Exhibit 10.6
This Power Contract Supplement has been filed to provide investors with
information regarding its terms. It is not intended to provide any other factual
information about the Tennessee Valley Authority. The representations and
warranties of the parties in this Power Contract Supplement were made to, and
solely for the benefit of, the other parties to this Power Contract Supplement.
The assertions embodied in the representations and warranties may be qualified
by information included in schedules, exhibits or other materials exchanged by
the parties that may modify or create exceptions to the representations and
warranties. Accordingly, investors should not rely on the representations and
warranties as characterizations of the actual state of facts at the time they
were made or otherwise.

 

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AGREEMENT
Among
MEMPHIS LIGHT, GAS AND WATER DIVISION
CITY OF MEMPHIS, TENNESSEE
And
TENNESSEE VALLEY AUTHORITY

           Date: November 19, 2003   TV-65726A, Supp. No. 95

     THIS AGREEMENT, made and entered into among MEMPHIS LIGHT, GAS AND WATER
DIVISION (Board), acting for itself and on behalf of the CITY OF MEMPHIS,
TENNESSEE (Municipality), a municipal corporation created and existing under and
by virtue of the laws of the State of Tennessee, as they exist on the date of
this agreement, and TENNESSEE VALLEY AUTHORITY (TVA), a corporation created and
existing under and by virtue of the Tennessee Valley Authority Act of 1933, as
it exists on the date of execution of this agreement;
WITNESSETH:
     WHEREAS, TVA and Board have a long-standing relationship as seller and
buyer of power, under which Board currently purchases all of its power
requirements from TVA pursuant to Power Contract TV-65726A, dated December 26,
1984, as amended (Power Contract); and
     WHEREAS, in accordance with the Commitment Agreement between the parties of
even date herewith (Commitment Agreement), it is contemplated that Board will
make a prepayment to TVA to cover a portion of its power costs over the next
fifteen (15) years; and
     WHEREAS, notwithstanding the termination rights otherwise provided for
under the Power Contract, Board wishes to make a commitment to purchase, and TVA
wishes to make a commitment to supply, the power and energy to which the
prepayment will be applied over that same period; and
     WHEREAS, the parties have agreed that such prepayment and commitment should
be reflected as reserved energy to be supplied on a monthly basis over such
period at a discounted capacity cost to Board to be reflected by TVA’s
application of a monthly savings amount in billing Board under the Power
Contract; and
     WHEREAS, the parties wish to further supplement and amend the Power
Contract in the respects necessary to reflect such prepayment arrangements;
     NOW, THEREFORE, for and in consideration of the premises and of the mutual
agreements set forth below, and subject to the provisions of the Tennessee
Valley Authority Act of 1933, as it exists on the date of execution of this
agreement, the parties agree as follows:

 

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SECTION 1 — CONDITIONS PRECEDENT TO PREPAYMENT
This agreement shall not become effective unless and until each of the
conditions precedent set forth in section 4 of the Commitment Agreement has been
satisfied. Accordingly, this agreement shall become effective upon the execution
of the document described in section 4(g) of the Commitment Agreement (Effective
Date).
SECTION 2 — DEFINITION OF TERMS
2.1 “Prepaid Period” shall mean the wholesale billing month in which the
Effective Date occurs plus the next 179 wholesale billing months thereafter.
2.2 “Baseload” shall mean 928,671 kWh for each hour of each year of the Prepaid
Period, subject to such kWh amount being revised by a modification of this
agreement executed by both parties on or before the Effective Date.
2.3 “Reserved kWh” shall mean 122,027,315,960 kWh of Baseload capacity over the
Prepaid Period, subject to such kWh amount being revised by a modification of
this agreement executed by both parties on or before the Effective Date.
2.4 “Monthly Reserved kWh” for each wholesale billing month during the Prepaid
Period shall mean 677,929,533 kWh of Baseload capacity for such month, subject
to such kWh amount being revised by a modification of this agreement executed by
both parties on or before the Effective Date.
2.5 “Monthly Savings” for each wholesale billing month during the Prepaid Period
shall mean $12,992,061.83 (1/12 of an Annual Savings amount of $155,904,742 and
1/180 of a Total Savings amount of $2,338,571,130), subject to such savings
amounts being revised by a modification of this agreement executed by both
parties on or before the Effective Date.
2.6 “Rate Change” shall mean a change in the wholesale power rate schedule of
the Schedule of Rates and Charges, made by TVA in accordance with the paragraph
headed “Change” of the section of the Power Contract’s Schedule of Terms and
Conditions entitled “Adjustment and Change of Wholesale Rate and Resale Rates.”
2.7 “Rate Adjustment” shall mean an adjustment to the charges of the wholesale
power rate schedule of the Schedule of Rates and Charges, made by TVA in
accordance with the paragraph headed “Adjustment” of the section of the Power
Contract’s Schedule of Terms and Conditions entitled “Adjustment and Change of
Wholesale Rate and Resale Rates.”
2.8 “Partial Requirements Option” shall mean any right arising pursuant to
contract, Act of Congress, executive order, court decision, or regulatory
action, or any other right or opportunity under any program offered by TVA, for
distributors of TVA power currently purchasing all of their requirements from
TVA to reduce the level of such purchases and become partial requirements
customers of TVA.
SECTION 3 — THE PREPAYMENT
Board will make a prepayment for Baseload capacity to TVA in the amount of
$1,500,000,000 (one billion five hundred million dollars) in cash in the manner
provided in the Commitment Agreement.

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SECTION 4 — TERM OF CONTRACT
Notwithstanding the section of the Power Contract entitled “Term of Contract,” a
notice of termination given by either party under that section prior to the end
of the tenth year of the Prepaid Period shall not be effective to terminate the
Power Contract before the end of the Prepaid Period; provided however, that,
subject only to the limitation that Board shall continue to be obligated to
purchase from TVA its requirements up to the amount of the Baseload each hour
for the entire Prepaid Period, nothing in this agreement shall be construed in
any way to limit Board’s right to fully exercise and participate in any Partial
Requirements Option(s). Further, it is expressly recognized and agreed that the
provisions of section 3 of Agreement TV-65726A, Supp. No. 80, dated August 20,
2002, shall be applicable in the event of any exercise by Board of its right to
participate in any Partial Requirements Option(s), such that the releases and
discharges contained in that section 3 are fully applicable to any partial
termination of the Power Contract that may result from Board’s exercise of such
right.
SECTION 5 — FIXED MONTHLY SAVINGS
     To reflect the prepayment, for each billing month during the Prepaid
Period, Board shall receive a credit on its monthly power bill equal to the
Monthly Savings. It is expressly recognized and agreed that:
     (a) the prepayment includes full payment for the capacity costs associated
with the Reserved kWh as such costs are presently reflected in TVA’s current
rates,
     (b) in accordance with the provisions of the Power Contract as supplemented
and amended by this agreement, upon TVA’s delivery of the Reserved kWh, Board
shall be obligated to pay such additional amounts for capacity costs, it any, as
may be applicable as a result of a Rate Change or a Rate Adjustment,
     (c) notwithstanding any non-performance of any generation assets reflected
in such capacity costs, nothing in this agreement shall affect TVA’s obligation
under the Power Contract to supply all of Board’s requirements,
     (d) except as expressly provided in section 2 of the Commitment Agreement,
notwithstanding (i) any Rate Change, (ii) any Rate Adjustment, (iii) any
exercise by Board of a Partial Requirements Option, (iv) any other lawful
reduction in the level of Board’s purchases from TVA, or (v) any other reason,
the Monthly Savings shall remain fixed for each wholesale billing month of the
Prepaid Period,
     (e) to the extent that the Monthly Savings exceeds the amount of the
invoice for any wholesale billing month, Board shall have a credit balance which
shall be applied to its next monthly invoice and carried forward with interest
at a rate equal to the three-month London Interbank Offered Rate (LIBOR) for the
last day of the TVA-Board billing cycle as published in the Wall Street Journal,
provided that, if Board so requests, TVA shall pay Board the amount of such
credit balance plus interest within five (5) business days of such request, and
     (f) in the event that any such credit balance is outstanding as of the end
of the Prepaid Period, TVA shall pay Board the amount of such credit balance
within five (5) business days after the end of the Prepaid Period.

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SECTION 6 — OPTIONS, INCENTIVES, PROGRAMS, AND RATES
6.1 Nondiscrimination. TVA will not, because of the prepayment arrangements
reflected in this agreement, and with no other basis, discriminate against Board
by:
     (a) foreclosing or limiting, in whole or in part, Board’s participation in
any new or existing contract options, incentives, and other programs, including,
without limitation, any options, incentives, and other programs where
participation is linked to contract length, any options or programs which allow
Board to elect a longer contract term, and any Partial Requirements Option(s);
provided, however, that:
     (i) Board’s participation in options, incentives, and other programs where
participation is linked to contract length shall be subject to the proration
provided for in section 6.3 below, and
     (ii) Board’s participation in any Partial Requirements Option(s) shall be
limited by the provisions in section 4 above;
or
     (b) charging Board a special rate, charging Board a special surcharge, or
placing Board in a special rate category for the purpose of:
     (i) canceling, in whole or in part, the value of the fixed Monthly Savings
provided for in section 5 above, or
     (ii) otherwise using the TVA obligation to apply the fixed Monthly Savings
to Board’s power bills as the basis for determining the design of the wholesale
rate schedule of the Power Contract’s Schedule of Rates and Charges.
6.2 Contract Length Requirements. During the Prepaid Period, the 15-year
commitment provided for in section 4 above shall be deemed sufficient to meet
the contract length requirement for, and Board may elect:
     (a) new or existing contract options, incentives, and other programs (as
now offered, or may hereafter be offered, to other municipal and cooperative
distributors of TVA power) where participation is linked to a contract length of
ten (10) years, or
     (b) new or existing contract options, incentives, and other programs (as
now offered, or may hereafter be offered, to other municipal and cooperative
distributors of TVA power) where participation is linked to a contract length of
fifteen (15) years;
provided, however, that the benefits and obligations of any such options,
incentives, or other programs shall be applied on a prorated basis as further
described in section 6.3 below to reflect the then-remaining duration of the
Prepaid Period.
     Further, it is expressly recognized and agreed that nothing in this
agreement shall prohibit Board from making the election provided for in section
6.2(a) above for some contract options, incentives, and programs and making the
election provided for in section 6.2(b) above for other contract options,
incentives, and programs.

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6.3 Prorating Benefits and Obligations. (a) If Board elects any options,
incentives, or programs available to it under section 6.2(a) above, the benefits
and obligations of any such options, incentives, or other programs shall be
prorated during the last 120 months (10 years) of the Prepaid Period only. For
purposes of such prorating, TVA shall apply a factor equal to X/10, where X is
equal to the then-remaining number of full or partial years in the Prepaid
Period.
     (b)If Board elects any options, incentives, or programs available to it
under section 6.2(b) above, the benefits and obligations of any such options,
incentives, or other programs shall be prorated during the entire Prepaid
Period. For purposes of such prorating, TVA shall apply a factor equal to X/15,
where X is equal to the then-remaining number of full or partial years in the
Prepaid Period.
SECTION 7 — DEFAULT BY TVA
7.1 TVA’s Delivery Obligation. (a) The provisions in this section 7.1 shall be
applicable solely for the purposes of implementing the prepayment arrangements
reflected in this agreement and applying the remedies specified in section 7.2
below and shall not otherwise modify TVA’s obligation to deliver electric power
as provided for by the Power Contract.
     (b) Notwithstanding section 9 of the Terms and Conditions to the Power
Contract or any other provision of the Power Contract, TVA shall be absolutely
obligated to supply and deliver to Board the Reserved KWh (the Delivery
Obligation or the Obligation). So long as Board remains committed to purchase at
least the Baseload from TVA, TVA’s Obligation shall not be excused or reduced by
any reduction in Board’s purchases from TVA pursuant to section 4 of this
agreement or by any other lawful reduction by Board in its level of purchases
from TVA. TVA’s Obligation shall continue in effect until the end of the Prepaid
Period.
     (c) This Delivery Obligation, so long as Board remains committed to
purchase at least the Baseload from TVA, shall be absolute and unconditional
under any and all circumstances and shall not be terminated, extinguished,
diminished, lost, or otherwise impaired by any circumstance of any character,
including by (i) any loss, destruction of, damage to, or inability to continue
to use for any reason any or all electric generating plants owned or controlled
by TVA or any part thereof for any reason whatsoever, (ii) any loss, destruction
of, damage to, or inability to continue to use for any reason any or all
facilities for the transmission of electricity owned or controlled by TVA, (iii)
the inability for any reason of TVA to purchase electricity generated by others
and to supply such purchased power to Board, (iv) any event of force majeure or
any frustration, and (v) any legal requirement similar or dissimilar to the
foregoing, any future law to the contrary notwithstanding. In the event that TVA
is unable to fulfill its Delivery Obligation to Board hereunder or to effect
delivery of electric power to Board to fulfill its Delivery Obligation to Board
hereunder, for any reason whatsoever, then TVA shall be liable to Board for the
remedies prescribed in section 7.2 of this agreement.
     (d) If TVA fails to deliver the Baseload amount to Board in any hour and
Board purchases replacement power from another source, TVA shall reimburse Board
for all costs of such replacement power within five (5) business days of Board
submitting an invoice therefor.
     (e) If TVA delivers to Board less than 100 percent of the Monthly Reserved
kWh in three (3) consecutive months or delivers to Board less than 50 percent of
the Monthly

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Reserved kWh for one (1) month, or fails to deliver to Board the entire Reserved
KWh within the Prepaid Period, then Board may, at its option, declare TVA to be
in breach of its Delivery Obligation and trigger the remedies prescribed in
section 7.2 of this agreement.
     (f) It is expressly recognized and agreed that the provisions of sections
7.1 (d) and 7.1 (e) above shall not be triggered if the shortfall in deliveries
of power by TVA to Board is directly attributable to Board’s refusal or failure
to accept such delivery.
     (g) If TVA grants, within six (6) months after the Effective Date, a rate,
rebate, discount, or concession to another distributor customer or enters into a
prepayment arrangement with any other distributor customer whose economic terms
are more favorable to that customer than this agreement is to Board, then Board
may request a renegotiation of the economic terms of this agreement to achieve
an economic benefit to Board equal to the benefit to such other distributor
customer of its rates, rebate, discount, or concession or its prepayment
arrangement with TVA, If the parties fail to reach agreement on such terms, then
they will submit their dispute for resolution pursuant to section 8.2 of this
agreement. Such resolution shall account for any benefits to such other
distributor customer that exceed the benefits to Board under this agreement by
either (i) adjusting the terms of this agreement or (ii) causing TVA to make a
lump-sum payment to Board and then continuing performance under the terms of
this agreement.
7.2 Remedies for Events of Default. In the event of TVA’s failure to meet its
Delivery Obligation under section 7.1 of this agreement or a triggering event
pursuant to section 9 of this agreement, and upon written notice from Board,
     (a) the obligations of the parties under this agreement shall terminate,
provided that this agreement shall remain in effect until the remedies in this
section 7.2 have been paid and for purposes of otherwise winding up the
prepayment transaction; and
     (b) TVA shall pay the Board within thirty-five (35) days an amount equal to
the sum of:
     (i) the amount necessary to pay in full all amounts payable by the Board as
set out in the Extraordinary Redemption portion of the final Official Statement
(or Official Statements, if the Bonds (as defined below) are issued in multiple
series) relating to the revenue bonds issued by the Municipality for the benefit
of the Board to finance the Prepayment (such bonds of any and all series issued
for such purpose, the “Bonds”), plus
     (ii) the net present value (calculated using the discount rate described
below, less 50 basis points) of $13 million divided by 12 per month for the
number of remaining months in the Prepaid Period, plus
     (iii) accrued interest, to the extent not reflected in section 7.2(b)(i)
above, and any other direct penalties and other costs incurred by Board for
executing the extraordinary redemption of the Bonds referred to in section
7.2(b)(i) above (collectively, the Default Payment), plus
     (iv) any other actual damages caused to Board by TVA’s breach of this
agreement, including but not limited to the positive difference, if any,

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between the cost of purchasing replacement power and the cost of the Reserved
kWh TVA failed to deliver, plus
     (v) interest on the amount described in section 7.2(b)(iv) at a rate equal
to the prime rate charged by Chase Manhattan Bank, N.A., from the date of the
written notice from Board until the date of payment of the Default Payment.
The discount rate shall be the rate equal to the yield to the next available
date upon which the Bonds can be redeemed before maturity by the issuer or, if
there is no option for the issuer to redeem the Bonds before maturity, the rate
equal to the yield to maturity on the U.S. Treasury security having an average
life equal to the remaining average life of the Bonds and trading in the
secondary market at the price closest to par. If there is no U.S. Treasury
security having an average life equal to the remaining average life of such
Bonds, such discount rate will be calculated using a yield to maturity
interpolated or extrapolated on a straight-line basis (rounding to the nearest
calendar month, if necessary) from the yields to maturity for two (2) U.S.
Treasury securities having average lives most closely corresponding to the
remaining average life of the Bonds and trading in the secondary market at the
price closest to par.
The amount of accrued interest for which TVA would be liable to Board under this
section 7.2 for fixed-rate Bonds shall be determined using the applicable Bond’s
fixed interest rate and for variable-rate Bonds shall be determined by using the
lesser of the then applicable variable interest rate for the variable-rate Bond
in question or the fixed interest rate for the fixed-rate Bond having the same
maturity as the variable-rate Bond in question.
Upon the Board’s request, TVA shall set off the amount of the Default Payment
against any other obligation the Board has to pay monies to TVA.
SECTION 8 — DISPUTES
8.1 Enforceable Contract. It is expressly recognized and agreed that the parties
intend all of the obligations of each party set forth in this agreement to be
legally binding contract obligations which may be enforced by the other party.
It is further expressly recognized and agreed that venue for any lawsuit arising
out of this agreement shall be in the United States District Court for the
Middle District of Tennessee. During any litigation, the parties shall continue
performance of their respective obligations under this agreement, unless such
performance is stayed or enjoined by a court.
8.2 Alternative Dispute Resolution. The parties agree to use their best efforts
to resolve any disputes that may arise under section 7 above informally at the
lowest possible levels of decision making and without litigation, according to
the following procedures:
     (a) If unassisted negotiations are unsuccessful, the parties will use
mutually acceptable Alternate Dispute Resolution (ADR) techniques in an attempt
to resolve the dispute. Mutually acceptable rules and guidelines for any dispute
submitted to ADR will be determined when the dispute exists.
     (b) Litigation will only be considered as a last resort when ADR is
unsuccessful or when a party rejecting any proposed ADR process as inappropriate
for resolving the dispute has documented its reasons for that determination to
the other party; provided,

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however, that a party shall not be required to delay the commencement of
litigation in order to comply with this paragraph unless the parties agree to
the tolling of any applicable statutes of limitations.
     (c) During the ADR process and any litigation (unless such performance is
stayed or enjoined by a court), the parties shall continue performance of their
respective obligations under this agreement. If the ADR is not successful, the
parties retain their existing rights.
     (d) Except as expressly provided in section 7.1 (g) of this agreement
concerning disputes regarding a rate, rebate, discount, or concession granted by
TVA to another distributor customer, it is expressly recognized and agreed that
the parties will not submit TVA’s rates, any Rate Change, or any Rate Adjustment
to ADR.
     (e) It is further expressly recognized and agreed that any disputes that
arise under provisions of this agreement other than section 7 shall not be
subject to the provisions of this section 8.2.
SECTION 9 — ASSIGNMENT
This agreement may not be assigned by either party. If this agreement is
assigned by TVA or if it is assigned by operation of law, then Board may, at its
option, trigger the remedies prescribed in section 7.2 hereof.
SECTION 10 — INTEGRATION
Except for such agreements of the parties as are set out in the Commitment
Agreement, this agreement represents the complete and integrated agreement
between the parties concerning the prepayment arrangements. All prior
discussions, negotiations, and understandings are merged into and superseded by
this agreement. No modification of the terms and provisions of this agreement
shall be or become effective except pursuant to and upon the due and mutual
execution of a written agreement by the parties hereto.
SECTION 11 — BASIS OF AGREEMENT
Except as expressly provided herein concerning Partial Requirements Options and
assignment by operation of law in section 9 hereof, this agreement is subject to
the applicable laws and regulations in effect on the date of execution of this
agreement.
SECTION 12 — POWER CONTRACT AFFIRMED
Except as expressly set out above, nothing in this agreement shall affect the
other terms of the Power Contract.

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     IN WITNESS WHEREOF, the parties have caused this agreement to be executed
by their duly authorized officers, as of the day and year first above written.

                  MEMPHIS LIGHT, GAS AND WATER DIVISION    
 
  And         CITY OF MEMPHIS, TENNESSEE    
 
           
 
  By:   /s/ Herman Morris Jr.
 
President of Light, Gas and Water Division    
 
                Date: November 19, 2003    
 
                TENNESSEE VALLEY AUTHORITY    
 
           
 
  By:   /s/ Mark O. Medford    
 
           
 
                Date: November 19, 2003    

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