under the Bonds as may be required for issuance of the Bonds,
and (iii) pay costs and charges associated with issuance of the Bonds, including legal
fees, accounting fees, and consultant's fees engaged by the bond issuer, bond counsel,
and CAPP. The Capacity Prepayment shall be paid to Facility Owners as provided in
Section 4.1 hereof and as provided in Section 4.1(b) of the PPA. Once the actual amount
of the Bonds and the interest rate established thereunder are known, this Contract shall be
amended by CAPP and Member to reflect such facts, and to stipulate the amount of
Member's Monthly Capacity Payment. It is the intention of the Parties that CAPP shall
receive from Member and each Participating Member through the Monthly Capacity
Payment set forth in Section 7.2(a), based upon the Member's Energy Allocation
Percentage of each, the amount sufficient to pay: (i) CAPP's costs to issue the Bonds, (ii)
the principal and redemption premium, if any, of and interest on the Bonds, (iii) trustee
and other administrative fees, and (iv) other costs associated therewith.
7.2 Capacity Payment.
(a) Member shall pay CAPP, its Designated Agent or the Trustee, as
CAPP shall direct, upon the assignment of all or a portion of this Contract by
CAPP to such trustee, a Monthly, Capacity Payment for each Delivery Month
throughout the remainder of the Term, or until such earlier date as such Monthly
Capacity Payments have been prepaid or otherwise fully defeased as provided in
Section 7.4 hereof, in an amount equal to the amount shown in Exhibit "E" times
the Member Energy Allocation Percentage.
(b) It is hereby certified and covenanted that the contractual obligation
to make the Monthly Capacity Payments when due, as described in subsection (a)
above, has been duly and validly authorized and delivered; that all acts, conditions
and things required or proper to be performed, exist and be done precedent to or
in the authorization and delivery of this Contract have been performed, existed
and been done in accordance with law; that the contractual obligation to make the
Monthly Capacity Payments herein is a limited tax obligation of Member; and
that annual ad valorem taxes, within the limits prescribed by law, sufficient to
provide for the payment of the Monthly Capacity Payments, as such payments
come due, have been levied and ordered to be levied against all taxable property
in Member, and have been pledged from Member's annual ad valorem
maintenance tax for such payment, within the limit prescribed by law.
21
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(c) It is understood and agreed that all Monthly Capacity Payments
payable by the Member under this Article 7 are assigned by CAPP to the Trustee
for the benefit of the Owners of the Bonds. The Member assents to such
assignment.
7.3 Interest and Sinking Fund; Tax Levy for Monthly Capacity Payments. The
Interest and Sinking Fund shall be kept separate and apart from all other funds and
accounts of Member, and shall be used only for paying the Monthly Capacity Payments
when due. All ad valorem taxes levied and collected for and on account of the Monthly
Capacity Payments shall be deposited, as collected, to the credit of the Interest and
Sinking Fund. During each Fiscal Year while a Monthly Capacity Payment is
outstanding and unpaid, the governing body of the Member shall compute and ascertain a
rate and amount of ad valorem tax which together with any other lawfully available funds
that are on deposit in the Interest and Sinking Fund at the time of such levy will be
sufficient to provide and maintain a sinking fund adequate to pay the Monthly Capacity
Payments as such payments become due (but never less than 2% of the original aggregate
amount of the Monthly Capacity Payments as a sinking fund each year); and said tax
shall be based on the latest approved tax rolls of the Member, with full allowance being
made for tax delinquencies and the cost of tax collection. Said rate and amount of ad
valorem tax is hereby levied and is hereby ordered to be levied, against all taxable
property in the Member for each year while any of the Monthly Capacity Payments are
outstanding and unpaid; and said tax shall be assessed and collected each such year and
deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes
to be sufficient to provide for the payment of the Monthly Capacity Payments, as such
payments come due, are hereby pledged for such payment, within the limit prescribed by
law.
7.4 Prepayments based upon Early Termination under the PPA. In the event that
CAPP shall receive a Buyer Termination Payment under Article 12 of the PPA, such
amount shall be assigned and paid to the Trustee for payment on the Bonds with such
payment to be applied to a prorata redemption of all outstanding maturities of such
Bonds. Such prorata redemption on the Bonds shall similarly be applied prorata to
reduce Member's Monthly Capacity Payments and the Monthly Capacity payments of
other Participating Members. If any balance of the Bonds remains unpaid after
application of the Buyer Termination Payment, then notwithstanding the obligation to
pay the Monthly Capacity Payment under Section 7.2 above, Member shall pay
Member's Energy Allocation Percentage of such balance within thirty (30) days
following receipt of notice from CAPP.
7.5 CAPP and Trustee as Third Party Beneficiaries. Member acknowledges that
CAPP and Trustee are intended third party, beneficiaries of the obligation to pay Monthly
Capacity Payments and to make provision for payment from ad valorem tax revenues.
As part of the consideration for this Contract, Member grants to CAPP and to Trustee all
rights to enforce, by a mandamus action against Member and its governing body, the
provisions and obligations of this Article 7.
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7.6 Monthly Capacity Payments to be Unconditional. Except as provided herein,
including Section 6.3 hereof, the obligation of Member to make Monthly Capacity
Payments when due shall be absolute and unconditional. Notwithstanding any dispute
between Member and CAPP or any other Participating Member or person, the Member
shall make all Monthly Capacity Payments required hereunder when due and shall not
withhold any such payments pending final resolution of such dispute, nor shall Member
assert any right of set-off or counterclaim against its obligation to make such payments
required under this Contract. Member's obligation to make Monthly Capacity Payments
during the Term shall not be abated because of accident or unforeseen circumstances.
However, nothing herein shall be construed to release CAPP from the performance of its
obligations hereunder; if CAPP should fail to perform any such obligation, Member may
institute such legal action against CAPP as Member may deem necessary to compel the
performance of such obligation.
7.7 Member's Default on Capacity Prepayment and CAPP's Remedies.
(a) Events of Default. Each of the following occurrences or events for
the purpose of this Contract is hereby declared to be a Default:
(i) The failure to make payment of the Capacity Prepayment when
the same becomes due and payable; or
(ii) Default in the performance or observance of any other
covenant, agreement or obligation of the Member, the failure to perform
which adversely affects CAPP, including, but not limited to, its prospect
or ability to be repaid in accordance with this Contract, and the
continuation thereof for a period of 30 days after notice of such default is
given by CAPP or Trustee to the Member.
(b) Remedies for Default.
(i) Upon the happening of a Default, then and in every case,
CAPP or an authorized representative thereof, including, but not limited
to, the Trustee, may proceed against the Member, or any official, officer or
employee of the Member in their official capacity, for the purpose of
protecting and enforcing the rights of CAPP under this Contract, by
mandamus or other suit, action or special proceeding in equity or at law, in
any court of competent jurisdiction, for any relief permitted by law,
including the specific performance of any covenant or agreement
contained herein, or thereby to enjoin any act or thing that may be
unlawful or in violation of any right of CAPP hereunder or any
combination of such remedies.
(ii) It is provided that all such proceedings shall be instituted
and maintained for the benefit of CAPP and/or owners of the Bonds.
23
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(c) Remedies Not Exclusive.
(i) No remedy herein conferred or reserved is intended to be
exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity;
provided, however, that notwithstanding any other provision of this
Contract, the right to accelerate the PPA Capacity Payments shall not be
available as a remedy under this Contract.
(ii) The exercise of any remedy herein conferred or reserved
shall not be deemed a waiver of any other available remedy. The failure
to exercise a remedy upon a Default shall not be deemed to be a waiver of
the right to exercise such remedy in the future.
(iii) By accepting the delivery of the Capacity Prepayment
authorized under this Contract, CAPP agrees that the certifications
required to effectuate any covenants or representations contained in this
Contract do not and shall never constitute or give rise to a personal or
pecuniary liability or charge against the officers, employees or trustees of
the Member.
(iv) No official or officer, agent, or employee of the Member,
shall be charged personally by CAPP or the Trustee with any liability, or
be held personally liable under any term or provision of this Contract, or
because of a Default or Default under this Contract.
ARTICLE 8
BILLING AND PAYMENT
8.1 Invoice and Payment Schedules. CAPP shall cause the Designated Agent(s) to
submit invoices to Member for the Contract Price. All such invoices under this Contract
shall be due and payable in accordance with the invoice instructions of the Designated
Agent(s) consistent with ERCOT protocols, Rules of the Public Utility Commission of
Texas, and contractual agreements between CAPP and Designated Agents. CAPP will
cause the Designated Agent(s) to render to Member a separate invoice for the Contract
Price for each ESI-ID on a billing month basis. All Monthly Capacity Payment invoices
under this Contract pursuant to Article 7, shall be separately due and payable directly to
CAPP or the Trustee in accordance with the invoice instructions of CAPP, Trustee or
Designated Agent.
8.2 Method of Payment. Each Party will make payments by electronic funds
transfer, or by other mutually agreeable method(s), to the account designated by the other
Party. Any amounts not paid by the due date will be deemed delinquent and will accrue
24
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interest at the Interest Rate, such interest to be calculated from and including the due
date, but excluding the date the delinquent amount is paid in full. Because certain
charges are aggregated between Member and Participating Members, Member
understands that a failure to timely pay an invoice may result in additional costs, interest
charges, and damages that CAPP may be required to pay to Facility Owners under the
PPA and that are disproportionate to the default by Member. Member agrees, in the
event of its default, to reimburse CAPP for all costs, interest charges, and damages that it
may be required to pay to Facility Owners that result from Member's default under this
Contract. Except for Capacity Payments that are required to be paid by Member directly
to CAPP or the Trustee, CAPP may require Member to pay all or any of the payments
required to be paid by Member under this Contract to Designated Agent(s) appointed by
CAPP.
8.3 Netting. Member understands that CAPP and Facility Owners have agreed to
dischaxge mutual debts and payment obligations due and owing to each other on the same
payment due date pursuant to the PPA through netting, so that only the excess amount
remaining due shall be paid by the Party, who owes such excess amount. All payment
obligations of the Parties and all rights to receive payment under this Contract are subject
to the netting provisions contained in the PPA. Additionally, it is understood that
Designated Agents may net credits and supplemental payments in monthly invoices of
the Contract Price.
8.4 Disputed Charges. A Party may, in good faith, dispute the correctness of any
invoice or any adjustment to an invoice, rendered under this Contract or adjust any
invoice for any arithmetic or computational error within twenty-three (23) months of the
date the invoice, or adjustment to an invoice, was rendered, except when a dispute is
limited by ERCOT protocols, Rules of' the Public Utility Commission or contracts
between CAPP and Designated Agents. In the event an invoice or portion thereof, or any
other claim or adjustment arising hereunder, is disputed, payment of the undisputed
portion of the invoice shall be required to be made when due, with notice of the objection
given to the other Party. Any invoice dispute or invoice adjustment shall be in writing
and shall state the basis for the dispute or adjustment. Payment of the disputed amount
shall not be required until the dispute is resolved unless CAPP is required to pay the
disputed amount to Facility Owners under the PPA. Upon resolution of the dispute, any
required payment shall be made within five (5) Business Days of such resolution (along
with interest accrued, if any, on account thereof under the PPA). Inadvertent
overpayments shall be returned upon request or deducted by the Party receiving such
overpayment from subsequent payments, with interest accrued only to the extent it
accrues under the PPA. Any dispute with respect to an invoice is waived unless the other
Party is notified in accordance with this Section 8.4 within twenty-three (23) months or
shorter period if required by ERCOT protocols, Rules of the Public Utility Commission
or contracts between CAPP and Designated Agents after the invoice is rendered or any
specific adjustment to the invoice is made.
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8.5 Audits. Each Party has the right, at its sole expense and during normal working
hours, to examine copies of the relevant portions of the records of the other Party to the
extent reasonably necessary to verify the accuracy of any invoice, charge or calculation
made pursuant to this Contract. If any such examination reveals any inaccuracy in any
invoice or calculation, the necessary adjustments in such invoice or calculation, and the
payment of any adjustment thereto, shall be paid, with interest at the Interest Rate
calculated from the date the overpayment or underpayment was made until paid, by the
responsible Party pursuant to the terms of the PPA, the Wrap Contract or the applicable
contract between CAPP and Designated Agents.
8.6 ERCOT Barred Issue. It is recognized by the Parties that ERCOT has some
established time periods for disputing certain matters and the Parties expressly desire to
be bound by such periods in their performance under this Contract. Therefare,
notwithstanding any provisions in Article 7 of this Contract to the contrary, in the event
CAPP is barred from disputing and correcting or adjusting with ERCOT any matter of
any nature whatsoever affecting any matter covered by this Contract (an "ERCOT
Barred Issue"), then Member shall be barred for all purposes from disputing any portion
of any statement, invoice, notice or other matter hereunder to the extent that CAPP is
unable to receive adjustment from or dispute such matter with ERCOT because such
statement, invoice, notice or other matter is an ERCOT Barred Issue, even if Member's
notice is given within the twenty-three (23) months' period set forth in this Article 8.
ARTICLE 9
DESIGNATION OF MEMBER'S DELIVERY POINTS
9.1 Designation of Member's Delivery Points. Member has designated its initial
Member's Delivery Points by identifying the ESI-IDs and providing that information to
CAPP's Designated Agent(s). Such Member's Delivery Points are all points of receipt
for electric service that are subject to retail choice. Member shall have a continuing
obligation to provide CAPP and Designated Agent(s) with an updated listing of ESI-IDs
by location and profile type.
ARTICLE 10
SECURITY
10.1 Security from Facilities Owners. The Facility Owners and Guarantor have
agreed under Article 9 of the PPA to provide CAPP a first lien on certain collateral on a
pari passu basis with other creditors. Member acknowledges that it has no direct right to
enforce the lien, nar does it have any individual interest in the Facilities in the event of
foreclosure of the first lien, nor may it exercise remedies available to CAPP under the
PPA. To the extent that CAPP shall determine that it is in CAPP's interest to (i) agree to
renewals, modifications, amendments, and refinancing of the first lien indebtedness
described in the PPA, (ii) exercise or fail to exercise one or more remedies available to it
under the PPA, or (iii) terminate or modify the PPA, Member irrevocably appoints the
Board of Directors of CAPP as its agent and attorney in fact to enter into agreements
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appropriate to the situation, including, but not limited to, agreements to substitute
collateral, and agreements to release or partially release liens. The power herein granted
to CAPP and its Board of Directors by Member is a power coupled with an interest that
may not be revoked while all or any portion of the Bonds is unpaid.
10.2 Collateral Assignment of the Contract to Trustee for Bonds. This Contract
and the Participant Contracts shall be collaterally assigned to the Trustee under the Bonds
as security for the repayment of the Bonds to the extent of the Capacity Payment payable
pursuant to Article 7 of this Contract and each of Participant Contracts.
ARTICLE 11
DEFAULT
11.1 Defaults by Facility Owners; Defaults by Participating Members. In the event
of default by Facility Owners under the PPA, or in the event of a default by Member or
by a Participating Member under a Participant Contract, the Parties agree and stipulate
that decisions as to the exercise or non-exercise of remedies upon such default shall be
solely vested in CAPP, as its Board of Directors may determine from time to time.
Member acknowledges that CAPP's rights to elect remedies may be subject and
subordinate to rights granted to or reserved by the holders and owners of the Bonds or the
Trustee thereof.
11.2 Default by CAPP. Except as otherwise excused under this Contract, the
occurrence of any of the following shall constitute an event of default by CAPP:
(a) Failure of CAPP to pay the Capacity Prepayment as required under
the PPA;
(b) Failure by CAPP to timely perform its covenants under the Bonds,
including payments required by it, unless such failure is caused by the failure of
Member under this Contract or of one or more Participating Members under the
Participant Contracts to pay CAPP sums required under Article 6; or
(c) CAPP breaches any material contractual obligation under this
Contract and such breach continues for a period of thirty (30) Days after the date
on which written notice thereof is received from Member by CAPP.
11.3 Default by Member. Except as otherwise excused under this Contract, the
occurrence of any of the following shall constitute an event of default by Member:
(a) Member fails to accept delivery of the Products, or any portion
thereof from CAPP. In the event of such failure, CAPP may, in addition to other
remedies available to it under this Contract, provide the unaccepted Products to
another Participating Member or, if no Participating Member elects to accept such
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Products, to a third party at such price as CAPP may negotiate in the marketplace.
If the price obtained in the marketplace is less than the price Member would have
been required to pay for such Products, Member shall pay CAPP and CAPP may
recover from Member (i) the positive difference, if any, obtained by subtracting
what was received from the Participating Member or third party from what would
have been received from Member had Member accepted the full delivery of
Products required of it, and (ii) all costs of collection incurred by CAPP,
including reasonable attorney's fees;
(b) Except for disputed charges arising under Section 8.4, Member
fails to pay amounts due to CAPP as and when required under this Contract,
which failure continues for a period of three (3) Business Days after the date on
which written notice of a prospective Default is received by Member from CAPP;
(c) Failure by Member to levy the rate and amount of ad valorem taxes
out of the maintenance tax of Member, and failure by Member to establish and
maintain a sinking fund for the Monthly Capacity Payments and CAPP fees as
required under Section 7.3, above;
(d) Failure by Member to pay to CAPP any sum of money required to
be paid by Member under this Contract;
(e) Member breaches any material contractual obligation under this
Contract and such breach continues for a period of twenty-eight (28) Days after
the date on which written notice thereof is received by the breaching Party;
(f) Member becomes Bankrupt.
11.4 Remedies of CAPP in the event of default by Member. Unless otherwise
limited by the terms of this Contract, in the event that Member shall default in the
performance of its obligations under this Contract, CAPP may:
(a) Suspend delivery of Products to Member, and provide such
Products to one or more Participating Members or third parties until such default
is cured;
(b) Then and in every case, CAPP or an authorized representative
thereof may proceed against the Member, or any official, officer or employee of the
Member in their official capacity, for the purpose of protecting and enforcing the rights
of CAPP under this Contract, by mandamus or other suit, action or special proceeding in
equity or at law, in any court of competent jurisdiction, for any relief permitted by law,
including the specific performance of any covenant or agreement contained herein, or
thereby to enjoin any act or thing that may be unlawful or in violation of any right of
CAPP hereunder or any combination of such remedies;
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(c) Suspend performance of CAPP's obligations to Member under this
Contract until the earlier of (i) the Day the Default has been cured in accordance
with the terms of this Contract, except for Member's obligations to make Monthly
Capacity payments under Article 7 hereof which shall not be affected by any such
action;
(d) Exercise any other remedy available to CAPP at law or in equity.
In addition to all of the rights and remedies provided to CAPP by the laws of the
State of Texas, and in addition to the rernedies set forth above, the Member covenants
and agrees that in the event of its default under this Contract, including failure to pay
Monthly Capacity Payments and payments under Section 7.5 when due or Energy
Payments when due after the Member has Appropriated for such payments, or, in the
event it fails to make the payments required to be made into the Interest and Sinking
Fund or defaults in the observance or performance of any other of the contracts,
covenants, conditions or obligations set forth in this Contract, the following remedies
shall also be available:
(e) CAPP, the trustee if CAPP has assigned all or part of this Contract
to a trustee for the benefit of bond owners, shall be entitled to a writ of mandamus
issued by a court of competent jurisdiction compelling and requiring Member and
the officials thereof to observe and perform all agreements, covenants, obligations
and conditions prescribed in this Contract;
(f) Any delay or omission to exercise any right ar power accruing
upon any default shall not impair any such right or power nor be construed to be a
waiver of any such default or acquiescence therein, and every such right and
power may be exercised from time to time and as often as may be deemed
expedient; and
(g) Any other remedies available to CAPP at law or in equity.
11.5 Remedies of Member in the Event of Default by CAPP. Unless otherwise
limited by the terms of this Contract, in the event that CAPP shall default in the
performance of its obligations under this C'ontract, Member may:
(a) Then and in every case, Member may proceed against CAPP, or
any official, officer or employee of CAPP in their official capacity, Sue for the purpose
of protecting and enforcing the rights of Member under this Contract, by mandamus or
other suit, action or special proceeding in equity or at law, in any court of competent
jurisdiction, for any relief permitted by law, including the specific performance of any
covenant or agreement contained herein, or thereby to enjoin any act or thing that may be
unlawful or in violation of any right of Member hereunder or any combination of such
remedies;
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(b) Terminate this Contract, except for Member's obligations to make
Monthly Capacity Payments under Article 7 hereof which shall survive any termination
of this Contract;
(c) Exercise any other remedies available to Member at law or in
equity.
11.6 No Waiver in Event of Default. Pursuit by either Party of any remedy for
default pursuant to Article 11 of this Contract shall not constitute a forfeiture or waiver of
any amount due by the defaulting Party or of any damages occurring by reason of the
violation of any terms, provisions, or conditions of this Contract, provided however, that
in no event shall CAPP be required to return to Member any sums paid by Member to
CAPP for Capacity Prepayment. No waiver of any default or breach of this Contract
shall be deemed or construed to constitute a waiver of any other violation or breach of
any of the terms, provisions, or conditions of this Contract. Forbearance to enforce one
or more of the remedies available upon the occurrence of an event of default shall not
constitute a waiver of that or any subsequent default or breach.
ARTICLE 12
INDEMNIFICATION; LIMITATION OF LIABILITY
12.1 Member's Indemnification of CAPP. To the extent permitted by the
Constitution and laws of the State of Texas, and with full reservation of all defenses and
immunities available under the Law, Member agrees to and shall indemnify, defend, and
hold harmless CAPP and all of CAPP's officers, directors, shareholders, representatives,
and employees, from and against all Indemnified Claims, including Indemnified Claims
for personal injury, death, or damages to property, occurring after the Facility Owners'
Delivery Points, arising out of or related to the Products. Notwithstanding the foregoing,
CAPP agrees and understands that Member cannot indemnify CAPP, Facility Owners, or
any individual associated with either of them from and against their own gross negligence
and willful misconduct. To the extent that CAPP has agreed to indemnify Facility
Owners pursuant to Article 13 of the PPA, then Member agrees to and shall indemnify,
defend, and hold harmless CAPP and all of CAPP's officers, directors, shareholders,
representatives, and employees, from and against all Indemnified Claims that CAPP has
made to Facility Owners, but only to the extent permitted by the Constitution and laws of
the State of Texas, and with full reservation of all defenses and immunities available
under the Law.
12.2 Claims arising on Facility Owners side of the Facility Owners' Delivery
Point. To the extent that claims for personal injury, death, or damages to
property: (a) occur at and/or before the Facility Owners' Delivery Point, (b) arise out of
or are related to the Product and Products, and (c) are covered as an Indemnified Claim
by Facility Owners for the benefit of CAPP, Member and Participating Members, and
each of their respective officers, officials, directors, and employees, then CAPP, on
behalf of itself, Member, and Participating members, agrees to enforce the indemnity and
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duty of defense that Facility Owners have granted to CAPP and Member under Article 12
of the PPA.
12.3 Indemnified Claims. "Indemnified Claims", as used in Sections 12.1 and 12.2,
above, means all third party claims or actions, threatened or filed and, whether
groundless, false, fraudulent or otherwise, that directly or indirectly relate to the subject
matter of an indemnity, and the resulting losses, damages, expenses, attorneys' fees and
court costs, whether incurred by settlement or otherwise, and whether such claims or
actions are threatened or filed priar to or after the termination of this Contract.
12.4 Limitation of Remedies, Liability and Damages. EXCEPT AS SET FORTH
IN THIS AGREEMENT, THERE IS NO WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, AND ANY AND ALL IMPLIED
WARRANTIES ARE DISCLAIMED. THE PARTIES CONFIRM THAT THE
EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS
AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH
OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF
DAMAGE IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF
DAMAGES SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL
OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED
EXCEPT AS SET FORTH IN ARTICLE 11 OF THIS AGREEMENT. IF NO
REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN,
THE OBLIGOR'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL
DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE
AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT
LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED,
NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER
BUSINESS INTERRUPTION DAMAGES, BY STATUTE,IN TORT OR CONTRACT,
UNDER ANY 1NDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF
THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND
THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR
CAUSES RELATED THERETO,INCLUDING THE NEGLIGENCE OF ANY PARTY,
WHETHER SUCH NEGLIGENCE IS SOLE, JO1NT OR CONCURRENT, OR
ACTIVE OR PASSIVE. TO THE EXZ'ENT ANY DAMAGES REQUIRED TO BE
PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT
THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR
OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND
THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE
APPROXIMATION OF THE HARM OR LOSS.
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ARTICLE 13
REPRESENTATIONS
13.1 Mutual representations and warranties. Each Party represents and warrants to
the other Party that:
(a) Such Party has the power and authority to execute, deliver and
perform its obligations under this Contract. Such Party has authorized the
execution and delivery of this Contract by the person(s) executing this Contract
below.
(b) No provision contained in Member's charter or enabling
legislation, as the case may be, if any, prohibits Member from entering into this
Contract and performing the obligations required of Member under this Contract.
(c) This Contract constitutes a legal, valid and binding obligation of
such Party, except as the enforceability of this Contract may be limited by the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditor's rights generally and by general principles of
equity which permit the exercise of judicial discretion.
(d) Neither the execution or delivery of this Contract results in any
breach of or constitutes any default under any material agreement to which such
Party is bound or causes such Party to be in violation of any Law, regulation,
administrative or judicial order or process or decision to which such Party is a
party or by which it or its properties are bound or affected.
(e) It is not Bankrupt and there are no proceedings pending or being
contemplated by it or, to its knowledge, threatened against it which would result
in it being or becoming Bankrupt.
(f) It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under such laws,
in good standing.
(g) All governmental and other authorizations, approvals, consents,
notices and filings that are required to have been obtained or submitted by it with
respect to this Contract or other dacument relating hereto or thereto to which it is
a party have been obtained or submitted and are in full force and effect and all
conditions of any such authorizations, approvals, consents, notices and filings
have been complied with.
(h) No Default with respect to it, or event which with notice and/or
lapse of time would constitute such a Default, has occurred and is continuing and
32
no such event or circumstance would occur as a result of its entering into or
performing its obligations under this Contract or other document relating hereto
or thereto to which it is a party.
There is not pending or, to its knowledge, threatened against it or any of its
Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator that is likely to affect the legality,
validity or enforceability against it of this Contract, or other document relating hereto or
thereto to which it is a party or its ability to perform its obligations under the same.
ARTICLE 14
NOTICES
14.1 Notices. All notices and other communications required or permitted by this
Contract or by Law to be served upon or given to a Party by the other Party shall be
deemed duly served and given when received after being delivered by hand, or courier
service, or sent by confirmed facsimile or certified mail, return receipt requested, postage
prepaid, to the following address.
To Member: City of Paris, Texas
Attention: W. E. Anderson, Director of Finance
Telephone: (903) 784-9241
Facsimile: (903) 785-8519
To CAPP:
Attention:
Telephone:
Facsimile:
Notices shall, unless otherwise specified herein, be in writing and may be
delivered by hand delivery, United States mail, overnight courier service or facsimile.
Notice by facsimile or hand delivery shall be effective at the close of business on the Day
actually received, if received during business hours on a Business Day, and otherwise
shall be effective at the close of business on the next Business Day. Notice by overnight
33
United States mail or courier shall be effective on the next Business Day after it was sent.
A Party may change its addresses by providing notice of it in accordance herewith.
ARTICLE 15
CONFIDENTIALITY
15.1 Confidential Information. Parties to this Contract acknowledge that they are
obligated to protect the confidentiality of certain information provided by Luminant to
CAPP in the course of negotiating the PPA pursuant to Article 17 of the PPA. Member
agrees to be bound by the provisions of Article 17 of the PPA regarding any information
that counsel to CAPP indicates in writing should be kept confidential and to promptly
advise counsel to CAPP of any request for Public Information pursuant to Chapter 552 of
the Texas Government Code for public revelation of confidential information provided to
Member in its consideration of this Contract and related documents.
ARTICLE 16
ASSIGNMENT
16.1 Assignment. Except as provided otherwise in this Contract, neither Party shall
assign this Contract or its rights hereunder without the prior written consent of the other
Party, which consent shall not be unreasonably withheld or delayed; provided, however,
that the assignee is at the time of assignment a Member of CAPP. In no event shall the
assigning Party be relieved from liability under this Contract upon assignment.
ARTICLE 17
CONTINUING DISCLOSURE
17.1 Continuing Disclosure Undertaking of Members. At such time that Member's
aggregated unpaid Monthly Capacity Payments equals at least ten percent (10%) of the
outstanding principal amount of the Bonds, Member agrees to provide annually to each
Nationally Recognized Municipal Securities Information Depositories ("NRMSIR") and
any State Information Depositories ("SID") financial information and operating data with
respect to the Member of the general type hereinafter described. Subject to the foregoing
sentence Member agrees to provide, within 195 days after the end of each Fiscal Year
thereof ending in or after 2009, financial information and operating data with respect the
Member. Any financial statements so to be provided shall be prepared in accordance
with the accounting principles as Member may be required to employ from time to time
pursuant to state law or regulation.
17.2 Financial Statements. If Member is required to file financial information
pursuant to Section 17.1 and Member commissions an audit of such statements and the
audit is completed within the period during which they must be provided, the financial
statements to be provided shall be audited. If the audit of such financial statements is not
complete within such period, then Participating Member shall provide unaudited financial
statements and thereafter audited financial statements for the applicable fiscal year to
34
CAPP, each NRMSIR and any SID, when and if the audit report on such statements
become available.
17.3 Change of Fiscal Year. If Member is required to file financial information
pursuant to Section 17.1 and Member changes its Fiscal Year, it shall be the duty of such
Member to notify each NRMSIR and any SID of the change (and of the date of the new
Fiscal Year end) prior to the next date by which such Member otherwise would be
required to provide financial information and operating data pursuant to this Article. The
financial information and operating data to be provided pursuant to this Article may be
set forth in full in one or more documents or may be provided pursuant to this Article
may be set forth in full in one or more documents or may be included by specific
reference to any document (including an official statement or other offering document, if
it is available from the Municipal Securities Rulemaking Board ("MSRB") that
theretofore has been provided to each NRMSIR and any SID or filed with the SEC.
17.4 Failure to Provide Continuing Disclosure. Member shall notify CAPP, any
SID and either each NRMSIR or the MSRB , in a timely manner, of any failure of such
Member to provide financial information or operating data in accordance with this Article
by the time required thereby and hereby. No default by Member in observing or
performing its obligations as described in this Article shall constitute a breach of or
default under this Contract for purposes of any other provision of this Contract. Nothing
in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of
any Member under federal and state securities laws. If Member fails to provide such
continuing disclosure required under this Article, CAPP shall use its best efforts to obtain
relevant financial information and operating data with respect to any such Participating
Member and to provide the same annually to each NRMSIR and any SID within 195 days
after the end of each Fiscal Year of any such Member.
17.5 Amendment of Continuing Disclosure. Member's undertaking under this
Article may be amended by Member, with the consent of CAPP, from time to time to
adapt to changed circumstances that arise from a change in legal requirements, a change
in law, or a change in the identity, nature, status, or type of operations of any Member,
but only if (1) the undertaking, as so amended, would have permitted an underwriter to
purchase or sell Bonds in the primary offering of such Bonds in compliance with the
Rule, taking into account any amendments or interpretations of the Rule since such
offering as well as such changed circumstances and (2) either (a) the holders of a
majority in aggregate principal amount of the outstanding Bonds consent to such
amendment or (b) a person that is unaffiliated with Member (such as nationally
recognized bond counsel) determined that such amendment will not materially impair the
interest of the holders and beneficial owners of the Bonds. If Member amends its
undertaking herein, it shall include with any amended financial information or operating
data next provided in accordance with this Article an explanation, in narrative form, of
the reason for the amendment and of the impact of any change in the type of financial
information or operating data so provided.
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Ir. tii11 r6,-i
Member shall be obligated to observe and perform the covenants specified in this
Article for so long as, but only for so long as, Member remains an "obligated person"
with respect to the Bonds within the meaning of the Rule. The provisions of this Article
are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in
this Article, express or implied, shall give any benefit or any legal or equitable right,
remedy, or claim hereunder to any other person.
ARTICLE 18
TAX-EXEMPT BONDS
18.1 Tax-Exempt Bonds. The Parties understand and agree that CAPP will use
commercially reasonable efforts to provide for, but will not be liable for a failure to
produce, the lowest overall debt service cost for the Bonds. In connection therewith, the
parties intend that CAPP may, with the approval of the Member, issue refunding bonds to
refund the Bonds, if possible, the interest on which is excludable from the gross income
of the owners thereof for federal income tax purposes. The Parties acknowledge that,
under current federal tax laws, such tax-exempt financing of the Capacity Prepayment is
not permitted. The Parties further acknowledge their understanding that the federal
income tax laws impose certain restrictions on the use and investment of proceeds of tax-
exempt bonds and on the use of the property financed therewith and the output produced
therefrom. Accordingly, the Parties agree and covenant that if any refunding bonds are
offered to investors with the understanding that the interest thereon will be exempt from
federal income taxation, then the Parties, their assigns and agents, will take such action to
assure, and refrain from such action which will adversely affect, the treatment of such
refunding bonds as obligations described in Section 103 of the Internal Revenue Code of
1986. Should either Party fail to comply with such covenant, the effect of which being
that such refunding bonds no longer qualify as obligations described in the Internal
Revenue Code of 1986, such defaulting party shall be liable for all costs resulting from
the loss of the tax-exempt status of such bonds. The Parties hereby agree and covenant to
comply with all of the representations and covenants relating to such exemption which
are set out in any relevant trust indenture or bond resolution. The Parties further agree
and covenant that in the event any refunding bonds issued are to be tax-exempt, they will
modify such agreements, make such filings, restrict the yield on investments, and take
such other action necessary to fulfill the applicable provisions of the Internal Revenue
Code of 1986. For these purposes, the Parties may rely on the respective opinion of any
firm of bond attorneys selected by CAPP.
18.2 Agreement to Pay Beneficiary. In the event that tax-exempt refunding bonds
are issued with the consent of the Members as provided in the immediately preceding
paragraph above, Member hereby covenants and agrees to pay its proportionate share of
any deficiency to CAPP for deposit into the appropriate rebate fund at the times and as
described in the indenture of trust related to the Bonds to comply with the provisions of
Section 148(f)(2) of the Internal Revenue Code of 1986.
36
18.3 Financing. Member agrees to cooperate with CAPP in connection with the
issuance of the Bonds. Without limiting the foregoing, CAPP and Member acknowledge
that this Contract may be an integral part of the documentation securing the Bonds. At
CAPP's request, Member shall agree to amend this Contract to include any provision
which may reasonably be requested by the issuer of the Bonds, and to include any
provision that may be required to correspond to an amendment of the PPA; provided,
however, that no such amendment shall increase the burdens or obligations of Member
hereunder with respect to the price and purchase obligations set forth herein. Upon the
request of CAPP, Member agrees to negotiate in good faith and shall execute additional
documents, opinions and instruments reasonably requested by the proposed issuer of the
Bonds including (i) a consent and agreement that provides an additional reasonable
period of time to remedy any Default, and (ii) a legal opinion of counsel for Member
affirming the enforceability of this C;ontract against Member and other matters
reasonably requested, subject to customary exceptions and qualifications.
ARTICLE 19
MISCELLANEOUS
19.1 Applicable Law. This Contract is governed by and shall be construed under the
Laws of the State of Texas excluding any conflict of laws rules. The Parties submit to the
exclusive jurisdiction of the state and federal courts in Dallas County, Texas in
connection with any litigation arising hereunder.
19.2 Counterparts. This Contract may be executed in more than one counterpart,
each of which shall be deemed to be an original, but all of which together shall constitute
one and the same document.
19.3 Waiver. No waiver of any breach of the terms of this Contract shall be effective
unless such waiver is in writing and signed by the Party against whom such waiver is
claimed. No waiver of any breach shall be deemed to be a waiver of any subsequent
breach.
19.4 Modification. The provisions of this Contract, including any exhibits, may only
be modified by written agreement duly executed by each Party.
19.5 Severability If any provision of this Contract shall be determined to be
unenforceable, void or otherwise contraxy to Law, such condition shall in no manner
operate to render any other provision of this Contract unenforceable, void or contrary to
Law, and this Contract shall continue in force in accordance with the remaining terms
and provisions hereof, unless such condition invalidates the purpose or intent of this
Contract. In the event that any of the provisions, or portions or applications thereof, of
this Contract are held unenforceable or invalid by any court of competent jurisdiction,
Buyer and Seller shall negotiate in good faith to attempt to implement an equitable
adjustment in the provisions of this Contract with a view toward effecting the purposes of
this Contract by replacing the provision that is unenforceable, void, or contrary to Law
37
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with a valid provision the economic effect of which comes as close as possible to that of
the provision that has been found to be unenforceable, void, or contrary to Law.
19.6 Requirements. Each Party shall timely comply with all then-current PUCT and
ERCOT requirements (including, without limitation, the ERCOT Guides) that are
applicable to it and shall reasonably cooperate upon reasonable notice with the other
Party to the extent necessary for the other Party to timely comply with then-current
PUCT and ERCOT requirements (including, without limitation, the ERCOT Guides) that
are applicable to it.
19.7 Entirety. It is the intention of the Parties that this Contract shall contain all
terms, conditions, and protections in any way related to, or arising out of, the sale and
purchase of the Products as contemplated herein, and supersedes all prior agreements
regarding the subject matter hereof, whether written or oral.
19.8 Captions, Titles and Headings. Captions, titles and headings used in this
Contract are for ease of reference only and do not constitute a part of this Contract.
19.9 Forward Contract. The Parties acknowledge and agree that this Contract
constitutes a"forward contract" within the meaning of the United States Bankruptcy
Code.
19.10 Further Assurances. Each Party shall, from time to time, upon the written
request of any other Party, execute and deliver such further instruments and documents as
shall be necessary to perform its obligations hereunder.
19.11 Survival. The confidentiality and audit provisions, indemnities, releases from
liability, and limitations on liability or damages expressed in this Contract shall, unless
otherwise provided herein, survive without limitation the termination, cancellation or
expiration of this Contract, and shall apply whether in contract, equity, or otherwise.
Notwithstanding the foregoing, the statute of limitations for bringing any action with
respect to this Contract or either Party's performance hereunder is not extended by the
provisions of this Section 19.11.
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IN WITNESS WHEREOF, the Parties have caused this Contract to be executed
in their respective names by their duly authorized officers.
MEMBER:
CITY OF PARIS
December 15, 2008
Date
ATTEST:
By:
Printed name: Kevin Carruth
Its: City Manager
Janice Ellis, City Clerk
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CAPP:
CITIES AGGREGATION POWER
PROJECT
Date
By:
Printed name:
Its:
ATTEST:
40
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SCHEDULE OF EXHIBITS
"A" List of Participating Members
"B" PPA
"C" Payment Schedule
"D" Total Monthly Contract Payment Schedule.
"E" CAPP Capacity Payment Schedule
L:\CLIENTS\1813\02 - Long Term Contract\2008 PPA CAPP-Cities\WBC Drafts\agr080814WBCdraft-version20.doc
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