Exhibit 10.4

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PJM SOUTH IMPLEMENTATION AGREEMENT

 

THIS PJM SOUTH IMPLEMENTATION AGREEMENT (“Implementation Agreement”), is entered
into as of September 30, 2002, between Virginia Electric and Power Company
(“Virginia Power”), a corporation organized under the laws of the Commonwealth
of Virginia and PJM Interconnection, L.L.C. (“PJM”), a limited liability company
organized under the laws of Delaware (each a “Party” and collectively,
“Parties”).

 

WHEREAS, Virginia Power owns electric transmission facilities which form an
integrated transmission system used to provide electric service to its customers
and to provide open access transmission service pursuant to FERC requirements;

 

WHEREAS, PJM is the first fully functioning Independent System Operator in the
United States and operates the world’s largest competitive wholesale electricity
market in all or parts of seven states and the District of Columbia;

 

WHEREAS, on July 31, 2002, FERC issued its Notice of Proposed Rulemaking (NOPR)
Remedying Undue Discrimination through Open Access Transmission Service and
Standard Electricity Market Design (Docket No. RM01-12-000) (“SMD Proceeding”)
proposing to require all public utilities to have their transmission facilities
controlled by an Independent Transmission Provider (“ITP”) and to have service
provided in accordance with a standard market design as set out in the Standard
Market Design tariff (“SMD Tariff”);

 

WHEREAS, Virginia Power is obligated to join a regional transmission entity
under Virginia state law and is encouraged, and may be required in the future,
to join a regional transmission organization under FERC policy;

 

WHEREAS, subject to the terms and conditions of this Implementation Agreement
and the Memorandum of Understanding between the Parties dated June 24, 2002,
Virginia Power has determined to become a member of PJM, transfer functional
control of its Transmission Facilities to PJM for inclusion in a new PJM South
Region, integrate its Control Area into the PJM Interchange Energy Market and
certain other PJM markets, and otherwise facilitate the establishment and
operation of PJM as the Regional Transmission Organization and, to the extent
the final rulemaking shall require, the Independent Transmission Provider, with
respect to its Transmission Facilities;

 

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WHEREAS, in order to accept functional control of the Transmission Facilities of
Virginia Power and commensurately expand the PJM markets, PJM will be required
to make substantial additions and modifications to its systems and facilities
and thereby incur Expansion Costs, as defined herein, the Parties enter into
this Implementation Agreement to provide for the allocation of Expansion Costs
to Virginia Power and payment thereof to PJM; and

 

WHEREAS, the costs of establishing a new PJM South Region are expected to be
substantially reduced if the expansion is done as part of a single project that
includes PJM West Expansion and Illinois Power Expansion, both as defined
herein.

 

NOW THEREFORE, in consideration of the covenants and agreements set forth
herein, and intending to be legally bound thereby, and for other good and
valuable consideration the receipt of which is hereby acknowledged, the Parties
agree as follows:

 

ARTICLE 1

GLOSSARY AND RULES OF CONSTRUCTION

 

Unless the context otherwise specifies or requires, capitalized terms used in
this Implementation Agreement shall have the meanings assigned or referred to in
this Article 1 (such definitions to be equally applicable to both the singular
and the plural forms of the terms defined). Unless otherwise specified, all
references to articles or sections are to articles or sections of this
Implementation Agreement. Exhibits and schedules referred to in this
Implementation Agreement are incorporated herein and made a part hereof. All
Parties having been involved in the drafting of this Implementation Agreement,
no rule that a contract shall be construed against the drafter shall be applied
to the construction or interpretation of this Implementation Agreement.

 

1.1    “Capitalized Expansion Costs” has the meaning stated in section 4.1.2.1.

 

1.2    “Common Costs” has the meaning stated in section 4.1.1.

 

1.3    “Completion Date” has the meaning stated in section 4.1.1.

 

1.4    “Control Area” has the meaning stated in section 1.7 of the Operating
Agreement.

 

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1.5    “Demobilization Costs” means all costs and expenses incurred by PJM of
suspending or terminating work under this Implementation Agreement, including,
as applicable, travel expenses, penalties, fees and other costs associated with
terminating, suspending, or making change orders to contracts with consultants,
landlords, vendors, independent contractors and employees, and all allocable
compensation, general and administrative overhead, and carrying costs (including
actual or implicit costs of funds).

 

1.6    “Directly Assigned Expansion Costs” has the meaning stated in section
4.1.3.1.

 

1.7    “Effective Date” of this Implementation Agreement is the date set out in
section 2.1.

 

1.8    “Expansion Costs” has the meaning stated in section 4.1.1.

 

1.9    “Expansion Percentages” has the meaning stated in section 4.1.1.

 

1.10    “Expensed Expansion Costs” has the meaning stated in section 4.1.4.1.

 

1.11    “FERC” means the Federal Energy Regulatory Commission or any successor
federal agency, commission or department exercising jurisdiction over the PJM
Tariff, the South Transmission Owner Agreement, the Operating Agreement, or the
South Reliability Assurance Agreement.

 

1.12    “First Period” has the meaning stated in section 4.4.1.

 

1.13    “Illinois Power Expansion” means the proposed expansion of the PJM West
Region to include Illinois Power Company.

 

1.14    “Implementation Agreement” means this PJM South Implementation
Agreement, as it may be amended from time to time.

 

1.15    “Independent System Operator” or “ISO” means an Independent System
Operator as defined by FERC in its Order No. 888.

 

1.16    “Independent Transmission Provider” or “ITP” has the meaning set out in
Paragraph 125 of the Notice of Proposed Rulemaking

 

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issued July 31, 2002 (Docket No. RM01-12-000) as such shall be modified or
amended by FERC from time to time.

 

1.17    “Memorandum of Understanding” means the Memorandum of Understanding
between the Parties dated June 24, 2001.

 

1.18    “Non-Disclosure Agreement” means the Non-Disclosure Agreement between
the Parties dated June 24, 2002.

 

1.19    “Notice” has the meaning stated in section 7.11.

 

1.20    “Operating Agreement” means the Amended and Restated Operating Agreement
of PJM Interconnection, L.L.C., as amended and restated from time to time.

 

1.21    “PJM South Region” means the control area, recognized by the North
American Electric Reliability Council or any successor thereto, of Virginia
Power.

 

1.22    “PJM Tariff” means the PJM Open Access Transmission Tariff under which
PJM is the provider of transmission service and ancillary services, including
any schedules, appendices, attachments, charts, annexes, or exhibits attached
thereto, as in effect from time to time.

 

1.23    “PJM Transmission Owners Agreement” means the Transmission Owners
Agreement, as amended and restated from time to time.

 

1.24    “PJM West Expansion” means the proposed expansion of the PJM West Region
to include the American Electric Power system (Appalachian Power Company,
Columbus Southern Power Company, Indiana Michigan Power Company, Kingsport Power
Company, Kentucky Power Company, Ohio Power Company and Wheeling Power Company),
Commonwealth Edison Company, and Dayton Power & Light Company.

 

1.25    “PJM West Region” means the aggregate of the control areas recognized by
the North American Electric Reliability Council, or any successor thereto, of
the participants in PJM West Expansion, and Monongahela Power Company, The
Potomac Edison Company, and West Penn Power Company collectively doing business
as Allegheny Power.

 

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1.26    “Party” or “Parties” has the meaning stated in the preamble of this
Implementation Agreement.

 

1.27.    “Project Designee” has the meaning stated in section 3.2.8.

 

1.28    “Regional Transmission Organization” or “RTO” means a Regional
Transmission Organization as defined by FERC in its Order No. 2000, as such
order may be modified by FERC.

 

1.29    “SMD Proceeding” means the FERC proceeding initiated in the Notice of
Proposed Rulemaking (NOPR) Remedying Undue Discrimination through Open Access
Transmission Service and Standard Electricity Market Design (Docket No.
RM01-12-000) and any ancillary proceedings thereto.

 

1.30    “SMD Tariff” means the tariff implementing any standard market design
adopted as a final rule in the SMD Proceeding.

 

1.31    “South Region Expansion” has the meaning stated in section 3.2.1.

 

1.32    “South Reliability Assurance Agreement” means the PJM South Reliability
Assurance Agreement among Load-Serving Entities in the PJM South Region.

 

1.33    “South Transmission Owner Agreement” means the South Transmission Owner
Agreement between PJM Interconnection, L.L.C. and Virginia Power.

 

1.34    “Transmission Facilities” means those facilities of Virginia Power that
meet the definition of transmission facilities pursuant to FERC’s Uniform System
of Accounts or have been classified as transmission facilities in a ruling by
FERC addressing such facilities.

 

1.35    “Withdrawal” has the meaning stated in section 5.3.2.

 

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ARTICLE 2

EFFECTIVENESS; ADDITIONAL SIGNATORIES; ASSIGNMENT

 

2.1    Effective Date.    This Agreement shall become effective upon the date
specified in the first paragraph of this Implementation Agreement.

 

2.2    Effectiveness Not Subject to Regulatory Approval.    The effectiveness of
this Implementation Agreement is not conditioned upon whether regulatory
approval of this Implementation Agreement is sought or obtained. Virginia Power
agrees that it will satisfy its payment obligations under this Implementation
Agreement without regard to whether any regulatory authority has asserted
jurisdiction, approved, disapproved, or conditioned any provision of this
Implementation Agreement or any other agreement related to the establishment of
PJM as the Independent System Operator or Regional Transmission Organization
with respect to the Transmission Facilities of Virginia Power.

 

ARTICLE 3

PARTIES’ UNDERTAKINGS IN FURTHERANCE OF DEVELOPMENT

OF PJM SOUTH REGION

 

3.1    Undertakings to Negotiate Agreements and Seek Regulatory Approvals from
the FERC.

 

3.1.1    In order to implement the South Region Expansion, the Parties shall
negotiate the South Transmission Owner Agreement, the South Reliability
Assurance Agreement, and such amendments as may be required to the Operating
Agreement, the PJM Tariff, and the PJM Transmission Owners Agreement, to enable
Virginia Power to transfer functional control of its Transmission Facilities to
PJM, to integrate its Control Area into the PJM Interchange Energy Market and
other PJM markets, and otherwise to facilitate the establishment and operation
of PJM as the Regional Transmission Organization with respect to Virginia
Power’s Transmission Facilities. It is recognized that PJM, through its
stakeholder and other processes, may make changes to any of the foregoing
agreements to conform to the SMD Tariff. In the negotiations between Virginia
Power and PJM, Virginia Power shall accept any reasonable changes that PJM may
have made to conform any of the foregoing agreements to the SMD Tariff. The
South Transmission Owner Agreement shall contain provisions regarding the
withdrawal by Virginia Power from PJM substantially identical to sections 3.2
and 3.4 of the

 

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PJM Transmission Owners Agreement. PJM and Virginia Power shall make good faith
efforts to initiate and, subject to section 3.1.2, pursue diligently, all
proceedings necessary and appropriate to seek and obtain all regulatory
approvals that may be required from the FERC related to such agreements and
amendments and for Virginia Power’s transfer of functional control of its
Transmission Facilities to PJM. Such proceedings shall be initiated on or before
December 15, 2002. Virginia Power recognizes that through PJM’s stakeholder
process, in which Virginia Power is entitled to participate as a PJM member, or
otherwise in accordance with the Operating Agreement or the Federal Power Act,
amendments are made to the foregoing agreements from time to time. Virginia
Power understands that such amendments may be pending, may be made after the
Effective Date of this Implementation Agreement, and may be made after
initiation of FERC proceedings hereunder and that, subject to its rights under
the Federal Power Act, Virginia Power will be subject thereto.

 

3.1.2    Virginia Power shall have the right to seek regulatory approval by FERC
of amendments to the PJM Tariff, which amendments PJM shall not oppose, to
provide for the recovery of (i) Virginia Power’s costs so as to maintain revenue
neutrality for Virginia Power, (ii) costs prudently incurred by Virginia Power
in connection with the development of the Alliance RTO and South Region
Expansion or membership as an owner of transmission facilities in PJM, and (iii)
any other RTO development costs incurred by Virginia Power.

 

3.1.3    If, in accepting agreements or amendments submitted for approval under
section 3.1.1 or 3.1.2, or related agreements or filings in furtherance of PJM’s
service as the Regional Transmission Organization with respect to Virginia
Power’s Transmission Facilities, the FERC rejects, modifies or conditions its
acceptance of such amendments, agreements or filings, the Parties thereto,
within thirty (30) days of the FERC order rejecting, modifying or otherwise
imposing such conditions, shall either: (1) notify the FERC and each other of
their acceptance of any such modification or condition; or (2) enter into
discussions to determine whether the amendment, agreement or filing would be
mutually beneficial in light of the FERC’s action. If either affected Party
shall determine that the amendment, agreement or filing would not be mutually
beneficial, the amendment, agreement, or other filing shall become null and void
as to such Party, provided that nothing in this section shall diminish Virginia
Power’s obligation to pay all amounts due to PJM under this Implementation
Agreement.

 

3.2    Undertakings to Implement South Region Expansion

 

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3.2.1    “South Region Expansion”    shall mean the upgrade, expansion,
modification, development, design, or acquisition by PJM of any new or existing
hardware, software, systems, or facilities of PJM of any kind or description, or
any other work required or appropriate to be performed, to facilitate PJM’s
establishment of the PJM South Region such that, in accordance with the
agreements and amendments referenced in section 3.1.1, PJM shall serve as the
Independent System Operator or Regional Transmission Organization with respect
to the Transmission Facilities of Virginia Power and administer the PJM markets
in the PJM South Region. South Region Expansion shall exclude any upgrade,
expansion, modification, development, design, acquisition, or other work
performed solely in furtherance of: (a) PJM West Expansion or Illinois Power
Expansion; (b) any other development or expansion of PJM; (c) development of any
joint or common market with the Midwest Independent Transmission Operator, Inc.;
and (d) the development or implementation of the SMD Tariff. The foregoing
notwithstanding, and to the extent permitted under section 4.1.1, South Region
Expansion shall include an allocable share of costs or expenses for expansion
that, in the reasonable judgment of PJM, are common to all of South Region
Expansion, PJM West Expansion and Illinois Power Expansion, and therefore not
properly allocable solely to one of these three expansions.

 

3.2.2    “Project Implementation Plan”    shall mean the plan for South Region
Expansion, including the timing and costs associated therewith, attached hereto
as Schedule 3.2.2 as amended by the Parties from time to time in accordance with
this section. It is recognized that PJM has entered into arrangements for PJM
West Expansion and Illinois Power Expansion and that the Project Implementation
Plan shall take account of such expansions to assure that the South Region
Expansion, PJM West Expansion and Illinois Power Expansion are all conducted
efficiently. Either Party may propose from time to time reasonable changes to
the Project Implementation Plan, which proposed changes the Party believes are
necessary or appropriate to achieve economies, efficiencies, or the success of
the project. In such event, the Parties shall in good faith negotiate amendments
to the Project Implementation Plan, and in such negotiations neither Party shall
withhold consent to reasonable changes to the Project Implementation Plan
proposed by the other Party, provided, that PJM may withhold consent to proposed
changes that, in its reasonable judgment, would delay or result in cost
increases for PJM West Expansion or Illinois Power Expansion. Nothing in this
section shall override the rights of Virginia Power under section 4.2.

 

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3.2.3    SMD Tariff Impact.    The Parties recognize that FERC has issued a
Notice of Proposed Rulemaking (NOPR) providing a draft standard market design
tariff and FERC may issue a final order before January 1, 2003 directing
implementation of the SMD Tariff. PJM agrees that in the event the FERC issues
such a final order, PJM will analyze the compatibility of its systems,
practices, and governance with the requirements thereof. To the extent
reasonably required, the results of that analysis will be used to shape the
system, procedural, and governance requirements for the establishment of the PJM
South Region so as to minimize or eliminate the need for further system,
procedural, and governance changes in order to implement the SMD Tariff.

 

3.2.4    Independent Transmission Provider.    The Parties recognize that FERC’s
final order in the SMD Proceeding is expected to require that Virginia Power and
each of the existing transmission owning members of PJM become members of an
ITP. Accordingly, PJM agrees to use its best efforts to structure its markets,
systems, procedures, and governance so as to satisfy all requirements of an ITP
and to do so in a timely manner with respect to those dates established by FERC
for Virginia Power’s required membership in an ITP. This provision shall be
without prejudice to the right of either Party to seek modification or rehearing
of or to appeal any order in the SMD Proceeding.

 

3.2.5    Requests for Information.    Each Party shall respond, at its own cost
(subject to such recovery as may be otherwise provided in this Implementation
Agreement), with a full and timely good faith effort to reasonable requests for
information, training, or technical support made by either Party from time to
time to facilitate South Region Expansion.

 

3.2.6    PJM Staffing.    Nothing in this Implementation Agreement shall require
that PJM (a) increase internal staffing to meet the goals stated in section
3.2.1 or section 3.2.2 or (b) allocate staff in a manner that may cause it to
fail to meet its obligations as the Regional Transmission Organization for any
Control Area as to which it serves in such capacity.

 

3.2.7    Financing Condition.    It is understood that, subject to reimbursement
(see section 4.1.2.2), PJM will be required to make initial expenditures to
cover Capitalized Expansion Costs as defined herein (see section 4.1.2.1). It is
agreed that, except for the development of the Project Implementation Plan, PJM
shall not be required to incur any Capitalized Expansion Costs until and unless
one or more financial

 

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closings have occurred under which PJM has obtained financing in a total amount
no less than that specified in section 4.1.2.1.

 

3.2.8    Designees for Contract Administration.    By Notice, PJM and Virginia
Power shall each designate in writing an individual who shall have the primary
responsibility of administering the Party’s responsibilities under this
Implementation Agreement and shall designate an alternate to perform such
responsibilities when the primary designee is unavailable (the primary and
alternate designee are the “Project Designee”). A Party may change its
designations by Notice.

 

3.3    Independent Transmission Company.    The agreements and undertakings of
the Parties in carrying out this Implementation Agreement shall preserve the
right of Virginia Power to participate in the future in PJM through an
independent transmission company.

 

3.4    Regional Transmission Organization.    The Parties acknowledge the
efforts of PJM to qualify as an RTO pursuant to FERC’s Order 2000 and agree to
act to facilitate the qualification of PJM as an RTO. This provision shall be
without prejudice to the right of either Party to seek modification or rehearing
of or to appeal any FERC order relating to the qualification of PJM as an RTO or
the requirement that Virginia Power be a member of an RTO.

 

ARTICLE 4

ALLOCATION AND PAYMENT OF EXPANSION COSTS

 

4.1    Definitions and Certain Payment Obligations.

 

4.1.1    “Expansion Costs” are all costs and expenses PJM incurs or has incurred
in order to conduct South Region Expansion, including the costs of vendors,
consultants, independent contractors, PJM employees (including allocable
compensation and general and administrative overhead), and carrying costs
(including actual or implicit costs of funds). The period during which Expansion
Costs will be incurred commences June 25, 2002, and ends (“Completion Date”) (i)
in the case of any Expansion Costs other than Common Costs as defined below,
sixty (60) days after the completion of South Region Expansion, and (ii) in the
case of Common Costs the latest of sixty (60) days after the completion of South
Region Expansion, PJM West Expansion, and Illinois Power Expansion, but in no
case later than December 31, 2004. Costs incurred prior to the Effective Date
shall be included in Expansion Costs as the Parties may mutually agree. If on or
before June 30, 2003,

 

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PJM has reason to believe that Common Costs are likely to be incurred after the
Completion Date or it would be desirable to defer incurring such costs until
after the Completion Date, the Parties shall consult with each other about
whether or not the Completion Date should be extended. The completion of South
Region Expansion shall occur on the date PJM commences to serve as the
transmission provider under the PJM Tariff with respect to the Transmission
Facilities of Virginia Power and has completed integration of the PJM South
Region into the PJM markets. Expansion Costs consist of the following cost
categories.

 

Capitalized Expansion Costs (see section 4.1.2)

 

Directly Assigned Expansion Costs (see section 4.1.3)

 

Expensed Expansion Costs (see section 4.1.4)

 

The cost recovery provisions of this Implementation Agreement will minimize
PJM’s carrying costs for Expensed Expansion Costs. Carrying costs for
Capitalized Expansion Costs will be expensed. Subject to section 5.4, PJM will
recover Capitalized Expansion Costs as described in section 4.1.2.2. To the
extent that PJM incurs costs or expenses for expansion that, in the reasonable
judgment of PJM, are common to South Region Expansion, PJM West Expansion and
Illinois Power Expansion (“Common Costs”), and therefore not properly allocated
solely to one region, PJM shall allocate such costs on the basis of the ratio of
the total loads of Virginia Power to the total loads of the transmission owner
participants in PJM West Expansion and Illinois Power Expansion. As of the
Effective Date of this Implementation Agreement, this results in an allocation
of 25.6282 percent of such costs to Virginia Power, 68.6403 percent to the PJM
West Expansion participants and 5.7314 percent to Illinois Power (such
percentages, the “Expansion Percentages”). These percentages shall not be
adjusted except as provided in section 5.3.2. In addition to the foregoing
Expansion Costs, in the event Virginia Power gives Notice under sections 4.2,
5.2 or section 5.3.1 or otherwise does not transfer control of its Transmission
Facilities to PJM, Virginia Power may be required to pay Demobilization Costs,
if any, and any additional costs due under section 5.3.2.

 

4.1.2    Capitalized Expansion Costs.

 

4.1.2.1    “Capitalized Expansion Costs” are all Expansion Costs that are
properly capitalized under PJM’s accounting practices, excluding any such costs
that are Directly Assigned Expansion

 

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Costs. As of the date of this Implementation Agreement, Capitalized Expansion
Costs are currently estimated by PJM to total $16,302,098.

 

4.1.2.2    PJM Recovery of Capitalized Expansion Costs.     PJM shall recover
Capitalized Expansion Costs from customers under Schedule 9 of the PJM Tariff.

 

4.1.3    Directly Assigned Expansion Costs.

 

4.1.3.1    Directly Assigned Expansion Costs” are all Expansion Costs PJM incurs
to establish telecommunication links with Virginia Power. As of the Effective
Date of this Implementation Agreement, it is estimated that Directly Assigned
Expansion Costs will be $30,000 for Virginia Power.

 

4.1.3.2    Payment of Directly Assigned Expansion Costs.    Virginia Power
agrees to fund all applicable Directly Assigned Expansion Costs in accordance
with the procedures set forth in sections 4.4.1 and 4.4.2.

 

4.1.4    Expensed Expansion Costs.

 

4.1.4.1    “Expensed Expansion Costs” are all Expansion Costs that are properly
expensed under PJM’s accounting practices, and any carrying costs (including
actual or implicit costs of funds), excluding any such costs that are Directly
Assigned Expansion Costs. As of the Effective Date of this Implementation
Agreement, it is estimated that Expensed Expansion Costs will be $9,326,102.

 

4.1.4.2    Payment of Expensed Expansion Costs.    Virginia Power agrees to fund
the Expensed Expansion Costs in accordance with the procedures set forth in
sections 4.4.1 and 4.4.2.

 

4.2    Provision of Certain Expansion Costs Estimates.    As of the Effective
Date of this Implementation Agreement, it is estimated that total Expansion
Costs will be $25,658,200. In the event PJM incurs or expects to incur Expansion
Costs that exceed this estimate by more than twenty (20) percent, it shall
notify Virginia Power and, without limiting the generality of Article 5,
Virginia Power shall have a right to terminate this Implementation Agreement and
withdraw from the South Region Expansion. In the event Virginia Power exercises
such withdrawal right, sections 5.3.1 and 5.3.2 shall apply.

 

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4.3    SMD Tariff Conformance Cost.    The Parties understand that PJM may be
required to modify its systems and procedures to comply with the SMD Tariff.
Such modifications shall include, to the greatest degree practicable,
accommodations to allow the PJM South Region to operate as a part of PJM. PJM
shall not include any expenditures required to conform PJM’s systems to the SMD
Tariff in either Capitalized Expansion Costs, Directly Assigned Expansion Costs,
or Expensed Expansion Costs, other than the incremental costs due to the
inclusion of the PJM South Region in such modifications.

 

4.4    Deposit and Billing Procedures.

 

4.4.1    Upon the Effective Date of this Implementation Agreement, Virginia
Power shall deposit with PJM an amount equal to (i) Expensed Expansion Costs and
(ii) Directly Assigned Expansion Costs, in each case that PJM estimates, in
accordance with the budget set forth in the Project Implementation Plan, that it
will incur during the first sixty (60) days (the “First Period”) following the
Effective Date. PJM shall draw payments from deposited funds (including interest
accrued thereon) in accordance with the billing and payment procedures set forth
in section 4.4.2. On the 10th day of each month following the Effective Date
(but not October 2002), until the Completion Date, PJM shall provide Virginia
Power with (i) a written forecast of Directly Assigned Expansion Costs and
Expensed Expansion Costs to be incurred by PJM hereunder during the sixty (60)
day period following the end of the First Period (and each successive sixty (60)
day period, as applicable) and (ii) an estimate of the remaining Expansion
Costs. In accordance with the billing and payment procedures set forth in
section 4.4.2, Virginia Power shall deposit with PJM such additional funds as
are necessary to increase the total deposited funds to PJM’s estimate for such
sixty (60) day period. After the Completion Date, and after all obligations
under sections 4.1.3.2 and 4.1.4.2 and otherwise under this Implementation
Agreement have been satisfied, PJM shall refund any outstanding deposits to
Virginia Power. All interest earned on any deposited amount prior to withdrawal
by PJM shall be credited for the benefit of Virginia Power.

 

4.4.2    On the 10th day of each month (or, if such day falls on a Saturday,
Sunday, or holiday, on the next business day), PJM shall issue monthly billing
statements to Virginia Power for amounts due under sections 4.1.3.2 and 4.1.4.2
or otherwise due under this Agreement, and PJM shall make payment to itself of
such amounts from Virginia Power’s funds on deposit under section 4.4.1 to the
extent such funds are available. Such billing statements shall set forth: (a)
any additional payments required that were not covered by deposited funds

 

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(including interest accrued thereon); (b) any additional deposit funds required
under section 4.4.1; (c) an itemization of the costs and expenses incurred for
which the billing is rendered; and (d) an estimate of the remaining Expansion
Costs. Virginia Power shall make payment of any amounts not paid from funds on
deposit no later than the 20th day of the same month (or if such day falls on a
Saturday, Sunday, or holiday, on the next business day) by wire transfer in
accordance with instructions PJM shall provide. In the event Virginia Power
disputes any amount stated in PJM’s invoice, Virginia Power shall pay PJM’s
invoice in full and the obligations of the Parties with respect to the payment
shall be determined in accordance with the procedures provided for in Article 6.
Within 10 days after the later of (i) the Completion Date or (ii) payment of all
obligations of Virginia Power under sections 4.1.3.2 and 4.1.4.2, PJM shall
refund to Virginia Power any remaining balance in the deposit account.

 

4.4.3    Upon request by Virginia Power, PJM shall provide to Virginia Power
reasonable information regarding the determination of costs payable by Virginia
Power pursuant to this Article 4.

 

ARTICLE 5

LIMITATIONS ON, AND PAYMENT

OBLIGATIONS IN THE EVENT OF, WITHDRAWAL

 

5.1    Unconditional Character of Payment Obligations.    Except as may be
otherwise provided in this Article 5, the withdrawal of Virginia Power from the
South Transmission Owner Agreement, the failure of Virginia Power to transfer
control of its Transmission Facilities to PJM, or the withdrawal by Virginia
Power of its Transmission Facilities from PJM, shall not diminish the obligation
of Virginia Power to pay Expansion Costs under this Implementation Agreement. By
way of example but not limitation, the following events shall not excuse or
diminish such payment obligations: (a) a failure by Virginia Power to meet any
obligation under sections 3.1.1, 3.1.2, 3.1.3, or 3.1.4; (b) any action or
inaction by the FERC or any other regulatory agency that has the effect of
denying or failing to grant any required regulatory approval; (c) any change in
law or regulation that reduces or eliminates any regulatory basis or requirement
for such transfer of control of Transmission Facilities to, or retention of
control of Transmission Facilities by, an Independent System Operator or
Regional Transmission Organization; (d) any decision to transfer control, or
seek to transfer control, of Transmission Facilities to an Independent System
Operator or Regional Transmission Organization other than PJM or an organization
other than

 

15

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PJM that seeks or intends to seek approval from the FERC to serve as an
Independent System Operator or Regional Transmission Organization; (e)
withdrawal from the South Transmission Owner Agreement and/or Operating
Agreement by Virginia Power; or (f) any order of the FERC approving withdrawal
of Virginia Power from the South Transmission Owner Agreement or the withdrawal
of any other owner of transmission facilities from PJM.

 

5.2    Suspension for Regulatory Delay.    In the event that a regulatory body
having jurisdiction over the PJM Tariff, the South Transmission Owner Agreement,
the Operating Agreement, or the South Reliability Assurance Agreement has not
issued an initial order concerning any required approval of any such agreement
or amendments to such agreement, as applicable, on or before June 30, 2003, and
PJM and Virginia Power concur that timely approval of such agreement is
unlikely, then Virginia Power may by Notice to PJM suspend the South Region
Expansion. In the event of such suspension, Virginia Power shall pay all
Demobilization Costs. During the South Region Expansion, PJM will respond to
reasonable requests from Virginia Power for estimates of Demobilization Costs
that would be due under this section if such suspension were invoked under this
section.

 

5.3    Obligations of Virginia Power if it Does Not Transfer Control of
Transmission Facilities to PJM or Withdraws from PJM.

 

5.3.1    Notice; Termination of South Region Expansion.    Subject only to any
required regulatory approvals and its payment obligations to PJM, Virginia Power
reserves the right at any time to terminate South Region Expansion and to
otherwise withdraw from transferring control of its Transmission Facilities to
PJM. If Virginia Power becomes aware of any event or occurrence that creates a
material possibility that it will not transfer control of its Transmission
Facilities to PJM, Virginia Power shall give immediate Notice to PJM. If PJM
becomes aware of any event or occurrence that creates a material possibility
that (i) PJM will not accept control of Virginia Power’s Transmission Facilities
or (ii) Virginia Power will be unable to transfer such control, PJM shall give
immediate Notice to Virginia Power. Upon receipt of Notice by one Party to the
other Party, PJM and Virginia Power shall confer and, unless Virginia Power and
PJM agree in writing that South Region Expansion shall continue, PJM shall
immediately commence termination of such South Region Expansion, including
demobilization and giving notice of termination or other applicable notice under
contracts with third parties. In the event Virginia Power fails to give Notice
under this section, PJM shall not be expected to terminate South Region
Expansion regardless of

 

16

--------------------------------------------------------------------------------

whether or not PJM is aware of the event or occurrence giving rise to the right
to give Notice, and PJM may continue South Region Expansion at Virginia Power’s
cost under this Implementation Agreement until Notice is given and the
conference required under this section has occurred.

 

5.3.2    Virginia Power’s Obligation to Reimburse PJM if it Does Not Transfer
Transmission Facilities.    In the event Virginia Power exercises its right to
withdraw under section 4.2, or gives Notice to PJM under section 5.3.1 and
Virginia Power does not agree to continue the South Region Expansion, or
Virginia Power otherwise does not transfer control of Transmission Facilities to
PJM, (“Withdrawal”), Virginia Power shall, notwithstanding the Withdrawal: (i)
continue to make all payments due under this Implementation Agreement, in
accordance with the billing and payment procedures set forth in section 4.4.2,
including ongoing Expensed Expansion Costs, (ii) make payments, under the
billing and payment procedures set forth in section 4.4.2, of Capitalized
Expansion Costs incurred after Withdrawal, and (iii) within thirty (30) days
after the effective date of the Withdrawal, make a payment to PJM of an amount
equal to all Capitalized Expansion Costs incurred prior to Withdrawal, provided
that Virginia Power shall be entitled to a credit against Capitalized Expansion
Costs of the value, if any, as determined by PJM in its reasonable judgment, to
PJM customers of such Capitalized Expansion Costs in the absence of Virginia
Power having transferred control of its Transmission Facilities to PJM and
provided further to the extent that at some subsequent date either Virginia
Power or another transmission owner transfers control of transmission facilities
to PJM and such transfer renders valuable to PJM customers some or all of the
Capitalized Expansion Costs paid by Virginia Power, such value, if any, as
determined by PJM in its reasonable judgment, shall be paid to Virginia Power no
later than sixty (60) days after such transfer. In the case of Withdrawal, PJM
shall make good faith efforts to mitigate costs, including Common Costs, so as
to minimize the amounts payable by Virginia Power pursuant to this section, and
any resulting reduction in Common Costs shall accrue to the benefit of Virginia
Power. It is recognized and agreed that the purpose of the continued payment and
reimbursement obligations under this section is to assure that, due to the
Withdrawal, expansion costs incurred in PJM West Expansion and Illinois Power
Expansion do not increase. Except for amounts paid to reimburse PJM for Directly
Assigned Expansion Costs and Expensed Expansion Costs incurred prior to the
Withdrawal, or for Demobilization, PJM will credit all amounts received under
this section 5.3.2 to PJM West Expansion and Illinois Power Expansion, as
applicable. The foregoing notwithstanding, in the event of a Withdrawal,
Virginia Power shall in no event be allocated or

 

17

--------------------------------------------------------------------------------

otherwise required to pay any Expansion Costs after it has paid 150% of the
estimated costs as set forth in the Project Implementation Plan as of the
Effective Date. After Virginia Power has paid 150% of such amount, the Expansion
Percentages shall be adjusted proportionately to the total loads of the
remaining expansions for purposes of allocating any further Common Costs. Any
payments due hereunder shall be made first from any amounts on deposit with PJM
under section 4.4.1 of this Implementation Agreement. Upon request to PJM, PJM
shall transfer to Virginia Power any assets attributable to Directly Assigned
Expansion Costs for which Virginia Power has paid. In the event Virginia Power
disputes any amount PJM asserts is due to it, Virginia Power shall pay PJM’s
invoice in full and the obligations of the Parties with respect to the payment
shall be determined in accordance with the procedures provided for in Article 6.
The obligations of Virginia Power pursuant to this section with respect to
Common Costs shall be contingent upon each of the transmission owning parties to
the PJM West Expansion and the Illinois Power Expansion agreeing to
substantially the same obligation for the payment of Common Costs in the case of
such party’s withdrawal from either the PJM West Expansion or the Illinois Power
Expansion.

 

5.4    Obligations of Virginia Power Due To Withdrawal Prior to Recovery of All
Capitalized Expansion Costs.    In the event Virginia Power withdraws control of
its Transmission Facilities from PJM after having transferred such control, PJM
shall issue an invoice to Virginia Power for the Capitalized Expansion Costs, if
any, that PJM shall not have recovered pursuant to section 4.1.2.2 under the PJM
Tariff as of the effective date of such withdrawal provided that Virginia Power
shall be entitled to a credit against the unrecovered Capitalized Expansion
Costs of the value, if any, as determined by PJM in its reasonable judgment, to
PJM customers of such unrecovered Capitalized Expansion Costs subsequent to
Virginia Power having withdrawn control of its Transmission Facilities from PJM
and provided further to the extent that at some subsequent date either Virginia
Power or another transmission owner transfers control of transmission facilities
to PJM and such transfer renders valuable to PJM customers some or all of the
unrecovered Capitalized Expansion Costs, such value, as determined by PJM in its
reasonable judgment, shall be paid to Virginia Power no later than sixty (30)
days after such transfer. No later than thirty (30) days after receipt of such
invoice, and in no event later than the effectiveness of the withdrawal,
Virginia Power shall pay the amount stated in the invoice. In the event Virginia
Power disputes any amount PJM asserts is due to it, Virginia Power shall pay
PJM’s invoice in full and the obligations of the Parties with respect to the
payment shall be determined in accordance with the procedures provided for in
Article 6.

 

18

--------------------------------------------------------------------------------

 

ARTICLE 6

DISPUTE RESOLUTION

 

6.1    Disputes.    Subject to section 6.2, any dispute arising under or
relating to this Implementation Agreement shall be subject to binding
arbitration under the Commercial Arbitration Rules of the American Arbitration
Association, to be held in Washington, D.C., and judgment thereon may be entered
by a court with jurisdiction. Each Party consents to, and waives all objections
to, personal jurisdiction and venue of courts in Washington, D.C. or
Pennsylvania for such purpose. The Parties shall endeavor in any arbitration to
have discovery (which may include depositions) completed within forty-five (45)
days of the appointment of the arbitrators (or single arbitrator, if applicable)
and to have a decision rendered by the arbitrator(s) within one hundred fifty
(150) days after appointment. In the event temporary or preliminary injunctive
relief has been issued under section 6.2, the parties to the judicial action in
which such relief is issued shall request the court to hold further proceedings
on the complaint in abeyance pending completion of arbitration under this
article. If the court denies such request to hold further proceedings in
abeyance, then the parties shall proceed in such court to have the dispute
determined and the arbitration provisions of this section shall not be
applicable to such dispute.

 

6.2    Permitted Judicial Proceeding.    The foregoing arbitration agreement
notwithstanding, in the case of a payment dispute, PJM may elect, in lieu of
proceeding by arbitration exclusively, to bring a judicial action against
Virginia Power to obtain relief with respect to such dispute, including
injunctive relief to obtain or compel payment. Solely for such purpose Virginia
Power consents to the personal jurisdiction and venue of any federal or state
court located in Pennsylvania or Washington, D.C. Virginia Power acknowledges,
and in any judicial proceeding brought hereunder shall be deemed to have
admitted, that PJM, the competition it fosters through its service as an
Independent System Operator or Regional Transmission Organization, and the
public interest, will suffer irreparable harm if PJM does not recover any
amounts due to PJM under this Implementation Agreement in accordance with the
terms and conditions herein.

 

6.3    Disputes Concerning PJM West Expansion and Illinois Power
Expansion.    In any matter involving the allocation of Common Costs between
Virginia Power and the transmission owner participants in the PJM West Expansion
or the Illinois Power Expansion and in order to

 

19

--------------------------------------------------------------------------------

avoid inconsistent determinations of liability for and the allocation of Common
Costs, the Parties shall take all reasonable actions, subject to the agreement
of the transmission owner participants in the PJM West Expansion and Illinois
Power Expansion, and subject to jurisdictional or procedural impediments, to
have such allocation issues resolved in a single arbitration proceeding or at
PJM’s election under section 6.2, a single judicial proceeding (subject to being
held in abeyance for the conduct of arbitration under section 6.2), which shall
include all interested parties.

 

6.4    Interest.    Any award pursuant to section 6.1 or section 6.2 shall bear
interest at the rate earned by PJM with respect to funds in accounts subject to
its control during the applicable period.

 

6.5    Audit.    In any dispute, Virginia Power shall have the right to audit
those costs assigned to Virginia Power pursuant to this Implementation
Agreement.

 

ARTICLE 7

ADDITIONAL AND MISCELLANEOUS MATTERS

 

7.1    Relationship of the Parties.    his Implementation Agreement shall not be
interpreted or construed to create any association, joint venture, or
partnership between or among the Parties or to impose any partnership obligation
liability upon any Party. No Party shall have the right, power or authority
under this Implementation Agreement to enter into any agreement or undertaking
for, or act on behalf of, or to act as or be an agent or representative of, or
to otherwise bind, any other Party.

 

7.2    Confidentiality.    Any information provided by one Party to the other
Party in carrying out this Implementation Agreement shall be subject to the
Non-Disclosure Agreement.

 

7.3    Energy Management System Network Model.    Upon execution of this
Implementation Agreement, Virginia Power shall provide PJM a copy of its Energy
Management System Network model and related software databases and applications
subject to the reasonable terms and conditions of Virginia Power’s customary
software licenses. PJM shall provide Virginia Power with a copy of PJM’s network
model in Common Interface Model (CIM) format for use with Virginia Power’s
contingency analysis and state estimator applications. The Parties agree to
exchange real-time data using the Inter-Control Center Protocol (ICCP)

 

20

--------------------------------------------------------------------------------

as needed to support the use of these models. The real-time data of Virginia
Power shall be considered confidential Information under the Non-Disclosure
Agreement, provided that Virginia Power consents to the release of such
information as may be reasonably required to comply with FERC or NERC
requirements. Real-time data of third parties shall be transferred by Virginia
Power to PJM only to the extent that PJM has confidentiality agreements with
such third parties permitting the transfer of such information.

 

7.4    Value of Virginia Power Systems.    The Parties recognize that Virginia
Power has developed or otherwise acquired systems and information related to the
operation of Virginia Power’s transmission system and the transmission systems
of nearby transmission owners, which systems and information Virginia Power
considers proprietary. Nothing in this Implementation Agreement shall obligate
Virginia Power to provide access to, copies of, or information from any such
system except to the extent reasonable and necessary to establish the PJM South
Region and integrate Virginia Power’s transmission system into the PJM system
and markets. Should either party withdraw from this Implementation Agreement or
in the event that the PJM South Region is not implemented, each Party shall
immediately remove from its systems all instances of the network model provided
by the other Party under section 7.3 and shall refrain from further use of the
integrated network model developed from the software, systems, models or
information provided pursuant to section 7.3. Physical copies of the network
model, including archival/backup copies and associated documentation, shall be
returned to, or destroyed with a certificate of such destruction to, the Party
that supplied the data under section 7.3 within fifteen (15) days from the date
of withdrawal or cessation of the PJM South Region implementation effort. To the
extent that PJM desires additional or continued access to, copies of, or
information from such systems, the terms therefore shall be negotiated
separately.

 

7.5    No Third-party Beneficiaries.    This Implementation Agreement is
intended solely for the benefit of the Parties and their respective successors
and permitted assigns and is not intended to and shall not confer any rights or
benefits on, any third party (other than the Parties’ successors and permitted
assigns) that is not a signatory hereto.

 

7.6    Term and Termination.    This Implementation Agreement shall be effective
as provided in Article 2 and shall continue in effect from year to year
thereafter unless and until terminated, provided that all provisions concerning
payment obligations, section 4.4.3, Article 6, and Article 7 shall survive such
termination.

 

21

--------------------------------------------------------------------------------

 

7.7    Successors and Assigns.    This Implementation Agreement shall inure to
the benefit of and be binding upon the Parties and their respective successors
and assigns permitted herein, but shall not be assigned except to a successor in
the operation of Virginia Power’s Transmission Facilities by reason of a merger,
consolidation, reorganization, sale, spinoff, or foreclosure, as a result of
which substantially all such Transmission Facilities are acquired by such
successor, and such successor expressly is made a party to this Implementation
Agreement.

 

7.8    Force Majeure.    No Party shall be liable to any other Party for damages
or otherwise be in breach of this Implementation Agreement to the extent and
during the period such Party’s performance is made impracticable by any cause or
causes beyond such Party’s control and without such Party’s fault or negligence,
including but not limited to any act, omission, or circumstance occasioned by or
in consequence of any act of God, labor disturbance, act of the public enemy,
war, insurrection, riot, fire, storm or flood, explosion, breakage or accident
to machinery or equipment, or curtailment, order, regulation or restriction
imposed by governmental, military or lawfully established civilian authorities;
provided, however, that any such foregoing event shall not excuse any payment
obligation. Upon the occurrence of an event considered by a Party to constitute
a force majeure event, such Party shall use due diligence to endeavor to
continue to perform its obligations as far as reasonably practicable and to
remedy the event, provided that this provision shall require no Party to settle
any strike or labor dispute. The foregoing notwithstanding, the occurrence of a
cause under this section shall not excuse Virginia Power from making any payment
otherwise required under this Implementation Agreement.

 

7.9    Limitations on Liability.    Except with respect to the payment
obligations provided in this Implementation Agreement, no Party shall be liable
to any other Party, or any affiliate or subsidiary thereof, for any claim for
damages, whether direct, indirect, incidental, special or consequential damages,
or loss of the other Party, including, but not limited to, loss of profits or
revenues, cost of capital of financing, or loss of goodwill arising from such
Party’s carrying out, or failing to carry out, any obligations contemplated by
this Implementation Agreement.

 

7.10    Governing Law.    This Implementation Agreement shall be interpreted,
construed and governed by the laws of the state of Delaware.

 

22

--------------------------------------------------------------------------------

 

7.11    Notice.    Whether expressly so stated or not, all notices, demands,
requests and other communications required or permitted by or provided for in
this Implementation Agreement (“Notice”) shall be given in writing to a Party at
the address set forth below, or at such other address as a Party shall designate
for itself in writing in accordance with this section, and shall be delivered by
hand, overnight courier, or electronic mail:

 

For all Notices:

 

With a copy to:

PJM Interconnection, L.L.C.

955 Jefferson Avenue

Valley Forge Corporate Center

Norristown, PA 19403-2497

Attn:    Phillip Harris

President

E-mail: harrispg@pjm.com

 

PJM Interconnection, L.L.C.

955 Jefferson Avenue

Valley Forge Corporate Center

Norristown, PA 19403-2497

            Attn: Richard Wodyka

            Chief Operating Officer

E-mail: wodykara@pjm.com

Jimmy D. Staton

Senior Vice President

Electric Transmission & Distribution

Virginia Electric & Power Company

701 East Cary Street

Richmond, VA 23219

E-mail: Jimmy_Staton@dom.com

 

James F. Stutts

Vice President & General Counsel

Dominion Resources Services, Inc.

120 Tredegar Street

Richmond, VA 23219

E-mail: James_Stutts@dom.com

 

7.12    Execution of Counterparts.    This Implementation Agreement may be
executed in any number of counterparts, each of which shall be an original but
all of which together will constitute one instrument, binding upon all Parties
hereto, notwithstanding that all such Parties may not have executed the same
counterpart.

 

7.13    Representations and Warranties.

 

7.13.1    Each Party represents and warrants to the other Parties that, as of
the Effective Date of this Implementation Agreement as to such Party:

 

7.13.1.1    It is duly organized, validly existing and in good standing under
the laws of the jurisdiction where organized, and,

 

23

--------------------------------------------------------------------------------

in the case of Virginia Power, qualified to do business in each state in which
its Transmission Facilities are located;

 

7.13.1.2    The execution and delivery of this Implementation Agreement and the
performance of its obligations hereunder have been duly and validly authorized
by all requisite action on the part of the Party and do not conflict with any
applicable law or with any other agreement binding upon the Party. The
Implementation Agreement has been duly executed and delivered by the Party. The
Implementation Agreement constitutes the legal, valid and binding obligation of
the Party enforceable against it in accordance with its terms except insofar as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditor’s rights generally and by general
principles of equity concerning such enforcement, regardless of whether such
principles are applied in a proceeding at law or in equity; and

 

7.13.1.3    There are no actions at law, suits in equity, proceedings or claims
pending or, to the knowledge of the Party, threatened against the Party before
or by any federal, state, foreign or local court, tribunal or governmental
agency or authority that might materially delay, prevent or hinder the
performance by the Party of its obligations hereunder.

 

7.14 Renegotiation.    Each provision of this Implementation Agreement shall be
considered severable, and if any provision is held by a court or regulatory
authority of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall continue in full force and effect and shall in no way
be affected, impaired or invalidated. If the Implementation Agreement is
modified or conditioned by a regulatory authority exercising jurisdiction over
this Implementation Agreement (other than the FERC, as to which section 3.1.3
applies), the Parties shall endeavor in good faith to negotiate such amendment
or amendments as will restore the relative benefits and obligations of the
Parties immediately prior to such holding, modification or condition. If after
60 days such negotiations are unsuccessful then this Implementation Agreement
shall be deemed terminated, provided, that nothing in this section shall
diminish Virginia Power’s obligation to pay all amounts due to PJM under this
Implementation Agreement.

 

7.15 Headings.    The article and section headings used in this Implementation
Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions.

 

24

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties have caused this Implementation Agreement to be
executed by their duly authorized representatives.

 

PJM Interconnection, L.L.C.

By:

 

    /s/    Richard A. Wodyka

Name: Richard A. Wodyka

Title:   VP & COO

Date:   10/01/02

 

Virginia Electric and Power Company

By:

 

    /s/    Glenn B. Ross

 

Name: Glenn B. Ross

Title:   Director - Delivery Policy

Date:   10/0/02

 

 

25

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PROJECT IMPLEMENTATION PLAN

SCHEDULE 3.2.2

--------------------------------------------------------------------------------

 

[Portions of Schedule 3.2.2 are being revised due to recent legislation.]

 

27

--------------------------------------------------------------------------------

 

Capital and Expense Cash Flow Forecast

Project Costs

                    

Capital

 

    

$63,610,000

                                               

Expense

 

    

$36,390,000

                                               

Total

 

    

$100,000,000

                          

Allocation Values

                                               

Participant

    

    Agreement

    

Load

    

% of total

      

% of West

agreement

    

% of DOM

agreement

  

% of IP

agreement

  

Total Expense

  

Total Capital

  

Total

        AEP

    

West

 

  

126,485,726

 

  

36.1582

%

    

        52.6778%

              

$13,157,969

  

$23,000,231

  

$36,158,200

        Comed

    

West

 

  

96,919,286

 

  

27.7061

%

    

        40.3642%

              

$10,082,250

  

$17,623,850

  

$27,706,100

        Dominion

    

DOM

 

  

89,650,634

 

  

25.6282

%

           

        100.0000%

       

$9,326,102

  

$16,302,098

  

$25,628,200

        DP&L

    

West

 

  

16,706,972

 

  

4.7760

%

    

        6.9580%

              

$1,737,986

  

$3,038,014

  

$4,776,000

        IP

    

IP

 

  

20,049,273

 

  

5.7314

%

                

        100.0000%

  

$2,085,656

  

$3,645,744

  

$5,731,400

      

West

 

  

240,111,984

 

  

68.6403

%

                     

$24,978,205

  

$43,662,095

  

$68,640,300

      

DOM

 

  

89,650,634

 

  

25.6282

%

                     

$9,326,102

  

$16,302,098

  

$25,628,200

      

IP

 

  

20,049,273

 

  

5.7314

%

                     

$2,085,656

  

$3,645,744

  

$5,731,400

Allocation

                                                               

Allocation

    

TOTAL COSTS

    

AEP

  

COMED

  

DOM

  

DP&L

  

IP

      

Capital

    

Expense

    

Capital

      

Expense

                          

Sep-02

    

0.00

%

  

3.00

%

  

$0

 

    

$1,091,700

    

$394,739

  

$302,467

  

$279,783

  

$52,140

  

$62,570

Oct-02

    

1.00

%

  

8.00

%

  

$636,100

 

    

$2,911,200

    

$1,052,638

  

$806,580

  

$746,088

  

$139,039

  

$166,853

Nov-02

    

8.00

%

  

7.00

%

  

$5,088,800

 

    

$2,547,300

    

$921,058

  

$705,757

  

$652,827

  

$121,659

  

$145,996

Dec-02

    

8.00

%

  

7.00

%

  

$5,088,800

 

    

$2,547,300

    

$921,058

  

$705,757

  

$652,827

  

$121,659

  

$145,996

Jan-03

    

8.00

%

  

4.00

%

  

$5,088,800

 

    

$1,455,600

    

$526,319

  

$403,290

  

$373,044

  

$69,519

  

$83,426

Feb-03

    

8.00

%

  

4.00

%

  

$5,088,800

 

    

$1,455,600

    

$526,319

  

$403,290

  

$373,044

  

$69,519

  

$83,426

Mar-03

    

8.00

%

  

4.00

%

  

$5,088,800

 

    

$1,455,600

    

$526,319

  

$403,290

  

$373,044

  

$69,519

  

$83,426

Apr-03

    

8.00

%

  

8.00

%

  

$5,088,800

 

    

$2,911,200

    

$1,052,638

  

$806,580

  

$746,088

  

$139,039

  

$166,853

May-03

    

8.00

%

  

8.00

%

  

$5,088,800

 

    

$2,911,200

    

$1,052,638

  

$806,580

  

$746,088

  

$139,039

  

$166,853

Jun-03

    

7.00

%

  

6.00

%

  

$4,452,700

 

    

$2,183,400

    

$789,478

  

$604,935

  

$559,566

  

$104,279

  

$125,139

Jul-03

    

7.00

%

  

6.00

%

  

$4,452,700

 

    

$2,183,400

    

$789,478

  

$604,935

  

$559,566

  

$104,279

  

$125,139

Aug-03

    

7.00

%

  

6.00

%

  

$4,452,700

 

    

$2,183,400

    

$789,478

  

$604,935

  

$559,566

  

$104,279

  

$125,139

Sep-03

    

7.00

%

  

7.00

%

  

$4,452,700

 

    

$2,547,300

    

$921,058

  

$705,757

  

$652,827

  

$121,659

  

$145,996

Oct-03

    

5.00

%

  

8.00

%

  

$3,180,500

 

    

$2,911,200

    

$1,052,638

  

$806,580

  

$746,088

  

$139,039

  

$166,853

Nov-03

    

5.00

%

  

8.00

%

  

$3,180,500

 

    

$2,911,200

    

$1,052,638

  

$806,580

  

$746,088

  

$139,039

  

$166,853

Dec-03

    

5.00

%

  

6.00

%

  

$3,180,500

 

    

$2,183,400

    

$789,478

  

$604,935

  

$559,566

  

$104,279

  

$125,139

                    

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

    

--------------------------------------------------------------------------------

    

--------------------------------------------------------------------------------

  

--------------------------------------------------------------------------------

  

--------------------------------------------------------------------------------

  

--------------------------------------------------------------------------------

  

--------------------------------------------------------------------------------

Total

    

100.00

%

  

100.00

%

  

$63,610,000

 

    

$36,390,000

    

$13,157,972

  

$10,082,248

  

$9,326,100

  

$1,737,985

  

$2,085,657

                    

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

    

--------------------------------------------------------------------------------

                          

Directly Assigned Expenses

                  

$30,000

  

$30,000

  

$30,000

  

$30,000

  

$30,000

NOTES:   1. Allocation Values based on 2000 load data

 

 

--------------------------------------------------------------------------------

 

FIRST AMENDMENT TO PJM SOUTH IMPLEMENTATION AGREEMENT

 

THIS FIRST AMENDMENT TO THE PJM SOUTH IMPLEMENTATION AGREEMENT (“First
Amendment”), is entered into as of November     , 2002, between Virginia
Electric and Power Company (“Virginia Power”), a corporation organized under the
laws of the Commonwealth of Virginia and PJM Interconnection, L.L.C. (“PJM”), a
limited liability company organized under the laws of Delaware (each a “Party”
and collectively, “Parties”).

 

WHEREAS, Virginia Power has determined to become a member of PJM, to transfer
functional control of its Transmission Facilities to PJM for inclusion in a new
PJM South Region, integrate its Control Area into the PJM Interchange Energy
Market and certain other PJM markets, and to facilitate the establishment and
operation of PJM as the Regional Transmission Organization, with respect to its
Transmission Facilities;

 

WHEREAS, PJM is incurring certain costs in conjunction with the establishment of
the PJM South Region;

 

WHEREAS, the Parties have entered into the PJM South Implementation Agreement,
dated September 30, 2002, (“Implementation Agreement”) to provide for the
allocation to and payment by Virginia Power of Expansion Costs being incurred by
PJM;

 

WHEREAS, Expansion Costs include certain Common Costs that PJM is incurring in
conjunction with the South Region Expansion, PJM West Expansion and Illinois
Power Expansion and which are not properly allocable solely to any one region;

 

WHEREAS, a portion of such Common Costs were allocated to Virginia Power on the
basis of the ratio of its total load to the total loads of all transmission
owner participants in the South Region Expansion, PJM West Expansion and
Illinois Power Expansion; and

 

WHEREAS, Illinois Power has not as of this date chosen to become a member of PJM
and accordingly the percentage of Common Costs allocable to Virginia Power is
subject to adjustment.

 

NOW THEREFORE, in consideration of the covenants and agreements set forth
herein, and intending to be legally bound thereby, and for other good and
valuable consideration the receipt of which is hereby acknowledged, the Parties
agree as follows:

 

1.    All capitalized terms not otherwise defined in this First Amendment shall
have the meaning assigned to them in the Implementation Agreement unless the
context clearly indicates otherwise.

 

2.    The Expansion Percentages set out in Section 4.1.1 are hereby amended to
be 27.18 percent for Virginia Power and 72.82 percent for PJM West Expansion
participants, the references to Illinois Power Expansion and Illinois Power are
deleted, and the language in such section modified accordingly.

--------------------------------------------------------------------------------

 

3.    Schedule 3.2.2 including the Capital and Expense Cash Flow Forecast to the
Implementation Agreement shall be replaced in its entirety by the attached
revised Schedule 3.2.2 and the revised Capital and Expense Cash Flow Forecast.

 

4.    The amounts payable to PJM by Virginia Power pursuant to Section 4 of the
Implementation Agreement, including amounts previously billed to Virginia Power,
shall be adjusted in accordance with the amended Expansion Percentage.

 

5.    If Illinois Power should prior to the Completion Date choose to become a
member of PJM and to transfer functional control over its Transmission
Facilities to PJM, the Expansion Percentages shall be adjusted retroactively to
the Effective Date of the Implementation Agreement to those percentages in
effect prior to this First Amendment and PJM will reimburse or credit Virginia
Power for the difference between the amounts paid in accordance with this First
Amendment and the amounts which would have been payable if the Expansion
Percentages had not been adjusted pursuant to this First Amendment.

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties have caused this First Amendment to be executed
by their duly authorized representatives.

 

PJM Interconnection, L.L.C.

By:

 

/s/    RICHARD A. WODYKA

Name:    Richard A. Wodyka

Title:    Chief Operating Officer

Date:    12-9-02

 

Virginia Electric and Power Company

By:

 

/s/    JIMMY D. STATON

Name:    Jimmy D. Staton

Title:    Senior Vice President

Date:    Dec. 6, 2002