<PAGE>
                                                                   EXHIBIT 10.29


                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE

         This Settlement Agreement and Mutual Release ("Agreement") is made and
entered into this 16th day of October 2002, by and among Peabody Western Coal
Company ("Peabody"), on the one hand, and Southern California Edison Company
("Edison"), Salt River Project Agricultural Improvement and Power District
("SRP"), the City of Los Angeles by and through the Department of Water and
Power ("LADWP"), and Nevada Power Company ("NPC"), on the other hand
(collectively referred to in this Agreement as the "Participants"). Peabody and
the Participants are hereinafter sometimes individually referred to in this
Agreement as a "Party" and collectively as the "Parties."

I. RECITALS

         A. Peabody owns and operates the Black Mesa Mine ("BMM"), a surface
coal mine located in Northeastern Arizona, under leases between Peabody and the
Navajo and Hopi Tribes ("Indian Leases"). BMM includes an undivided forty
percent (40%) share of all facilities used jointly with the Kayenta Mine ("Joint
Facilities").

         B. The Participants own and operate the Mohave Generating Station
("MGS"), a coal-fired electric power plant located in Clark County, Nevada.

         C. Peabody, through its predecessor in interest, Peabody Coal Company
("PCC") and the Participants entered into the Amended Mohave Project Coal Supply
Agreement ("CSA") on May 26, 1976, in which Peabody agreed to sell and deliver
and the Participants agreed to purchase and receive, the coal requirements of
the MGS as provided for in the CSA.

         D. By document dated March 26, 1985, PCC and the Participants entered
into a Memorandum of Administrative Guidelines ("MOAG") setting forth certain
procedures to be employed in the administration of the CSA.

         E. Effective as of December 31, 1995, PCC assigned all of its rights,
obligations and interests in the Indian Leases, the CSA, and the MOAG to
Peabody.

         F. Pursuant to the CSA, PCC and later Peabody has mined, and Peabody
continues to mine, coal from the BMM and ships it to the MGS by means of a
slurry pipeline. The MGS is BMM's only customer, and BMM is the sole source of
coal for the MGS.

         G. Pursuant to Section 1.01 of the CSA, the Initial Term of the CSA
ends on December 31, 2005. The Participants have the right to extend the



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Initial Term for a period or periods of time not exceeding fifteen (15) years,
as provided in Sections 1.02 and 1.03 of the CSA. As of the date of this
Agreement, however, the Participants have not elected to exercise their
extension right.

         H. Beginning in 1994, certain disputes arose between PCC and the
Participants about the financial responsibility for two categories of mining
costs: (1) Retiree Health Care Costs ("RHCC") and (2) Final Reclamation Costs
("FRC"). RHCC refers to the costs alleged to be recoverable from the
Participants under the CSA, whether accounted for on a cash, accrual or other
basis, of health care benefits (including, but not limited to, any medical,
dental, vision or mental health care), and life insurance Peabody will or may
provide after 2005 for retired Peabody employees at the BMM who, upon satisfying
certain vesting requirements, are or would be entitled to receive such benefits
from Peabody for themselves and/or their dependents, including forty percent
(40%) of all such costs relating to the Joint Facilities. FRC refers to the
costs alleged to be recoverable from the Participants under the CSA, whether
accounted for on a cash, accrual or other basis, of closing, decommissioning and
reclaiming the BMM after 2005, including environmental monitoring, to comply
with Peabody's reclamation obligations under applicable requirements, including
forty percent (40%) of all such costs relating to the Joint Facilities and also
including costs for bonding, insurance, security, administration, taxes and
other items as described in Donald Schaible's June 2000 report in the Action (as
defined in recital I below). RHCC and FRC are sometimes jointly referred to in
this Agreement as "the Disputed Costs." The Parties' respective estimates of the
Disputed Costs prepared before the mediation referenced below in recital K were
based upon the CSA expiring December 31, 2005, and do not represent the amount
of costs Peabody may experience if the CSA is extended beyond December 31, 2005.
The assignment referenced above in recital E included all of PCC's claims and
rights against the Participants with respect to the Disputed Costs. Accordingly,
references in this Agreement to RHCC, FRC or the Disputed Costs include the
subject costs in dispute regardless of whether they concern the period before or
after PCC's assignment to Peabody. The Participants disputed PCC's claim for
recovery of RHCC and FRC.

         I. While attempting to negotiate a resolution of the foregoing dispute,
Peabody and the Participants entered into a "Non-Waiver Agreement," which had an
effective date of December 12, 1994. On June 20, 1996, after the Parties were
unable to negotiate a resolution of their dispute, the Participants filed an
action against Peabody in the Superior Court of Maricopa County, Arizona (the
"Court"), entitled "Southern California Edison Company, et al. vs. Peabody
Western Coal Company," Case No. CV 96-10844 (the "Action"), seeking a
declaratory judgment that the Participants do not owe the Disputed Costs.
Peabody filed a counterclaim in the Action seeking both a declaratory judgment
on that question and damages. After the Court



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realigned the parties, the Participants asserted a counterclaim for damages for
alleged overpayments to Peabody under the CSA for certain reclamation costs. The
Participants and Peabody each asserted numerous affirmative defenses to the
others' claims.

         J. For several years, the Parties have engaged in extensive discovery
and motion practice regarding the claims in the Action and the Disputed Costs.
Additionally, the Court has issued several interlocutory opinions or rulings
regarding various issues, including without limitation, liability for FRC and
RHCC and several defenses to liability asserted by the Participants.

         K. The Parties engaged in settlement discussions and, on June 17, 2002,
participated in a full-day mediation conducted by Antonio Piazza, at which time
the Parties reached a tentative settlement agreement in principle to resolve all
claims and counterclaims that were asserted, or could have been asserted, in the
Action pertaining to the Disputed Costs.

         L. Without admitting any liability for the various disputes and claims
between and among them, the Parties have now jointly prepared this Agreement to
fully and finally resolve all claims and counterclaims that were asserted, or
could have been asserted, in the Action pertaining to the Disputed Costs.

NOW THEREFORE, the Parties agree as follows:

II. COVENANTS

         1.       Settlement Payments By the Participants.

         1.1      Principal Payment. In consideration of the covenants,
                  undertakings, releases and other consideration provided for
                  herein, the Participants shall, subject to the provisions of
                  paragraph 2, pay Peabody the principal amount of Thirty-One
                  Million Dollars ($31,000,000.00) (the "Principal") in the
                  manner specified below.

         1.2      Interest. The Participants shall further pay to Peabody
                  interest on the unpaid balance of the Principal at the annual
                  rate of eight percent (8%), with interest accruing beginning
                  on September 1, 2002 (the "Interest").

         1.3      Installments. Subject to paragraphs 1.4 and 1.5, the
                  Participants shall pay the Principal and Interest in
                  thirty-six (36) equal monthly installments of Nine Hundred and
                  Ninety-Four Thousand Six Hundred and Thirty-Five Dollars and



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                  Thirteen Cents ($994,635.13) commencing in January 2003 (the
                  "Installments"). Each monthly Installment shall be due
                  concurrently with the date on which payment is due under the
                  CSA for coal delivered in the previous month. For example, if
                  the payment for coal delivered in December 2002 is due on
                  January 19, 2003, then the first Installment payment required
                  under this paragraph shall likewise be due on January 19,
                  2003. The amount of the Installments reflects the Interest
                  provided for in paragraph 1.2 but not royalties and taxes
                  provided for in paragraph 1.5. Except as provided for in
                  paragraph 1.4 with respect to advance payments of Installments
                  due in future months (as to which interest shall be adjusted
                  as specified in paragraph 1.4 and Exhibit A to this
                  Agreement), if the Participants pay each currently due
                  Installment concurrently with a timely payment of the regular
                  monthly coal payment due under the CSA for deliveries by
                  Peabody in the preceding month, no adjustment for the Interest
                  component of the Installment shall be required regardless of
                  whether the date of each actual Installment payment
                  corresponds to the date (the 18th day of each payment month)
                  that was assumed by the Parties in Exhibit A for the purpose
                  of calculating the amount of the monthly Installments. If the
                  Participants fail to timely pay any Installment for reasons
                  other than those provided for below in paragraph 2, interest
                  shall accrue on the overdue Installment at the annual rate of
                  eight percent (8%) from the date that the Installment was due
                  until the date the Installment is paid.

         1.4      Prepayment. Any or all of the Participants may, concurrently
                  with the making of any regular monthly coal payment under the
                  CSA, pay, without penalty, any or all of the Installments or
                  portion thereof prior to the due date that would otherwise
                  apply under paragraph 1.3. If, in accordance with the
                  preceding sentence, any or all of the Participants pay any
                  Installment or portion thereof prior to the due date described
                  in paragraph 1.3, the amount of such Installment payment shall
                  be discounted by the amount of Interest, calculated at the
                  annual rate of eight percent (8%), avoided as a result of
                  paying the Installment or portion thereof prior to the due
                  date. For convenience, the Parties have attached hereto as
                  Exhibit A a table that shows, on a monthly basis beginning
                  with September 2002, and on both a collective and individual
                  Participant basis, the agreed to net present value at such
                  eight percent (8%) discount rate of all remaining unpaid
                  Installments (including, for the months beginning January
                  2003, the Installment that is scheduled to be paid to Peabody
                  in that month) based on an assumed payment date of the 18th
                  day of each of the months shown in the table



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                  (recognizing that the actual payment date may vary from the
                  18th of the month as provided for in paragraph 1.3 and in this
                  paragraph 1.4) and assuming also that all prior required
                  Installments have been paid when due and no advance payment of
                  any Installment under the provisions of this paragraph 1.4 has
                  previously been made by a Participant. Unless a particular
                  advance payment (either by an individual Participant or
                  jointly by two or more Participants) leaves no balance owing
                  to Peabody by any of the Participants, the Parties shall,
                  within ten (10) business days after the making of any advance
                  payment(s), recalculate the monthly amount of the remaining
                  Installments that are due from the Participants as to which a
                  balance is still owing. Exhibits A and A-1 hereto illustrate
                  an example prepayment scenario under this paragraph 1.4.

         1.5      Royalties and Taxes. Consistent with and pursuant to the
                  provisions of the CSA pertaining to royalties and taxes,
                  including but not limited to the provisions in section 6.02
                  regarding protests and refunds, the Participants shall pay to
                  Peabody the royalties and taxes associated with the payments
                  made by the Participants under this Agreement. In accordance
                  with the historical billing practice under the CSA with
                  respect to payments for coal delivered, the royalties and
                  taxes associated with each Installment shall be paid by the
                  Participants to Peabody concurrently with the payment of the
                  Installment and at the same royalty and tax rates as apply to
                  coal delivered by Peabody in the month preceding the
                  Installment payment (which rates shall be identified by
                  Peabody in its coal invoices to the Participants under the
                  CSA). Royalties and taxes associated with an advance payment
                  made by a Participant as provided in paragraph 1.4 shall be
                  the responsibility of the Participant which makes such advance
                  payment and shall be paid to Peabody concurrently with the
                  advance payment at the same royalty and tax rates as apply to
                  coal delivered by Peabody in the month preceding the advance
                  payment (which rates shall be identified by Peabody in its
                  coal invoices to the Participants under the CSA). If Peabody
                  subsequently receives a refund or credit of all or any portion
                  of a royalty or tax reimbursement payment made by the
                  Participants, or any of them, in connection with the payment
                  of any Installment, Peabody shall promptly transmit or credit
                  to the appropriate Participant(s) the full amount of the
                  refund or credit, including any interest paid or credited to
                  Peabody by the entity making the refund or giving the credit.



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         1.6      No Joint and Several Liability. All payment obligations of the
                  Participants under this Agreement shall be several and not
                  joint and shall be in the proportion of their respective
                  interests in the Mohave Project, which are as follows: Edison:
                  56%; SRP: 20%; LADWP: 10%; NPC: 14%.

         1.7      Default in Payment. If a Participant defaults in payment of
                  its proportionate share of any Installment required under
                  paragraph 1 of this Agreement, such default shall constitute,
                  as to that Participant only, a breach of both this Agreement
                  and the CSA. Such default by a particular Participant shall
                  not, however, be deemed a breach of either this Agreement or
                  the CSA by any Participant who is not in default of its
                  obligations under paragraph 1 of this Agreement.

         2.       Effect of Subsequent Events on Participants' Settlement
                  Payment Obligation.

         2.1      Cessation of Coal Purchases. If the Participants terminate the
                  CSA prior to December 31, 2005, or if they otherwise stop
                  accepting coal deliveries from Peabody before that date (other
                  than as a result of the circumstances described in the first
                  sentence of paragraph 2.2), the Participants shall not, by
                  virtue of such early termination or cessation of coal
                  purchases, be entitled to any offset or reduction in the
                  payments specified in paragraphs 1.3 and 1.5 above (other than
                  those that result from advance payments as provided for in
                  paragraph 1.4).

         2.2      Offset for Deficiency in Coal Delivery. If during any month
                  from September 2002 through November 2005 Peabody fails, for a
                  reason other than a force majeure (as defined in Section 14 of
                  the CSA), to deliver coal to the Black Mesa Pipeline in the
                  quantities required by the CSA (a "Deficient Delivery"), the
                  Participants shall be entitled to a prorated offset against
                  the payments specified in paragraph 1 above. For purposes of
                  the preceding sentence, any coal that is properly rejected by
                  the Participants under Section 5.04 of the CSA that is in
                  excess of the first 100,000 tons of coal that has been so
                  rejected following the date of this Agreement shall not be
                  included in determining the quantity of coal delivered by
                  Peabody in a particular month. If a Deficient Delivery occurs
                  during the months of September, October or November of 2002,
                  the prorated offset for each such month in which the
                  deliveries are deficient shall be computed by multiplying
                  $203, 835.62 for September, $210,630.14 for October, and
                  $203,835.62 for November (i.e. the amount of interest which
                  will accrue each such month on the $31,000,000



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                  Principal) times the percentage by which Peabody's delivery of
                  coal for such month was deficient, and the offset shall be
                  applied against the Installment due in January 2003. If a
                  Deficient Delivery occurs during any month from December 2002
                  through November 2005, the prorated offset for each such month
                  in which the deliveries are deficient shall be computed by
                  multiplying $994,635.13 times the percentage by which
                  Peabody's delivery of coal for such month was deficient, and
                  each such offset shall be applied against the Installment that
                  is due the following month, or, if the balance owed by the
                  Participants under this Agreement at that time is insufficient
                  to permit the offset in full, any excess over the amount
                  offset shall be refunded by Peabody to the Participants within
                  twenty (20) days after the end of the month in which the
                  deliveries were deficient. The provisions of this paragraph
                  2.2 are for the purposes of this Agreement only and, as
                  provided for in paragraph 5.4, shall not be construed as
                  modifying or otherwise affecting Peabody's delivery
                  obligations under the CSA.

         2.3      No Release of Other Claims. Other than with respect to the
                  Parties' respective claims and defenses related to the
                  Disputed Costs, which are resolved by this Agreement, nothing
                  in this paragraph or this Agreement shall be read as limiting
                  or otherwise restricting the damages or other remedies that
                  either the Participants or Peabody may seek for any alleged
                  breach of the CSA.

3.       Claims by Third Parties.

         3.1      Position of the Parties and Cooperation. The Parties agree and
                  believe that the payments and other undertakings in this
                  Agreement should not cause or result in any claims by third
                  parties. Specifically, but without limitation, the Parties do
                  not believe that interest, penalties or late payment charges
                  can or should be assessed on any royalty or tax payments
                  associated with the payments made by the Participants as
                  provided for herein. In the event this position of the Parties
                  is challenged by the Navajo Nation, the Hopi Tribe, the United
                  States on behalf of the Tribe(s), the State of Arizona, and/or
                  any agencies, departments, courts, tribunals, or political
                  subdivisions of the foregoing, or by any other third parties
                  (collectively, "Governmental Entities"), then the Parties
                  agree to cooperate with one another in good faith to defend
                  against such a challenge. Notwithstanding the foregoing,
                  neither Party shall be responsible to the other for such
                  claims by third parties except as expressly provided for
                  herein.



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         3.2      Post-12/11/94 Governmental Claims.

         3.2.1    Included Claims. If any Governmental Entity asserts a claim or
                  challenge to the Parties' position mentioned in paragraph 3.1
                  above in connection with the payments provided for in this
                  Agreement, which claim or challenge relates, in whole or in
                  part, to additional liabilities (including, but not limited
                  to, interest, penalties, late payment charges, legal fees and
                  other litigation costs) Peabody is alleged to have to any such
                  Governmental Entity based on a claim or determination by a
                  Governmental Entity that royalties or taxes that are the
                  responsibility of the Participants under paragraph 1.5 of this
                  Agreement became due earlier than the dates of associated
                  payments made by the Participants pursuant to paragraphs 1.1
                  through 1.4 of this Agreement but after December 11, 1994
                  ("Post-12/11/94 Governmental Claims"), then the Parties agree
                  to the following procedure, and the Participants agree to
                  indemnify Peabody, in accordance with the provisions of
                  paragraphs 3.2.2 through 3.2.5 of this Agreement.

         3.2.2    Notice and Defense Procedures. Within seven (7) business days
                  after receipt of a Post-12/11/94 Governmental Claim, Peabody
                  shall provide written notification of such claim to the
                  Participants. Within twelve (12) business days after their
                  receipt of Peabody's notice, the Participants shall provide
                  written instructions to Peabody as to whether it should resist
                  the Post-12/11/94 Governmental Claim or acquiesce to it. If
                  the Participants instruct Peabody to defend against the
                  Post-12/11/94 Governmental Claim, Peabody shall do so until
                  instructed otherwise by the Participants. If no such written
                  instructions are provided by the Participants within such
                  twelve (12) business days period following receipt of
                  Peabody's written notification of such a Post-12/11/94
                  Governmental Claim, then Peabody may acquiesce to such claim;
                  provided, however, if Peabody determines to defend against
                  such a claim in the absence of any instruction to do so by the
                  Participants, Peabody shall be solely responsible for all
                  associated legal fees and other litigation costs.

         3.2.3    Participation by the Participants. If the Participants
                  instruct Peabody to defend against a Post-12/11/94
                  Governmental Claim as provided for in paragraph 3.2.2, then
                  the Participants, or any of them, may elect by written notice
                  to Peabody to participate directly with Peabody (a) in any
                  proceeding involving such a claim, and (b) in any
                  communications with other parties to such



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                  a proceeding regarding the merits of the claim or claims.
                  Whether or not such direct participation is sought by the
                  Participants, the Participants shall be entitled (i) to a
                  reasonable opportunity, upon request, to review and comment on
                  any drafts of pleadings or other documents prepared by or on
                  behalf of Peabody prior to the time such pleadings or other
                  documents are filed or otherwise submitted in connection with
                  any proceeding involving a Post-12/11/94 Governmental Claim
                  and (ii) to prompt receipt of copies of all filings in the
                  proceeding and of Peabody's communications to or from other
                  parties in the proceeding. Peabody shall not be entitled to
                  include in invoices to the Participants, or attempt to
                  otherwise pass through to them via any price adjustment
                  mechanism in the CSA, any litigation costs or payments arising
                  from any settlement entered into by Peabody that would
                  resolve, in whole or in part, a Post-12/11/94 Governmental
                  Claim, unless the settlement has been approved in writing by
                  the Participants.

         3.2.4    Indemnity by the Participants. The Participants agree, subject
                  to the provisions of paragraphs 3.2.2, 3.2.3 and 3.2.5, that
                  they shall indemnify, defend and save Peabody harmless from
                  and against any and all Post-12/11/94 Governmental Claims,
                  including, but not limited to, interest, penalties, late
                  payment charges, additional royalties and taxes payable with
                  respect to any interest, penalties or late payment charges as
                  may be imposed, reasonable legal fees and other litigation
                  costs incurred by Peabody as a result of its compliance with
                  instructions from the Participants. If Peabody acquiesces to
                  any Post-12/11/94 Governmental Claim with written approval by
                  the Participants or in the absence of written instructions
                  from the Participants in accordance with paragraph 3.2.2, or
                  if a final non-appealable order is issued by an appropriate
                  legal authority which sustains such Post-12/11/94 Governmental
                  Claim, and Peabody is thereby obligated to pay interest,
                  penalties, late payment charges, additional royalties and
                  taxes payable with respect to any interest, penalties or late
                  payment charges as may be imposed, or other charges to a
                  Governmental Entity, the Participants shall, subject to
                  paragraph 3.2.5, reimburse Peabody for such additional
                  amounts. The Participants shall not be liable to Peabody for
                  any interest, penalties or other charges imposed by a
                  Governmental Entity as a result of any filing errors by
                  Peabody or any delay by Peabody in remitting royalties or
                  taxes received by Peabody from the Participants under
                  paragraph 1.5 of this Agreement. Notwithstanding the
                  foregoing, if a Governmental Entity asserts a Post-12/11/94
                  Governmental Claim but an Award Regarding Pre-12/12/94 Claims
                  (as defined



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                  in subparagraph 3.2.5(b) below) is made in the same
                  proceeding, then paragraphs 3.2.5 and 3.3.2 shall apply
                  instead of this paragraph for the purpose of allocating the
                  indemnity obligations of the Parties.

         3.2.5    Overlapping Claims. To the extent a claim or challenge
                  concerns both Pre-12/12/94 Governmental Claims (as defined in
                  paragraph 3.3.1) and Post-12/11/94 Governmental Claims, then:

                  (a) The Participants shall only be obligated to indemnify
                  Peabody for interest, penalties, late payment charges,
                  additional royalties and taxes payable with respect to any
                  interest, penalties or late payment charges as may be imposed,
                  and other charges, if any, awarded against Peabody or its
                  predecessors with respect to the Post-12/11/94 Governmental
                  Claims ("Award Regarding Post-12/11/94 Claims"); and

                  (b) If the Participants instruct Peabody to defend against the
                  Post-12/11/94 Governmental Claim, the Participants shall only
                  be obligated to indemnify Peabody for reasonable legal fees
                  and other litigation costs in the proportion that the Award
                  Regarding Post-12/11/94 Claims bears to the sum of that award
                  and the amount of interest, penalties, late payment charges,
                  additional royalties and taxes payable with respect to any
                  interest, penalties or late payment charges as may be imposed,
                  and other charges, if any, awarded against Peabody or its
                  predecessors with respect to the Pre-12/12/94 Governmental
                  Claims ("Award Regarding Pre-12/12/94 Claims").

         3.3      Pre-12/12/94 Governmental Claims.

         3.3.1    Indemnity by Peabody. Peabody agrees, subject to the
                  provisions of paragraph 3.3.2, that it shall defend, indemnify
                  and hold the Participants harmless from and against any and
                  all additional liabilities (including, but not limited to,
                  interest, penalties, late payment charges, additional
                  royalties and taxes payable with respect to any interest,
                  penalties or late payment charges as may be imposed, legal
                  fees and other litigation costs) Peabody may have or incur to
                  any Governmental Entity based on a claim by a Governmental
                  Entity that royalties or taxes that are the responsibility of
                  the Participants under paragraph 1.5 of this Agreement became
                  due on a date or dates before December 12, 1994 ("Pre-12/12/94
                  Governmental Claims"). Notwithstanding the foregoing, if a
                  Governmental Entity asserts a Pre-12/12/94 Governmental Claim
                  but an Award Regarding Post-12/11/94 Claims (as defined in
                  subparagraph 3.2.5(a)



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                  above) is made in the same proceeding, then paragraphs 3.2.5
                  and 3.3.2 shall apply instead of this paragraph for the
                  purpose of allocating the indemnity obligations of the
                  Parties.

         3.3.2    Overlapping Claims. To the extent a claim or challenge
                  concerns both Pre-12/12/94 Governmental Claims and
                  Post-12/11/94 Governmental Claims, Peabody shall only be
                  obligated to indemnify the Participants for any Award
                  Regarding Pre-12/12/94 Claims. Peabody's reasonable legal fees
                  and other litigation costs shall, in this situation, be shared
                  pro rata by the Participants (considered as a single party for
                  this purpose) and Peabody in accordance with their respective
                  shares of the liability for interest, penalties or other
                  charges that is assessed against Peabody or its predecessors
                  in the relevant proceeding or proceedings (i.e., in the same
                  manner described in subparagraph 3.2.5(b)); provided, however,
                  that such sharing shall not apply to legal fees and other
                  litigation costs for which Peabody is solely responsible under
                  paragraph 3.2.2.

         3.4      Definition of Litigation Costs. As used in this paragraph 3,
                  the term "litigation costs" means reasonable charges by
                  courts, court reporters, outside legal counsel, outside
                  experts, and mediators, and reasonable charges of a similar
                  nature, and does not include any internal costs of the
                  Parties.

         4.       Mutual Releases and Dismissal of Action.

         4.1      Release of the Participants by Peabody. For and in
                  consideration of the covenants, undertakings, payments,
                  release and other consideration set forth in this Agreement,
                  and subject to the provisions of paragraph 4.3 below, Peabody,
                  on behalf of itself and each of its predecessors (including,
                  but not limited to, PCC), successors and assigns, by operation
                  of law or otherwise, hereby releases and forever discharges
                  the Participants, their predecessors in interest, and each of
                  their respective past, present and future shareholders,
                  related and affiliated business entities, officers, directors,
                  employees, attorneys, legal representatives, agents, and
                  insurers (all such persons and entities hereinafter
                  collectively referred to as the "Participants Released") from
                  any and all claims, counterclaims, actions or causes of
                  action, demands of any nature whatsoever, past, or present,
                  whether arising out of any alleged violation of any federal or
                  state statute, negligence, breach of contract, fraud, warranty
                  or any other theory, whether legal or equitable, and the
                  consequences thereof, including any claims, losses, costs or
                  damages, including compensatory and punitive damages, in



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                  each case whether known or unknown, liquidated or
                  unliquidated, fixed or contingent, direct or indirect, which
                  Peabody and its related or affiliated business entities, or
                  its predecessors, successors, and assigns ever had, now have,
                  or may in the future claim to have against any of the
                  Participants Released arising from, concerning or pertaining
                  to (i) the Disputed Costs as defined herein, (ii) the Action
                  and/or (iii) any of the claims in the Action, including, but
                  not limited to, all counterclaims in the Action.

         4.2      Release of Peabody by the Participants. For and in
                  consideration of the covenants, undertakings, release and
                  other consideration set forth in this Agreement, and subject
                  to the provisions of paragraph 4.3 below, the Participants, on
                  behalf of themselves and each of their respective
                  predecessors, successors and assigns, by operation of law or
                  otherwise, hereby release and forever discharge Peabody, its
                  predecessors in interest (including, but not limited to, PCC),
                  and each of their respective past, present and future
                  shareholders, related and affiliated business entities,
                  officers, directors, employees, attorneys, legal
                  representatives, agents, and insurers (all such persons and
                  entities hereinafter collectively referred to as the "Peabody
                  Parties Released") from any and all claims, counterclaims,
                  actions or causes of action, demands of any nature whatsoever,
                  past or present, whether arising out of any alleged violation
                  of any federal or state statute, negligence, breach of
                  contract, fraud, warranty or any other legal theory, whether
                  legal or equitable, and the consequences thereof, including
                  any claims, losses, costs or damages, including compensatory
                  and punitive damages, in each case whether known or unknown,
                  liquidated or unliquidated, fixed or contingent, direct or
                  indirect, which the Participants and their respective related
                  or affiliated business entities, or their predecessors,
                  successors, and assigns ever had, now have, or may in the
                  future claim to have against any of the Peabody Parties
                  Released arising from, concerning or pertaining to (i) the
                  Disputed Costs as defined herein, (ii) the Action and/or (iii)
                  any of the claims in the Action, including, but not limited
                  to, all counterclaims in the Action.

         4.3      Release Limitation. The releases set forth in paragraphs 4.1
                  and 4.2 assume that the CSA will terminate on or before
                  December 31, 2005. If the CSA should, instead, be extended
                  beyond that date or replaced by another coal supply agreement
                  whose term ends after December 31, 2005, the provisions of
                  paragraph 6.2 shall apply and such releases shall not apply to
                  the Disputed Costs or be construed to apply to the final



                                       12

<PAGE>

                  reclamation costs or retiree health care costs associated with
                  such extended or replacement agreement.

         4.4      Dismissal of Action. No later than ten (10) business days
                  after the execution of this Agreement, the Parties' respective
                  counsel will execute and file a stipulation for dismissal with
                  prejudice of the Action, with each Party to bear its own
                  respective attorneys' fees and costs, in the form attached as
                  Exhibit B. The Participants may conduct a reasonable audit of
                  Peabody's books and records, to be completed no later than
                  one-hundred eighty (180) days from the effective date of this
                  Agreement, for the purpose of confirming that none of
                  Peabody's attorneys' fees and litigation costs (as defined in
                  paragraph 3.4) incurred in connection with the disputes that
                  are resolved in this Agreement have previously been included
                  in invoices to the Participants under the CSA. If such audit
                  discloses, or Peabody independently learns, that such
                  attorneys' fees and/or litigation costs of Peabody were, in
                  fact, included in any invoices that the Participants have
                  paid, the amount of such attorneys' fees and/ or litigation
                  costs shall be promptly refunded by Peabody to the
                  Participants, without interest. Peabody shall not be obligated
                  to conduct its own investigation of whether any such fees or
                  litigation costs were invoiced to the Participants.

         4.5      Representations and Warranties of the Parties. The
                  Participants represent and warrant, and it is a condition of
                  this mutual release, that they are the sole owners of the
                  claims released by the Participants; that they collectively
                  represent one-hundred percent (100%) of the interests in the
                  MGS; and that the undersigned are duly authorized by their
                  respective governing boards or bodies to execute this
                  Agreement. Peabody represents and warrants, and it is a
                  condition of this mutual release, that it is the sole owner of
                  the claims released by Peabody herein, and that the
                  undersigned is duly authorized by Peabody's board to execute
                  this Agreement.

         4.6      Claims Under this Agreement. It is specifically understood and
                  agreed that the foregoing releases shall not constitute a
                  waiver, release or abandonment of any claim by any Party for
                  breach by any other Party of any term, condition, or provision
                  of this Agreement.

         5.       Effect of Settlement.

         5.1      No Admission of Liability. The Parties, and each of them,
                  acknowledge that this Agreement constitutes the settlement of



                                       13

<PAGE>

                  disputed claims. Nothing herein shall constitute or be deemed
                  to constitute any admission of liability by the Participants
                  or Peabody. The Participants and Peabody expressly deny any
                  and all liability for the claims and/or counterclaims asserted
                  in the Action.

         5.2      The Settlement is Not a Precedent. The Parties agree that this
                  settlement shall not establish a precedent with respect to any
                  other existing or potential dispute under the CSA or under any
                  other coal supply agreement.

         5.3      No Res Judicata or Collateral Estoppel Effect to Court Orders.
                  The Parties agree that the Court orders and rulings in the
                  Action shall not have res judicata or collateral estoppel
                  effect against any of the Participants or Peabody. The Parties
                  agree and recognize that all such orders and rulings were not
                  final and were subject to reconsideration and/or appeal, and
                  that, as a result of this settlement, both Peabody and the
                  Participants have foregone whatever rights they may have had
                  to pursue reconsideration and/or eventual appeal of any such
                  orders and rulings. No Party has waived its rights, if any,
                  (i) to offer or otherwise use such orders and rulings in other
                  proceedings or (ii) to object to such use.

         5.4      Relationship to the CSA and Other Agreements. Except to the
                  extent specifically set forth herein, nothing contained in
                  this Agreement shall be interpreted to amend, supersede or
                  otherwise impact or affect the obligations of or release any
                  claim of any Party under the terms of the CSA, any extension
                  thereof, the MOAG, or any other agreements and memoranda
                  between the Parties regarding or pertaining to the CSA,
                  including, but not limited to, any provision in the CSA, the
                  MOAG or otherwise that provides the Participants with the
                  right to periodically audit Peabody's accounts and records
                  pertaining to its billings to the Participants under the CSA.

         6.       No Double Recovery by Peabody.

         6.1      Absent Post-2005 Coal Deliveries. Peabody acknowledges that
                  unless it supplies coal to MGS after December 31, 2005,
                  pursuant to an extension of the CSA or a new coal supply
                  agreement, the payments required by paragraph 1, as they may
                  be adjusted pursuant to paragraph 2, constitute full
                  satisfaction of any obligation the Participants may have to
                  reimburse Peabody for the Disputed Costs and that, except as
                  provided for in paragraph 3 of this Agreement, no price
                  increases, additional



                                       14

<PAGE>

                  charges or other obligations shall be imposed on the
                  Participants for or as a result of either RHCC or FRC,
                  regardless of any change in the nature or the scope of those
                  costs, including, but not limited to, those that result from
                  changes in accounting or invoicing practices or in either the
                  assumed facts or applicable law. In accordance with the
                  preceding sentence, the price of coal under the CSA for
                  deliveries of coal on or before December 31, 2005 shall not be
                  affected, directly or indirectly, by any payment made or cost
                  incurred pursuant to this Agreement. In addition to the RHCC
                  and FRC that are the subject of the Action and which are
                  addressed in this Agreement, it is expected that during the
                  current remaining term of the CSA Peabody will pay, or will
                  accrue on a short term basis in accordance with Peabody's
                  historical practice relating to BMM, additional amounts in
                  respect of (i) the costs of providing, on or before December
                  31, 2005, health care, life insurance and related benefits to
                  current retirees and those who will hereafter retire through
                  and including December 31, 2005 and (ii) costs associated with
                  the normal, on-going reclamation of the BMM prior to January
                  1, 2006 (both categories of such additional amounts,
                  regardless of the manner in which they are accounted for by
                  Peabody, being collectively referred to in this Agreement as
                  "On-Going Costs"). Peabody warrants and represents that it
                  will not attempt to re-categorize or accelerate any RHCC or
                  FRC as On-Going Costs so as to be able to charge the
                  Participants for such costs under the invoicing provisions of
                  the CSA. In order to implement the foregoing, the Parties have
                  further agreed that the following post-CSA procedures and
                  remedies, together with such remedies as may be afforded to
                  the Participants through periodic audits under the CSA of the
                  type referenced in paragraph 5.4 above, shall constitute the
                  sole procedures and remedies for determining whether there has
                  been a double recovery by Peabody and for adjusting therefor.

         6.1.1    Final Reclamation Costs. Subject to paragraph 6.2, Peabody
                  shall not be entitled to bill and recover FRC from the
                  Participants as On-Going Costs. To ensure no such
                  double-recovery with respect to FRC, the Parties have prepared
                  and approved Exhibit C hereto, which summarizes various
                  categories of post-CSA reclamation work, rates for such work,
                  volumes for such work, and related estimated costs for such
                  work. Beginning on January 2, 2006, the Participants shall be
                  permitted to make one or more inspections of the BMM, arrange
                  for aerial photographs to be taken of the BMM, and conduct
                  such reasonable examination and audit of Peabody's books and
                  records (including but not limited to contracts, invoices,
                  ledgers,



                                       15

<PAGE>

                  evidence of payment, other accounting records, aerial
                  photographs, maps and other engineering materials) as are
                  necessary and sufficient (i) to make a meaningful comparison
                  between the post-CSA reclamation work that is expected at that
                  time and the post-CSA reclamation work that was assumed in the
                  preparation of Exhibit C and (ii) to make a meaningful
                  determination as to whether any FRC-related costs not listed
                  directly on Exhibit C (such as bonding expenses, insurance
                  premiums, security and administration costs, and taxes) have
                  been accelerated and billed to the Participants as On-Going
                  Costs. Peabody shall be responsible for maintaining its books
                  and records in a form that will permit the Participants to
                  meaningfully conduct the post-2005 audit referenced above in
                  this paragraph. Upon reasonable request, Peabody shall also
                  cooperate fully in making available to the Participants'
                  inside and outside auditors its relevant books and records, as
                  well as such Peabody personnel as may be required to explain
                  such books and records. The Participants' comparison analysis
                  and audit findings shall be completed and provided to Peabody
                  in writing by June 30, 2006. Peabody shall have thirty (30)
                  days to review the analysis and audit findings. If Peabody
                  objects to all or a portion of the comparison analysis and/or
                  audit findings, the Parties shall attempt to resolve the
                  dispute through good faith negotiations. If the Parties are
                  unable to resolve the dispute through such negotiations, the
                  dispute shall be resolved in a manner to be determined at that
                  time. If Peabody does not object within thirty (30) days and
                  if the comparison analysis and/or audit findings conclude that
                  work that was assumed in Exhibit C to occur post-CSA has
                  already been performed and/or that costs that were assumed to
                  occur post-CSA have already been paid by the Participants
                  (collectively, "Accelerated Work/Costs"), then Peabody shall,
                  except as provided below, refund to the Participants within
                  forty (40) days of its receipt of the comparison analysis
                  and/or audit findings, as applicable, all base refund amounts
                  as determined in accordance with Exhibit C and Schedules 1-4
                  attached thereto or, in the case of FRC-related costs not
                  directly listed in Exhibit C or its schedules, the amounts
                  paid by the Participants as On-Going Costs, plus the
                  additional amounts specified in paragraph 6.1.3 below. If
                  Peabody objects to the comparison analysis and/or audit
                  findings, then any refund owing to the Participants under this
                  paragraph shall, as to any disputed amounts only, be due and
                  payable ten (10) days following a final determination, either
                  through agreement or another dispute resolution process, of
                  the amount, if any, that is owed by Peabody to the
                  Participants with respect to Accelerated Work/Costs. Refund
                  amounts that are


                                       16

<PAGE>

                  not in dispute shall be due and payable within the forty (40)
                  day period specified above. Notwithstanding the foregoing, no
                  refund shall be due from Peabody to the Participants based on
                  the above-described comparison analysis or audit with respect
                  to a particular item of work or costs if Peabody establishes,
                  to the reasonable satisfaction of the Participants, that the
                  Participants have not been invoiced for such item as an
                  On-Going Cost under the terms of the CSA. Except as provided
                  in Paragraph 6.2, under no circumstances shall the provisions
                  of this Agreement, including this Paragraph 6.1.1, be
                  construed as requiring (a) the Participants to compensate or
                  reimburse Peabody for its actual FRC except through the
                  payments that are provided for in paragraph 1, as they may be
                  adjusted under the provisions of paragraph 2, or (b) Peabody
                  to refund or credit to the Participants any amounts with
                  respect to FRC other than as provided for in this paragraph
                  6.1.1 or as may be determined to be owing to the Participants
                  as a result of an audit under the CSA of the type referenced
                  in paragraph 5.4 (but in no event shall the Participants be
                  entitled to recover the same costs as a refund under this
                  paragraph 6.1.1 and as a refund or credit pursuant to the
                  Participants' audit rights under the CSA).

         6.1.2    Retiree Health Care Costs. Subject to paragraph 6.2, Peabody
                  shall not be entitled to bill and recover RHCC from the
                  Participants as On-Going Costs. To ensure no double-recovery
                  with respect to RHCC, Peabody shall, in all further invoices
                  for coal delivered to MGS through December 31, 2005, continue
                  to invoice the Participants on the historical pay-as-you-go
                  basis for its current costs for retiree health care provided
                  on or before December 31, 2005. To the extent consistent with
                  Peabody's historic practice relating to BMM, such invoices may
                  also include accruals of the estimated amounts of the payments
                  to be made by Peabody within one-hundred eighty (180) days
                  thereafter for medical care provided to eligible retirees and
                  their eligible dependents by the end of the month covered by
                  the coal invoice but not reported to Peabody by that date
                  ("IBNR Accruals"). IBNR Accruals shall be limited to health
                  care provided on or before December 31, 2005. The Participants
                  shall pay such invoiced costs (both actual retiree health care
                  costs and IBNR Accruals) in the same fashion they have paid
                  them historically on a pay-as-you-go basis. Accordingly,
                  except with respect to the payments that are provided for in
                  paragraph 1, as they may be adjusted under the provisions of
                  paragraph 2, Peabody shall not bill the Participants or
                  otherwise seek reimbursement from them under the CSA or
                  otherwise for any RHCC, whether under Financial Accounting
                  Standard ("FAS")



                                       17

<PAGE>

                  106 or any other mechanism, and shall not seek to recover RHCC
                  as On-Going Costs. The IBNR Accruals billed by Peabody in
                  accordance with this paragraph 6.1.2 shall be subject to the
                  same accounting, adjustment and audit procedures currently and
                  historically employed by the Parties or authorized by the CSA.
                  The Parties agree that the IBNR Accruals will be adjusted to
                  actual costs as soon as practicable but no later than
                  one-hundred eighty (180) days after billing. In order to
                  confirm Peabody's compliance with the foregoing provisions,
                  the Participants shall, commencing January 2, 2006, be
                  entitled to conduct a final audit of Peabody's books and
                  records as they apply to retiree health care costs, which
                  audit shall be completed no later than October 31, 2006.
                  Peabody shall be responsible for maintaining its books and
                  records in a form that will permit the Participants to
                  meaningfully conduct the final post-2005 audit referenced
                  above in this paragraph. Upon reasonable request, Peabody
                  shall also cooperate fully in making available to the
                  Participants' inside and outside auditors its relevant books
                  and records, as well as such Peabody personnel as may be
                  required to explain such books and records. Peabody shall have
                  thirty (30) days to review the audit report. If Peabody
                  objects to all or a portion of the audit report, the Parties
                  shall attempt to resolve the dispute through good faith
                  negotiations. If the Parties are unable to resolve the dispute
                  through such negotiations, the dispute shall be resolved in a
                  manner to be determined at that time. If Peabody does not
                  object within thirty (30) days and if such audit concludes
                  that any RHCC was billed to and paid for by the Participants
                  as an item of On-Going Costs, Peabody shall, within forty (40)
                  days of Peabody's receipt of the audit findings, refund to the
                  Participants the amount of the RHCC they paid as On-Going
                  Costs, plus the additional amounts specified in paragraph
                  6.1.3 below. If Peabody objects to the audit findings, then
                  any refund owing to the Participants under this paragraph
                  shall, as to the disputed amounts only, be due and payable ten
                  (10) days following a final determination, either through
                  agreement or another dispute resolution process, of the
                  amount, if any, that is owed by Peabody to the Participants
                  with respect to RHCC improperly billed to the Participants as
                  On-Going Costs. Refund amounts that are not in dispute shall
                  be due and payable within the forty (40) day period specified
                  above. Except as provided for in paragraph 6.2, under no
                  circumstances shall the provisions of this Agreement,
                  including this Paragraph 6.1.2, be construed as requiring (a)
                  the Participants to compensate or reimburse Peabody for its
                  actual RHCC except through the payments that are provided for
                  in Paragraph 1, as they may be adjusted under the provisions
                  of Paragraph 2, or (b) Peabody to



                                       18

<PAGE>

                  refund or credit to the Participants any amounts with respect
                  to RHCC other than as provided for in this paragraph 6.1.2 or
                  as may be determined to be owing to the Participants as a
                  result of an audit under the CSA of the type referenced in
                  paragraph 5.4 (but in no event shall the Participants be
                  entitled to recover the same costs as a refund under this
                  paragraph 6.1.2 and as a refund or credit pursuant to the
                  Participants' audit rights under the CSA).

         6.1.3    Calculation of Double Recovery Refunds. Refunds to the
                  Participants under paragraphs 6.1.1 and 6.1.2 of FRC or RHCC
                  improperly billed as On-Going Costs shall consist of a base
                  amount or amounts, a royalties and taxes adjustment and an
                  accrued interest component, each of which shall be paid
                  concurrently within the period specified for refunds in
                  paragraphs 6.1.1 and 6.1.2. In the case of FRC, the base
                  amount(s) shall be calculated as specified in Exhibit C to
                  this Agreement and Schedules 1-4 to Exhibit C or, in the case
                  of FRC-related costs not directly listed in Exhibit C or its
                  schedules, shall be equal to the amounts paid by the
                  Participants as On-Going Costs. In the case of RHCC, the base
                  amount(s) shall be equal to the amount of accelerated RHCC
                  that was invoiced to and paid by the Participants. The
                  royalties and taxes adjustment shall be calculated by applying
                  to each base amount subject to refund the royalty and tax
                  rates that were applicable at the time the accelerated FRC or
                  RHCC, as the case may be, was paid by the Participants and
                  shall include any additional royalties and taxes paid in
                  respect of such associated royalties and taxes. If, however,
                  the actual date of payment of the base amount cannot be
                  determined with reasonable certainty, then the royalty and tax
                  rates applicable to Peabody's January 2004 invoice under the
                  CSA for coal delivered in December 2003 shall be applied.
                  Simple interest at eight percent (8%) per annum shall be added
                  to both the base refund amount(s) and the royalties and taxes
                  adjustment. Such interest component shall be calculated for
                  the period beginning when the accelerated FRC or RHCC, as the
                  case may be, was paid by the Participants and extending
                  through and including the date of Peabody's refund payment. If
                  the date of payment by the Participants of accelerated FRC or
                  RHCC cannot be determined with reasonable certainty, then
                  interest on both the base amount and the royalties and taxes
                  adjustment shall be calculated beginning January 1, 2004.

         6.2      During an Extension or Replacement of the CSA. If the CSA is
                  extended pursuant to sections 1.02 and 1.03 of the CSA, or the



                                       19

<PAGE>

                  Parties enter into a replacement coal supply agreement, then
                  the Parties shall take such reasonable steps as are necessary
                  to ensure that: (1) the Participants receive full credit for
                  the payments made by them under this Agreement and for the
                  associated time value of money, with such full credit and
                  associated time value of money to be applied in a manner
                  mutually agreeable to the Parties and incorporated into the
                  extended CSA or replacement coal supply agreement; and (2) the
                  extended CSA or the replacement coal supply agreement shall
                  include provisions that resolve the issue of cost
                  responsibility of the Participants for retiree health care
                  costs and final reclamation costs.

         7.       Miscellaneous Provisions.

         7.1      Calculation of Interest. All interest imposed or deducted
                  pursuant to this Agreement shall be calculated as simple
                  interest, with no compounding.

         7.2      Cooperation of the Parties. The Parties will cooperate with
                  one another in good faith by providing information, allowing
                  access to BMM, and preparing and executing such additional
                  documents as may be reasonably required to effectuate and
                  carry out the purposes of this Agreement. The Participants
                  shall be permitted to make inspections of the BMM, arrange for
                  aerial photographs to be taken of the BMM, and conduct such
                  reasonable examination and audit of Peabody's books and
                  records (including but not limited to accounting records,
                  aerial photographs, maps and other engineering materials) as
                  is necessary and sufficient to effectuate and carry out the
                  purposes of this Agreement and/or to enforce the provisions of
                  this Agreement.

         7.3      Survival of Obligations; Indemnity. Notwithstanding any
                  provisions of this Agreement to the contrary, the warranties,
                  representations and undertakings of this Agreement shall
                  survive the mutual releases herein. Each of the Parties shall
                  indemnify and hold the other Parties harmless from and against
                  any claim, demand, damage, debt, account, liability,
                  obligation, cost, expense, lien, action or cause of action of
                  any nature suffered or incurred as a result of any breach by
                  that Party of a covenant, representation or warranty set forth
                  in this Agreement.

         7.4      Arms-Length Agreement. This Agreement represents a compromise
                  and settlement of certain pending disputes between



                                       20

<PAGE>

                  the Parties and is entered into following arms-length
                  negotiations and mediation. The Parties have read this
                  Agreement carefully and completely, have had the advice and
                  assistance of legal counsel, and have not been influenced to
                  any extent whatsoever by any representations or statements
                  made by any Party other than those in this Agreement. No
                  promises, inducements or considerations have been offered and
                  accepted or given, except as herein set forth.

         7.5      Ambiguities. This Agreement was jointly drafted by the Parties
                  and therefore ambiguities in this Agreement are not to be
                  construed against any Party on the basis that it was the
                  drafter.

         7.6      Amendment. This Agreement may be amended or modified, in whole
                  or in part, only by an agreement in writing executed by all
                  Parties hereto and making specific reference to this
                  Agreement.

         7.7      Waiver. None of the provisions of this Agreement shall be
                  considered waived by a Party unless such waiver is given in
                  writing. The failure of a Party to insist in any one or more
                  instances upon strict performance of any of the provisions of
                  this Agreement or to take advantage of any of its rights under
                  this Agreement shall not be construed as a waiver of any such
                  provisions or the relinquishment of any such rights for the
                  future, but the same shall continue and remain in full force
                  and effect.

         7.8      Counterparts. This Agreement may be executed in one or more
                  counterparts, all of which taken together shall constitute one
                  instrument.

         7.9      Headings. The headings of the paragraphs of this Agreement are
                  for convenience only and in no way alter, amend, modify, limit
                  or restrict the contractual obligations of the Parties.

         7.10     Binding on Successors and Assigns. This Agreement shall be
                  binding upon, inure to the benefit of, and be enforceable by
                  and against the Parties hereto and their respective successors
                  and assigns.

         7.11     Entire Agreement. This Agreement, together with the attached
                  exhibits, contains the full and integrated statement of each
                  and every term and provision agreed to by the Parties for
                  purposes of settling the Action. All prior negotiations and
                  agreements between the Parties hereto with respect to the
                  settlement of the Action are superseded by this Agreement, and
                  there are no



                                       21

<PAGE>

                  representations, warranties, understandings or agreements of
                  the Parties relating to the settlement of the Action other
                  than those expressly set forth herein or in an attached
                  exhibit, except as subsequently modified in writing, executed
                  by all parties.

         7.12     Governing Law. This Agreement shall be governed by and
                  construed and interpreted according to the laws of the State
                  of Nevada, determined without reference to conflicts of law
                  principles.

         7.13     Return of Confidential Documents. Within sixty (60) days after
                  the execution of this Agreement by all of the Parties, the
                  Parties, and each of them, shall comply with the provisions of
                  the Stipulation of Confidentiality executed by counsel for the
                  Parties on or about January 30, 1998, and the subsequent
                  letter agreement executed by counsel for the Parties on or
                  about March 2, 2001, requiring the return or destruction of
                  Confidential Materials (and all copies of such documents),
                  including all documents stamped "confidential" pursuant to the
                  Stipulation or letter agreement.

         7.14     Limited Waiver of Mediation Privilege. Notwithstanding any
                  provision of law to the contrary and any confidentiality
                  agreement previously entered into by the Parties, including,
                  but not limited to, the confidentiality agreement executed by
                  the Parties at the time of the mediation referenced in recital
                  K, any of the Parties may, for the limited purpose of
                  demonstrating the reasonableness of this settlement to any
                  regulatory or other governmental authority having jurisdiction
                  over the Party, disclose to such regulatory body or other
                  governmental authority the content of the Parties'
                  negotiations that resulted in this settlement, including, but
                  not limited to, the statements of the Parties' representatives
                  and the mediator at or in connection with the mediation. In
                  making any disclosure as permitted in this paragraph 7.14, the
                  Party making the disclosure shall use reasonable best efforts
                  to seek to have the disclosed information maintained by the
                  regulatory body or other governmental authority as
                  confidential information.

         7.15     No Third Party Rights. This Agreement shall not be interpreted
                  as creating any right or benefits of any kind or nature
                  whatsoever in any third party or class of persons not parties
                  to it.

         7.16     Notices. Notices under this Agreement shall be in writing and
                  shall be deemed properly given if delivered by hand or sent by



                                       22

<PAGE>

                  facsimile (receipt verified), by overnight courier, or by
                  first class mail, postage prepaid to the person specified
                  below:

                  Peabody: PEABODY WESTERN COAL COMPANY
                           Attention: President
                           701 Market Street
                           St. Louis, MO 63101
                           Telephone: 314-342-3400
                           Facsimile: 314-342-3419

                  Edison:  SOUTHERN CALIFORNIA EDISON COMPANY
                           Attention: Manager, Energy Supply & Management
                           2244 Walnut Grove Avenue
                           Rosemead, California  91770
                           Telephone: 626-302-3241
                           Facsimile: 626-302-3254

                  SRP:     SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND
                           POWER DISTRICT
                           Attention: Manager, Fuels Department
                           P.O. Box 52025
                           Mail Stop POB 001
                           Phoenix, Arizona  85072
                           Telephone: 602-236-4311
                           Facsimile: 602-236-4322

                  LADWP:   DEPARTMENT OF WATER AND POWER
                           CITY OF LOS ANGELES
                           Attention: Assistant General Manager, Power
                           Generation
                           Department of Water and Power
                           City of Los Angeles
                           111 North Hope Street, Room 1522
                           Los Angeles, CA 90012
                           Telephone: 213-367-4435
                           Facsimile: 213-367-0313

                  NPC:     NEVADA POWER COMPANY
                           Attention: Manager of Fuels
                           6226 West Sahara Avenue
                           Las Vegas, Nevada  89146
                           Telephone: 702-367-5996
                           Facsimile: 702-227-2455



                                       23

<PAGE>

                  Written notices shall be deemed delivered on the fifth
                  business day after deposit in the United States mail, or when
                  received if sent by facsimile or overnight courier or
                  delivered by hand. The designated address of a Party set forth
                  above may be changed at any time upon written notice by the
                  Party given in accordance with this paragraph 7.16.

         7.17     When Effective. This Agreement shall become effective and
                  binding when it has been executed by all of the Parties.

         IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement and Mutual Release to be executed by their duly authorized officers as
of the dates set forth under their respective signatures.

PEABODY WESTERN COAL COMPANY


By:
       -----------------------------------
Name:  John L. Wasik
       -----------------------------------
Title: President
       -----------------------------------
Date:
       -----------------------------------


SOUTHERN CALIFORNIA EDISON COMPANY


By:
       -----------------------------------
Name:  Harold B. Ray
       -----------------------------------
Title: Executive Vice President
       -----------------------------------
Date:
       -----------------------------------



                                       24

<PAGE>



SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT


By:
       -----------------------------------
Name:  David G. Areghini
       -----------------------------------
Title: Associate General Manager Power,
       Construction and Engineering
       Services
       -----------------------------------
Date:
       -----------------------------------


NEVADA POWER COMPANY


By:
       -----------------------------------
Name:
       -----------------------------------
Title:
       -----------------------------------
Date:
       -----------------------------------


DEPARTMENT OF WATER AND POWER
THE CITY OF LOS ANGELES
           BY
BOARD OF WATER AND POWER
COMMISSIONERS OF THE CITY OF LOS
ANGELES


By:
       -----------------------------------
Name:  Enrique Martinez
       -----------------------------------
Title: Assistant General Manager
       -----------------------------------
Date:
       -----------------------------------

And

By:
       -----------------------------------
Name:  John C. Burmahln
       -----------------------------------
Title: Secretary
       -----------------------------------
Date:
       -----------------------------------



                                       25