Exhibit 10(b)(2)

 

 

 

 
UNIT POWER AGREEMENT
 
by and between
 
AEP GENERATING COMPANY
 
and
 
COLUMBUS SOUTHERN POWER COMPANY
 

 
dated as of
 
March 15, 2007
 

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TABLE OF CONTENTS
   
Page
 
ARTICLE I
DEFINITIONS
1
 
Section 1.1
Defined Terms
1
 
Section 1.2
Interpretation
8
 
Section 1.3
Technical Meanings
9
 
ARTICLE II
TERM
9
 
Section 2.1
Term
9
 
Section 2.2
Delivery Period
9
 
Section 2.3
Extension Period
9
 
ARTICLE III
PURCHASE AND SALE OBLIGATION
9
 
Section 3.1
Seller’s and Buyer’s Obligations
9
 
Section 3.2
Unit Contingent
9
 
Section 3.3
Delivery Point
9
 
Section 3.4
Scheduling and Dispatch
9
 
Section 3.5
Force Majeure
10
 
ARTICLE IV
FACILITY OPERATIONS
10
 
Section 4.1
Operation and Maintenance
10
 
Section 4.2
Capital Improvements
10
 
Section 4.3
Planned Outage Schedule
10
 
Section 4.4
Auxiliary Power
10
 
ARTICLE V
PRICING
11
 
Section 5.1
Monthly Payments
11
 
Section 5.2
Fuel Payment
11
 
Section 5.3
O&M Payment
11
 
Section 5.4
Depreciation Payment
11
 
Section 5.5
Capacity Payment
11
 
Section 5.5
Tax Reimbursement Payment
12
 
ARTICLE VI
BILLING AND PAYMENT
12
 
Section 6.1
Billing and Payment
12
 
Section 6.2
Books and Records; Audit
12
 
Section 6.3
Netting of Payments
13
 
ARTICLE VII
LIMITATIONS
13
 
Section 7.1
Limitation of Remedies, Liability and Damages
13
  ARTICLE VIII   TAXES
13
 
Section 8.1
Cooperation
13
 
Section 8.2
Taxes
13
 
Section 8.3
Change-in-Law Taxes
14
 
Section 8.4
Exemptions
14
 
Section 8.5
Property Taxes
14
 
ARTICLE IX
COMPLIANCE WITH LAWS
14
 
Section 9.1
Seller’s Compliance
14
 
Section 9.2
Buyer’s Compliance
14
 
ARTICLE X
CONDITIONS
15
 
Section 10.1
Conditions
15
 
Section 10.2
Obligations of Buyer and Seller
15
 
Section 10.3
Failure of Conditions Generally
15
 
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
15
 
Section 11.1
Representations and Warranties of Both Parties
15
 
ARTICLE XII
MISCELLANEOUS
16
 
Section 12.1
Title and Risk of Loss
16
 
Section 12.2
Indemnity
16
 
Section 12.3
Amendments and Waivers
16
 
Section 12.4
Notices
16
 
Section 12.5
Successors and Assigns; Assignment
17
 
Section 12.6
Integration
17
 
Section 12.7
Acknowledgments
17
 
Section 12.8
Waiver
17
 
Section 12.9
Counterparts
17
 
Section 12.10
Headings
17
 
Section 12.11
Confidentiality
17
 
Section 12.12
Governing Law
18
 
Section 12.13
Severability
18
 
Section 12.14
Mobil/Sierra Doctrine
18
                 
SCHEDULE   5.5  -  ESTIMATE OF INITIAL CAPACITY PAYMENT
 
SCHEDULE 12.4  - NOTICE INFORMATION
   

 
 

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b

 
POWER PURCHASE AND SALE AGREEMENT
 
THIS UNIT POWER AGREEMENT (this “Agreement”), dated as of March 15, 2007, is by
and between AEP Generating Company, an Ohio corporation (“Seller”), and COLUMBUS
SOUTHERN POWER COMPANY an Ohio corporation (“Buyer”).  Buyer and Seller are
sometimes referred to herein individually as a “Party” and collectively as the
“Parties.”
 
RECITALS
 
A.           Seller, a subsidiary of American Electric Power Company, Inc., has
agreed to purchase the Lawrenceburg Generating Station from an affiliate of
Public Service Enterprise Group for approximately $325 million, subject to the
satisfaction of certain conditions precedent, including the receipt of required
regulatory approvals from the Federal Energy Regulatory Commission (FERC) and
Indiana Utility Regulatory Commission.
 
B.           The Lawrenceburg Generating Station, located in Lawrenceburg, Ind.,
is a combined-cycle, natural-gas power plant with a generating capacity of 1,096
megawatts that  began commercial operation in June 2004.
 
C.           The Parties desire to enter into a transaction in which Seller
sells and Buyer purchases all of the capacity, and associated unit contingent
energy and ancillary services, as delivered or made available from the
Lawrenceburg Generating Station, for an initial term of approximately ten (10)
years.
 
D.           The Parties desire to set forth certain terms and conditions
applicable to such transaction.
 
In consideration of mutual covenants and agreements contained herein, the
Parties agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
1.1           Defined Terms.  Unless otherwise defined herein, the following
terms, when used herein, shall have the meaning set forth below:

“Affected Party” has the meaning set forth in Section 3.7.
 
“Affiliate” means, with respect to any Person, any other Person (other than an
individual) that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
Person.  For this purpose, “control” means the direct or indirect ownership of
fifty percent (50%) or more of the outstanding capital stock or other equity
interests having ordinary voting power.
 
“Agreement” means this Unit Power Agreement.
 
 “Allowances” means emission allowances, emission credits, and any similar
rights related to emissions of NOx, SO2, CO2, mercury, particulates or any other
substance under any relevant federal, state or local law or recognized by any
Governmental Authority or other entity, and all other environmental attributes.
 
“Ancillary Services” means regulation and frequency response services; energy
imbalance services; automatic generating control services; spinning,
non-spinning, supplemental and replacement reserve services, reactive power and
voltage support services, black start services and all other services or
products ancillary to the operation of the Facility that are defined as
ancillary services in the Transmission Operator’s relevant transmission tariff
or are commonly sold or saleable, to the extent that the assets comprising the
Facility are technically capable of providing those services or products.
 
“Approvals” means all approvals, permits, licenses, consents, waivers or other
authorizations from, notifications to, or filings or registrations with, third
parties, including without limitation, Governmental Approvals.
 
“Business Day” means any day except a Saturday, Sunday, or a United States
Federal Reserve Bank holiday.  A Business Day shall open at 8:00 a.m. and close
at 5:00 p.m. local time at the relevant Party’s principal place of
business.  The relevant Party, in each instance unless otherwise specified,
shall be the Party from whom the notice, payment or delivery is being sent and
by whom the notice or payment or delivery is to be received.
 
“Buyer” has the meaning set forth in the preamble hereto.
 
“Buyer’s Contractual Capacity” means all of the Capacity of the Facility, which
entitlement is approximately 1,096 MW as of the date set forth in the preamble
to this Agreement.
 
 “Capacity” means the output level, expressed in MW, that the Facility, or the
components of equipment thereof, is capable, as of a given moment, of
continuously producing and making available at the Delivery Point, taking into
account the operating condition of the equipment at that time, the auxiliary
loads and other relevant factors.
 
“Capital Improvements Work” shall mean the modeling, studying, engineering,
design, procurement, purchasing, construction, inspection, start-up and testing
of capital improvements, replacements, repairs or additions to the Facility.
 
“Capacity Payment” has the meaning set forth in Section 5.5.
 
“Change-in-Law” means, after the date set forth in the preamble to this
Agreement, the adoption, imposition, promulgation, change in interpretation or
modification by a Governmental Authority of any law, regulation or Governmental
Approval, or the issuance of a final and non-appealable order, judgment, award
or decree of a Governmental Authority having the effect of the foregoing.
 
“Change-in-Law Taxes” means, after the date set forth in the preamble to this
Agreement, any change (increase or decrease) in Taxes imposed on Seller on (a)
the sale or use of fuel for generation of electricity, (b) the sale of Capacity
or (c) the production or sale of Energy or Ancillary Services, in any case,
resulting from a Change-in-Law.
 
“Claims” means all claims or actions, threatened or filed and, whether
groundless, false, fraudulent or otherwise, that directly or indirectly relate
to the subject matter of an indemnity, and the resulting losses, damages,
expenses (including reasonable attorneys’ fees and disbursements) and court
costs, whether incurred by settlement or otherwise, and whether such claims or
actions are threatened or filed prior to or after the termination of this
Agreement.
 
“Closing” and “Closing Date” have the meanings set forth in Section 3.1 of the
Facility Purchase Agreement.
 
“Contract Price” means the price to be paid by Buyer to Seller for the purchase
of the Buyer’s Contractual Capacity and associated Energy and Ancillary
Services, as determined in accordance with the provisions of Article V.
 
“Contract Year” means the period beginning at 12:01 a.m. EPT on the Start Date
and ending on December 31st of the same year, and each succeeding calendar year
thereafter during the Delivery Period.  If the first or last Contract Year
consists of a shorter period than a full calendar year, including by reason of
the termination of this Agreement prior to the expiration of the Delivery
Period, then that Contract Year may consist of a shorter period than a full
calendar year, in which case with respect to that Contract Year, all terms and
provisions of this Agreement that refer to or are based on a Contract Year shall
be adjusted ratably downward to reflect such shorter period.
 
“EPT” or “Eastern Prevailing Time” means the local time at the geographical
location of the Delivery Point.
 
“Delivery Period” has the meaning set forth in Section 2.2.
 
“Delivery Point” has the meaning set forth in Section 3.3.
 
“Depreciation Payment” has the meaning set forth in Section 5.4.
 
“Dispatch” means the actions of Buyer and/or its designated agents or
representatives in controlling and designating the quantity of Energy and
Ancillary Services to be produced by the Facility.
 
“Effective Date” means the date on which all of the conditions precedent set
forth in Section 10.1  have been satisfied or waived, which date shall not be
earlier than the Closing Date.
 
“End Date” has the meaning set forth in Section 2.2.
 
“Energy” means three-phase, 60-cycle alternating current electric energy,
expressed in MWh.
 
“Equitable Defenses” means any bankruptcy, insolvency, reorganization and other
laws affecting creditors’ rights generally, and with regard to equitable
remedies, the discretion of the court before which proceedings to obtain same
may be pending.
 
“Facility” means the combined-cycle, natural-gas power plant with a nameplate
generating capacity of 1,096 megawatts located in or near Lawrenceburg, Indiana,
that began commercial operation in June 2004, commonly known as the Lawrenceburg
Generating Station.
 
“Facility LMP Point” means the location recognized by the PJM’s scheduling and
settlement systems as the point at which the 345 kV double circuit lines from
the Facility’s 345 kV station terminate at the Tanners Creek 345 kV Station.
 
“Facility Purchase Agreement” means the Purchase and Sale Agreement, dated as of
December 29, 2006, by and between PSEG Lawrenceburg Energy Company LLC, a
Delaware limited liability company, and Seller, pertaining to the acquisition by
Seller of the Purchased Assets, as defined therein, including the Facility.
 
“FERC” means the Federal Energy Regulatory Commission or any successor entity
with similar jurisdiction.
 
“Force Majeure” means an event or circumstance which prevents one Party from
performing its obligations under this Agreement, which event or circumstance was
not reasonably anticipated as of the date set forth in the preamble to this
Agreement, which is not within the reasonable control of, or the result of the
negligence of, the Affected Party, and which, by the exercise of due diligence,
the Affected Party is, by using reasonable efforts, unable to overcome or avoid
or cause to be avoided.
 
“Fuel Costs” means all fixed or variable costs, expenses, losses, liabilities,
claims and charges related to the acquisition, storage, inventory, balancing and
transportation and delivery of fuel for the Facility, including related costs of
credit.
 
“Fuel Payment” has the meaning set forth in Section 5.2.
 
“Governmental Approval” means any permit, authorization, registration, consent,
action, waiver, exception, variance, order, judgment, decree, license,
exemption, publication, filing, notice to, or declaration of or with, or
required by any Governmental Authority or applicable law.
 
“Governmental Authority” means any federal, state, tribal, local, or municipal
government body; and any governmental, regulatory, or administrative agency,
commission, body, agency, instrumentality, or other authority exercising or
entitled to exercise any executive, judicial, legislative, administrative,
regulatory, or taxing authority or power, including any court or other tribunal.
 
“Imbalance Charges” means any penalties, fees or charges assessed by a
Transmission Operator or Transmission Provider for failure to satisfy
requirements for balancing of electric energy receipts and deliveries or loads
and generation, or payable to any other Person in connection with the delivery
of electrical energy in an amount(s) different from the amount(s) scheduled.
 
“Income Tax” means any Tax imposed by any Taxing Authority (i) based upon,
measured by or calculated with respect to gross or net income, profits or
receipts (including municipal gross receipt Taxes, capital gains Taxes and
minimum Taxes) or (ii) based upon, measured by or calculated with respect to
multiple bases (including corporate franchise Taxes) if one or more of such
bases is described in clause (i), in each case together with any interest,
penalties or additions attributable to such Tax.
 
“Indemnified Parties” has the meaning set forth in Section 12.2.
 
“kW” means kilowatt.
 
“Mobile-Sierra Doctrine” has the meaning set forth in Section 12.14.
 
“Monthly Payment” has the meaning set forth in Section 5.1.
 
“MW” means megawatt.
 
“MWh” means megawatt-hour.
 
“Moody’s” means Moody's Investors Services, Inc. or its successor.
 
“O&M Payment” has the meaning set forth in Section 5.3.
 
“Operation and Maintenance Costs” means all fixed or variable costs, expenses,
losses, liabilities, claims, charges and associated credits incurred directly or
indirectly in the performance of Operating Work, but not including Fuel Costs.
 
“Operating Work” means the operation, maintenance, use, repair or retirement of
the Facility on or after the Start Date, including but not limited to labor;
parts; supplies; insurance; permits; related taxes; community relations;
procurement of ancillary services, fuel and other consumables; fuel acquisition,
transportation balancing and storage; waste handling and disposal; filing,
defense and settlement of claims, suits and causes of action; procurement (or
sale) of Allowances and settlement of all other environmental charges (or
credits) pertaining to the operation of the Facility; but excluding any Capital
Improvements Work.
 
“Outage” shall mean any unavailability, in whole or in part, of the Facility
whereby it is not capable of fully operating at its rated capability due to (i)
a Forced Derating, Forced Outage Maintenance Derating, Maintenance Outage,
Planned Derating, Planned Outage, (all as defined in the NERC Generating Unit
Availability Data System (“GADS”) Data Reporting Instructions); (ii) the actual
or anticipated failure of component(s); (iii) external restrictions; (iv)
testing; (v) work being performed; (vi) maintenance; (vii) construction, or
(viii) any other condition or circumstance that reduces electrical generating
output from time to time from the Facility so as to prevent Seller from
performing its obligations in whole or in part.
 
“Party” has the meaning set forth on the preamble hereto.
 
 “Person” means any individual, corporation, partnership, limited liability
company, other business organization of any kind, association, trust, or
governmental entity, agency or instrumentality.
 
“PJM” means the PJM Interconnection, LLC or any successor entity with similar
responsibilities.
 
“Property Tax” means any Tax resulting from and relating to the assessment of
real or personal property by any Taxing Authority.
 
“Schedule” or “Scheduling” means the actions of Buyer and/or its designated
agents or representatives, including the Transmission Operator, if applicable,
in notifying, requesting and confirming to each other the quantity and type of
Energy or Ancillary Services associated with the Facility to be delivered on any
given day or days (or in any given hour or hours, or portion thereof) during the
Delivery Period at the Delivery Point.
 
“Seller” has the meaning set forth in the preamble hereto.
 
“Seller’s Debt Percentage” or “DP” means the percentage of Seller’s capital
allocable to the Facility that is composed of long-term debt as reflected on
Seller’s books and records as of the relevant determination date.
 
“Seller’s Equity Percentage” or “EP” means the percentage of Seller’s capital
allocable to the Facility that is composed of equity as reflected on Seller’s
books and records as of the relevant determination date.
 
“Seller’s Facility Net Book Value” or “FNBV” has the meaning set forth in
Section 5.5.
 
“Seller’s Long Term Debt Rate” or “LTDR” means Seller’s average annual cost of
long-term debt (i.e., debt having maturities of greater than twelve calendar
months) allocable to the Facility as reflected on Seller’s books and records as
of the relevant determination date.
 
“Seller’s Preferred Stock Percentage” or “PSP” means the percentage of Seller’s
capital allocable to the Facility that is composed of preferred stock as
reflected on Seller’s books and records as of the relevant determination date.
 
“Seller’s Preferred Stock Rate” or “PSR” means Seller’s average annual cost of
preferred stock allocable to the Facility as reflected on Seller’s books and
records as of the relevant determination date.
 
“Seller’s Return on Equity” or “ROE” means Seller’s post-tax rate of return on
equity, which amount will equal, for each Contract Year, the average of the
daily Moody’s Long-Term Baa Corporate Bond Index for the month of December of
the preceding calendar year, and adding 560 basis points (5.60 percentage
points).
 
“Seller’s Facility Net Book Value” or “FNBV” means the net book value of the
Facility as reflected on the books and records of Seller immediately prior the
Contract Year, and including all construction work in progress (“CWIP”) and
working capital reflected on Seller’s books and records allocable to the
Facility.
 
“Seller’s Weighted Average Cost of Capital” or “WACOC” has the meaning set forth
in Section 5.5.
 
“Start Date” has the meaning set forth in Section 2.2.
 
“Straddle Period” means, as appropriate, either any Tax Period beginning before
the beginning of the first Contract Year and ending either during or as of the
end of the first Contract Year or any Tax Period that is longer than one
month.  For example, pursuant to Section 8.5, the Tax Period for Property Taxes
is each calendar year.  Hence, the Tax Period for Property Taxes is a Straddle
Period.
 
“Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, value added, windfall or other profits, alternative or add-on minimum,
estimated, franchise, profits, sales, use, real property, personal property, ad
valorem, vehicle, airplane, boat, license, payroll, employment, workers’
compensation, unemployment compensation, withholding, social security,
disability, excise, severance, stamp, occupation, premium, environmental
(including taxes under Code section 59A), customs duties, import fees, capital
stock transfer, title, documentary, or registration, or other tax, duty, or
impost of any kind whatsoever, whether disputed or not.  “Taxes” includes (i)
any liability for the payment of any amounts described in the preceding sentence
as a result of being a member of an affiliated, consolidated, combined, or
unitary group for any taxable period, (ii) any liability for the payment of any
amount described in clause (i) above as a result of being a Person required to
withhold or collect Taxes imposed on another Person, (iii) any liability for the
payment of any amount described in the preceding sentence or in clause (i) or
(ii) of this sentence as a result of being a transferee of, or successor in
interest to, any Person or as a result of an express or implied obligation to
indemnify any Person, and (iv) any and all interest, penalties, additions to
tax, or additional amounts imposed in connection with or with respect to any
amount described above in this definition.
 
“Taxing Authority” shall mean, with respect to any Tax, the governmental entity
(national, local, municipal or otherwise) or political subdivision thereof that
imposes such Tax, the agency (if any) charged with the collection of such Taxes
for such entity or subdivision, including any governmental or quasi-governmental
entity, a council (if any) or agency that imposes, grants or monitors Taxes or
the abatements thereof, or is charged with collecting social security or similar
charges or premiums.
 
“Tax Period” means the time period for which or during which a Tax is imposed by
any Taxing Authority.
 
“Tax Reimbursement Payment” has the meaning set forth in Section 5.6.
 
“Term” has the meaning set forth in Section 2.1.
 
“Transmission Operator” means PJM or any Transmission Provider, independent
system operator, regional transmission operator or other transmission operator
from time to time having authority to control the transmission control area to
which the Facility is interconnected.
 
“Transmission Provider” means any Person or Persons that owns, operates or
controls facilities used for the transmission of electrical energy in interstate
commerce.
 
“Unit Contingent” or reference to “Unit Contingency” means, with respect to
Energy or Ancillary Services associated with Buyer’s Contractual Capacity, that
such Energy or Ancillary Services is intended to be supplied from the Facility
and Seller’s failure to deliver such Energy or Ancillary Services is excused to
the extent the Facility (including all facilities on Seller’s side of the
Delivery Point) is unavailable as a result of (i) an Outage, (ii) Force Majeure
or (iii) Buyer’s failure to perform.
 
1.2           Interpretation.  Unless the context otherwise requires:
 
(a) Words singular and plural in number will be deemed to include the other and
pronouns having masculine or feminine gender will be deemed to include the
other.
 
(b) Any reference herein to any Person includes its successors and permitted
assigns and, in the case of any Government Authority or Taxing Authority, any
Person succeeding to its functions and capacities.
 
(c) Any reference herein to any Article, Section, clause, Exhibit or Schedule
means and refers to the appropriate Article, Section or clause in this Agreement
or Exhibit or Schedule to this Agreement.
 
(d) Other grammatical forms of defined words or phrases have corresponding
meanings.
 
(e) The term “including” when used in this Agreement means “including without
limitation.”
 
(f) Unless otherwise specified, a reference to a specific time for the
performance of an obligation is a reference to that time in the place where that
obligation is to be performed.
 
(g) A reference to a document or agreement, including this Agreement, includes
all appendices, schedules and exhibits thereto.
 
(h) A reference to a document or agreement, including this Agreement, includes a
reference to that document or agreement as amended, supplemented, amended and
restated or otherwise modified from time to time.
 
(i) If any payment, act, matter or thing hereunder would occur on a day that is
not a Business Day, then such payment, act, matter or thing shall, unless
otherwise expressly provided for herein, occur on the next succeeding Business
Day.
 
(j) The words “hereof,” “hereunder,” “herein,” “herewith,” and “hereto,” and
similar words refer to this Agreement as a whole and not to any particular
Article, Section or clause in this Agreement.
 
1.3           Technical Meanings.  Words not otherwise defined herein that have
well-known and generally accepted technical or trade meanings are used herein in
accordance with such recognized meanings, as of the date set forth in the
preamble to this Agreement.
 
ARTICLE II
 
TERM
 
2.1           Term.  The term of this Agreement (“Term”) shall commence on the
date set forth in the preamble to this Agreement and shall continue, unless
earlier terminated in accordance with the provisions of this Agreement, until
the End Date.

2.2           Delivery Period. The period during which the Parties will be
obligated to purchase and sell Capacity, Energy and Ancillary Services as set
forth in this Agreement (“Delivery Period”) will commence on the Effective Date,
or such later date as may be jointly specified by the Parties (“Start Date”),
and end on December 31st of the year in which the tenth (10th) anniversary of
the Start Date occurs (“End Date”).

2.3           Extension Period.  Buyer may extend the Delivery Period for an
additional two (2) years by providing six (6) months advance written notice to
Seller.  If extended, the “End Date” of the Delivery Period will be the last day
of the two-year extension period.

ARTICLE III
 
PURCHASE AND SALE OBLIGATION
 
3.1           Seller’s and Buyer’s Obligations.  Subject to, and in accordance
with, the terms and conditions of this Agreement, Seller agrees to sell and
deliver, and Buyer agrees to purchase, receive, and pay for, Buyer’s Contractual
Capacity and the Energy and Ancillary Services associated with Buyer’s
Contractual Capacity delivered by Seller to the Delivery Point during each hour
of the Delivery Period.

3.2           Unit Contingent.  All Energy and Ancillary Services associated
with Buyer’s Contractual Capacity and all of Seller’s obligations to sell and
deliver the Energy and Ancillary Services associated with the Buyer’s
Contractual Capacity are Unit Contingent.

3.3           Delivery Point.  The Delivery Point for Energy and Ancillary
Services associated with Buyer’s Contractual Capacity will be the border between
the States of Indiana and Ohio on the transmission system of Indiana Michigan
Power Company or its successor .

3.4           Scheduling and Dispatch.  Buyer or its agent will Schedule and
Dispatch the Energy and Ancillary Services associated with Buyer’s Contractual
Capacity in accordance with this Agreement and within the operating parameters
of the Facility, as determined by Seller from time to time.  Seller will
Schedule and Dispatch, or will cause to be Scheduled and Dispatched, the
Facility in the manner requested by Buyer or its agent pursuant to this
Agreement.  Buyer will be allocated any excess (or deficit) in the amount of
Energy or Ancillary Services made available by Seller at the Delivery Point over
(or under) the amount of Energy or Ancillary Services Scheduled and Dispatched
by Buyer.  Buyer will be responsible for all Imbalance Charges associated with
the Energy and Ancillary Services made available to it by Seller at the Delivery
Point.  The Energy and Ancillary Services associated with Buyer’s Contractual
Capacity will be recorded by the Parties in the PJM’s scheduling and settlement
systems at the Facility LMP Point.

3.5           Force Majeure.  To the extent either Party is prevented by Force
Majeure from carrying out, in whole or part, its obligations under this
Agreement (other than an obligation to pay money), and such Party (the “Affected
Party”) gives notice and details of the Force Majeure to the other Party as soon
as practicable (but not later than thirty (30) days thereafter to the extent
such details are then available) then the Affected Party shall be excused from
the performance of its obligations under this Agreement (other than the
obligation to make payments) so long as the Affected Party shall be using all
reasonable efforts to overcome the Force Majeure and resume performance as soon
as possible.  The non-Affected Party shall not be required to perform or resume
performance of its obligations (excluding payment obligations) to the Affected
Party corresponding to the obligations of the Affected Party excused by Force
Majeure, until such time and to the extent the Affected Party resumes its
performance.
 
ARTICLE IV
 
FACILITY OPERATIONS
 
4.1           Operation and Maintenance.  At all times during the Delivery
Period, Seller shall perform the Operating Work, or cause the Operating Work to
be performed, in accordance with good commercial practice consistent with the
procedures employed by Seller and its Affiliates that are regulated utilities at
similar generating stations.  Subject to reimbursement as set forth in Article
V, Seller shall be responsible for all costs, expenses, losses, liabilities and
charges incurred by it, or on its behalf, in the performance of Operating Work,
including the procurement of ancillary services sufficient to satisfy ancillary
service obligations to the Transmission Operator related to the Facility.
 
4.2           Capital Improvements.  From time to time during the Term, as
deemed necessary by Seller, Seller shall perform, or cause to be performed,
Capital Improvements Work related to  the Facility.  Subject to reimbursement as
set forth in Article V, Seller shall be responsible for all costs, expenses,
losses, liabilities and charges incurred by it, or on its behalf, in the
performance of Capital Improvements Work.
 
4.3           Planned Outage Schedule.  Seller will develop and implement, or
cause to be developed and implemented, a planned outage and maintenance schedule
for the Project that is reasonably acceptable to Buyer.
 
4.4           Auxiliary Power.  During any hour that the Facility is out of
service, Seller will procure the energy used by Facility auxiliaries during that
hour or, if requested by Seller and not prohibited by law or the rules of the
Transmission Operator, Buyer shall provide in-kind the Energy used by Facility
auxiliaries during that hour.
 
ARTICLE V
 
PRICING
 
5.1           Monthly Payments.  For each calendar month during the Delivery
Period, Buyer shall pay Seller an amount (the “Monthly Payment”) equal to the
sum of (i) a Fuel Payment, (ii) an O&M Payment, (iii) a Depreciation Payment,
(iv) a Capacity Payment and (v) a Tax Reimbursement Payment.  The Monthly
Payment will be Seller’s sole compensation for Seller’s sale and delivery to
Buyer of Buyer’s Contractual Capacity and the Energy and Ancillary Services
associated with Buyer’s Contractual Capacity.

5.2           Fuel Payment.  For each calendar month during each Contract Year,
Buyer shall pay Seller an amount (the “Fuel Payment”) equal to the Fuel Costs
incurred by Seller for that month.

5.3           O&M Payment.  For each calendar month during each Contract Year,
Buyer shall pay Seller an amount (the “O&M Payment”) equal to the Operation and
Maintenance Costs of the Facility for that month, less any charges that are
capitalized by Seller.

5.4           Depreciation Payment.  For each calendar month during each
Contract Year, Buyer shall pay Seller an amount (the “Depreciation Payment”)
equal to the depreciation expenses incurred by Seller at the rate established in
this Section 5.4 during the relevant month and directly related to its ownership
interest in the Facility.  Seller’s depreciation rate as of the date set forth
in the preamble to this Agreement is 3.02% per annum, which rate and payment
amount will be updated effective each January 1st during the Term of this
Agreement to reflect the actual depreciation rate set forth on its books and
records as of that date.

5.5           Capacity Payment.  For each calendar month during each Contract
Year, Buyer shall pay Seller an amount (the “Capacity Payment”) equal to the
following:
                                
                   Capacity Payment = FNBV x WACOC
                                          12
        where,
 
FNBV                        =           Seller’s Facility Net Book Value

WACOC                    =      WACOC Formula [ex10b2.jpg]

 

LTDR                         =           Seller’s Long Term Debt Rate

PSR                            =           Seller’s Preferred Stock Rate

ROE                           =           Seller’s Return on Equity

DP                              =           Seller’s Debt Percentage

PSP                            =           Seller’s Preferred Stock Percentage

EP                              =           Seller’s Equity Percentage
 

A calculation of the Capacity Payment as of the date set forth in the preamble
to this Agreement is set forth in Schedule 5.5.  Each component of the Capacity
Payment will be updated as of January 1st of each calendar year during the Term
of this Agreement, or at more frequent intervals as elected by Seller.

5.6           Tax Reimbursement Payment.  For each calendar month during each
Contract Year, Buyer shall pay Seller an amount (the “Tax Reimbursement
Payment”) equal to all Taxes (other than taxes included in Sections 5.2 through
5.5, above, such that there will be no duplication of Tax reimbursement to
Seller) for that month applicable to Buyer’s Contractual Capacity and the Energy
and Ancillary Services associated with Buyer’s Contractual Capacity, as more
fully set forth in Article VIII.  Any Tax based upon income, gross receipts or
any similar Tax for which the inclusion of such Tax in the Monthly Payment would
increase Seller’s liability for any Tax shall be grossed-up so as to make the
receipt of any such Tax neutral to the Seller.  Any Tax for any Straddle Period
shall be included in the Monthly Payment based upon the ratio of the days in the
month for the Monthly Payment over the total number of days in the Tax
Period.  Taxes included in the Monthly Payment may be estimated by Seller.  The
difference between estimated Taxes and the actual Taxes for which Buyer is
responsible will be billed or credited to Buyer, as appropriate, in one or more
installments following the end of the relevant Tax Period.  For purposes of
Taxes subject to the provisions of this Section 5.6, all Taxes shall be based
upon the amount accrued for the relevant calendar month billing period,
including any deferred tax amount.

ARTICLE VI
 
BILLING AND PAYMENT
 
6.1           Billing and Payment.  The calendar month shall be the standard
period for all payments under this Agreement.  As soon as practicable after the
end of each month, Seller will render to Buyer an invoice for the payment
obligations incurred during the preceding month.  Each component of the invoice
will be described in reasonable detail.  All invoices under this Agreement shall
be due and payable on or before the twentieth (20th) day of each month.  Buyer
will make payments by electronic funds transfer to the account designated by
Seller, or by other mutually agreeable method(s).
 
6.2           Books and Records; Audit.  Seller shall keep, or shall cause to be
kept, all necessary books of record, books of account, and memoranda of all
transactions involving the Facility, in conformance, where required, with the
FERC’s Uniform  System of Accounts.  Seller shall make, or shall cause to be
made, all computations relating the Facility and all allocations of the costs
and expenses of the Facility.  Buyer has the right to examine the records of
Seller to the extent reasonably necessary to verify the accuracy of any
statement, charge or computation made pursuant to this Agreement.  If requested,
Seller shall provide to Buyer statements evidencing the quantities delivered to
Buyer at the Delivery Point.  If any such examination reveals any inaccuracy in
any statement, the necessary adjustments in such statement and the payments
thereof will be made promptly, provided, however, that any claim by a Party for
overpayment or underpayment with respect to an invoice is waived unless the
other Party is notified of the claim within twelve (12) months after the invoice
is rendered or any specific adjustment to the invoice is made.  If an invoice is
not rendered within twelve (12) months after the close of the month during which
performance occurred, the right to payment for such performance is waived.
 
6.3           Netting of Payments.  The Parties hereby agree that they shall
discharge mutual debts and payment obligations due and owing to each other under
this Agreement through netting, in which case all amounts owed by each Party to
the other Party under this Agreement, including any related damages, interest,
and payments or credits, shall be netted so that only the excess amount
remaining due shall be paid by the Party who owes it.
 
ARTICLE VII
 
LIMITATIONS
 
7.1           Limitation of Remedies, Liability and Damages.  EXCEPT AS SET
FORTH HEREIN, THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, AND ANY AND ALL IMPLIED WARRANTIES ARE DISCLAIMED.  FOR
BREACH OF ANY PROVISION OF THIS AGREEMENT, THE OBLIGOR’S LIABILITY SHALL BE
LIMITED TO DIRECT DAMAGES ONLY, SUCH DIRECT DAMAGES SHALL BE THE SOLE AND
EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE
WAIVED.  NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION
DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR
OTHERWISE.  IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED
ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES
RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE
BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE.
 
ARTICLE VIII
 
TAXES
 
8.1           Cooperation.  Each Party shall use reasonable efforts to implement
the provisions of and to administer this Agreement in accordance with the intent
of the parties to minimize all Taxes, so long as neither Party is materially
adversely affected by such efforts.
 
8.2           Taxes.  Subject to reimbursement by Buyer as set forth in Article
V, Seller shall pay or cause to be paid all Taxes imposed on or with respect to
the Buyer’s Contractual Capacity and associated Energy and Ancillary Services
arising prior to the Delivery Point.  Buyer shall pay the Tax Reimbursement
Payment and pay or cause to be paid all Taxes on or with respect to the Buyer’s
Contractual Capacity and associated Energy and Ancillary Services at and from
the Delivery Point.  In the event Seller is required by law or regulation to
remit or pay Taxes which are Buyer’s responsibility hereunder, Buyer shall
promptly reimburse Seller for such Taxes as set forth in Article V.  If Buyer is
required by law or regulation to remit or pay Taxes which are Seller’s
responsibility hereunder, Buyer may deduct the amount of any such Taxes from the
sums due to Seller under Article V of this Agreement.  Nothing shall obligate or
cause a Party to pay or be liable to pay any Taxes for which it is exempt under
the law.
 
8.3           Change-in-Law Taxes.  Buyer shall be responsible for (or receive
the benefit of) all Change-in-Law Taxes.
 
8.4           Exemptions.  Either Party, upon written request of the other,
shall provide a certificate of exemption or other reasonably satisfactory
evidence of exemption if either Party is exempt from any Taxes and shall use all
reasonable efforts to obtain or maintain, or to enable the other Party to obtain
or maintain, any exemption from or reduction of any Taxes, whether currently
available or becoming available in the future.  Without limiting the generality
of the foregoing, the Parties agree that, if beneficial to the efforts of either
Party to obtain or maintain any exemption from or reduction of any Taxes,
whether currently available or becoming available in the future, the Parties
will cooperate to restructure the transactions contemplated by this Agreement so
as to enable either Party to obtain or maintain such exemption or reduction, as
the case may be; provided, however, that any such restructuring shall not affect
adversely the economic consequences of this Agreement to either Party or subject
either Party to any regulatory jurisdiction other than that to which it is
subject on the date set forth in the preamble to this Agreement.
 
ARTICLE IX
 
COMPLIANCE WITH LAWS
 
9.1           Seller’s Compliance.  Seller shall, at its expense, comply with
all applicable laws and obtain and maintain all Governmental Approvals
applicable to Seller and/or the Facility, or necessary for Seller’s performance
of its obligations hereunder.  Notwithstanding the foregoing, Seller shall not
be deemed in default of this obligation if it is contesting the application,
interpretation, order, or other legal direction or Governmental Approval of any
Governmental Authority in good faith and with due diligence through appropriate
proceedings and if such non-compliance does not have a material adverse effect
on Seller’s performance of this Agreement.
 
9.2           Buyer’s Compliance.  Buyer shall at its expense, at all times,
comply with all applicable laws and obtain and maintain all Governmental
Approvals applicable to Buyer or necessary for Buyer’s performance of its
obligations hereunder.  Notwithstanding the foregoing, Buyer shall not be deemed
in default of this obligation if Buyer is contesting the application,
interpretation, order, or other legal direction or Governmental Approval of any
Governmental Authority in good faith and with due diligence through appropriate
proceedings and if such non-compliance does not have a material adverse effect
on Buyer’s performance of this Agreement.
 
ARTICLE X
 
CONDITIONS
 
10.1           Conditions.  Subject to Section 10.2 and except to the extent
waived in writing by the Parties in their sole and absolute discretion, the
obligation of the Parties to consummate the transactions contemplated hereunder
shall be subject to fulfillment of the following conditions:
 
(i)           The occurrence of the Closing.
 
(ii)           Seller shall have filed with the FERC and received acceptance of
this Agreement that is satisfactory to Seller and Buyer in their sole judgment
and discretion, without any limitation thereto whatsoever.
 
(iii)           The Parties shall each have obtained any and all other Approvals
required with respect to the performance of their respective obligations
hereunder and such Approvals shall be in form and substance satisfactory to
Seller and Buyer in their sole and absolute discretion.
 
10.2           Obligations of Buyer and Seller.  Commencing on the date set
forth in the preamble to this Agreement, on the terms and subject to the
conditions of this Agreement, each Party shall use its commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, and assist and cooperate with the other Party in taking or doing,
all things necessary, proper or advisable to consummate the transactions
contemplated hereby, including, without limitation the satisfaction of the
conditions set forth in Section 10.1.
 
10.3           Failure of Conditions Generally.  This Agreement may be
terminated by either Party in the event that the conditions set forth in Section
10.1 are not satisfied or waived by the Parties in accordance with such Section.
 
ARTICLE XI
 
REPRESENTATIONS AND WARRANTIES
 
11.1           Representations and Warranties of Both Parties.  On the date set
forth in the preamble to this Agreement each Party represents and warrants to
the other Party that:
 
(i)           it is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation;
 
(ii)           subject to the fulfillment of the conditions set forth in Section
10.1, it has all Governmental Approvals necessary for it legally to perform its
obligations under this Agreement;
 
(iii)           the execution, delivery and performance of this Agreement are
within its powers, have been duly authorized by all necessary action and do not
violate any of the terms and conditions in its governing documents, any
contracts to which it is a party or any law, rule, regulation, order or the like
applicable to it;
 
(iv)           this Agreement constitutes a legally valid and binding obligation
enforceable against it in accordance with its terms; subject to any Equitable
Defenses;
 
(v)           it is not bankrupt, however evidenced, and there are no
proceedings pending or being contemplated by it or, to its knowledge, threatened
against it which would result in it being or becoming bankrupt;
 
(vi)           there is not pending or, to its knowledge, threatened against it
any legal proceedings that could materially adversely affect its ability to
perform its obligations under this Agreement;
 
(vii)           no material breach of this Agreement with respect to it has
occurred and is continuing and no such event or circumstance would occur as a
result of its entering into or performing its obligations under this Agreement;
and
 
 (viii)                      it has entered into this Agreement in connection
with the conduct of its business and it has the capacity or ability to make or
take delivery of the Buyer’s Contractual Capacity and associated Energy and
Ancillary Services.
 
ARTICLE XII
 
MISCELLANEOUS
 
12.1           Title and Risk of Loss.  Title to and risk of loss related to the
Capacity and associated Energy and Ancillary Services shall transfer from Seller
to Buyer at the Delivery Point.  Seller warrants that it will deliver to Buyer
the Capacity and associated Energy and Ancillary Services free and clear of all
liens, security interests, claims and encumbrances or any interest therein or
thereto by any Person arising prior to the Delivery Point.
 
12.2            Indemnity.  Each Party shall indemnify, defend and hold harmless
the other Party and such Party’s partners, directors, officers, employees,
agents and representatives (the “Indemnified Parties”) from and against any
Claims arising from or out of any event, circumstance, act or incident
first occurring or existing during the period when control of, risk of loss
related to, and title to the Capacity and associated Energy and Ancillary
Services is vested in such Party as provided in Section 12.1, except to the
extent, as to any Indemnified Party, such Claims are attributable to the gross
negligence or willful misconduct of such Indemnified Party.  Each Party shall
indemnify, defend and hold harmless the other Party against any Taxes for which
such Party is responsible under Article VIII.  The foregoing indemnities shall
forever survive the termination of the Agreement.
 
12.3            Amendments and Waivers.  Neither this Agreement nor any
provisions hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by both Parties.
 
12.4            Notices.  All notices, requests, statements or payments shall be
made as specified in Schedule 12.4.  Notices, other than notices regarding
availability, Scheduling and Dispatch of the Facility shall, unless otherwise
specified herein, be in writing and shall be deemed to be given or made if
delivered by (a) hand delivery, electronic mail or other electronic transmission
device capable of written record or facsimile, in each case, effective at the
close of business on the day actually received, if received during business
hours on a Business Day, otherwise shall be effective at the close of business
on the next Business Day, or (b) United States mail or overnight courier
service, in each case, effective on the next Business Day after it was
sent.  Notices regarding the availability, Scheduling and Dispatch of the
Facility may be made (x) telephonically, effective when made, or (y) by
electronic mail or other electronic device capable of written record, effective
when received.  A Party may change its notice details by providing a notice of
same to the other Party in accordance herewith.
 
12.5            Successors and Assigns; Assignment.  The provisions of this
Agreement shall be binding upon and inure to the benefit of the Parties and the
Parties’ successors and assigns permitted hereby and no other Person shall
acquire or have any rights under or by virtue of this Agreement.  Neither Party
shall assign this Agreement or its rights hereunder without the prior written
consent of the other Party, which consent may be withheld in the exercise of its
sole discretion; provided, however, that either Party may, without the consent
of the other Party (and without relieving itself from liability hereunder) (i)
transfer, sell, pledge, encumber or assign this Agreement or the accounts,
revenues or proceeds hereof in connection with any financing or other financial
arrangements, (ii) transfer or assign this Agreement to an Affiliate which shall
agree in writing to be bound by the terms and conditions of this Agreement.  
 
12.6            Integration.  This Agreement constitutes the entire agreement
between the Parties relating to the subject matter hereof and supersedes any and
all previous and understandings, oral or written, between the Parties relating
to the subject matter hereof.
 
12.7           Acknowledgments.  This Agreement shall be considered for all
purposes as prepared through the joint efforts of the Parties and shall not be
construed against one Party or the other as a result of the preparation,
substitution, submission or other event of negotiation, drafting or execution
hereof.
 
12.8           Waiver.  No failure to exercise and no delay in exercising by a
Party any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power,
power or privilege hereunder preclude any other or further exercise thereof
or the exercise of any right, remedy power or privilege.
 
12.9           Counterparts.  This Agreement may be executed by the Parties in
any number of counterparts, which, taken together, shall constitute one and the
same legal binding instrument.  Delivery of an executed counterpart of a
signature page of this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Agreement.
 
12.10          Headings.  The headings used herein are for convenience and
reference purposes only.
 
12.11          Confidentiality.  Neither Party shall disclose the terms or
conditions of this Agreement to a third party (other than the Parties’
employees, lenders, counsel, accountants or advisors who have a need to know
such information and have agreed to keep such terms confidential) except in
order to comply with any applicable law, regulation, or any exchange, control
area or independent system operator rule or in connection with any court or
regulatory proceeding; provided, however, that each Party shall, to the extent
practicable, use reasonable efforts to prevent or limit the disclosure.  Subject
to the provisions of Section 7.1, the Parties shall be entitled to all remedies
available at law or in equity to enforce, or seek relief in connection with this
confidentiality obligation.
 
12.12          Governing Law.  THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
 
12.13          Severability.  Should any provision of this Agreement be held to
be invalid or unenforceable, such provision shall be invalid or unenforceable
only to the extent of such invalidity or unenforceability without invalidating
or rendering unenforceable any other provision hereof.
 
12.14          Mobile/Sierra Doctrine.  Absent the agreement of all Parties to
the proposed change, the standard of review for changes to any rate, charge,
classification, term or condition of this Agreement, whether proposed by a
Party, a non-party or FERC acting sua sponte, shall be the “public interest”
standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas Service
Corp., 350 U.S. 332 (1956) and Federal Power Commission v. Sierra Pacific Power
Co., 350 U.S. 348 (1956) (the “Mobile-Sierra Doctrine”), or such other standard
of review permissible to preserve the intent of the parties pursuant to this
Section to uphold the sanctity of contracts without modification.
 
[signatures appear on next page]
 

 
 

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

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
and delivered by their duly authorized representatives as of the date set forth
in the preamble to this Agreement.
 

 
                                    AEP GENERATING COMPANY
                                    By:           American Electric Power
Service Corporation
                                    Its:           Agent
 
 
                                    By: ____________________________          
                                    Name:
                                    Title:
 
 
                                    COLUMBUS SOUTHERN POWER COMPANY
                                    By:           American Electric Power
Service Corporation
                                    Its:           Agent
 
                                    By:  ____________________________         
                                    Name:
                                    Title:
 

 

 
 

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SCHEDULE 5.5
 
 
INITIAL CAPACITY PAYMENT
 
 

 
 
The Capacity Charge as of the date set forth in the preamble to this Agreement
is $2,255,500 per month:
 
 

 
 
                Capacity Payment = FNBV x WACOC
                                   12
                       where,
 
FNBV                          =           $325,000,000

WACOC                      =           WACOC Formula [ex10b2.jpg]
                           

LTDR                           =           6.0%

PSR                              =           0%

ROE                             =           11.82%

DP                                =           60%

PSP                              =           0%

EP                                =           40%

 
 

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SCHEDULE 12.4

NOTICE INFORMATION
 
If to Seller:

      AEP Generating Company
      One Riverside Plaza
Columbus, Ohio   433215
      Attention:  President

      with a copy to:

      AEP Generating Company
      One Riverside Plaza
Columbus, Ohio   433215
Attention:  Secretary, AEP Generating Company

If to Buyer:

      Columbus Southern Power Company
      One Riverside Plaza
Columbus, Ohio   433215
Attention:  President

      with a copy to:

      Columbus Southern Power Company
      One Riverside Plaza
Columbus, Ohio   433215
Attention:  Secretary, Columbus Southern Power Company

 
 

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