Operation Agreement for
                 Qualifying Facilities with Generating Capacity
                                Greater Than 5 MW

     THIS AGREEMENT (the  "Agreement")  is made and entered into this 1st day of
January, 2003 (the "Effective Date"), by and between Green Power Kenansville LLC
which  is  located  at 3212  Wickford  Road,  Wilmington,  NC  28409,  sometimes
hereinafter referred to as "Seller", and Carolina Power & Light Company (CP&L"),
a subsidiary of Progress Energy Inc., a corporation organized and existing under
the laws of the State of North Carolina , sometimes  hereinafter  referred to as
"Company".  Seller  and  Company  each  may  be  referred  to as a  "Party,"  or
collectively as the "Parties."

                                   WITNESSETH:

     WHEREAS,  Seller  owns and  operates a 35 MW electric  generating  facility
located near Kenansville, NC (the "Facility"); and

     WHEREAS, the Facility is located adjacent to and physically  interconnected
with the transmission facilities of Company;

     WHEREAS, Seller has agreed to sell energy or capacity or both to Company as
a Qualifying  Facility under the Public Utility Regulatory  Policies Act of 1978
(PURPA) pursuant to (1) the Company's form of Application for Standard  Contract
by a Qualifying  Cogenerator  or Small Power  Producer when signed by Seller and
accepted by Company, (2) Schedule CSP-20B and any applicable Riders, and (3) the
Terms  and  Conditions  for  the  Purchase  of  Electric  Power  for  Qualifying
Facilities with Generating  Capacity Greater than 5 MW (hereinafter  referred to
as "Terms and Conditions"),and

     WHEREAS,  Seller has  requested,  and Company has agreed to enter into,  an
operation  and  interconnection  agreement  with  Seller to govern  the terms of
interconnection of the Facility with the Company  Transmission System (hereafter
defined);

     NOW,  THEREFORE,  in  consideration  of and subject to the mutual covenants
contained herein, it is agreed:


1.0  DEFINITIONS
(a)  "Company  Transmission  System"  shall  mean  all the  facilities  owned or
     controlled by Company on Company's side of the Points of Interconnection.

(b)  "Emergency"  shall mean an imminent or  occurring  condition on the Company
     Transmission  System,  on the system of a  neighboring  utility,  or in the
     Facility,   that  is  likely  to  impair  system   reliability,   cause  an
     unacceptable  change  in  system  or  facility  voltage  or  frequency,  or
     otherwise  result in significant  disruption of service or damage to any of
     the foregoing,  or is likely to endanger life, property or the environment;
     provided,  however,  that  the  inability  of  Company  to  meet  its  load
     requirements  because of  insufficient  generation  shall not constitute an
     Emergency.

                                                                          Page 1
<PAGE>

(c)  "Facility" shall mean Seller's electric  generating  facility identified in
     the APPLICATION FOR STANDARD CONTRACT BY A QUALIFYING  COGENERATOR OR SMALL
     POWER PRODUCER together with the other property,  facilities, and equipment
     owned  and/or  controlled  by  Seller  on  Seller's  side of the  Point  of
     Interconnection.

(d)  "Facility Operator" shall mean the entity that operates the Facility.

(e)  "Good Utility  Practice" shall mean any of the practices,  methods and acts
     engaged in or approved by a  significant  portion of the  electric  utility
     industry during the relevant time period, or any of the practices,  methods
     and acts  which,  in the  exercise of  reasonable  judgment in light of the
     facts known at the time the decision was made,  could have been expected to
     accomplish the desired  result at a reasonable  cost  consistent  with good
     business  practices,  reliability,  safety  and  expedition.  Good  Utility
     Practice is not intended to be limited to the optimum practice,  method, or
     act to the exclusion of all others, but rather to be acceptable  practices,
     methods, or acts generally accepted in the region.

(f)  "Joint  Use  Facilities"  shall mean  facilities  and  equipment  which are
     identified as Joint Use Facilities in 9.4.1, as it may be amended from time
     to time,  which  are owned by either  Company  or Seller  and are or may be
     operated jointly by Company and Seller.


(g)  "Modification(s)"  shall  mean  any  alteration,   augmentation,   removal,
     upgrade,  replacement,  including any changes in design,  configuration  or
     change in maximum facility output.

(h)  "NERC" shall mean the North American Electric  Reliability  Council, or its
     successor.

(i)  "RTO"  shall mean a Regional  Transmission  Organization  pursuant  to FERC
     Order 2000.

(j)  "SERC" shall mean the Southeastern  Electric  Reliability  Council,  or its
     successor.

(k)  "VACAR" shall mean the Virginia Carolinas Reliability Agreements.

2.0 CONDITIONS OF SERVICE

2.1 Company is not  obligated  to purchase  electricity  from Seller  unless and
until:  (1) Company's form of Application for Standard  Contract by a Qualifying
Cogenerator  or Small  Power  Producer  is  executed  by Seller and  accepted by
Company;  (2) in cases where it is necessary to cross private property to accept
delivery of electricity from Seller,  Seller conveys or causes to be conveyed to


                                                                          Page 2
<PAGE>

Company,  without cost to Company,  a  right-of-way  easement,  satisfactory  to
Company,  across such private property which will provide for the  construction,
maintenance,  and  operation of  Company's  lines and  facilities,  necessary to
receive electricity from Seller;  provided,  however, in the absence of a formal
conveyance, Company nevertheless, shall be vested with an easement over Seller's
premises  authorizing it to do all things necessary  including the construction,
maintenance, and operation of its lines and facilities for such purpose; and (3)
any inspection  certificates or permits that may be required by law in the local
area are  furnished to Company.  Where not required by law, an  inspection  by a
Company-approved  inspector  shall be made at  Seller's  expense.  In the  event
Seller is unable to secure such necessary rights-of-way,  Seller shall reimburse
Company for all costs Company may incur for the securing of such rights-of-way.

2.2  Seller's   interconnection   facilities   shall  be  designed  to  accepted
engineering standards and Seller shall submit a facility description,  including
equipment specifications,  to Company for review prior to the connection of said
facility  and  equipment  to  Company's  system.  Company's  review shall not be
construed as confirming nor endorsing  Seller's design nor as any warranty as to
the  safety,  durability,  or  reliability  of Seller's  facility or  equipment.
Company shall not, by reason of its review or failure to review,  be responsible
for strength,  details of design,  adequacy, or capacity of Seller's facility or
equipment,  nor shall Company's acceptance be deemed to be an endorsement of any
facility or equipment.

2.3 If electricity is received through lines which cross the lands of the United
States of America, a state, or any agency or subdivision of the United States of
America  or of a state,  Company  shall have the  right,  upon 30 days'  written
notice,  to  discontinue  receiving  electricity  from  any  Seller  or  Sellers
interconnected   to  such  lines,  if  and  when  (1)  Company  is  required  by
governmental  authority to incur expense in the relocation or the reconstruction
underground of any portion of said lines,  unless Company is reimbursed for such
expense by Sellers or customers  connected thereto,  or (2) the right of Company
to maintain and operate said lines shall be  terminated,  revoked,  or denied by
governmental authority for any reason.

2.4 The Company and the Seller have an  existing  Facility  Interconnection  and
Operating  Agreement  dated  January 18,  2002 on file with the  Federal  Energy
Regulatory  Commission,  Docket No.  ER02-1569-000  (the  "FERC  Interconnection
Agreement").  This Agreement, and not the FERC Interconnection  Agreement, shall
govern as long as the Seller is operating  the  facility  solely as a Qualifying
Facility under PURPA and selling either capacity or energy or both to Company.


3.0 OPERATIONS

3.1 General. Company and Seller agree that their respective performances of this
Agreement shall comply with the then-existing  (or amended) manuals,  standards,
and policies of NERC,  SERC,  VACAR or RTO or any successor  agency  assuming or
charged with similar  responsibilities  related to the operation and reliability



                                                                          Page 3
<PAGE>

of the North American electric  interconnected  transmission grid. To the extent
that this  Agreement  does not  specifically  address or provide the  mechanisms
necessary to comply with such NERC,  SERC,  VACAR or RTO  manuals,  standards or
policies, Company and Seller hereby agree that both Parties shall provide to the
other Party all such  information  as may  reasonably be required to comply with
such  manuals,  standards  or  guidelines  and  shall  operate,  or  cause to be
operated, their respective facilities in accordance with such manuals, standards
or policies.

3.2  Company  Obligations.   Company  shall  operate  and  control  the  Company
Transmission  System and other  Company  facilities  (1) in a safe and  reliable
manner;  (2) in accordance  with Good Utility  Practice;  (3) in accordance with
NERC, SERC, VACAR or RTO manuals,  standards or policies;  and (4) in accordance
with the provisions of this Agreement.

3.3 Seller  Obligations.  Seller shall operate and control the Facility (1) in a
safe and reliable manner;  (2) in accordance with Good Utility Practice;  (3) in
accordance with NERC, SERC, VACAR or RTO manuals, standards or policies; and (4)
in   accordance   with  the   provisions  of  this   Agreement,   including  the
Interconnection Operating Requirements set forth in Appendix A.

3.4  Switching  and  Tagging  Rules.  The Parties  shall abide by the  Company's
Switching and Tagging Rules for obtaining  clearances  for work or for switching
operations  on  equipment  as set forth in  Appendix A. With regard to Joint Use
Facilities,  the Parties will follow the Switching and Tagging Rules in order to
obtain  clearances  for work on equipment  requiring  switching of both Parties'
facilities.

3.5 Joint Use Facilities.  In accordance with  mutually-agreed  upon procedures,
Company and Seller shall jointly  operate the Joint Use Facilities in accordance
with Good Utility Practice,  including, but not limited to: (1) closing breakers
to accomplish interconnection,  but not synchronization,  of the Facility to the
Company  Transmission  System;  (2) opening breakers to remove the Facility from
service;  (3)  operating  disconnect  and  ground  switches  as  required;   (4)
in-service relay testing; and (5) battery system testing and maintenance.

     3.5.1 Joint Use  Facilities  consist of the joint  operation of the Company
     owned 115 kV circuit  breaker  included  in the  Company's  Interconnection
     Facilities with operation in accordance with the Interconnection  Operating
     Requirements in Appendix A.


                                                                          Page 4
<PAGE>

3.6 Voltage Control and Reactive Power.

     3.6.1 Operating  Requirements.  The Facility will supply reactive power to,
     and absorb  reactive  power from,  the Company  Transmission  System during
     periods of time that its Facility is connected to and operating in parallel
     with the Company Transmission System. Seller shall respond to requests from
     Company to increase or decrease the  Facility's  reactive power output in a
     manner consistent with Seller's obligation to operate the Facility:  (1) in
     a safe and reliable manner;  (2) in accordance with Good Utility  Practice;
     (3) in  accordance  with NERC,  SERC,  VACAR or RTO  manuals,  standards or
     policies; and (4) in accordance with the provisions of this Agreement.  The
     Facility shall generate such reactive power in accordance  with the voltage
     schedule,  reactive  schedule  or  power  factor  schedule,   whichever  is
     applicable,  prescribed  by  Company,  but  not in  excess  of  the  amount
     available  from the  Facility's  equipment in operation at the time. In the
     event that the schedule  prescribed by Company cannot or is not maintained,
     Company may direct the  Facility  to be  operated at its maximum  available
     reactive capability. In addition, Seller shall promptly take other steps as
     necessary to allow the Facility to maintain its  schedule.  The  excitation
     system shall normally be operated in the automatic  mode.  Operation in the
     manual mode for extended  periods is permitted  only with prior approval of
     Company. Seller shall have a maintenance and testing program for excitation
     systems in compliance with  applicable  NERC,  SERC,  VACAR or RTO manuals,
     standards  or  policies  and Good  Utility  Practice.  Seller  shall have a
     testing  program to verify the gross and net reactive  power  capability of
     the Facility. Such program shall be in compliance with NERC, SERC, VACAR or
     RTO  manuals,  standards  or  policies  and  results of such tests shall be
     provided to Company upon request.

     3.6.2  Emergency  Reactive  Power  Requirements.  When Company  declares an
     Emergency   Condition  on  the  Transmission   System  or  on  an  adjacent
     transmission  system,  Company shall have the authority to direct Seller to
     increase or decrease real power production (measured in MW) and/or reactive
     power  production  (measured  in MVAR),  within the design and  operational
     limitations of the Facility equipment in operation at the time, in order to
     maintain  Transmission System security. In the event of a declaration of an
     Emergency  Condition,  a  determination:  i) that the  Transmission  System
     security  is in  jeopardy,  and ii)  that  there is a need to  increase  or
     decrease  reactive  power  production,  even if real  power  production  is
     adversely affected,  will be made solely by Company.  The Facility Operator
     will honor Company's orders and directives  concerning  Facility real power
     and/or  reactive  power  output  within  the  design   limitations  of  the
     Facility's  equipment in  operation at the time,  such that the security of
     the Transmission System is maintained.  Company shall restore  Transmission
     System  conditions  to normal as quickly as possible to alleviate  any such



                                                                          Page 5
<PAGE>

     Emergency  Condition.  Company will take all  reasonable  steps to allocate
     among all generating  units and other  reactive power supply  resources the
     responsibility  to  provide  reactive  power  support  to the  Transmission
     System.

     3.6.3 Seller shall operate to maintain the schedule  provided under Section
     3.6.1 within the following limits.

          3.6.3.1 For reactive schedules,  Seller shall operate between +/- 10 %
          of the reactive schedule provided to them by the Company.

          3.6.3.2 For voltage  schedules,  Seller shall operate within +/- 1.5 %
          of the voltage schedule provided to them by the Company.


3.7 Seller's  Operating  Expenses.  Seller shall be responsible for all expenses
associated  with  operating  its  own  property,   equipment,   facilities,  and
appurtenances on Seller's side of the Points of Interconnection.

3.8  Protection  and Power  Quality.  Seller  shall,  at its  expense,  install,
maintain,  and operate System Protection  Facilities,  including such protective
and  regulating  devices as are  identified by order,  rule or regulation of any
duly constituted  regulatory authority having jurisdiction,  or as are otherwise
necessary to protect personnel and equipment and to minimize deleterious effects
to Company's  electric  service  operation  arising from the Facility.  Any such
protective or regulating devices that may be required on Company's facilities in
connection  with the operation of the Facility  shall be installed by Company at
Seller's expense.

     3.8.1 Requirements for Protection.  Seller shall provide, install, own, and
     maintain  relays,  circuit  breakers,  and all other  devices  necessary to
     promptly remove any fault contribution of the Facility to any short circuit
     occurring  on the Company  Transmission  System not  otherwise  isolated by
     Company  equipment.   Such  protective  equipment  shall  include,  without
     limitation,  a  disconnecting  device  or  switch  with  load  interrupting
     capability to be located between the Facility and the Company  Transmission
     System at an accessible,  protected,  and  satisfactory  site selected upon
     mutual agreement of the Parties. Seller shall be responsible for protection
     of the  Facility and  Seller's  other  equipment  from such  conditions  as
     negative  sequence  currents,   over-  or   under-frequency,   sudden  load
     rejection,  over- or  under-voltage,  and generator  loss-of-field.  Seller
     shall be solely  responsible  for provisions to disconnect the Facility and
     Seller's other equipment when any of the above-described disturbances occur
     on the Company Transmission System.



                                                                          Page 6

<PAGE>

     3.8.2 Power  Quality.  Seller's  Facilities  shall be required to not cause
     excessive  voltage  excursions  nor cause the voltage to drop below or rise
     above the range normally  maintained by Company.  Seller's Facilities shall
     be required to not cause excessive voltage flicker nor introduce  excessive
     distortion  to the  sinusoidal  voltage or current waves as defined by ANSI
     Standard  C84.1-1989,  IEEE- 519, or any  applicable  superseding  electric
     industry standard.

     3.8.3  Inspection.  Company  shall  have  the  right,  but  shall  have  no
     obligation  or   responsibility   to:  i)  observe  Seller's  tests  and/or
     inspection of any of Seller's protective equipment; ii) review the settings
     of Seller's  protective  equipment;  and iii) review  Seller's  maintenance
     records relative to the Facility and/or Seller's protective equipment.  The
     foregoing  rights may be  exercised  by Company from time to time as deemed
     necessary  by  Company  upon  reasonable  notice to  Seller.  However,  the
     exercise  or  non-exercise  by  Company of any of the  foregoing  rights of
     observation,  review  or  inspection  shall  be  construed  neither  as  an
     endorsement or confirmation of any aspect,  feature,  element, or condition
     of the Facility or Seller's protective  equipment or the operation thereof,
     nor as a warranty as to the fitness, safety,  desirability,  or reliability
     of same.

     3.8.4 Underfrequency  Relaying.  Seller's generator underfrequency relaying
     and/or  underfrequency  tripping  procedures  shall be coordinated with and
     approved by Company.  Facility generator  underfrequency  tripping shall be
     coordinated  with the  regional  underfrequency  load  shedding  program to
     insure that the  Facility  remains  connected  to the Company  Transmission
     System during frequency declines.

3.9  Continuity  of  Service.   Notwithstanding  any  other  provision  of  this
Agreement,  Company  shall not be obligated  to accept,  and Company may require
Seller to curtail, interrupt or reduce, deliveries of energy if such delivery of
energy  impairs  Company's  ability to construct,  install,  repair,  replace or
remove any of its  equipment or any part of its system or if Company  determines
that curtailment, interruption or reduction is necessary because of Emergencies,
forced  outages,  operating  conditions on its system,  or any reason  otherwise
permitted by applicable rules or regulations  promulgated by a regulatory agency
having  jurisdiction  over such matters.  Except in case of  Emergency,  Company
shall give Seller  reasonable prior notice of any  curtailment,  interruption or
reduction,  the reason for its  occurrence,  and its probable  duration.  Seller
reserves all rights under the Federal Power Act and applicable other federal and
state laws and  regulations  to commence a complaint  proceeding or other action
with respect to any action taken by the Company pursuant to this Section 3.9.

3.10  Governor  Speed and  Frequency  Control.  Seller  shall  maintain  a speed
governor  system on all  generators.  The speed governor  system must respond to
system frequency  changes to help maintain the stability of the power system. At
no time shall a speed  governor be blocked with out first  obtaining  permission
from  Company.  The speed  governor  system  shall  have a droop  characteristic
settable between three and seven percent and typically set to five (5%) percent.



                                                                          Page 7
<PAGE>

4.0   MAINTENANCE
4.1 Coordination. The Parties agree to coordinate the planning and scheduling of
maintenance  of  the  Seller's   Facility  and  the  Company's   Interconnection
Facilities.  Each Party  shall  conduct  maintenance  activities  as planned and
scheduled in accordance with this section.  Seller shall provide Company with an
on-going  five (5) year  maintenance  outage  schedule of three (3) or more days
duration by January 1 of each year.  Throughout  the year,  Seller will  provide
reasonable  advance notice to Company of any  modifications  to the  maintenance
schedule.

4.2  Unplanned  Outage.  In the event of an unplanned  outage of (i) the Company
Interconnection  Facilities that adversely affects the Seller or the Facility or
(ii) a component of the  Facility  that  adversely  affects  reliability  of the
Company Transmission System, the Party causing the adverse affect in (i) or (ii)
above,  as  applicable,  will use  commercially  reasonable  efforts to promptly
restore the  necessary  equipment  to service in  accordance  with Good  Utility
Practice.

4.3  Planned  Outage.  In the  event  of a  planned  outage  of (i) the  Company
Interconnection  Facilities that adversely affects Seller or (ii) a component of
the Facility that  adversely  affects  reliability  of the Company  Transmission
System,  the  Party  causing  the  adverse  affect  in (i)  or  (ii)  above,  as
applicable,  will use commercially  reasonable efforts to restore that equipment
to service in accordance  with Good Utility  Practice and in accordance with the
schedule for work that necessitated the planned outage.

4.4 Outage Authority and Coordination. In accordance with Good Utility Practice,
Company may remove its  Interconnection  Facilities from service that may impact
Seller's Facilities as necessary to perform maintenance or testing or to install
or replace equipment. Absent the existence or imminence of an Emergency, Company
scheduling a removal of equipment from service will use best efforts to schedule
such removal on a date mutually  acceptable to both Parties,  in accordance with
Good Utility Practice.

5.0   INSPECTION AND ACCESS TO FACILITIES
5.1 The Parties grant to each other,  from the Effective Date of this Agreement,
the rights  necessary to perform the functions  contemplated  by this Agreement,
including but not limited to the right,  upon reasonable  notice, to inspect and
monitor the construction and operations of the Facility and the  Interconnection
Facilities,  along with adequate and continuing access rights. Such access shall
be provided  in a manner so as not to  unreasonably  interfere  with the ongoing
business  operations,  rights and obligations of either Party.  Each Party shall
execute or cause to be executed such other licenses,  grants, deeds or documents
as may be required to enable the other  Party to record such  rights-of-way  and
easements.

5.2 Access to Premises:  The duly  authorized  agents of Company  shall have the
right of ingress and egress to the  premises of Seller at all  reasonable  hours



                                                                          Page 8
<PAGE>

for the purpose of reading meters,  inspecting  Company's  wiring and apparatus,
changing, exchanging, or repairing Company's property on the premises of Seller,
or  removing  such  property at the time of or at any time after  suspension  of
purchases or termination of this Agreement.

5.3 Protection:  Seller shall protect Company's wiring and apparatus on Seller's
premises and shall permit no one but  Company's  agents to handle same except as
provided  in 3.0.  In the  event of any loss of or damage  to such  property  of
Company caused by or arising out of carelessness,  neglect, or misuse by Seller,
Seller's  employees  or agents,  the cost of making good such loss or  repairing
such damage shall be paid by Seller. In cases where Company's service facilities
on Seller's  premises  require abnormal  maintenance due to Seller's  operation,
Seller shall reimburse Company for such abnormal maintenance.

6.0  EMERGENCY
6.1  Obligations.  Each Party  agrees to comply  with NERC,  SERC,  VACAR or RTO
Emergency procedures and Company and Seller Emergency procedures, as applicable,
with respect to an Emergency.

6.2 Notice.  Company shall provide Seller with notification that is prompt under
the  circumstances  of an Emergency  that may  reasonably  be expected to affect
Seller's  operation  of the  Facility,  to the  extent  Company  is aware of the
Emergency.  Seller shall provide Company with  notification that is prompt under
the  circumstances  of an Emergency,  which may reasonably be expected to affect
Company's  Transmission  System, to the extent Seller is aware of the Emergency.
To the extent the Party  becoming aware of an Emergency is aware of the facts of
the Emergency, such notification shall describe the Emergency, the extent of the
damage or deficiency,  its anticipated duration, and the corrective action taken
and/or to be taken,  and shall be followed as soon as  practicable  with written
notice.

6.3 Immediate Action. In the event of an Emergency,  the Party becoming aware of
the  Emergency  may, in  accordance  with Good  Utility  Practice  and using its
reasonable judgment, take such action as is reasonable and necessary to prevent,
avoid, or mitigate injury,  danger, and loss. In the event Seller has identified
an Emergency involving Company's  Transmission  System,  Seller shall obtain the
consent  of  Company  personnel  prior  to  manually  performing  any  switching
operations  unless,  in  Seller's  reasonable  judgment,   immediate  action  is
required.

6.4 Company Authority.  Company may, consistent with Good Utility Practice, take
whatever actions or inactions with regard to the Company  Transmission System it
deems  necessary  during an Emergency in order to: i) preserve public health and
safety; ii) preserve the reliability of the Company  Transmission  System;  iii)
limit or prevent damage; and iv) expedite restoration of service.  Company shall
use  reasonable  efforts to minimize  the effect of such actions or inactions on
the Facility,  and shall use its best efforts to cancel the Emergency as soon as
practicable.



                                                                          Page 9
<PAGE>

     6.4.1  Facility may be called upon by Company  during a potential or actual
     Emergency to mitigate such Emergency by, but not limited to, requesting the
     Facility  to start up, shut down,  increase  or decrease  the output of the
     Facility.

     6.4.2 Company shall reimburse  Seller for any reasonable  costs incurred by
     Seller in  response  to a request by Company  to start up or  increase  the
     output of the Facility to mitigate an Emergency.

6.5 Seller Authority.  Seller may,  consistent with Good Utility Practice,  take
whatever  actions or inactions  with regard to the  Facility it deems  necessary
during an  Emergency  in order to: i) preserve  public  health and  safety;  ii)
preserve the reliability of the Facility;  iii) limit or prevent damage; and iv)
expedite restoration of service. Seller shall use reasonable efforts to minimize
the effect of such actions or inactions on the Company Transmission System.

6.6 Audit  Rights.  Each Party shall keep and maintain  records of actions taken
during an Emergency  that may reasonably be expected to impact the other Party's
facilities  and make such records  available for third party  independent  audit
upon the  request and expense of the party  affected  by such  action.  Any such
request for an audit will be no later than twenty-four (24) months following the
action taken.

7.0  SAFETY
7.1 General.  Company and Seller  agree that all work  performed by either Party
that may  reasonably be expected to affect the other Party shall be performed in
accordance with Good Utility Practice and all applicable laws, regulations,  and
other  requirements  pertaining  to the safety of persons or  property.  A Party
performing work within the boundaries of the other Party's facilities must abide
by the safety rules applicable to the site.

7.2  Environmental  Releases.  Each Party shall  notify the other  Party,  first
orally and then in writing,  of the  release of any  Hazardous  Substances,  any
asbestos or lead abatement  activities,  or any type of remediation  activities,
each of which may  reasonably be expected to affect the other Party,  as soon as
possible but not later than twenty-four (24) hours after the Party becomes aware
of the occurrence,  and shall promptly  furnish to the other Party copies of any
reports filed with any governmental agencies addressing such events.

8.0  MODIFICATIONS

8.1 Seller Construction  Responsibility.  Seller shall be responsible to design,
engineer,  construct and own the Facility.  Seller may make Modifications during
the  term  of  this  Agreement  subject  to the  requirements  of the  Company's
interconnection procedures.

8.2 Need to Maintain  the  Integrity  of the Company  Transmission  System.  The
Facility and any subsequent  Modifications  shall be designed,  constructed  and
operated in accordance with this Agreement and Good Utility  Practice,  so as to
maintain the integrity of the  transmission and  communications  capabilities of
the  Company  Transmission  System.  Company  will have the right to review  all
engineering plans and  specifications of the Facility  Modifications in order to
assure compliance with this Section 8.2.



                                                                         Page 10
<PAGE>

8.3  Company  Right to Review and  Inspect  Facility  Construction.  Company may
inspect  the  Facility  or  any  subsequent  Modification  prior  to  Substation
Energization  and at its  interconnection  to the  Company  Transmission  System
pursuant  to  Section 5 of this  Agreement.  If,  after an  inspection,  Company
determines  that the Facility or any  subsequent  Modification  does comply with
Section  3.2,  Company  shall notify  Seller in writing  within five (5) working
days.

8.4 Facility  Non-Compliance  with Section 8.2. If, after an inspection pursuant
to  Section  8.3,  Company  determines  that  the  Facility  or  any  subsequent
Modification  does not comply with Section 8.2,  Company  shall notify Seller in
writing  within  five (5) working  days of the  reasons why the  Facility or any
subsequent Modification is in non-compliance with Section 8.2. Seller shall take
appropriate corrective action and obtain Company's written  acknowledgement that
the  Facility  or   Modification   is  in  compliance  with  Section  8.2.  Such
acknowledgement  by  Company  will  not be  unreasonably  delayed,  withheld  or
conditioned.

     8.4.1  In the  event  that  the  Facility  is  found  by  Company  to be in
     non-compliance  with  Section  8.2  during a  pre-energization  inspection,
     Company may deny the  interconnection  of the  Facility  or any  subsequent
     Modification to the Company  Transmission  System until such non-compliance
     is  corrected  by Seller  and Seller  obtains  written  acknowledgement  of
     compliance with Section 8.2 from Company. In the event that the Facility is
     found  by  Company  to  be  in  non-compliance   with  Section  8.2  during
     energization testing, Company may disconnect the Facility or any subsequent
     Modification from the Company Transmission System until such non-compliance
     is  corrected  by Seller  and Seller  obtains  written  acknowledgement  of
     compliance with Section 8.2 from Company.

8.5 Company Construction Responsibility. Company shall be responsible to design,
engineer,  construct and own the facilities of the Company  Transmission  System
including  all  Interconnection  Facilities  on  Company's  side of the Point of
Interconnection.


8.6 Notice to Company for  Modifications.  Seller shall provide  Company with at
least ninety (90) days' advance notice of any  Modification to the Facility that
might  reasonably  be  expected  to have an impact on system  frequency,  system
voltage,  system loading,  system  stability,  system power quality and the safe
operation of the Company  Transmission  System.  The notice shall be written and
include all design and engineering  specifications of the proposed Modification.
Within thirty (30) days after  receipt of such notice,  Company shall by written
response approve or reject the proposed specifications;  provided, however, that
Company may only reject the  proposed  specifications  if they are  inconsistent
with Good Utility  Practice or are otherwise  contrary to standards set forth in
this Agreement.


                                                                         Page 11
<PAGE>

8.7 Payment to Company for  Subsequent  Modifications.  Seller shall pay Company
for all reasonable costs,  including any tax cost, associated with Modifications
to the Company  Transmission  System which result from Modifications to Seller's
Facilities.

8.8  Modifications  to  Interconnection  Facilities.  Company  shall  make  such
Modifications to its Interconnection  Facilities as required by law, regulation,
rule or Good  Utility  Practice  to enable  Company to  provide  Interconnection
Service in compliance with this Agreement.

8.9 Seller  Modifications  Resulting from Company  Modifications.  If Company is
required by law, regulation, rule or Good Utility Practice to make Modifications
to its facilities and the Modifications  require Seller to make Modifications to
its Facilities,  Seller shall be responsible  for the costs  associated with the
Modification to its Facilities,  unless such  Modifications  provide benefits to
Company or  Company's  other  customers,  in which  event  Seller can pursue any
remedies it may have at the North  Carolina  Utilities  Commission  or any other
forum.

8.10 Drawings. Subject to the requirements of Article 17, upon completion of any
construction  or  Modification  to the  Facilities  that takes  place  after the
effective  date of the  Agreement,  Seller shall deliver "as Built"  drawings to
Company.

8.11  Payments  for  Interconnection  Facilities.  Seller  shall  pay a  Monthly
Facility  Charge  as  stated  in  Appendix  B for the  existing  interconnection
facilities,  communication  equipment,  and meter equipment necessary to provide
interconnection.

8.12 Changes in Operating  Voltage.  Company may change the operating voltage at
the Point of  Interconnection.  Company shall provide a minimum of two (2) years
written  notice to Seller prior to any change in operating  voltage.  Within one
year of receipt of such notice,  Seller shall notify  Company  that, by no later
than the notice  effective  date of the  change in  operating  voltage,  it will
either: (a) terminate the Point of  Interconnection;  or (b) provide any and all
equipment or  facilities as may be necessary or required on Seller's side of the
Point of Interconnection in order to be able to accept the new voltage.


9.0  METERING
9.1  General.  Company  will be  responsible  for the  installation,  operation,
maintenance,  repair and replacement of all Metering Equipment necessary to meet
Company's  metering  obligations  under this Agreement.  All Metering  Equipment
shall  conform to Good  Utility  Practice  and the  standards  and  practices of
Company in effect during the term of this Agreement. Subject to Section 9.3, the
meter readings  provided by the Company Metering  Equipment shall be used as the
official  measurement of capacity and energy  delivered from the Facility to the
Point of  Interconnection.  In addition to the  Metering  Equipment  provided by
Company,  Seller may, at its own expense,  provide backup meters for its own use
provided it does not interfere with the performance of Company meters.



                                                                         Page 12
<PAGE>

9.2 Meter  location.  Unless  otherwise  agreed,  electric  capacity  and energy
received  by Company  from  Seller  will be  measured  by meters  installed  and
maintained by Company at the Point(s) of  Interconnection.  When  measurement is
made at any  location  other  than the  Point(s)  of  Interconnection,  suitable
adjustment  for losses  between  the point of  measurement  and the  Point(s) of
Interconnection  will be agreed upon in writing  between the Parties  hereto and
will be applied to all  measurements  so made.  Metered  receipts used in energy
accounting and applicable billing hereunder will in all cases include adjustment
for such losses.  Company  meters will be  positioned  at a location to properly
account for net Facility output.


9.3  Testing  of  Metering  Equipment.   Company  shall  inspect  and  test  all
Company-owned  Metering  Equipment upon  installation and at least once every 12
months  thereafter.  Company shall give  reasonable  notice of the time when any
scheduled   inspection   or  test  shall  take   place,   and  Seller  may  have
representatives present at the test or inspection. Upon prior reasonable written
notice to Company,  Seller may request more frequent  tests or  inspections.  If
such tests or  inspections  determine that the meter is defective or inaccurate,
Company shall pay for the test;  otherwise,  Seller shall pay for such tests and
inspections.  If Metering  Equipment is found to be inaccurate or defective,  it
shall be adjusted,  repaired or replaced in order to provide accurate  metering.
If Metering Equipment fails to register,  or if the measurement made by Metering
Equipment  during a test varies by more than plus or minus two percent (2%) from
normal,  adjustments  shall  be made  correcting  all  measurements  made by the
inaccurate meter for: a) the actual period during which inaccurate  measurements
were made, if the period can be determined, or if not, b) the period immediately
preceding the test of the Metering Equipment equal to one-half the time from the
date of the last  previous  test of the Metering  Equipment;  provided  that the
period covered by the correction shall not exceed six months.

9.4  Metering  Data.  Unless the Parties  have not made other  arrangements,  if
hourly and/or daily energy readings are available and if such data are requested
by Company, Seller shall report same to Company's  representatives as designated
pursuant  to  Article  10, by  telephone  or  electronically  or as the  Parties
otherwise agree, on a schedule to be agreed upon.

     9.4.1 Metering quantities, in analog and/or digital form, shall be provided
     to Seller upon request and at Seller's expense.

     9.4.2 At Seller's expense,  Seller's metered data shall be telemetered to a
     location designated by Company.


9.5  Communications.  At Seller's  expense,  Seller shall maintain  satisfactory
operating communications with Company's system dispatcher or representative,  as


                                                                         Page 13
<PAGE>

designated  by Company.  Seller will  provide a  dedicated  automatic  ring-down
circuit at its Facility  control room for direct  communication  with  Company's
system dispatcher.

     9.5.1 Seller will also  provide the  necessary  data circuit (or  circuits)
     operating at a baud rate specified by Company.  The data  circuit(s)  shall
     extend from Seller's  Facility to a location(s)  specified by Company.  Any
     required maintenance of such communications equipment shall be performed at
     Seller's expense, but may be performed by Seller or by Company. Operational
     communications  shall be activated and maintained under, but not be limited
     to, the following events:  system paralleling or separation,  scheduled and
     unscheduled  shutdowns,  equipment  clearances,  and  hourly and daily load
     data.

     9.5.2 A Remote  Terminal Unit ("RTU") or  equivalent  data  collection  and
     transfer equipment acceptable to both Parties shall be installed by Company
     at  Seller's  expense,  at a  location  determined  by  Company,  to gather
     accumulated  and  instantaneous  data to be  telemetered  to a  location(s)
     designated  by  Company  through  use of a  dedicated  point-to-point  data
     circuit(s) as indicated in Section 9.4.2.  Data  communicated  will include
     but is not limited to  reactive  output,  voltage,  generator  output,  and
     generator  breaker  status.  The  communication   protocol  for  this  data
     circuit(s)  will be  specified  by  Company.  Instantaneous  bi-directional
     analog real power and reactive power flow  information  must be telemetered
     directly to the location(s) specified by Company.

     9.5.3 At Seller's expense,  Seller shall provide a public telephone line at
     a location  specified by Company to connect to Company  metering  equipment
     for meter maintenance and data collection.

9.6 For any  period  during  which  there is a loss of  telemetering  capability
between Company and Seller which results in the loss of generation  information,
Seller shall provide reasonable estimates to the Company of projected generation
schedule  information  which has been lost.  Such estimates  shall be updated at
least  hourly  and  more  frequently  if  possible.  Such  estimates  of  hourly
scheduling will be used for record purposes unless actual data is retrieved from
the meter records.


10.0  NOTICES
10.1 Any notice,  demand or request  required or permitted to be given by either
Party to the other and any  instrument  required or  permitted to be tendered or
delivered by either Party to the other may be so given,  tendered or  delivered,
as the case may be, by depositing the same in any United States Post Office with
postage prepaid,  for transmission by certified or registered mail, addressed to
the Party, or personally delivered to the Party, at the address set out below:


                                                                         Page 14
<PAGE>

         To Company:

                  CP&L
                  3401 Hillsborough Street
                  Raleigh, NC 27606
                  Attention: Director Power System Operations Carolinas


         To Seller:
                  Green Power Kenansville LLC
                  3212 Wickford Road
                  Wilmington, NC 28409
                  Attn:  Wayne Coverdale


11.0   FORCE MAJEURE
11.1 Damages  Resulting from Factors  Outside a Party's  Control.  Neither Party
shall be considered in default under this  Agreement or responsible to the other
Party in tort, strict  liability,  contract or other legal theory for damages of
any description for any  interruption or failure of service or deficiency in the
quality  or  quantity  of service  or any other  failure  to perform  any of its
obligations  hereunder  to the  extent  such  failure  occurs  without  fault or
negligence  on the part of that  Party  and is  caused by  factors  beyond  that
Party's reasonable control,  which by the exercise of reasonable  diligence that
Party is unable to prevent,  avoid,  mitigate  or  overcome,  including  without
limitation storm, flood, hurricane, lightning, earthquake,  explosion, equipment
failure,  civil  disturbance,  labor  dispute,  act of God or the public  enemy,
action or inaction of a court or Governmental Authority,  unscheduled withdrawal
of either Parties'  facilities from operation for maintenance or repair,  or any
other cause of similar nature beyond the  reasonable  control of that Party (any
such  event,  "Force  Majeure").  Economic  hardship  of either  Party shall not
constitute Force Majeure under this Agreement,  nor shall anything  contained in
this  Article 11 or elsewhere in this  Agreement  excuse  Seller or Company from
strict compliance with the obligation of the Parties to comply with the terms of
this Agreement relating to timely payments.

11.2  Requirement to Operate with Good Utility  Practice.  Each Party shall have
the obligation to operate in accordance with Good Utility  Practice at all times
and to use due diligence to overcome and remove any cause of failure to perform.

11.3  Notification  and Efforts to Mitigate an Event.  If a Party  relies on the
occurrence of an event or condition described above as a basis for being excused
from performance of its obligation under this Agreement,  then the Party relying
on the event or condition shall: (a) provide prompt written notice of such Force
Majeure  event to the other Party,  giving an estimate of its expected  duration
and the probable  impact on the performance of its  obligations  hereunder;  (b)
exercise all  reasonable  efforts to continue to perform its  obligations  under
this Agreement;  (c)  expeditiously  take action to correct or cure the event or


                                                                         Page 15
<PAGE>

condition excusing performance; provided, however, that settlement of strikes or
other labor disputes will be completely  within the sole discretion of the Party
affected by such strike or labor dispute; (d) exercise all reasonable efforts to
mitigate or limit damages to the other Party;  and (e) provide  prompt notice to
the other Party of the  cessation of the event or  condition  giving rise to its
excuse from performance. All performance obligations hereunder shall be extended
by a period equal to the term of the resultant delay.

11.4 Costs  Incurred  to  Mitigate an Event.  If a Party  responding  to a Force
Majeure event has the ability to obtain, for additional expenditures,  expedited
material  deliveries  or labor  production  which  would allow a response to the
event in a  manner  that is above  and  beyond  Good  Utility  Practice,  such a
response could shorten the duration of the event,  and a shorter duration of the
event  could  lessen  the  economic  hardship  of the  other  Party,  the  Party
responding to the event may, at its discretion, present the other Party with the
option of funding the expenditures for expediting  material  deliveries or labor
production  in an effort  to  reduce  the  duration  of the  event and  economic
hardship.  Each such opportunity  will be negotiated on a case-by-case  basis by
the Parties.



12.0  INSURANCE
12.1 Seller  shall  maintain,  at their own cost and expense or self  insurance,
insurance  coverage in the amounts set forth as follows.  Seller may self insure
provided  that Company is  satisfied  that the Seller has  sufficient  financial
resources  to maintain  self  insurance  for the  coverage and amounts set forth
below.  Seller shall,  annually,  provide  Company with its certified  financial
reports when self-insuring.

12.2 Company shall maintain  insurance or self insurance in accordance  with the
requirements set forth below.


12.3  Company's  Insurance.  During the term of this  Agreement,  Company  shall
maintain the following coverage:


     12.3.1 Workers'  Compensation and any other statutory insurance required by
          Law with respect to  work-related  injuries or disease of employees of
          Company  applicable  to  Company's   employees  in  such  form(s)  and
          amount(s) as required by all  applicable  Laws.  Such  policy(ies)  of
          insurance  shall be  endorsed  to provide a waiver of  subrogation  in
          favor of Owner.

     12.3.2  Commercial  General  Liability  ("CGL")  insurance,  in broad  form
          including  coverage for liability  assumed under  contract,  providing
          coverage for bodily injury and property  damage with a combined single
          limit of not less than Ten Million  Dollars  ($10,000,000)  cumulative
          total of underlying and excess coverages.


                                                                         Page 16

<PAGE>

     12.3.3 The foregoing insurance policies shall provide that the policy shall
     not be canceled  without thirty (30) days' advance written notice to Seller
     of such cancellation or change.

     12.3.4 Prior to commencement of any work under this Agreement, and not less
     than annually thereafter,  if requested in writing, during the term of this
     Agreement,  Company  shall  deliver to Seller  certificate(s)  of insurance
     showing that the foregoing insurance is in full force and effect.

     12.3.5  Auto  Liability  with  combined  single  limit  of $1  million  per
     occurrence  shall  be  maintained  with  financially  sound  and  reputable
     insurance  companies  covering  bodily  injury and property  damage for all
     owned , non-owned,  leased and hired vehicles.  Each such policy shall also
     provide  that if such  insurance  is  canceled  or lapses  for any  reason,
     including  nonpayment  of premium,  or if any material  change is made that
     adversely  affects  coverage,  insurers will provide  written notice to the
     Company 30 days prior to such cancellation, lapse or change.

12.4  Seller's  Insurance.  During  the  term of this  Agreement,  Seller  shall
maintain the following insurance coverage:

     12.4.1 Workers'  Compensation and any other statutory insurance required by
     law with respect to work-related injuries or disease of employees of Seller
     applicable to Seller's  employees in such form(s) and amount(s) as required
     by all applicable  laws. Such policy(ies) of insurance shall be endorsed to
     provide a waiver of subrogation in favor of Company and its Affiliates.

     12.4.2  Commercial  General  Liability  ("CGL")  insurance,  in broad  form
     including coverage for liability assumed under contract, providing coverage
     for bodily injury and property  damage with a combined  single limit of not
     less than Ten Million Dollars ($10,000,000)  cumulative total of underlying
     and excess coverages or such lesser combined single limits as may from time
     to time be obtainable  under  conditions  then  prevailing in the insurance
     market for independent power generation facilities.

     12.4.3 The foregoing insurance policies shall provide that the policy shall
     not be canceled without thirty (30) days' advance written notice to Company
     of such cancellation or change.

     12.4.4 Prior to commencement of any work under this Agreement, and not less
     than annually thereafter,  if requested in writing, during the term of this
     Agreement,  Seller shall deliver to Company a  certificate(s)  of insurance
     showing that the foregoing insurance is in full force and effect.



                                                                         Page 17
<PAGE>

     12.4.5  Auto  Liability  with  combined  single  limit  of $1  million  per
     occurrence  shall  be  maintained  with  financially  sound  and  reputable
     insurance  companies  covering  bodily  injury and property  damage for all
     owned , non-owned,  leased and hired vehicles.  Each such policy shall also
     provide  that if such  insurance  is  canceled  or lapses  for any  reason,
     including  nonpayment  of premium,  or if any material  change is made that
     adversely  affects  coverage,  insurers will provide  written notice to the
     Company 30 days prior to such cancellation, lapse or change.




13.0   INDEMNITY AND LIABILITY
13.1 Seller  Indemnity.  Seller agrees to fully indemnify and hold Company,  its
shareholders,  directors, partners, stakeholders, officers, managers, employees,
agents,   representatives,    servants,   its   Affiliates,   their   respective
shareholders,  directors, partners, stakeholders, officers, managers, employees,
agents,  representatives,  servants, and/or their assigns (collectively "Company
Indemnified  Persons"),  harmless from and against any and all claims,  demands,
liability,  losses,  damage,  costs or expenses  (including  attorneys' fees and
other costs of defense),  of any nature or kind whatsoever,  including,  but not
limited to, claims,  demands and/or  liability for personal injury to (including
death of) any person  whomever  (including  payments and awards made to Seller's
employees  or other under any  workers'  compensation  law or under any plan for
employees'  disability  and  death  benefits)  and for  damage  to any  property
whatsoever  (including Seller's Facilities and the Company  Transmission System)
arising out of or otherwise resulting from the use, ownership,  maintenance,  or
operation of the  Facility or  regardless  of whether  such  claims,  demands or
liability are alleged to have been caused by negligence or to have arisen out of
Company's  status as the owner or operator  of  facilities  involved;  provided,
however,  that the provisions of this Section 13.1.  shall not apply if any such
claim is caused by the  negligence or  intentional  wrongdoing  of Company,  its
agents or any other Company Indemnified Person.

13.2 Company  Indemnity.  Company agrees to fully indemnify and hold Seller, its
shareholders,  directors, partners, stakeholders, officers, managers, employees,
agents,   representatives,    servants,   its   Affiliates,   their   respective
shareholders,  directors, partners, stakeholders, officers, managers, employees,
agents,  representatives,  servants,  and/or their assigns (collectively "Seller
Indemnified  Persons"),  harmless from and against any and all claims,  demands,
liability,  losses,  damage,  costs or expenses  (including  attorneys' fees and
other costs of defense),  of any nature or kind whatsoever,  including,  but not
limited to, claims,  demands and/or  liability for personal injury to (including
death of) any person whomever  (including  payments and awards made to Company's
employees  or other under any  workers'  compensation  law or under any plan for
employees'  disability  and  death  benefits)  and for  damage  to any  property


                                                                         Page 18
<PAGE>

whatsoever  (including  Facilities and the Company  Transmission System) arising
out of or otherwise resulting from the use, ownership, maintenance, or operation
of Company's Transmission System,  regardless of whether such claims, demands or
liability are alleged to have been caused by negligence or to have arisen out of
Seller's  status as the owner or  operator  of  facilities  involved;  provided,
however,  that the  provisions  of this Section 13.2 shall not apply if any such
claim is caused by the  negligence  or  intentional  wrongdoing  of Seller,  its
agents or any other Seller Indemnified Person.

13.3  Limitation  on  Liability.  Neither  Party  shall be  liable  in  statute,
contract, in tort (including negligence),  strict liability, or otherwise to the
other  Party,  its  agents,  representatives,   its  affiliated  and  associated
companies,  and/or its assigns,  for any  incidental  or  consequential  loss or
damage whatsoever,  including, but not limited to, loss of profits or revenue on
work not performed, for loss of use of or under-utilization of the other Party's
facilities, or loss of use of revenues or loss of anticipated profits, resulting
from either Party's  performance or  non-performance of an obligation imposed on
it by this Agreement.

14.0   ASSIGNMENT
14.1 Neither Party shall  assign,  pledge,  delegate or otherwise  transfer this
Operation and  Interconnection  Agreement or any rights,  duties or  obligations
hereunder  without  first  obtaining the other Party's  written  consent,  which
consent  shall  not be  unreasonably  withheld,  except  that a Party  shall  be
permitted to assign, pledge or otherwise transfer this Facility  Interconnection
and Operating  Agreement or its rights hereunder,  or to delegate its duties and
obligations  hereunder,  in whole or in part,  by operation of law or otherwise,
without the other Party's consent, to: (i) any entity that assumes control over,
in the case of Company,  all or part of the Company Transmission System to which
the Facility is connected or in the case of Seller, all or part of the Facility,
(ii) any  successor  to or  transferee  of the direct or indirect  ownership  or
operation  of all or part of, in the case of Company,  the Company  Transmission
System  to  which  the  Facility  is  connected  or in the case of  Seller,  the
Facilities,  or  (iii)  any  Affiliate.  In  addition  and  notwithstanding  the
foregoing,  either Party may assign this  Agreement to the persons,  entities or
institutions  providing  financing or refinancing for the  development,  design,
construction  or  operation  of its assets or  facilities  (a "Lender") , and if
Seller provides  notice thereof to Company,  shall provide notice and reasonable
opportunity for such Lender(s) to cure any Breach of this Agreement, pursuant to
the terms of Section 15.4 below.

14.2 Upon the assumption by any permitted  assignee,  pledge or other transferee
described above of a Party's  rights,  duties and  obligations  hereunder,  that
Party shall be released and discharged  therefrom to the extent  provided in the
assignment,  pledge or other transfer agreement. Except as specifically provided
for in this Article 14, any assignment,  pledge or transfer of this Agreement or
any rights,  duties or interests  hereunder by either Party  without the express
written consent of the other Party shall be void and without force or effect.


                                                                         Page 19
<PAGE>

15.0   BREACH, CURE AND DEFAULT
15.1 General. A breach of this Agreement ("Breach") shall occur upon the failure
by a Party  to  perform  or  observe  any  material  term or  condition  of this
Agreement.  A default of this Agreement ("Default") shall occur upon the failure
of a Party in Breach of this  Agreement to cure such Breach in  accordance  with
the provisions of Section 15.4.

15.2  Events of Breach.  In addition  to the  circumstances  that give rise to a
Breach  that are set forth in Section  15.1  above,  a Breach of this  Agreement
shall also occur under the following circumstances:

     (a)  A Party shall fails to pay any amount when due;

     (b)  A Party shall: (1) become insolvent;  (2) file a voluntary petition in
          bankruptcy  under any provision of any federal or state bankruptcy law
          or shall  consent to the filing of any  bankruptcy  or  reorganization
          petition  against  it  under  any  similar  law;  (3)  make a  general
          assignment  for the  benefit of its  creditors;  or (4) consent to the
          appointment of a receiver, trustee or liquidator;

     (c)  A Party  attempts to assign this  Agreement  in a manner  inconsistent
          with the terms of Article 14; or

     (d)  A Party fails to provide the other Party or its agents  access  rights
          in accordance with Article 5.

15.3  Continued  Operation.  If a Breach or Default  occurs,  the Parties  shall
nevertheless continue to be obligated operate and maintain, as applicable,  such
DC power systems,  protection and Metering  Equipment,  telemetering  equipment,
SCADA equipment,  transformers,  secondary  systems,  communications  equipment,
building facilities, software,  documentation,  structural components, and other
facilities  and  appurtenances  that are  reasonably  necessary  for  Company to
operate and maintain the Company  Transmission  System, or for Seller to operate
and maintain the Facility, in a safe and reliable manner.

15.4 Cure and Default.  Upon the occurrence of a Breach, the Party not in Breach
(hereinafter  the  "Non-Breaching  Party")  shall,  upon  becoming  aware of the
Breach,  give written notice to the Party in Breach (the "Breaching  Party") and
(when  applicable)  the Breaching  Party's  Lender  pursuant to Article 14. Such
notice shall set forth,  in  reasonable  detail,  the nature of the Breach,  and
where  known and  applicable,  the steps  necessary  to cure such  Breach.  Upon
receiving written notice of the Breach hereunder, the Breaching Party shall have
thirty  (30) days to cure such  Breach.  If the Breach is such that it cannot be
cured within thirty (30) days,  the Breaching  Party must commence in good faith
all steps as are  reasonable  and  appropriate  to cure the Breach  within  such
thirty  (30) day time  period and  thereafter  diligently  pursue such action to
completion.  In the event the  Breaching  Party fails to cure the Breach,  or to
commence reasonable and appropriate steps to cure the Breach, within thirty (30)
days of becoming aware of the Breach,  the Breaching Party will be in Default of
this Agreement.



                                                                         Page 20
<PAGE>

15.5  Right to  Compel  Performance.  Notwithstanding  the  foregoing,  upon the
occurrence of an event of Default,  the  non-Defaulting  Party shall be entitled
to:  (1)  commence  an action to require  the  Defaulting  Party to remedy  such
Default  and  specifically  perform  its duties  and  obligations  hereunder  in
accordance  with the terms and  conditions  hereof,  and (2) exercise such other
rights and remedies as it may have in equity or at law.


16.0   SUBCONTRACTOR
16.1 General. Nothing in this Agreement shall prevent a Party from utilizing the
services  of  such  subcontractors  as  is  deems  appropriate  to  perform  its
obligations  under this  Agreement;  provided,  however,  that each Party  shall
require its subcontractors to comply with all applicable terms and conditions of
this Agreement in providing such services and each Party shall remain  primarily
liable to the other Party for the performance of such subcontractor.

16.2 Responsibility of Principal.  The creation of any subcontract  relationship
shall  not  relieve  the  hiring  Party  of any of its  obligations  under  this
Agreement. Each Party shall be fully responsible to the other Party for the acts
or omissions of any  subcontractor  it hires as if no subcontract had been made.
Any  applicable  obligation  imposed  by this  Agreement  upon a Party  shall be
equally  binding  upon,  and shall be  construed as having  application  to, any
subcontractor of such Party.

16.3 No Third Party Beneficiary.  Except as may be specifically set forth to the
contrary herein,  no subcontractor or any other party is (other than a Lender as
defined  under  Section  14.1)  intended  to be,  nor will it be deemed to be, a
third-party beneficiary of this Agreement.

16.4 No Limitation by Insurance.  The obligations under this Article 16 will not
be limited in any way by any limitation of subcontractor's insurance.


17.0   CONFIDENTIALITY
17.1 Certain information  provided by each Party (the "Disclosing Party") to the
other Party (the "Receiving Party") pursuant to the provisions of this Agreement
may be designated by the Disclosing  Party as  confidential  and/or  proprietary
("Confidential  Information").  The Receiving Party shall use such  Confidential
Information  solely for the purpose for which it was  intended  and for no other
purpose.  The Receiving Party may disclose  Confidential  Information  only when
required by applicable law,  regulation;  provided that,  prior to doing so, the
Receiving  Party shall provide the Disclosing  Party with as much advance notice
as is reasonably practicable under the circumstances.


18.0   AUDIT RIGHTS
18.1 Subject to the  requirements  of  confidentiality  under Article 17 of this
Agreement,  either Party shall have the right, during normal business hours, and
upon prior reasonable  notice to the other Party, to audit each other's accounts
and records  pertaining to either Party's  performance  and/or  satisfaction  of


                                                                         Page 21
<PAGE>

obligations  arising under this Agreement.  Said audit shall be performed at the
offices where such accounts and records are  maintained  and shall be limited to
those  portions of such  accounts and records that relate to  obligations  under
this Agreement.


19.0   COORDINATION
19.1 Appointment of  Representatives.  Company and Seller shall each appoint one
representative to serve on an operating committee ("Operating Committee") to act
for each  respective  Party in all  matters  pertaining  to or  relating to this
Agreement.  The members of the Operating  Committee shall  communicate with each
other on a regular basis.  The Operating  Committee shall meet in person as soon
as practicable subsequent to the request of either Operating Committee member.

19.2 Designation of Substitutes.  Each representative on the Operating Committee
may at any time designate a substitute to act for him or her with respect to any
matter or matters  specified in such notice.  All  decisions  made or directions
given by the Operating Committee shall be unanimous.

19.3  Responsibilities.  The Operating  Committee  shall be responsible  for the
establishment,  from time to time, of the operating practices and procedures for
the  interconnected  operation of the Facility.  These  practices and procedures
shall be consistent with the provisions of this Agreement.

19.4 Data Reporting:  Seller shall provide Company with all information required
to operate the  transmission  grid including but not limited to the requirements
of NERC,  SERC and/or VACAR.  Seller shall comply with the  requirements  of the
NERC Compliance Program which includes but is not limited to provisions for data
reporting to the transmission provider.

19.5 Notice. Each Party shall notify the other Party in writing of the personnel
that it appoints to the Operating Committee.


















                                                                         Page 22
<PAGE>

IN WITNESS  WHEREOF,  the Parties  hereto have caused this  Agreement to be duly
executed by their duly authorized officers on the day and year indicated below.



                                 SELLER

                                 By: _____________________________

                                 Name: ___________________________

                                 Title: __________________________

                                 Date: ___________________________



                                 CP&L

                                 By: ____________________________

                                 Name: ___________________________

                                 Title: __________________________

                                 Date: ___________________________



















                                                                         Page 23
<PAGE>


                                   APPENDIX A
                     INTERCONNECTION OPERATING REQUIREMENTS

     This Appendix A is a part of the  Interconnection  and Operation  Agreement
between Seller and Company.

I.   PURPOSE:
     These requirements will contribute to a safer working environment for those
     persons  authorized  by Seller and  Company to operate and  maintain  their
     respective equipment;  also to minimize customer inconvenience by promoting
     improved coordination between Seller and Company.

II.  APPLICABILITY:
     These  requirements  apply to all  operations  that can affect the  Company
     Transmission  System via the 115 kV interconnection  with Seller located in
     Kornegay, North Carolina identified in Attachment Exhibit I.

III. DESCRIPTION OF:
     Attached Exhibit I to this document  contains a written  description of the
     Company and Seller  facilities  these  requirements  are  directed to. This
     description contains the following information:

     A.   Location of the Company-owned station and Seller-owned substation.

     B.   Identification  of  equipment  connected  to the Company  Transmission
          System.

     C.   Description of the opening point that will separate Seller's equipment
          from the Company's Switching Station.

IV.  COORDINATION CONTACTS:
     Attached  Exhibit II to this document  contains the following  coordination
     contacts information:

     A.   A listing of the  appropriate  Company  operations  contacts and their
          telephone numbers.

     B.   Information  received from Seller  designating the names and telephone
          numbers  of  individuals  who  are  authorized  to  operate   Seller's
          equipment  and  coordinate  operations  with the Company  power system
          operator.

V.   REVISIONS:
     This  document is subject to be revised,  amended,  or  otherwise  changed.
     Exhibits  I and II may be  revised  from  time to  time  to keep  telephone
     numbers,  contacts, and delivery locations current. Any other such revisal,
     amendment,  or change shall be in writing and signed by the parties. Seller
     will notify Company in writing,  at the following  address,  of any changes
     that affect information in this Appendix A or Exhibits I and/or II. Company
     will  revise  and  redistribute  this  Appendix  A  with  its  exhibits  as
     necessary.



                                                                         Page 24
<PAGE>

     To Company:
     CP&L
     3401 Hillsborough Street
     Raleigh, NC 27606
     Attention: Director Power System Operations Carolinas

VI.  GENERAL INFORMATION:

     A.   Main Equipment

          1.   Seller maintains and operates all facilities on the Seller's side
               of the high-voltage bushing connections of the Seller-owned three
               phase 115/13.2 kV transformer bank.
          2.   Seller maintains and operates all facilities on the Seller's side
               of the high-voltage  bushing connection of the Seller-owned three
               phase115/13.2 kV transformer bank.

     B.   Relay Protection

          1.   Seller has the following relay protection schemes:

               a.   Seller has overcurrent and differential  relay protection on
                    the  transformer  bank. For  transformer  trouble,  the bank
                    lockout relay operates,  tripping the total bank breaker and
                    the  Company's  115 kV circuit  breaker.  When this  lockout
                    relay operation occurs,  Seller's personnel will not be able
                    to close the Company's 115 kV circuit breaker.

          2.   Company has the following relay protection schemes:

               a.   Non-directional  total  overcurrent  relays that back up the
                    Seller's bank overcurrent  relays and trip the Company's 115
                    kV circuit breaker.
               b.   Directional  voltage-sensitive  overcurrent relays that trip
                    the Company's 115 kV circuit breaker.
               c.   Under- and over-frequency relays that trip the Company's 115
                    kV circuit  breaker  except as defined in Section VII. below
                    (Bypass Switching).
               d.   A  transfer-tripping  scheme that trips the Company's 115 kV
                    circuit  breaker (or if bypassed  trips the  Seller's  total
                    bank breaker) for a fault on the  Company's Lee  Sub-Wallace
                    115 kV Line.


               If the Company's total  overcurrent  relays  operate,  the Seller
               will not be able to close the Company's  115 kV circuit  breaker.
               Company  will have to send  someone to the  switching  station to
               close the 115 kV breaker.




                                                                         Page 25
<PAGE>

     C.   Alarms

          1.   The following  alarms are transmitted to Company's Energy Control
               Center  (ECC) in Raleigh,  N.C.
               o    Company's station battery low voltage
               o    Company's 115 kV circuit breaker operation
               o    Company's 115 kV circuit breaker mechanism trouble
               o    Transfer-trip channel trouble (loss of guard)

          2.   When receiving an alarm, the Company power system operator at the
               ECC will send personnel to investigate the reason for the alarm.

VII. OPERATING PRACTICES
     Company personnel will operate all Company-owned substation facilities, and
     Seller  will  operate all  Seller-owned  substation  facilities,  except as
     specified under Section VII. Part B.


     A.   Company's  Kornegay  Cogentrix  115  kV  Switching  Station  Equipment
          Operated by Company:

          1.   Company personnel will operate all Company owned equipment.

     B.   Company's  Kornegay  Cogentrix  115  kV  Switching  Station  Equipment
          Operated by Seller

          1.   Remote Operation of Company's Equipment
               a.   Authorized Seller personnel will be allowed remote operation
                    (trip and close) of the  Company's  115 kV circuit  breaker.
                    The 115 kV circuit  breaker can be closed  remotely  only if
                    the following conditions are met:

                    i.   Permission  for  closing the  Company's  115 kV circuit
                         breaker  is  granted  by  the  Company's  Power  System
                         Operator.

                    ii.  The LOCAL/REMOTE switch is in the REMOTE position.

                    iii. The Company's Lee Sub-Wallace 115 kV Line is energized.

                    iv.  No bank relay has operated.

                    v.   Seller's total bank breaker is open.

               b.   After the  Company's 115 kV circuit  breaker is closed,  the
                    Seller  should be able to  synchronize  with the total  bank
                    breaker.  The Seller  has the  ability  to  synchronize  the
                    Seller's  generator  with  either  the  Seller's  total bank
                    breaker or the Seller's generator breaker.



                                                                         Page 26
<PAGE>

               c.   Seller will report all  operations  of the  Company's 115 kV
                    circuit breaker immediately after each operation. If the 115
                    kV circuit breaker is to be opened, it should be coordinated
                    ahead  of time  with the  Company's  Power  System  Operator
                    unless   conditions  occur  which  endanger  human  life  or
                    equipment and require immediate action.



          2.   Bypass Switching
               a.   If the bypass switch on the Company's 115 kV circuit breaker
                    at the Company Kornegay  Cogentrix 115 kV Switching  Station
                    is to be closed for breaker  maintenance or other  necessary
                    reasons, Seller will be notified, when possible, at least 10
                    days prior to closing the bypass switch. Seller will also be
                    notified immediately before the bypass switch is closed.

               b.   Just prior to closing the bypass switch, Company will change
                    the  LOCAL/REMOTE  switch  to LOCAL  and  place  the  switch
                    labeled NORMAL/BYPASS in the BYPASS position. This transfers
                    the  transfer-trip,  under/over  frequency  relaying to trip
                    only the Seller's total bank breaker while the Company's 115
                    kV circuit breaker is bypassed.

               c.   If the bypass  switch on the 115 kV  circuit  breaker at the
                    Kornegay  Cogentrix 115 kV Switching Station is closed,  the
                    Company's  Power System  Operator will not issue a stop test
                    for the Lee  Sub-Wallace  115 kV Line.  Automatic  reclosing
                    equipment  may  be  placed  in  MANUAL  position,   however,
                    permission  will not be given for  personnel  to work on the
                    transmission line while the bypass switch is closed.

     C.   Seller Guidelines for Planned Clearing of the Company Substation

          1.   Seller will notify  Company  fourteen (14) days in advance of the
               need or desire to clear its facilities from the Company system.

          2.   The Company power system  operator will arrange for the necessary
               equipment   to  be  cleared  and  tagged  by  Company   operating
               personnel.

          3.   Seller   personnel  may  place  their  own   clearance   tags  on
               Company-owned  disconnecting  devices in accordance  with its own
               safety procedures.



                                                                         Page 27

<PAGE>

          4.   Upon completion of the work and proper  authorization  by Seller,
               the Company  power system  operator  will arrange for the Company
               equipment to be returned to service.

     D.   Scheduled Maintenance on Seller's Generation
          Seller will provide to the Company  Manager of System  Operations each
          year in January a 12-month anticipated  maintenance outage schedule of
          three days or more duration.  Throughout the year, Seller will provide
          reasonable  advance  notice to  Company  of any  modifications  to the
          maintenance  schedule.   Seller  will  make  best  effort  to  prevent
          scheduled maintenance from exceeding 45 days per year.


     E.   Scheduled Outages/Maintenance on Company Facilities
          1.   When it is  necessary  for  Company to place a Stop Test Order on
               its  equipment,  Seller  will  be  notified  in  advance.  If the
               insolating  switching  device opens while a Stop Test Order is in
               effect,  the devise will not be reclosed until the Company person
               holding the Stop Test Order gives permission to the Company power
               system  operator.  Only Company  personnel are allowed to reclose
               the Company-owned equipment.

          2.   Company equipment will be tested periodically.  Prior to testing,
               the time of the test will be coordinated with Seller's authorized
               personnel by the Company power system operator.

          3.   The Company representative,  or the Company power system operator
               will  notify  Seller  prior to a  prearranged  clearance  the may
               impact Seller's facilities.


     F.   Miscellaneous
          1.   Seller will contact the Company power system operator and request
               permission  to  synchronize  their  generation  with the  Company
               Transmission  System. Under no condition shall Seller synchronize
               generation  with the Company  Transmission  System  without prior
               approval of the Company power system operator.

          2.   When Seller is not  injecting  power to the Company  Transmission
               System,  the generation shall not be in parallel with the Company
               Transmission  System unless Seller has received  permission  from
               the Company power system operator.


                                                                         Page 28
<PAGE>

          3.   Seller  will  communicate  daily with the  Company  power  system
               operator to discuss their operating plans and capability.

          4.   For all planned Seller work or activities that affect the Company
               Transmission   System,   and  which  do  not  require   immediate
               attention,   Seller's   personnel   should   contact  the  Outage
               Coordinator  as  indicated  in Exhibit  II. All other  day-to-day
               operations  will be coordinated  through the Company power system
               operator. Refer to Exhibit II for specific contact information.

          5.   Seller  shall  confirm kW and kWh meter  readings  daily with the
               Company power system operator by telephone.





















                                                                         Page 29
<PAGE>

                                   APPENDIX A
                                    EXHIBIT I
                       DESCRIPTION OF THE INTERCONNECTION



I.   This facility is located near Kornegay, North Carolina.

II.  Seller has a  generating  facility  consisting  of  approximately  35 MW of
     generation  connected  to a  secondary  bus  via a  Seller-owned  generator
     breaker.  All of the Seller's auxiliary load is connected to the secondary.
     A Seller-owned total bank circuit breaker connects the secondary bus to the
     Seller-owned 115/13.8 kV transformer bank.

III. The  Company-owned   equipment  at  Company's  Kornegay  Cogentrix  115  kV
     Switching  Station  consists  of a 115  kV  circuit  breaker  and  metering
     equipment, located on the high-voltage side of the Seller-owned 115/13.8 kV
     transformer.
























                                                                         Page 30
<PAGE>

                                   APPENDIX A
                                   EXHIBIT II
                              COORDINATION CONTACTS


I.   COMPANY COORDINATION CONTACTS:

     A.   Outage  Coordinator  at the Energy  Control  Center in Raleigh,  North
          Carolina (ECC): Mgr-Power Sys Ops-Carolina-Jeffery D. Hines
          Telephone: (919) 545-2775

     B.   Company power system operator in Raleigh, North Carolina.
          Telephone: (919) 546--6527

     C.   The  alternate  contact in the event  that the  Company  power  system
          operator  cannot be  reached  is:  Alternate:  Director  Power  System
          Operations Carolinas- Randy K. Wilkerson
          Telephone: (919) 546-6968

II.  SELLER COORDINATION CONTACTS:

     A.   Primary  Contact:  Kenansville  Plant Manager Steve Miller
          Telephone: (910) 296-1909

     B.   Alternate Contact:
          Wayne Coverdale
          Telephone: (910) 392-7690

















                                                                         Page 31
<PAGE>

                                   APPENDIX B
                           INTERCONNECTION FACILITIES


Company  shall  install,  own,  operate,  and maintain  all lines and  equipment
located on its side of the point of  interconnection.  It shall also install and
own the necessary metering equipment,  and meter transformers,  where necessary,
for measuring  the  electricity  delivered to Company,  though such meter may be
located  on  Seller's  side of the  point  of  interconnection.  Interconnection
facilities,  installed  by either  Company or Seller,  solely for such  purpose,
include,  but are not limited to  connection,  line  extension,  transformation,
switching    equipment,    protective    relaying,    metering,    telemetering,
communications, and appropriate safety equipment.

Point of Interconnection
------------------------
The Point of  Interconnection  will be the point  where  the  Company's  jumpers
connect to the  high-side  bushings  of the  Seller's  three-phase  115/13.2  kv
generator step-up transformer. See Figure 1 titled, "Company / Customer (Seller)
Kornegay Facilities", which drawing is attached hereto and made a part hereof.

Transmission Interconnection Facilities to be Furnished by Company
------------------------------------------------------------------
Company  shall own,  operate,  and  maintain  all  Transmission  Interconnection
Facilities.   These  facilities  include  real  property   associated  with  the
Transmission  Interconnection  Facilities,  2.29  miles  of 115 kV line  and the
Company's  Kornegay  Cogentrix  115 kV  Switching  Station  and  all  associated
equipment.  This tap line  interconnects to the Company  Transmission  System at
structure #263 on the Company's Lee- Wallace 115 kV line. (See Figure 1).

Seller Facilities to be Furnished by Seller
-------------------------------------------
Seller will own,  operate,  and maintain all  facilities  that connect  Seller's
Facility  to  the  Transmission  Interconnection  Facilities.  These  facilities
consist of a  Seller-owned  generator  breaker that  connects to the  Facility's
secondary  bus and a total bank circuit  breaker that connects the secondary bus
to the Seller-owned 115/13.8 kV transformer bank. (See Figure 1).

Any interconnection  facilities  installed by Company necessary to receive power
from Seller shall be considered as additional  facilities and shall be provided,
if Company finds it practicable, under the following conditions:

     (1)  The  facilities  will  be of a  kind  and  type  normally  used  by or
          acceptable to Company and will be installed at a place and in a manner
          satisfactory to Company.

     (2)  Seller  will pay to  Company a Monthly  Facilities  Charge of $ 20,730
          which is 2% of the original  installed cost and rearrangement  cost of
          all facilities required to accept interconnection ($1,036,540).



                                                                         Page 32
<PAGE>

     (3)  If Company increases its investment, either by decision of the Company
          or request of the Seller, other than replacement of existing equipment
          with  equipment  of  equal  capacity  and  kind,  in   interconnection
          facilities or other special  facilities  required by Seller (including
          conversion of the Company's primary voltage to a higher voltage),  the
          monthly  charge  for  providing  the  additional  facilities  will  be
          adjusted at that time. The new Monthly Facilities Charge will be 2% of
          the  total  investment,   which  includes   existing   facilities  and
          additional investment. Conversely, if Company utilizes the tap line to
          supply load or accept  generation  into its system  other than that of
          Seller, said total investment will be proportionately reduced.

     (4)  The Monthly Facilities Charge as determined in (2) and (3) above shall
          continue for the term of the Agreement  until  terminated by Seller or
          Company.

     (5)  Seller's  wiring and  appurtenant  structures  shall  provide  for the
          location,  connection, and installation of Company's standard metering
          equipment  or other  equipment  deemed  necessary  by Company  for the
          metering of Seller's electrical output. Company shall, at its expense,
          be permitted to install, in Seller's wiring or equipment,  any special
          metering  devices or equipment as deemed necessary for experimental or
          monitoring purposes.



















                                                                         Page 33


<PAGE>

             TERMS AND CONDITIONS FOR THE PURCHASE OF ELECTRIC POWER
      For Qualifying Facilities with Generating Capacity Greater than 5 MW


l.   PURCHASE AGREEMENT
     ------------------

     These "Terms and  Conditions"  provide a mechanism  through which  Carolina
     Power and Light Company,  hereafter called Company,  will agree to purchase
     energy or capacity or both from a "Qualifying  Cogeneration  or Small Power
     Production  Facility" (Seller) as defined in the Regulations of the Federal
     Energy Regulatory Commission (FERC) or other governmental  authority having
     jurisdiction,  and for Seller to supply to Company  energy or  capacity  or
     both as defined  herein.  This Purchase  Agreement does not provide for the
     sale of any  electric  service by Company  to  Seller.  If Seller  requires
     supplementary,  standby, or interruptible power from Company,  Seller shall
     enter into a separate Retail Service  Agreement or amend an existing Retail
     Service Agreement, as appropriate,  in accordance with Company's applicable
     electric  service  tariffs  on  file  with  and  authorized  by  the  state
     regulatory agency having jurisdiction.

     (a)  Description - The Purchase  Agreement  (hereinafter  sometimes  termed
          "Agreement")  shall consist of (1) Company's form of  Application  for
          Standard Contract by a Qualifying  Cogenerator or Small Power Producer
          (Application)  when signed by Seller and accepted by Company,  (2) the
          applicable Schedule and Riders, (3) these Terms and Conditions for the
          Purchase of Electric Power for Qualifying  Facilities  with Generating
          Capacity  Greater  than 5 MW  (hereinafter  referred  to as "Terms and
          Conditions"),   and  (4)  the  Operation   Agreement  for   Qualifying
          Facilities with Generating  Capacity  Greater than 5 MW when signed by
          Seller  and  accepted  by  Company,   and  all   changes,   revisions,
          alterations therein, or substitutions therefor lawfully made.

     (b)  Applicability  - This Purchase  Agreement  shall be applicable only if
          Seller's  facility  is  a  "Qualifying   Cogenerator  or  Small  Power
          Production  Facility"  under  Section  201  of  The  Public  Utilities
          Regulatory  Policies Act of 1978  (PURPA),  and the rules set forth by
          the FERC.

     (c)  Application  of Terms  and  Conditions,  Schedules,  and  Riders - All
          Purchase  Agreements  in effect at the time of the approval  hereof or
          that may be entered into in the future,  are made expressly subject to
          these Terms and  Conditions,  and subject to all applicable  Schedules
          and  Riders,  and  any  changes  therein,  substitutions  thereof,  or
          additions  thereto  lawfully  made,  provided no change may be made in
          rates or in the terms and conditions of this contract except by mutual
          agreement of the parties to this contract.

     (d)  Conflicts - In case of conflict between any provision of a Schedule or
          Rider or Application, and of these Terms and Conditions, the provision
          of the Schedule or Rider or Application shall prevail.

     (e)  Transfer  of  Agreement  - A Purchase  Agreement  between  Company and
          Seller may be transferred and assigned by Seller to any person,  firm,
          or  corporation  purchasing  or leasing and  intending to continue the
          operation of the plant or business which is interconnected  under such
          Agreement,  subject to the written  approval of Company.  Company will
          grant such approval upon being reasonably  satisfied that the assignee
          will fulfill the terms of the Agreement and if, at Company's option, a
          satisfactory  guarantee  for the  payment of any  applicable  bills is
          furnished  by assignee.  In  addition,  Seller shall have the right to
          enter into a collateral  assignment  of the Agreement and any revenues
          and contract  rights  thereunder  to one or more lenders in connection
          with a financing of Seller's Facility, and Company agrees that it will
          not unreasonably delay or withhold its consent to any such assignment,
          provided  that Seller shall remain  liable for its  performance  under
          this  Agreement   notwithstanding   any  such  assignment  under  this
          sentence.


<PAGE>

     (f)  Suspension of Sales Under Agreement at Seller's Request - If Seller is
          temporarily  unable to produce the  electricity  contracted for due to
          physical  destruction  of, or damage to, his  premises,  Company will,
          upon  written  request of Seller,  and for a period  Company  deems as
          reasonably  required  to  replace  or repair  such  premises,  suspend
          billing  under the  Agreement,  exclusive  of any  Monthly  Facilities
          Charges, effective with the beginning of the next billing period.

     (g)  Termination  of Agreement at Seller's  Request - If Seller  desires to
          terminate  the  Agreement,   Company   maintains  the  right  but  not
          obligation  to  agree  to such  termination.  Termination  will not be
          granted  if  Company  is not  satisfied  that all bills  for  services
          previously rendered to Seller have been paid.

     (h)  Company's  Right to  Terminate  or Suspend  Agreement  -  Company,  in
          addition  to all  other  legal  remedies,  may  either  terminate  the
          Agreement or suspend  purchases of electricity from Seller (l) for any
          default or breach of Agreement by Seller as defined in Section 15.0 of
          the Operation  Agreement for  Qualifying  Facilities  with  Generating
          Capacity  Greater than 5 MW, (2) for fraudulent or unauthorized use of
          Company's  meter, (3) for failure to pay any applicable bills when due
          and  payable,  (4) for a condition  on  Seller's  side of the point of
          delivery actually known by Company to be, or which Company  reasonably
          anticipates  may be,  dangerous  to life  or  property,  or (5) due to
          Seller's  inability  to deliver to Company the quality of  electricity
          mutually  agreed  to  in  the  Purchase  Agreement,   unless  Seller's
          inability  to  deliver  the  quality  of  electricity  is due to force
          majeure as specified in Section 11.0 of the  Operation  Agreement  for
          Qualifying Facilities with Generating Capacity Greater than 5 MW.

          No such suspension,  however,  will be made by Company without written
          notice  delivered to Seller,  personally  or by mail,  stating what in
          particular in the Agreement has been  violated,  except that no notice
          need to be given in  instances  set  forth in  1.(h)(2)  and  1.(h)(4)
          above.  Company may terminate  Agreement if violation  for  suspension
          continues for more than sixty (60) days after written  notice has been
          delivered.

          Failure  of Company  to  terminate  the  Agreement  or to suspend  the
          purchase of  electricity  at any time after the  occurrence of grounds
          therefor,  or to resort to any other legal  remedy or to exercise  any
          one or more of such  alternative  remedies,  shall not waive or in any
          manner  affect  Company's  right later to resort to any one or more of
          such rights or remedies on account of any such ground then existing or
          which may subsequently occur.

          Any   suspension  of  the  purchase  of   electricity  by  Company  or
          termination of the Agreement  upon any authorized  grounds shall in no
          way operate to relieve  Seller of  Seller's  liability  to  compensate
          Company for services and/or facilities supplied,  nor shall it relieve
          Seller of liability for the payment of minimum  monthly charges during
          the period of suspension

     (i)  Suspension  of  Purchases  at  Company's  Request  - If  Seller  has a
          Contract Capacity of 5,000 kW or greater,  Company will contract for a
          maximum  number of hours  annually  during  which  Company may suspend
          purchases.  Company will exercise  reasonable  and diligent  effort to
          notify Seller,  and provide  maximum prior notice,  prior to a request
          for suspension to allow for Seller's proper planning and  coordination
          of such suspension.

2.   PURCHASES OF ELECTRICITY
     ------------------------

     If Seller  desires to purchase  electricity  from Company  through the same
     point of interconnection  used by Seller in supplying power to Company, and
     Company approves,  then Seller shall execute a separate  Agreement for such

<PAGE>

     purchases in accordance with Company's Rate Schedules,  Riders, and Service
     Regulations as filed with the  regulatory  authority  having  jurisdiction.
     Company's purchases of electricity from Seller and sales to Seller shall be
     separately metered.

3.   CONTRACT CAPACITY
     -----------------

     (a)  The  Contract  Capacity  shall be the kW of capacity  specified in the
          Application for Standard Contract by a Qualifying Cogenerator or Small
          Power  Producer.  In cases where any change is  required in  Company's
          facilities due to the actual capacity delivered exceeding the Contract
          Capacity or due to Seller  requesting  an increase in the  capacity of
          Company's  facilities,  Company  may  require  Seller to execute a new
          Agreement or amend an existing Agreement,  thereby  establishing a new
          Contract  Capacity.  If  Company's  facilities  cannot be  upgraded to
          accept such actual or requested  increase,  then upon written  notice,
          Seller will not exceed the existing  Contract  Capacity or such amount
          in excess thereof as Company determine it is able to accept.

     (b)  If Seller increases his generating capacity without adequate notice to
          Company,   and  without   receiving   Company's   consent,   and  such
          unauthorized   increase   causes  loss  of  or  damage  to   Company's
          facilities, the cost of making good such loss or repairing such damage
          shall be paid by  Seller  and shall  not be  considered  consequential
          damages.

     (c)  Company may require that a new Contract Capacity be determined when it
          reasonably appears that the capacity of Seller's  generating  facility
          will deviate from  contracted  or  established  levels for any reason,
          including,  but not limited to, a change in water flow,  steam supply,
          or fuel supply.


4.   CONTRACT ENERGY
     ---------------

     The Contract Energy shall be computed for on-peak and off-peak time periods
     and  shall be the  resultant  total  annual  kilowatt-hours  registered  or
     computed  by or from  Company's  metering  facilities  for each time period
     during a continuous 12-month interval.

5.   CONTRACT TERMINATION
     --------------------

     If Seller or Company  terminates  the  Agreement,  the Seller's  facilities
     charges   will  be   applied  as   outlined   in  the   existing   Facility
     Interconnection and Operating  Agreement between Seller and Company,  dated
     January 18, 2002, on file with the Federal Energy Regulatory Commission.


6.   QUALITY OF ENERGY RECEIVED
     --------------------------

     Seller  has  full   responsibility  for  the  routine  maintenance  of  his
     generating and protective equipment to insure that reliable,  utility grade
     electric energy is being delivered to Company.  Failure of Seller to comply
     will  constitute  grounds  for  Company to cease  parallel  operation  with
     Seller's  generation  equipment and constitute  grounds for  termination or
     suspension of the Agreement as set forth under Item 1.(h) above.

7.   BILLING
     -------

     (a)  Company's  meters  will be read as nearly as  practicable  at  regular
          intervals of not less than 27 days and not more than 33 days.

     (b)  If  Company  is unable  to read its  purchase  meter  for any  reason,
          Seller's  production  may be  estimated  by  Company  on the  basis of
          Seller's production during the next preceding billing period for which

<PAGE>

          readings  were  obtained,  unless some  unusual  condition is known to
          exist. A bill or payment  rendered on the basis of such estimate shall
          be as valid as if made from actual meter readings.

     (c)  The term  "Month" or  "Monthly",  as used in Company's  Schedules  and
          Riders,  refers to the interval transpiring between the previous meter
          reading date and the current  reading date and bills shall be rendered
          accordingly,  except that if the period covered by an initial or final
          bill,  or due to rerouting of the meter reading  schedule,  is more or
          less than  27-33  days,  the bill will be  prorated  based on a 30-day
          billing month.

     (d)  Payments  for capacity  and/or  energy will be made to Seller based on
          the rate schedule stated in the Application for Standard Contract by a
          qualifying Cogenerator or Small Power Producer.

8.   METER STOPPAGE OR ERROR
     -----------------------

     In the event a meter  fails to  register  accurately  within the  allowable
     limits  established  by the  state  regulatory  body  having  jurisdiction,
     Company  will adjust the  measured  energy for the period of time the meter
     was  shown  to be in  error,  and  shall,  as  provided  in the  rules  and
     regulations  of the  state  regulatory  body  having  jurisdiction,  pay to
     Seller,  or Seller  shall  refund to Company,  the  difference  between the
     amount billed and the estimated amount which would have been billed had the
     meter not exceeded the  allowable  limits.  No part of any minimum  service
     charge shall be refunded.

9.   POINT OF INTERCONNECTION
     ------------------------

     The point of interconnection  is the point where Company's  conductors are,
     or are to be, connected to Seller's conductors.  Seller shall do all things
     necessary  to bring his  conductors  to such point of  interconnection  for
     connection to Company's  conductors,  and shall maintain said conductors in
     good order at all  times.  If Seller  chooses  to deliver  power to Company
     through a point of delivery  where  Seller  presently  receives  power from
     Company,  then the point of interconnection  shall be the same point as the
     point of delivery.


10.  CONTINUANCE OF PURCHASES AND LIABILITY THEREFOR
     -----------------------------------------------

     Company does not guarantee  continuous  purchases but shall use  reasonable
     diligence at all times to provide for acceptance of electricity  and having
     used  reasonable  diligence  shall not be liable to Seller for damage,  for
     failure in, or for interruptions or suspensions of the same.


11.  DISPATCHING OF SELLER'S GENERATION
     ----------------------------------

     Company may desire to dispatch Seller's generation,  from Company's central
     dispatching  facility,  if the  generation  is firm  capacity  equal  to or
     greater than 5,000 kW. Firm  capacity  shall be considered to be a facility
     which is fueled by a reliable fuel supply with adequate fuel storage and is
     available to deliver  power to  Company's  system as requested by Company's
     system dispatcher during the system daily and seasonal peak periods.

     Conditions  affecting  the ability of a facility to be  classified  as firm
     capacity, and therefore to be eligible for dispatch by Company are:

     (1)  Seller's  generation  must be available  upon the request of Company's
          system dispatcher.


<PAGE>

     (2)  Seller shall schedule maintenance of Seller's generator during periods
          approved by Company, not to exceed 45 days per calendar year.

     (3)  Telemetering  and  communications,  for automatic  control of Seller's
          generation   by   Company,   will  be   required  as  a  part  of  the
          interconnection facilities for any dispatched facility.

     (4)  Other  mutually  agreeable  considerations  will be made a part of the
          negotiated contract as necessary.

12.  GOVERNMENTAL RESTRICTIONS
     -------------------------

     This  Agreement  is  subject  to the  jurisdiction  of  those  governmental
     agencies  having  control  over either party or over this  Agreement.  This
     Agreement  shall  not  become  effective  until all  required  governmental
     authorizations  are obtained.  Certification  of receipt of all permits and
     authorizations  shall be  furnished  by Seller to  Company  upon  Company's
     request.  This  Agreement  shall  not  become  effective  unless it and all
     provisions  thereof  are  authorized  and  permitted  by such  governmental
     agencies without change or conditions.

     This  Agreement   shall  at  all  times  be  subject  to  changes  by  such
     governmental  agencies,  and the parties shall be subject to conditions and
     obligations,  as such governmental  agencies may, from time to time, direct
     in the  exercise of their  jurisdiction,  provided no change may be made in
     rates or in  essential  terms and  conditions  of this  contract  except by
     agreement  of the parties to this  contract.  Both  parties  agree to exert
     their  best  efforts  to  comply  with  all of  the  applicable  rules  and
     regulations of all  governmental  agencies having control over either party
     or this Agreement.  The parties shall take all reasonable  action necessary
     to secure all  required  governmental  approval  of this  Agreement  in its
     entirety and without change.

     The delivery  date,  quantity,  and type of  electricity to be accepted for
     purchase by Company,  from  Seller,  are subject to changes,  restrictions,
     curtailments,  or complete suspensions by Company as may be deemed by it to
     be necessary or advisable  (a) on account of any lawful order or regulation
     of any municipal,  State, or Federal government or agency thereof, or order
     of any court of competent jurisdiction,  or (b) on account of any emergency
     due to war,  or  catastrophe,  all  without  liability  on the  part of the
     Company therefor.

13.  GENERAL
     -------

     (a)  Whenever the term  "purchase" or "purchase of  electricity" is used in
          these Terms and  Conditions  or other  portions of the  Agreement,  it
          shall be construed to refer to the electricity  supplied to Company by
          Seller.

     (b)  The term "Company's  conductors"  shall mean Company's wires extending
          from the point of connection with Company's  existing  electric system
          to the point of interconnection.

     (c)  The term "Seller's  conductors"  shall mean Seller's  wires  extending
          from the point of  interconnection  to the switch  box or other  point
          where  Seller's  circuits  connect  for the purpose of  supplying  the
          electricity produced by Seller.

     (d)  The term  "'interconnection"  shall mean the  connection  of Company's
          conductors to Seller's conductors.




<PAGE>

                        APPLICATION FOR STANDARD CONTRACT
               BY A QUALIFYING COGENERATOR OR SMALL POWER PRODUCER


1.   The undersigned, hereinafter called "Seller," hereby requests that Carolina
     Power  &  Light  Company,   hereinafter  called  "Company,"   purchase  the
     electricity   supplied  to   Company's   system  by  Seller's   "Qualifying
     (Cogeneration/Small   Power  Production)   Facility"  located  at  or  near
     Kenansville, North Carolina, in accordance with the terms hereof, Company's
     Schedule  No.  CSP-20B  and  any  applicable  Riders,  and  the  Terms  and
     Conditions  for the Purchase of Electric  Power for  Qualifying  Facilities
     with Generating Capacity Greater than 5 MW ("Terms and Conditions"), a copy
     of each being attached and made a part of this Agreement.

2.   Electricity supplied, by Seller, hereunder shall be in the form of 3 phase,
     3 wires,  alternating  current of 60 cycles and sufficient  power factor to
     maintain  system  operating  parameters  as  specified  by Company,  with a
     maximum  on-peak  generation  capacity  of 32,000 kW and an annual  on-peak
     energy  production of not more than  96,000,000 kWh. Upon the completion of
     the  installation,  by Company,  of its  interconnection  facilities at the
     point of interconnection of Seller's and Company's conductors, Seller shall
     become  responsible  for the payment to Company of any and all charges that
     may apply,  whether or not Seller  actually  delivers  any  electricity  to
     Company.

3.   The point of  interconnection  for the  acceptance of Seller's  electricity
     supplied  hereunder  will  be  where  Seller's  conductors  meet  Company's
     conductors  as  defined  in  Appendix  B of  the  Operation  Agreement  for
     Qualifying Facilities with Generating Capacity Greater than 5 MW.

     The Company agrees to furnish the following interconnection  facilities: as
     defined in Appendix B of the Operation Agreement for Qualifying  Facilities
     with Generating Capacity Greater than 5 MW.

4.   Upon the  acceptance  hereof by the Company,  evidenced by the signature of
     its authorized  representative  in the block provided below, this Agreement
     together with the  attachments  specified in Paragraph 1 of this  Agreement
     shall become an agreement for Seller to deliver and sell to Company and for
     Company to receive and purchase from Seller the  electricity  generated and
     declared by Seller from its above-described  qualifying generating facility
     at the  rates,  in the  quantities,  for the  term,  and upon the terms and
     conditions set forth herein.

5.   Payment for energy  and/or  capacity  received  by  Company,  or payment by
     Seller,  if any, as set forth in the rate  schedule  shall be due within 15
     days from the date  billed,  and shall be  administered  through  Company's
     Raleigh office.

6.   The  initial  term of this  Agreement  (Term) is from  January  1, 2003 and
     continuing  until December 31, 2012.  Seller will not deliver energy to any
     third party during the Term of this Agreement.

7.   The Seller  hereby  certifies  that this  facility  is "new  capacity,"  as
     defined  by the  Federal  Energy  Regulatory  Commission  (FERC),  and that
     construction was commenced on or after November 9, 1978.

8.   In emergency  conditions,  Company  retains the right to request  Seller to
     generate. When Seller generates at Company's request, Company agrees to pay
     Seller  $1,250  for each  startup at times that the  turbine  generator  is
     off-line  for more than 16 hours,  and the  Variable  Energy  and  Capacity
     Credits as stated under  CSP-20B,  or its  successor,  for energy  received
     during the emergency period.

9.   Company agrees not to seek dispatch of Seller's  generation until such time
     that Seller modifies facility and/or fuel source to accommodate dispatch of
     Seller's  generation.  At that time, Company may request,  and Supplier may
     mutually agree to,  dispatch rights pursuant to Section 11 of the Terms and
     Conditions.

10.  Seller shall pay Company a Monthly  Facilities Charge of $20,730 consistent
     with the  provisions  defined in Appendix B of the Operation  Agreement for
     Qualifying Facilities with Generating Capacity Greater than 5 MW.

11.  Company agrees to purchase electricity  supplied to Company's  transmission
     system by Seller's  qualifying power  production  facility at the rates and
     provisions  established  under  Schedule  CSP-20B and its  successor(s)  as
     modified by Attachment 1 and made part of this agreement.

12.  The  parties  agree  that the  Company  will make no claims to any  Credits
     Related to Environmental  Emissions or Discharges or any Credits Related to
     Renewable Energy Resources under the present rates  established and paid to
     Seller  under  Schedule  CSP-20B,  as referred to in  Paragraph  11 of this
     agreement.  If future rates  established  and paid to Seller under Schedule
     CSP-20B  or its  successor(s),  as  referred  to in  Paragraph  11 of  this
     agreement, include the cost or value of any such Credits, then such Credits
     shall accrue to Company or, if such  Credits do not accrue to Company,  the

<PAGE>

     rate paid to seller  shall be reduced by the value as  provided  in avoided
     cost  calculations  of such  Credits.  Company  will  not  unduly  withhold
     Supplier's  opportunity  to sell Credits that are not owned by Company to a
     third party.  If separate  calculations  of costs or values of such Credits
     are not  available,  Company  agrees to provide  access to its avoided cost
     calculations  for review by Seller;  provided,  however,  that such  access
     shall be consistent with the Company's usual practice for providing  access
     to such documents, which contain proprietary,  confidential and competitive
     information  within  the scope of N.C.  Gen.  Stat.  ss.  132-1.2.  For the
     purpose of this Paragraph 12, Credits Related to Environmental Emissions or
     Discharges  shall mean any credits,  allowances or  allocations  related to
     emissions  (as that term is defined in the Clean Air Act, 42 U.S.C.  ss.ss.
     7401 et seq.) or  discharges  (as that term is defined  in the Clean  Water
     Act,  33  U.S.C.  ss.ss.  1251  et  seq.),  including  but not  limited  to
     "allowance"  as defined  in 42 U.S.C.  ss.  7651a(3)  and  "allocation"  as
     defined in 40 C.F.R.  ss. 96.2,  and any credit,  allowance  or  allocation
     related to an emission or discharge that is authorized or created  pursuant
     to federal,  state or local law or regulation or international  treaty. For
     the purpose of this  Paragraph  12,  Credits  Related to  Renewable  Energy
     Resources  shall  mean  financial  or  economic   credits  related  to  the
     production of electric power from renewable energy resources, including but
     not  limited to energy  that is  generated  from  solar,  wind,  biomass or
     geothermal energy resources.

13.  In accordance  with  Paragraph 2 of this  Agreement and Articles  3.6.1 and
     8.12 of the Operation  Agreement,  Company  agrees to purchase  electricity
     supplied by Seller at the point of  interconnection at a nominal voltage of
     115,000 volts;  however,  at all times the actual voltage  maintained shall
     support the system voltage maintained in the area.

14.  Seller  shall  reduce the output of the facility to a level of 7 (seven) MW
     during  off-peak  periods of system low load  conditions for periods not to
     exceed 1,000  cumulative  hours during each one-year term of the Agreement,
     when requested to do so by the Company. Seller will receive no compensation
     for any  generation  over 7 (seven) MW during  this  period.  Company  will
     provide   Seller  as  much  notice  as   reasonably   possible   under  the
     circumstances  of a reduction  to allow for  Seller's  proper  planning and
     coordination of such reduction.

15.  Seller  will  provide  Company,  by the  15th of  each  calendar  month,  a
     statement of its fuel cost consumed for the  production of  electricity  at
     the  facility  for the prior  calendar  month.  Such  costs  shall  include
     start-up,  running  and  stand-by  fuel.  Company  will use this  fuel cost
     information in regulatory  fuel cost recovery  proceedings and only divulge
     such cost data in support thereof.

Witness as to Seller:


------------------------------               Green Power Kenansville LLC, Seller

------------------------------               By
                                               ---------------------------------
                                             Title
                                                  ------------------------------
                                             This       day of             ,2002
                                                 ------       -------------


ACCEPTED: Carolina Power & Light Company       Payment/Bill wire transferred to:


By                                             Green Power Kenansville LLC
   ----------------------------------          ---------------------------------

Title Vice President -
      Regulated Commercial Operations          3212 Wickford Road
      -------------------------------          ---------------------------------

This       day of               ,2002          Wilmington, NC  28409
    --------     ---------------               ---------------------------------


Notices:                                       Notices:
Progress Energy                                Green Power Kenansville LLC
410 S. Wilmington Street, PEB 10A              1838 NC Route 11 and 903
Raleigh, NC 27601                              Kenansville, NC  28349
Attn:  Cogeneration Manager                    Attn:  Power Plant Manager

                                               Green Power Energy Holdings LLC
                                               3212 Wickford Road
                                               Wilmington, NC  28409
                                               Attn:  Wayne Coverdale

<PAGE>

                                  Attachment 1
                               Energy and Capacity
                                 Rates and Terms


1.   Energy:
     During the Term of the Agreement, Seller is eligible for Energy Payments as
     follows:

     a)   On-peak  Variable  Energy Credit as specified in Schedule  CSP-20B and
          its  successor(s)  for facilities whose deliveries enter the Company's
          transmission system.

     b)   Off-peak  Variable Energy Credit as specified in Schedule  CSP-20B and
          its  successor(s)  for facilities whose deliveries enter the Company's
          transmission system.



2.   Capacity:
     During the first 2 (two) years of Term of the  Agreement,  from  January 1,
     2003 through  December 31, 2004,  Seller is eligible for Capacity  Payments
     during the months as defined in Table A:

     TABLE A
             -------------- ---------------- -------------------------------
                 Season          Month         Capacity Credit ((cent)/kWh)
             -------------- ---------------- -------------------------------
               Non-Summer      December                 1.460
             -------------- ---------------- -------------------------------
                                January                 1.460
             -------------- ---------------- -------------------------------
                               February                 1.460
             -------------- ---------------- -------------------------------
                 Summer          June                   3.197
             -------------- ---------------- -------------------------------
                                 July                   3.197
             -------------- ---------------- -------------------------------
                                August                  3.197
             -------------- ---------------- -------------------------------


     a)   Seller is eligible for Capacity  Credit during on-peak  production for
          the hours as defined in CSP-20B or successor tariffs. Capacity Credits
          are not available for off-peak power production.

     b)   Summer and Non-Summer months are as stated in Table A.

     c)   After  the  first 2 (two)  years of the  Agreement  Term,  Seller  and
          Company  agree to negotiate  eligible  Capacity  Payment in good faith
          taking  into  consideration  then  current  Federal,  State  and North
          Carolina Utilities Commission rulings and Orders.