<PAGE>

                                                                    Exhibit 10.6

                      FUEL SUPPLY AND MANAGEMENT AGREEMENT

                                    between

                               ELWOOD ENERGY LLC
                             ELWOOD ENERGY II, LLC
                             ELWOOD ENERGY III, LLC


                                      and


                        CINERGY MARKETING & TRADING, LLC


                            dated as of May 1, 2001
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
<S>                                                                                              <C>
ARTICLE I DEFINITIONS..........................................................................     2
ARTICLE II TERM AND DESIGNATED REPRESENTATIVES.................................................     6
     2.1   Term................................................................................     6
     2.2   Designated Representatives..........................................................     7
ARTICLE III RESPONSIBILITIES OF FUEL MANAGER...................................................     7
     3.1   Supply and Delivery of Gas..........................................................     7
     3.2   Contract Management and Administration..............................................     7
     3.3   Quality of Gas......................................................................     8
     3.4   Compliance..........................................................................     8
     3.5   Metering............................................................................     8
     3.6   Sale of Power to Elwood.............................................................     8
ARTICLE IV RESPONSIBILITIES OF ELWOOD..........................................................     9
     4.1   On-Site Gas Handling Equipment......................................................     9
     4.2   Notice of Facility Operations.......................................................     9
     4.3   Loaned Gas Balance..................................................................     9
     4.4   Operation of the Facility...........................................................     9
     4.5   Status of T&B Agreement.............................................................    10
ARTICLE V PAYMENTS RELATED TO GAS..............................................................    10
     5.1   Payments by Elwood..................................................................    10
     5.2   Payments by Fuel Manager............................................................    11
ARTICLE VI OFFSET RIGHTS.......................................................................    12
     6.1   Offset Rights.......................................................................    12
ARTICLE VII BILLINGS AND PAYMENT...............................................................    13
     7.1   Information from Nicor Gas..........................................................    13
     7.2   Invoices by Fuel Manager............................................................    13
     7.3   Records.............................................................................    13
     7.4   Interest............................................................................    13
     7.5   Billing Disputes....................................................................    13
     7.6   Days/Business Days..................................................................    14
ARTICLE VIII AGENCY............................................................................    14
     8.1   Grant of Agency.....................................................................    14
     8.2   Limitations on Agency...............................................................    15
     8.3   No Transfer.........................................................................    15
     8.4   Obligations of Agent................................................................    15
     8.5   Notice of Agency....................................................................    15
ARTICLE IX ADDITIONAL COVENANTS................................................................    15
     9.1   Assignment..........................................................................    15
     9.2   Taxes on Gas........................................................................    17
     9.3   Fuel Manager Guaranty...............................................................    18
     9.4   Elwood Guaranties...................................................................    18
ARTICLE X DEFAULT AND TERMINATION..............................................................    18
     10.1  Termination of Agency...............................................................    18
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                               <C>
     10.2  Termination upon Enforcement Action.................................................    18
     10.3  Fuel Manager Default................................................................    18
     10.4  Elwood Default......................................................................    20
     10.5  Release of Obligations..............................................................    20
ARTICLE XI INDEMNITY...........................................................................    21
     11.1  Fuel Manager Indemnity..............................................................    21
     11.2  Elwood Indemnity....................................................................    21
     11.3  Survival............................................................................    22
ARTICLE XII LIMITATION OF LIABILITY............................................................    22
     12.1  Limitation of Liability.............................................................    22
ARTICLE XIII REPRESENTATIONS AND WARRANTIES....................................................    23
     13.1  By Fuel Manager.....................................................................    23
     13.2  By Elwood...........................................................................    23
ARTICLE XIV FORCE MAJEURE......................................................................    24
     14.1  Force Majeure Generally.............................................................    24
     14.2  Definition of Force Majeure.........................................................    25
     14.3  Exclusions from Force Majeure.......................................................    26
     14.4  Extended Force Majeure..............................................................    26
ARTICLE XV MISCELLANEOUS.......................................................................    26
     15.1  Notices.............................................................................    26
     15.2  Governing Law.......................................................................    27
     15.3  Copies..............................................................................    28
     15.4  Non Waiver..........................................................................    28
     15.5  Headings............................................................................    28
     15.6  Binding Effect......................................................................    28
     15.7  Severability; Merger................................................................    28
     15.8  Confidentiality.....................................................................    28
     15.9  Disagreements.......................................................................    29
     15.10 Survival............................................................................    29
     15.11 Counterparts........................................................................    29
</TABLE>

Exhibits:
     Exhibit A    Communications Protocol
     Exhibit B    Fuel Manager Guaranty
     Exhibit C-1  Elwood Guaranty (Dominion Energy, Inc.)
     Exhibit C-2  Elwood Guaranty (Peoples Energy Corporation)

                                      ii
<PAGE>

                     FUEL SUPPLY AND MANAGEMENT AGREEMENT

     This AGREEMENT is made as of May 1, 2001 between ELWOOD ENERGY LLC, ELWOOD
ENERGY II, LLC and ELWOOD ENERGY III, LLC, all of which are Delaware limited
liability companies, (collectively "Elwood"), and CINERGY MARKETING & TRADING,
LLC, a Delaware limited liability company ("Cinergy" or "Fuel Manager").  Elwood
and Cinergy are sometimes referred to herein individually as a "party" or
collectively as the "parties."

                                   RECITALS
                                   --------

     A.   Elwood Energy LLC is the developer of, and owns and operates, a
nominally 600 MW gas-fired power generation facility in Elwood, Illinois.
Elwood Energy II, LLC and Elwood Energy III, LLC are in the process of
developing and constructing additional generation facilities on the existing
site of Elwood Energy LLC.  Upon the completion of this construction in the
spring of 2001, Elwood Energy II, LLC and Elwood Energy III, LLC will own and
operate 300 MW and 450 MW of gas-fired power generation, respectively.
Collectively, Elwood will own and operate 1350 MW of gas-fired power generation
in Elwood, Illinois (the "Facility").  The Facility is comprised of nine (9) GE
7FA simple cycle combustion turbines of which Units 1 through 4 are owned and
operated by Elwood Energy LLC, Units 5 and 6 are owned and operated by Elwood
Energy II, LLC and Units 7 through 9 are owned and operated by Elwood Energy
III, LLC.

     B.   Elwood has agreed to sell during the Term of this Agreement, the
capacity, energy and ancillary services from Units 1 through 4 and Unit 9 to
Exelon Generation Company, LLC and from Units 5 through 8 to Aquila Energy
Marketing Corporation and Utilicorp United, Inc.

     C.   In connection with securing Gas for the Facility, Elwood has entered
into a Gas Transportation and Balancing Agreement dated as of May 1, 2001, with
Northern Illinois Gas Company d/b/a Nicor Gas Company ("Nicor Gas" or "Nicor")
(the "Nicor T&B Agreement") under which Nicor Gas will provide transportation,
balancing and storage services for quantities of Gas (as defined herein)
delivered to Nicor Gas or The Peoples Gas Light and Coke Company ("Peoples Gas")
for the account of Elwood via the interstate pipeline facilities of Northern
Border Pipeline Company ("NBPL") , Alliance Pipeline Company ("APL") and Natural
Gas Pipeline Company of America ("NGPL") and will redeliver such quantities to
Elwood at the Facility or into storage.

     D.   Subject to the terms and conditions of this Agreement, Fuel Manager
has agreed to serve as Fuel Manager by taking on the exclusive rights and
obligation to procure, schedule and deliver to Nicor and/or Peoples Gas volumes
sufficient to meet Elwood's requirements for Gas at the Facility, including the
management and administration of the Nicor T&B Agreement and any other
agreements of Elwood specified herein.

                                       1
<PAGE>

                                   ARTICLE I
                                  DEFINITIONS

     Whenever capitalized terms appear in this Agreement, they shall have the
meanings set forth below:


     "Affiliate" when used with respect to any Person, means any Person
controlling, controlled by or under common control with such Person.  For the
purposes of this definition, the term "controlling" (and, with correlative
meanings, the terms "controlled by" and "under common control with") shall mean
the possession of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or agency or otherwise.

     "Agent" has the meaning set forth in Section 8.1(a).

     "APL" means Alliance Pipeline Company

     "Btu" means British Thermal Unit, as calculated in the NBPL FERC Gas
Tariff.

     "Business  Day" means any day that is not a Saturday, Sunday or any Federal
Reserve Bank holiday.

     "Central Clock Time" means the prevailing time (i.e., Standard Time or
Daylight Savings Time) on any given day in the Central Time zone.

     "Cinergy's Forecast Burn" shall be the estimate of Facility Consumption of
Gas for the next Gas Day given by Cinergy to Nicor in accordance with Exhibit A,
                                                                      ---------
which shall be deemed to be the Forecast Burn described in the Nicor T&B
Agreement except on Special Days as provided in Exhibit A.
                                                ---------

     "Communications Protocol" has the meaning set forth in Section 4.2.

     "Confidential Information" has the meaning set forth in Section 15.8.

     "Creditor" has the meaning set forth in Exhibit B.
                                             ---------

     "Critical Day" has the meaning ascribed to it in the Nicor T&B Agreement.

     "Debtor" has the meaning set forth in Exhibit B.
                                           ---------

     "Default Rate" means a rate of interest equal to the lower of (i) the then
effective prime rate of interest published under "Money Rate" by the Wall Street
Journal, plus two per cent (2%) per annum or (ii) the maximum applicable lawful
interest rate.

     "Deferred Special Day Volumes" has the meaning set forth in Section 5.1(c).

                                       2
<PAGE>

     "Deferred Special Day Volume Balance" means the quantity of Gas deferred
for storage under Section 5.1(c) at any point in time

     "Delivery Point" means the facilities of Nicor that measure the Gas at the
Facility.

     "Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy
requirements submitted to Elwood by Elwood's power customers by 9:00 a.m.
Central Clock Time on a calendar day prior to the calendar day on which energy
is to be delivered.

     "Dth" means the quantity of heat energy that is one (1) MMBtu.  "Dth/d"
shall refer to the number of Dth per day.

     "Effective Degree Day" or "EDD" has the meaning associated to it in the
Nicor T&B Agreement.

     "Elwood Event of Default" has the meaning set forth in Section 10.4(a).

     "Elwood Forecast Burn" shall mean the estimate of Facility Consumption of
Gas for the next Gas Day given by Elwood to Cinergy in accordance with Exhibit
                                                                       -------
A.
-

     "Elwood Forecast Variance" shall be the absolute daily difference between
the Elwood Forecast Burn and the actual consumption of the Facility.

     "Elwood Guarantor" means the Guarantor under an Elwood Guaranty.

     "Elwood Guaranty" and "Elwood Guaranties" have the meanings set forth in
Section 9.4.

     "Facility" has the meaning set forth in Recital A.

     "Facility Consumption" means the actual amount of Gas consumed by the
Facility during a Gas Day, except as otherwise provided in Section 5.1(c).

     "FERC" means the Federal Energy Regulatory Commission.

     "FERC Gas Tariff" means the FERC-approved tariff, as it may be revised from
time-to-time, of the interstate pipeline on which Gas is being transported.

     "Force Majeure" has the meaning set forth in Section 14.2(a) as to Elwood
and has the meaning set forth in Section 14.2(b) as to Fuel Manager.

     "Forfeited Gas" has the meaning set forth in Section 5.1(a).

     "Fuel Manager Event of Default" has the meaning set forth in Section
10.3(a).

     "Fuel Manager Guarantor" means the Guarantor under the Fuel Manager
Guaranty.

                                       3
<PAGE>

     "Fuel Manager Guaranty" has the meaning set forth in Section 9.3.

     "Fuel Manager T&B Charges" has the meaning set forth in Section 5.2.

     "Fuel Specifications" means the specifications for Gas set forth in the
FERC approved tariff of the interstate pipeline on which the Gas is being
transported.

     "Gas" means natural gas that conforms to the Fuel Specifications.

     "Gas Daily Average Price" means the price equal to the "Midpoint" price per
MMBtu published in Gas Daily in the table entitled Daily Price Survey, under the
                   ---------
entry for "Citygates, Chicago LDCs, large e-us" for the date of consumption at
the Facility (or the date on which the Gas is deemed to be sold to Elwood for
storage under Section 4.3).  The Gas Daily Average Price for any day for which
the "Midpoint" price is not published shall be equal to the next published
"Midpoint" price for a subsequent day first published after such day of non-
publication.

     "Gas Day" has the meaning ascribed to it in Nicor Gas' Schedule of Rates.

     "Gas Inventory" means the quantity of Gas stored at a particular point in
time under the Nicor T&B Agreement.

     "Guarantor" has the meaning, with respect to any Guaranty, set forth in
Exhibit B, Exhibit C-1 or Exhibit C-2, as applicable.
---------  -----------    -----------

     "Guaranty" means Exhibit B, Exhibit C-1 or Exhibit C-2.
                      ---------  -----------    -----------

     "kWh" means kiloWatthour.

     "Lenders" has the meaning set forth in Section 9.1.

     "Loaned Gas Balance" has the meaning set forth in Section 4.3.

     "Maximum Daily Quantity" or "MDQ" means the maximum quantity of Gas that
Fuel Manager shall be obligated to sell and deliver to Elwood for consumption at
the Facility on any Gas Day.  The MDQ during the Summer Months is 362,400
MMBtu/d; of which 241,600 MMBtu/d is the Firm MDQ and 120,800 MMBtu/d is the
Non-Firm MDQ.  The Firm MDQ during the Non-Summer Months is the lesser of
213,300 MMBtu/d or 88,875 MMBtu/d plus Fuel Manager's nominated volumes to flow
on any Gas Day (Next Day Flowing Gas per Exhibit A) plus any Requested
Authorized Use volumes.  The Non-Firm MDQ on a Non-Summer Gas Day shall be Fuel
Manager's obligation, using reasonable efforts, to sell and deliver remaining
quantities above the Firm MDQ up to 426,600 MMBtu/d in total.

                                       4
<PAGE>

     "Maximum Hourly Quantity" or "MHQ" means the maximum quantity of Gas that
Elwood may consume at the Facility during any hour.  The MHQ during the Summer
Months is 15,100 MMBtu/hour and the MHQ during the Non-Summer Months is 17,775
MMBtu/hour.

     "MMBtu" means One Million British Thermal Units.

     "MMDth" means One Million Dth.

     "NBPL" means Northern Border Pipeline Company.

     "NGPL" means Natural Gas Pipeline Company of America.

     "Nicor Gas" or "Nicor" has the meaning set forth in Recital C.

     "Nicor Gas Outage Condition" has the meaning set forth in Section 14.2(b).

     "Nicor  Gas' Schedule of Rates" has the meaning set forth in the Nicor T&B
Agreement.

     "Nicor T&B Agreement" has the meaning set forth in Recital C.

     "Non-Special Day" means any Gas Day that is not a Special Day.

     "Non-Summer Months" means the months of October, November, December,
January, February, March, April and May.

     "Peoples Gas" has the meaning set forth in Recital C.

     "Peoples Gas T&B Agreement" means companion transportation and balancing
agreement between Nicor Gas and Peoples Gas which is used to support Nicor
services on behalf of Elwood herein.

     "Person" means an individual or a corporation, partnership, joint venture,
limited liability company, association, joint stock company, trust,
unincorporated organization, entity, government or other political subdivision.

     "Pipeline Outage Condition" has the meaning set forth in Section 14.2(b).

     "Prudent Management Practices" means acts or practices undertaken by a
prudent fuel manager assigned with the task of purchasing and managing the
supply of gas and administering balancing and transportation arrangements to
meet the prescribed daily firm obligations of a competitive non-utility power
generating facility, which acts and practices in the case of Fuel Manager (or
Agent as the case may be) shall be undertaken in a manner consistent with this
Agreement, other contracts and agreements necessary for the operation of the
Facility, and the laws, rules and regulations which may apply to the ownership
and operation of the Facility.

                                       5
<PAGE>

     "Purchase Agreement" means any contract, purchase order or other agreement
(other than the Nicor T&B Agreement) for the purchase, transportation or storage
of Gas for use or potential use, by Elwood at the Facility.

     "Receipt Point" means each point of interconnection between the system of
Nicor or Peoples Gas and the system of NBPL, APL or NGPL.

     "Representatives" has the meaning set forth in Section 15.8.

     "Revised Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy
requirements submitted to Elwood by Elwood's power customers after 9:00 a.m.
Central Clock Time on a calendar day one (1) hour prior to delivery of energy
during Summer Months and three to five (3-5) hours prior to delivery of energy
during Non-Summer Months.

     "Sellers" means, as applicable, suppliers of Gas and suppliers of
transportation and storage of Gas.

     "Short Notice" has the meaning set forth in Section 4.2.

     "Special Day" shall mean a Gas Day on which, for the entire Gas Day or any
part thereof, (a) Nicor had declared a Critical Day under the Nicor T&B
Agreement, (b) Nicor has forecasted that the Gas Day will be an Effective Degree
Day greater than or equal to 60 EDD, and an hourly delivery limitation has been
imposed by Nicor under the Nicor T&B Agreement, (c) storage withdrawal or
transportation service has been curtailed by Nicor under the Nicor T&B Agreement
or (d) Nicor has declared a force majeure under the Nicor T&B Agreement.

     "Summer Months" means the months of June, July, August and September.

     "Taxes" has the meaning set forth in Section 9.2.

     "Term" has the meaning set forth in Section 2.1.

     "Unit" means the nine (9) GE  7FA simple cycle combustion turbines
described in Recital A, any one of which is a "Unit."

     "Updated Dispatch Schedule" has the meaning set forth in Exhibit A,
                                                              ---------
Communications Protocol.

                                  ARTICLE II
                      TERM AND DESIGNATED REPRESENTATIVES

     2.1  Term.

The term of this Agreement (the "Term") shall begin as of May 1, 2001 and shall
expire on April 30, 2002, unless terminated in accordance with Article 10 or
extended by agreement of the parties hereto.

                                       6
<PAGE>

     2.2  Designated Representatives.

Any communications between the parties regarding authorizations by Elwood
required under this Agreement for actions to be taken by Fuel Manager shall be
made only by a designated representative of Elwood in accordance with the
Communications Protocol contained in Exhibit A to this Agreement.
                                     ---------

                                  ARTICLE III
                       RESPONSIBILITIES OF FUEL MANAGER

     3.1  Supply and Delivery of Gas.

          (a) Subject to Section 10.3(c) of this Agreement, during the Term,
     Fuel Manager, at its own cost and expense (except as set forth in Section
     5.1), shall supply and arrange for the delivery of Gas in accordance with
     Prudent Management Practices (as defined herein) to the Receipt Points for
     redelivery by Nicor or its designee to the Facility, on a firm basis up to
     the Firm MDQ and for the purchase price set forth in Section 5.1 hereof,
     Elwood's full Gas requirements for consumption by the Facility, subject to
     the limitations of the Nicor T&B Agreement; provided, however, that on a
                                                 -----------------
     Special Day Fuel Manager will be obligated to deliver Gas only if Fuel
     Manager and Elwood agree on a quantity (which may include an MHQ) and price
     for Gas to be delivered to the Receipt Points.  Except as provided in
     Section 10.3(c), Fuel Manager shall be the sole supplier of Gas to the
     Facility during the term of this Agreement.  If Elwood requests Gas in
     excess of the Firm MDQ, Fuel Manager's obligation to supply and arrange for
     the delivery of such Non-Firm Gas shall be on a reasonable efforts basis
     only for up to an additional daily quantity not to exceed the applicable
     Non-Firm MDQ, without any penalty for Fuel Manager's failure to do so.

          (b) Fuel Manager agrees that, during the term of the Nicor T&B
     Agreement, all Gas scheduled for consumption by the Facility, and required
     to be sold and delivered by Fuel Manager, must be (i) nominated on the
     appropriate interstate pipeline's nomination system and to the Nicor Gas
     Exchange nomination system, or such other electronic nomination system as
     Nicor may implement from time-to-time, on a timely basis and within the
     defined parameters of the Nicor T&B Agreement, (ii) met from the storage
     capacity available by the Nicor T&B Agreement and Cinergy's management of
     inventory therein, or (iii) purchased from Nicor as Requested Authorized
     Use volumes or Unauthorized Use volumes, as applicable, under the Nicor T&B
     Agreement.

          (c) In discharging its responsibilities, Fuel Manager shall be
     responsible for managing fuel supply volumes within the defined parameters
     of the Nicor T&B Agreement and for the charges assessed by Nicor for
     failure to do so, which are limited to those charges for which Fuel Manager
     is responsible under Section 5.2.

     3.2  Contract Management and Administration.

          (a) Fuel Manager shall be responsible, using Prudent Management
     Practices, twenty-four (24) hours a day, seven (7) days a week during the
     Term, for all

                                       7
<PAGE>

     communications, nominations, balancing and administration under the Nicor
     T&B Agreement. In the event that Cinergy's performance under this Agreement
     results in written notice from Nicor Gas that service may or will be
     suspended under the Nicor T&B Agreement, Elwood reserves the right to
     immediately suspend or terminate this Agreement if Fuel Manager does not
     cure the conditions that caused such notice to issue in time to prevent any
     such suspension or termination, and, in the event of termination, the
     provisions of Section 10.5 shall apply.

          (b) Fuel Manager will also report to Elwood on a weekly and monthly
     basis relevant information regarding Fuel Manager's performance under this
     Agreement, including without limitation the information set forth in
     Section 3 of Exhibit A to this Agreement, in a format that can be stored
                  ---------
     and analyzed electronically in a manner and format acceptable to Elwood,
     such as in a spreadsheet.

     3.3  Quality of Gas.

Fuel Manager covenants that all Gas provided hereunder by Fuel Manager shall be
merchantable natural gas, free of liens and encumbrances of any kind, and shall
comply with the Fuel Specifications.

     3.4  Compliance.

Fuel Manager shall comply with all applicable state, federal and local laws,
rules, orders, ordinances and regulations, shall give all required notices and
procure and shall maintain all applicable governmental permits and licenses
necessary for its performance of this Agreement, and shall pay all charges and
fees in connection with obtaining the permits and licenses.

     3.5  Metering.

For the purpose of measuring quantities of Gas delivered to the Facility, Gas
shall be metered and measured by Nicor Gas at its meters located at the
"Delivery Point" as defined in the Nicor T&B Agreement, and such meters shall be
tested and an adjustment to such measurements shall be made in accordance with
the specifications and standards set forth in Nicor Gas' Schedule of Rates.  In
the event any such meter is not operating or is out of service, Gas delivered to
the Facility shall be measured for the purposes of this Agreement by using
reasonable proxies, such as the Elwood turbine meters for each Unit or the
electric revenue meters with a heat rate conversion factor of 10,900 Btu/kWh
(HHV) at 85 and 60% humidity, subject to adjustment for actual ambient
conditions and actual load factors of each Unit.  Any such proxy must provide
the best available data in accordance with the mutual agreement of the parties.

     3.6  Sale of Power to Elwood.

Fuel Manager may offer to sell power to Elwood from time to time so that Elwood
may forgo running the Facility and taking Gas hereunder.  Elwood shall have no
obligation to accept such an offer or offers, and any acceptance thereof by
Elwood shall be subject to the consent of Elwood's power customers.  If Elwood
accepts such offer, all obligations hereunder pertaining to Gas will be
suspended during the period of such sales.

                                       8
<PAGE>

                                  ARTICLE IV
                          RESPONSIBILITIES OF ELWOOD

     4.1  On-Site Gas Handling Equipment.

Elwood shall operate and maintain the on-site equipment at the Facility for
receiving and handling Gas.

     4.2  Notice of Facility Operations.

All sales of Gas to Elwood, up to the MDQ each day, shall be on a "Short Notice"
basis, meaning that Elwood is required to use reasonable efforts to provide Fuel
Manager with notice regarding startups or shutdowns of the Facility and
estimated Gas requirements, all in accordance with Section 4 and the
Communications Protocol set forth in Exhibit A to this Agreement.
                                     ---------

     4.3  Loaned Gas Balance.

Elwood shall make available to Fuel Manager, at all times after May 31, 2001, a
gas balance of no less than 725,000 MMBtu ("Loaned Gas Balance").  The Loaned
Gas Balance is estimated to be 105,000 MMBtu on May 1, 2001, and Elwood will add
to the Loaned Gas Balance by purchasing an additional 20,000 MMBtu each day (or
such other daily amount required to achieve a Loaned Gas Balance of 725,000
MMBtu's on May 31, 2001, when purchased ratably over the month) from Fuel
Manager, during the period commencing on May 1, 2001, and continuing through May
31, 2001, (or on such other schedule as the Parties shall agree on) at the Gas
Daily Average Price plus four cents (4c), subject to Fuel Manager's discretion
as to when the volumes are actually placed into storage and subject to the
requirement that Elwood bear and pay all of Nicor's storage injection
Unaccounted-for Gas charges on the first quantities of Gas deemed to have been
injected into storage under the Nicor T&B Agreement during the term of this
Agreement up to a quantity equal to the difference between 725,000 MMBtu's of
Gas minus the Gas Inventory at the commencement of this Agreement.  Fuel Manager
shall have the right to utilize the Loaned Gas Balance, subject to the terms of
the Nicor T&B Agreement, during the term hereof.  If on the last day of the term
of this Agreement the Gas Inventory is less than 725,000 MMBtu's (the difference
being referred to herein as the "Storage Variance"), then Fuel Manager shall
either, at Elwood's option, deliver a quantity of Gas equal to the Storage
Variance to Elwood at the Receipt Point in equal daily deliveries during the
first month following the end of the term of this Agreement (currently, May 2002
unless the term is extended by mutual agreement) or financially settle with
respect thereto by Fuel Manager paying Elwood an amount equal to the product of
the Storage Variance times the price per MMBtu published by Intelligence Press,
Inc. in its NGI's Bidweek Survey, in the table entitled Spot Gas Prices, for the
month of May 2002 (or the first month after the term hereof), under the listing
for Midwest, Chicago Citygate.

     4.4  Operation of the Facility.

In operating the Facility, Elwood shall follow the following standards:

                                       9
<PAGE>

          (a)  Once a Unit is started, it shall run for a minimum of four (4)
     hours prior to shutting down, except that a Unit may be shut down sooner if
     a mechanical problem occurs.

          (b)  Once a Unit is shut down, it shall remain off-line for a minimum
     of two (2) hours.

          (c)  In the Summer Months, all nine (9) of the Units are available for
     dispatch and will be started approximately one (1) hour after notice of the
     Revised Dispatch Schedule is received by Elwood.

          (d)  In the Non-Summer Months, (i) five (5) of the Units are available
     for dispatch and will be started approximately three (3) hours after notice
     of the Revised Dispatch Schedule is received by Elwood and (ii) four (4) of
     the Units are available for dispatch during Peak Hours (6:00 a.m. - 10:00
     p.m. Central Clock Time, Monday-Friday) and will be started in accordance
     with the Dispatch Schedule established at 9:00 a.m. Central Clock Time on
     the previous Gas Day, unless a Revised Dispatch Schedule is negotiated and
     agreed to by Elwood, Nicor and Fuel Manager.

     4.5  Status of T&B Agreement.

Elwood shall maintain the Nicor T&B Agreement in full force and effect during
the term of this Agreement.   Elwood shall not agree to any changes to the Nicor
T&B Agreement with the explicit intent (or resulting effect) to alter the rights
or obligations of Fuel Manager, without Fuel Manager's express consent.  If
changes are made to the Nicor T&B Agreement to address other good faith business
purposes without Fuel Manager's express consent and such changes result in a
reduction in Fuel Manager's rights as agent under the Nicor T&B Agreement, or
increase its obligations thereunder or under this Agreement, then Fuel Manager
shall have the right to either, at Fuel Manager's sole option, terminate this
Agreement or negotiate with Elwood a different pricing structure.  Elwood will
consult with Fuel Manager prior to agreeing with Nicor to any changes in the
Nicor T&B Agreement which may reduce Fuel Manager's rights or increase its
obligations.

                                   ARTICLE V
                            PAYMENTS RELATED TO GAS

     5.1  Payments by Elwood.

          (a)  For any Non-Special Day, Elwood shall pay to Fuel Manager for
     Facility Consumption and quantities forfeited to Nicor under Section 7 of
     the Nicor T&B Agreement ("Forfeited Gas") at a price per MMBtu equal to the
     Gas Daily Average Price plus four cents (4c).  Elwood shall have no
     obligation to pay Fuel Manager for any Gas during any month except Facility
     Consumption, Forfeited Gas, purchases during May, 2001 to fill the Loaned
     Gas Balance, and Deferred Special Day Volumes described in Section 5.1(c).
     Such payments shall be made in accordance with Section 7.2 for the
     applicable month.

                                       10
<PAGE>

          (b)  Elwood shall pay to Fuel Manager five cents (5c) per MMBtu for
     the Elwood Forecast Variance for each Gas Day, up to a 241,600 MMBtu/d
     variance during the Summer Months and up to a 67,400 MMBtu/d variance
     during the Non-Summer Months. Such payments shall be made in accordance
     with Section 7.2 for the applicable month.

          (c)  For any Special Day, Elwood shall pay Fuel Manager, at a price
     negotiated by the parties, for all volumes delivered by Fuel Manager
     pursuant to the mutual agreement of the Parties under Section 3.1(a) for
     such Special Day, whether such volumes are consumed at the Facility on such
     Special Day or are deferred and injected into storage under the Nicor T&B
     Agreement ("Deferred Special Day Volumes").  Up to 20,000 MMBtu/d of
     Deferred Special Day Volumes will be withdrawn and delivered to the
     Facility as the "first Gas through the meter" and at no additional cost to
     Elwood, on immediately succeeding Non-Special Days until the Deferred
     Special Day Volume Balance is reduced to zero.  For the purposes of Section
     5.1(a), Deferred Special Day Volumes shall be excluded from Facility
     Consumption on Non-Special Days on which they are consumed.

          (d)  Elwood shall pay to Nicor Gas when due all fees and charges,
     including taxes and surcharges, due under the Nicor T&B Agreement, subject
     to Fuel Manager's obligation to reimburse Elwood for some of such charges
     as provided in Section 5.2.

          (e)  As compensation for its performance of the duties and obligations
     set forth in Section 3.2, Elwood shall pay Fuel Manager the sum of Sixty-
     Five Thousand Dollars ($65,000) per month for each of the Summer Months and
     Ten Thousand Dollars ($10,000) per month for each of the Non-Summer Months.

          (f)  If and when any amount is received, as either an actual payment
     or a credit, by Elwood from Nicor under Section 10 (reduction of MMDN
     rights) of the Nicor T&B Agreement with respect to any Month during the
     term hereof, Elwood shall pay such amounts to Fuel Manager, which shall be
     due and payable with the next payment otherwise due hereunder. Fuel Manager
     also shall receive the benefit of the limitation on application of Nicor's
     Unaccounted-for Gas percentage contained in Section 9 of the Nicor T&B
     Agreement.

     5.2  Payments by Fuel Manager.

          (a)  Fuel Manager shall reimburse Elwood in accordance with Section
     7.2 for the billed charges under the following sections of the Nicor T&B
     Agreement to the extent that (i) such charges are incurred with respect to
     Non-Special Days, (ii) Elwood has provided notices and information in
     accordance with the Communications Protocol, (iii) such charges are not the
     result of Elwood's failure to operate the Facility as provided in Section
     4.4, (iv) such charges are not the result of total quantities consumed at
     the Facility having exceeded the Firm MDQ and (v) Elwood has not declared
     an event of Force Majeure or a Unit has not "tripped" (as that term is used
     in Exhibit A):
        ---------

                                       11
<PAGE>

          (A)  Forecast Variance Charges (Section 4(e) of the Nicor T&B
     Agreement) attributable to the portion of the variance up to 241,600
     MMBtu/d in the Summer Months or 67,400 MMBtu/d in the Non-Summer Months;

          (B)  Delivery Variance Charges (Section 4(c) of the Nicor T&B
     Agreement) except to the extent such charges are attributable to volumes in
     excess of the Firm MDQ;

          (C)  Storage Inventory Overrun Charges or Excess Storage Charges but
     only those assessed because the highest daily quantity in storage is in
     excess of 951,500 MMBtu's (Sections 4(f) and 4(g) of the Nicor T&B
     Agreement); and

          (D)  Charges for Requested Authorized Use and Unauthorized Use
     (Sections 4(i) and (j) of the Nicor T&B Agreement).

     Items (A), (B), (C) and (D) are collectively referred to herein as the
     "Fuel Manager's T&B Charges."  The Fuel Manager's T&B Charges may be (i)
     applied by Elwood as a credit to Fuel Manager's invoices, effectively
     netting Fuel Manager's T&B Charges against the amounts owed Fuel Manager
     under this Agreement or (ii) invoiced by Elwood directly to Fuel Manager
     thereby requiring Fuel Manager to remit such funds to Elwood upon
     presentation of an invoice.  Fuel Manager shall be responsible for Nicor's
     Unaccounted-for Gas charges with respect to storage injections except the
     Unaccounted-for Gas charges associated with any injections of Deferred
     Special Day Volumes described in Section 5.1(c) and except the Unaccounted-
     for Gas charges to be borne by Elwood pursuant to Section 4.3.  On Special
     Days, Fuel Manager will not be responsible for Fuel Manager's T&B Charges
     except where the parties have agreed on a price and volume pursuant to
     Section 3.1(a) and to the extent that Fuel Manager's T&B Charges are
     incurred as a direct result of Fuel Manager failing to deliver to the
     Receipt Point on such Special Day the quantity of Gas agreed to by the
     Parties except to the extent such failure to deliver is caused by an event
     of Force Majeure that occurs after the Parties have agreed to a quantity
     and price for such Special Day under Section 3.1(a); provided, however,
                                                        --------------------
     that Fuel Manager shall in no event be responsible on a Special Day for the
     Fuel Manager T&B Charges described in (D) above.

          (b)  Fuel Manager shall pay when due to a Seller or reimburse Elwood
     if a Seller directly invoices Elwood, all charges under any Purchase
     Agreements entered into by Fuel Manager on its own account or as Agent.


                                  ARTICLE VI
                                 OFFSET RIGHTS

     6.1  Offset Rights.

If either party fails to pay any charges as required under this Agreement, the
other party shall have the right, in addition to any other remedies provided
herein or under law, to set-off such amounts against any payments owed by it to
such party.

                                       12
<PAGE>

                                  ARTICLE VII
                              BILLINGS AND PAYMENT

     7.1  Information from Nicor Gas.

To the extent Elwood receives from Nicor Gas information regarding actual
consumption or account data, Elwood will forward such information to Fuel
Manager and insure that Fuel Manager has joint access to any real time data
links containing such information.

     7.2  Invoices by Fuel Manager.

Within twenty (20) days after the end of each month during the Term of this
Agreement for which services are rendered hereunder, Fuel Manager shall prepare
and deliver to Elwood a statement in reasonable detail setting forth the
calculation of the amounts payable by Elwood to Fuel Manager, with respect to
the month in question and any offsets for payments due from Elwood to Fuel
Manager pursuant to Section 5.1.  Fuel Manager may send this invoice to Elwood
via facsimile or email.  Elwood shall pay all such invoiced amounts by wire
transfer or automated clearinghouse by the later of (i) ten (10) days after
receipt of such invoice or (ii) 25 days after the end of such month, to the
account specified by Fuel Manager.

     7.3  Records.

Each party shall keep complete and accurate records appropriate for proper
administration of this Agreement.  All such records shall be maintained for a
minimum of three (3) years after the creation of such records and for any
additional length of time required by a governmental authority or the Nicor T&B
Agreement or any other agreement entered into in connection with this Agreement.
Each party shall have the right, upon seven (7) days notice to the other, to
audit the books and records of the other party relating to this Agreement with
respect to the calculation of any amounts due hereunder.

     7.4  Interest.

If a party fails to pay when due any amounts payable by it under this Agreement
(excluding, however, any payments properly set-off by such party against amounts
due from it hereunder), or if, as a result of an audit by the other party or the
resolution of any dispute as to amounts payable by a party hereunder, it is
determined that a party has underpaid amounts due from it hereunder, then the
unpaid amounts shall bear interest at the Default Rate from the date such
payments were due until the date such payments are paid.

     7.5  Billing Disputes.

          (a)  If a party in good faith disputes an amount claimed to be due and
     payable hereunder by the other party, it may withhold payment of the amount
     under protest pending resolution of the dispute in accordance with
     subsection (b) of this section.

          (b)  In the event that a party, by timely notice to the other party,
     questions or contests the correctness of any charge or payment claimed to
     be due by the notified party, the notified party shall promptly review the
     questioned charge or payment and shall

                                       13
<PAGE>

     respond to the contesting party, within fifteen (15) Business Days
     following receipt of such notice, with a statement of the amount of any
     error and the amount of any reimbursement that the contesting party is
     entitled to receive in respect of such alleged error. Any disputes not
     resolved within fifteen (15) Business Days after receipt of such responding
     statement shall be resolved in accordance with Section 15.9 of this
     Agreement. Upon determination of the correct amount of any reimbursement,
     such amount shall be promptly paid by the owing party.

          (c)  Payments withheld under subsection (a), but ultimately paid under
     subsection (b), shall include interest at the Default Rate from the date
     the original payment was due until the date such withheld payments together
     with interest is made.

     7.6  Days/Business Days.

In the event any action called for in this Article 7 is due on a day that is not
a Business Day, it shall be due on the next succeeding day that is a Business
Day.

                                  ARTICLE VIII
                                     AGENCY

     8.1  Grant of Agency.

          (a)  Elwood hereby appoints Fuel Manager (in such capacity, Fuel
     Manager being referred to hereinafter as "Agent"), to act on its behalf and
     for its benefit solely for the following purposes and subject to the
     limitations set forth in Section 8.2 below:

               (i)    To take such actions as are specified in writing by Elwood
          (except to the extent such actions are in violation of law) except for
          physical or financial transactions regarding Gas supply, which actions
          may be specified by Elwood orally, with confirmation in writing before
          such actions are taken;

               (ii)   To make payment of all charges in accordance with Section
          5.2 of this Agreement;

               (iii)  To act on Elwood's behalf and for Elwood's benefit in
          managing and administering the Nicor T&B Agreement, including
          submitting nominations to Nicor Gas and to NBPL, APL and NGPL.

          (b)  The parties hereby agree, regardless of any contrary provisions
     of this Agreement, that the appointment of the Fuel Manager as Agent, and
     any agency created hereby, shall be subject to the limitations set forth in
     Section 8.2 and shall terminate automatically as and when set forth in this
     Agreement. All rights exercised by Agent shall be exercised in a manner
     consistent with applicable law, Fuel Manager's obligations under this
     Agreement (including as Agent) and Elwood's obligations under the Nicor T&B
     Agreement.

                                       14
<PAGE>

     8.2  Limitations on Agency. Notwithstanding the terms of Section 8.1 or any
other contrary terms of this Agreement, Fuel Manager as Agent shall not, and is
not granted the authority to, without the prior written consent of Elwood:

          (a)  Enter into any agreements on behalf of  or in the name of Elwood,
     except as set forth in Section 8.1;

          (b)  Enter into any physical or financial hedging or speculative
     transactions on behalf of or in the name of Elwood;

          (c)  Agree to any amendment or modification to, or waive any right
     under, any provision in the Nicor T&B Agreement or other agreements to
     which Elwood is a party (either directly or via Agency);

          (d)  Enter into any agreement or any amendment, supplement or
     modification of any agreement, in any manner inconsistent or in violation
     of applicable law, this Agreement or the Nicor T&B Agreement.

     8.3  No Transfer.

Elwood and Agent expressly agree that the creation of an agency as described in
this Agreement does not in any way constitute a pledge, transfer or assignment
to Agent of any right of Elwood in, under and to the Nicor T&B Agreement, any
Purchase Agreement or other agreements of Elwood or any good or service
purchased or provided for therein.

     8.4  Obligations of Agent. Agent shall comply with all requirements of the
Nicor T&B Agreement and all other agreements applicable to the purchase, sale,
transportation, storage, injection and withdrawal of Gas including, without
limitation, the timely remittance of payments to Sellers in accordance with the
terms and conditions of such agreements referred to in Section 5.2 of this
Agreement. Agent shall pay, from its own funds, all its expenses and costs
incurred in the course of performing Agent's duties and obligations hereunder.

     8.5  Notice of Agency. Elwood and Agent shall notify Nicor Gas, Peoples
Gas, and existing and future Sellers as applicable, of the foregoing Agency
promptly upon the effective date of this Agreement and, immediately upon
expiration of the Term or upon earlier termination, shall notify the applicable
entities that such Agency has been terminated. Notice to Sellers of the
existence of the Agency shall state that either Elwood or Fuel Manager, acting
alone, may give notice to Sellers terminating the Agency.

                                  ARTICLE IX
                             ADDITIONAL COVENANTS

     9.1  Assignment.

          (a)  Except as provided in this Section 9.1, neither party shall
     assign, pledge or otherwise transfer this Agreement or any right or
     obligation under this Agreement without first obtaining the other party's
     written consent, which consent shall not be

                                       15
<PAGE>

     unreasonably withheld or delayed. Except as specifically provided for in
     this Section 9.1, any assignment or transfer of this Agreement or any
     rights, duties or interests hereunder by any party without the written
     consent of the other party shall be void and of no force or effect.

          (b)  So long as no material event of default with respect to Elwood
     has occurred and is continuing, Elwood shall be permitted to assign or
     otherwise transfer this Agreement in whole by operation of law or
     otherwise, with prior written notice to Fuel Manager but without Fuel
     Manager's consent, (i) to Elwood Marketing, LLC, (ii) any Affiliate of
     Dominion Energy, Inc. (50% indirect owner of Elwood) or any Affiliate of
     Peoples Energy Resources Corp. (50% indirect owner of Elwood) or (iii) to
     any assignee succeeding to the ownership of the Facility; provided,
                                                               --------
     however, that any proposed assignee hereunder is determined by Fuel
     -------
     Manager, in its reasonable discretion, to be creditworthy.  Upon the
     assumption by any such permitted assignee of Elwood's rights, duties and
     obligations hereunder, Elwood shall be released and discharged from any
     future obligation hereunder but not any past obligation.

          (c)  So long as no material event of default with respect to Fuel
     Manager has occurred and is continuing, Fuel Manager shall be permitted to
     assign or otherwise transfer this Agreement in whole by operation of law or
     otherwise, with prior written notice to Elwood but without Elwood's
     consent, to any Affiliate of Fuel Manager; provided, however, that any
                                                --------  -------
     proposed assignee hereunder is determined by Elwood, in its reasonable
     discretion, to be creditworthy and to be at least as well qualified to
     fulfill the obligations of Fuel Manager under this Agreement.  Upon the
     assumption by any such permitted assignee of Fuel Manager's rights, duties
     and obligations hereunder, Fuel Manager shall be released and discharged
     from any future obligation hereunder but not any past obligation.

          (d)  Fuel Manager hereby consents to Elwood's assignment of this
     Agreement to any and all Lenders (as defined below) or the granting to any
     or all Lenders of a lien or security interest in any right, title or
     interest in part or all of the Facility or any or all of Elwood's rights
     under this Agreement for the purpose of the financing or refinancing of the
     Facility.  In order to facilitate the obtaining of financing or refinancing
     of the Facility without Fuel Manager's consent, Fuel Manager shall
     cooperate with Elwood and execute consents, agreements or similar documents
     with respect to the assignment hereof to any Lender as customary for
     comparable transactions in connection with the financing or refinancing of
     the Facility; provided, however, that such assignment shall recognize and
                   --------  -------
     shall not impair or otherwise adversely affect Fuel Manager's rights under
     this Agreement.  Fuel Manager recognizes that such consent may grant
     certain rights to such Lenders, which shall be fully developed and
     described in said consent documents, including that (i) this Agreement
     shall not be amended or terminated (except for termination pursuant to the
     terms of this Agreement) without the consent of Lenders; (ii) without
     extending the cure period set forth in this Agreement, Lenders shall be
     given notice of, and the same opportunity to cure, any Elwood breach or
     default of this Agreement, provided that notwithstanding the foregoing
     Lender(s) may have in addition to the cure periods set forth herein an
     additional thirty (30) days from the expiration of such cure period to cure
     any breach or default of this Agreement; (iii) if a Lender

                                       16
<PAGE>

     forecloses, takes a deed in lieu or otherwise exercises its remedies
     pursuant to any security documents, that Fuel Manager shall, at Lender's
     request, continue to perform all of its obligations hereunder, and Lender
     or its nominee may perform in the place of Elwood, and may assign this
     Agreement to another party in place of Elwood (provided either (A) such
     proposed assignee is creditworthy in the reasonable discretion of Fuel
     Manager, or (B) Fuel Manager consents to the assignment to such proposed
     assignee, which consent shall not be unreasonably withheld or delayed), and
     enforce all of Elwood's rights hereunder; (iv) that Lender(s) shall have no
     liability under this Agreement except during the period of such Lender(s)'
     ownership and/or operation of the Facility and any defaults from payment
     existing immediately prior to such period; (v) that Fuel Manager shall
     accept performance in accordance with this Agreement by Lender(s) or its
     (their) nominee; and (vi) that Fuel Manager shall make representations and
     warranties to Lender(s) as Lender(s) may reasonably request, including, but
     not limited to, (A) Fuel Manager's corporate existence, (B) Fuel Manager's
     corporate authority to execute, deliver and perform this Agreement, (C) the
     binding nature of this Agreement on Fuel Manager, (D) receipt of such
     regulatory approvals by Fuel Manager as required by law with respect to its
     performance under this Agreement, and (E) whether any defaults by Elwood
     are known by Fuel Manager then to exist under this Agreement and shall upon
     request of Elwood cause Fuel Manager's counsel to issue an opinion to
     Elwood and any Lender affirming in customary form the representations of
     Fuel Manager in this Section 9.1 and in Section 13.1.

          (e)  As used in this Agreement, the term "Lender(s)" means (i) any
     individual, governmental authority, corporation, limited liability company,
     partnership, limited partnership, trust, association or other entity
     ("Person") that from time to time enters into loans with Elwood, its
     successors or permitted assigns for the financing or refinancing of the
     Facility or any part thereof or which are secured by the Facility
     (including a sale-leaseback transaction), (ii) the holders of indebtedness
     evidencing any such loans, or (iii) any Person acting on behalf of such
     lender(s) to whom any lenders' rights under such loans have been
     transferred, any trustee on behalf of any such lenders, and any Person
     subrogated to the rights of such lenders.


     9.2  Taxes on Gas. Fuel Manager shall pay, or shall cause to be paid, all
taxes, fees, levies, penalties, licenses or charges imposed by any governmental
authority ("Taxes") on or with respect to the Gas prior to the Receipt Point.
Elwood shall pay or cause to be paid all Taxes on or with respect to the Gas at
or after the Receipt Point. If a party is required to remit or pay Taxes that
are the other party's responsibility hereunder, the party responsible for such
Taxes shall promptly reimburse the other party for such Taxes. Any party
entitled to an exemption from any such taxes or charges shall furnish the other
party any necessary documentation thereof; provided, however, that exemption of
                                           -----------------
interstate sourced supplies from application of the Illinois Gas Revenue Tax is
assumed by the parties, and Fuel Manager agrees not to bill Elwood for such
taxes until such time as Fuel Manager is required by the taxing authority having
jurisdiction, after exhaustion of all appeals and other remedies available to
Elwood, to pay the Illinois Gas Revenue Tax. Each party shall use reasonable
efforts to notify the other party of any legal or administrative proceeding
which could modify the State's application of the Illinois Gas Revenue Tax to
the goods provided and services rendered under this Agreement.

                                       17
<PAGE>

     9.3  Fuel Manager Guaranty. Fuel Manager shall deliver to Elwood, at the
time this Agreement is executed, the Fuel Manager Guaranty in the form attached
hereto as Exhibit B, executed by Cinergy Corp., as Guarantor.
          ---------

     9.4  Elwood Guaranties. Elwood shall deliver to Fuel Manager, at the time
this Agreement is executed, the parent guaranties in the form of Exhibit C-1 and
                                                                 -----------
Exhibit C-2 (each of which, an "Elwood Guaranty" and collectively, "Elwood
-----------
Guaranties").

                                   ARTICLE X
                            DEFAULT AND TERMINATION

     10.1 Termination of Agency. If this Agreement is terminated with or without
cause, then from and upon Agent's receipt of notice of such termination as
provided in Section 15.1, the Agency granted to Fuel Manager under this
Agreement shall immediately cease, and Fuel Manager will no longer act or be
entitled to act as Elwood's Agent under the Nicor T&B Agreements or the Purchase
Agreements, or any other agreement, or to hold itself out as Elwood's Agent
thereafter.

     10.2 Termination upon Enforcement Action. This Agreement has been
structured to comply fully with any applicable federal or state law, or any
regulations issued thereunder. However, if the FERC or any other federal or
state agency or authority asserts, rules or determines that any of the terms of
this Agreement or the conduct of the parties hereunder or in connection with the
transactions contemplated hereunder, are in violation of the terms of the
Natural Gas Act or any other federal or state law, or any regulations issued
thereunder, or the terms of any applicable FERC Gas Tariff, then either party
shall have the right to terminate this Agreement upon the first to occur of the
date required by applicable law or thirty (30) days after notice given to the
other party. In the event of such termination, all costs associated with
unwinding or terminating Purchase Agreements shall be borne equally by the
parties.

     10.3 Fuel Manager Default.

          (a)  Each of the following shall constitute a "Fuel Manager Event of
     Default":

               (i)    Fuel Manager shall default in the performance of any of
          its covenants or obligations under this Agreement (other than those
          specified in Section 10.3(a)(iv), which shall be exclusively governed
          by that Section, and other than a Gas delivery obligation which shall
          be exclusively governed by Section 10.3(c)) and shall fail to cure
          such default within five (5) days after receiving written notice from
          Elwood;

               (ii)   Default occurs under the Fuel Manager Guaranty;

               (iii)  Liquidation (not as defined in this Agreement),
          dissolution, receivership, insolvency, bankruptcy, assignment for the
          benefit of creditors, reorganization, arrangement, composition or
          readjustment or other similar proceeding affecting the status,
          composition, identity, existence, assets or obligations of Fuel
          Manager or Fuel Manager Guarantor, or the disaffirmance or

                                       18
<PAGE>

          termination of any of Fuel Manager's or Fuel Manager Guarantor's
          covenants or obligations under this Agreement, or the Fuel Manager
          Guaranty, as applicable, in or as a result of any such proceeding;

               (iv)   Fuel Manager shall fail to make any payment when due or
          cure such failure within the lesser of ten (10) days or such time
          period as would result in loss of Gas supply or delivery to Elwood if
          not cured within such period; and

               (v)    Any representation or warranty made by Fuel Manager or
          Fuel Manager Guarantor herein, or in the Fuel Manager Guaranty, as
          applicable, should prove to be materially untrue or breached as of the
          date the Term of this Agreement commences.

          (b)  Upon the occurrence of a Fuel Manager Event of Default other than
     an Event of Default that is subject to Section 10.3(c), Elwood shall have
     the right to do any or all of the following: (i) cure such default and seek
     reimbursement of any costs incurred by Elwood in effecting such cure, or
     offset such costs against any amounts thereafter payable by Elwood to Fuel
     Manager under this Agreement; (ii) terminate this Agreement as of the date
     specified in such termination notice; provided, however, that Fuel Manager
                                           --------  -------
     shall remain fully responsible and liable for performance of its
     obligations that arose prior to such termination date; or (iii) exercise
     all other rights and remedies available at law or in equity.  Elwood shall
     provide notice to Fuel Manager of Elwood's intent to exercise its rights
     under the previous sentence, but Elwood's exercise of such rights shall in
     no way be conditioned upon the provision of such notice to Fuel Manager.
     In the event of any termination of this Agreement pursuant to this Section
     10.3(b), Fuel Manager shall not be entitled to unwind any agreements
     entered into pursuant to this Agreement without the consent of Elwood.

          (c)  Notwithstanding the foregoing, and the notice and cure periods
     provided for above, if Fuel Manager defaults in the performance of any of
     its obligations to deliver the Firm MDQ on any Non-Special Day or the
     quantity of Gas agreed upon by the Parties for a Special Day under Section
     3.1(a) and such default prevents Elwood, or in Elwood's sole judgment is
     reasonably likely to prevent Elwood, from meeting its obligations to
     deliver power to its power customers, then Elwood shall have the right, as
     its sole remedy therefor, to procure replacement Gas for the Facility from
     Sellers or other sources on commercially reasonable terms and conditions
     and may utilize the Nicor T&B Agreement and the Gas Inventory (Elwood shall
     still be obligated to pay Fuel Manager for any of the Gas Inventory taken
     by Elwood in accordance with Section 5.1) to effectuate delivery of such
     Gas.  Fuel Manager shall reimburse Elwood for any reasonable incremental
     costs incurred by Elwood in purchasing such replacement Gas and related
     services (including without limitation charges under the Nicor T&B
     Agreement covered by Section 5.2) within fifteen (15) days after demand
     therefor, together with interest thereon at the Default Rate and accrued
     from the date of such purchase until the date reimbursement is made.  If
     Fuel Manager fails to reimburse Elwood for such costs within such fifteen
     (15) day period, then, in addition to all other rights, Elwood shall be
     entitled to offset such costs (including interest) against any amounts
     thereafter payable by Elwood to Fuel Manager under this Agreement.

                                       19
<PAGE>

     10.4 Elwood Default.

          (a)  Each of the following shall constitute an "Elwood Event of
     Default":

               (i)    If Elwood shall default in the performance of any of its
          obligations under this Agreement and Elwood shall fail to cure such
          default within five (5) days after receiving written notice from Fuel
          Manager.

               (ii)   Default occurs under either of the Elwood Guaranties;

               (iii)  Liquidation (not as defined in this Agreement),
          dissolution, receivership, insolvency, bankruptcy, assignment for the
          benefit of creditors, reorganization, arrangement, composition or
          readjustment or other similar proceeding affecting the status,
          composition, identity, existence, assets or obligations of Elwood or
          an Elwood Guarantor, or the disaffirmance or termination of any of
          Elwood's or an Elwood Guarantor's covenants or obligations under this
          Agreement or an Elwood Guaranty in or as a result of any such
          proceeding.; and

               (iv)   Any representation or warranty made by Elwood or an Elwood
          Guarantor herein, or in the Elwood Guaranties, as applicable, should
          prove to be materially untrue or breached as of the date this Term of
          this Agreement commences.

          (b)  Upon the occurrence of an Elwood Event of Default, Fuel Manager
     shall have the right, upon seven (7) days notice to Elwood, to do any or
     all of the following:  (i) terminate this Agreement; (ii) terminate the
     Agency granted to Fuel Manager pursuant to Section 8.1 hereof; and (iii)
     exercise all other rights and remedies available at law or in equity
     including, without limitation the right to recover from Elwood any future
     amounts due under Section 5.1(e) for any future months remaining in the
     term as if this Agreement had not been terminated pursuant to this Section.
     If Fuel Manager terminates this Agreement pursuant to clause (i) above,
     then Fuel Manager shall use its reasonable efforts to minimize the costs
     associated with unwinding Purchase Agreements; provided, however, that Fuel
                                                    --------  -------
     Manager shall not, without the consent of Elwood, unwind or terminate any
     such Purchase Agreements entered into by Fuel Manager pursuant to Article 8
     with respect to which Elwood has financial exposure.  In addition, in the
     event of such termination, Elwood shall reimburse Fuel Manager for all
     costs incurred by Fuel Manager to unwind any and all agreements entered
     into by Fuel Manager pursuant to Article 8.

     10.5 Release of Obligations.

Notwithstanding anything herein to the contrary, in the event either party
terminates this Agreement pursuant to this Article X or any other provisions of
this Agreement, the parties shall be released from all of their future
obligations hereunder except any obligation (i) to make payments due hereunder
with respect to the period prior to the effective date of the termination, (ii)
if and as applicable, to pay damages with respect to a Fuel Manager Event of
Default or Elwood Event of Default, to the extent such damages are expressly
permitted as a remedy in

                                       20
<PAGE>

addition to the right to terminate, (iii) to indemnify the other party under
Article XI, and (iv) of Fuel Manager under the last sentence of Section 4.3.

                                  ARTICLE XI
                                   INDEMNITY

     11.1    Fuel Manager Indemnity.

             (a)    Without limiting Elwood's rights or remedies under Article
     10, Fuel Manager agrees to indemnify, defend and hold Elwood, its members,
     officers, directors, employees and agents harmless from and against all
     claims, demands, suits, losses, liabilities, penalties, actions and
     expenses (including reasonable attorneys' fees and litigation costs) with
     respect to claims by third parties arising out of, resulting from or caused
     by:

                    (i)     Claims associated with title to gas or liens
             therein;

                    (ii)    Balancing, storage, or transportation costs,
             charges, penalties or fees resulting from Fuel Manager's sale of
             Gas to Persons other than Elwood;

                    (iii)  Fines or penalties assessed by any governmental
             authority on account of Fuel Manager's actions;

                    (iv)   Claims arising out of or relating to Fuel Manager's
             failure to comply with the requirements of Article 8 hereof;

                    (v)    Claims arising out of or relating to Purchase
             Agreements or other agreements entered into by Fuel Manager on its
             own behalf or as Agent;

                    (vi)   Claims arising out of or related to Taxes which Fuel
             Manager is obligated to pay or cause to be paid under Section 9.2;
             and

                    (vii)  Any and all claims, demands, actions, losses,
             liabilities, expenses (including reasonable legal fees and
             expenses), suits and proceedings of any nature whatsoever for
             personal injury, death or property damage to third parties caused
             by the negligence or willful misconduct of the indemnifying Party
             that arise out of or are in any manner connected with the
             performance of this Agreement, except to the extent such injury or
             damage is attributable to the gross negligence or willful
             misconduct of, or breach of this Agreement by, the Party seeking
             indemnification hereunder.

     11.2    Elwood Indemnity.

             (a)    Without limiting Fuel Manager's rights or remedies under
     Article 10, Elwood agrees to indemnify, defend and hold Fuel Manager, its
     members, officers, directors, employees and agents harmless from and
     against all claims, demands, suits, losses, liabilities, penalties, actions
     and expenses (including reasonable attorneys' fees

                                       21
<PAGE>

     and litigation costs) with respect to claims by third parties arising out
     of, resulting from or caused by:

                    (i)     Claims associated with the consumption of the Gas by
             the Facility including any environmental claims;

                    (ii)    Fines or penalties assessed by any governmental
             authority on account of Elwood's actions;

                    (iii)   Claims arising out of or relating to Elwood's
             failure to comply with the requirements of Article 8 hereof;

                    (iv)    Claims arising out of or relating to Purchase
             Agreements or other agreements entered into by Elwood on its own
             behalf;

                    (v)     Claims arising out of or related to Taxes which
             Elwood is obligated to pay or cause to be paid under Section 9.2;
             and

                    (vi)    Any and all claims, demands, actions, losses,
             liabilities, expenses (including reasonable legal fees and
             expenses), suits and proceedings of any nature whatsoever for
             personal injury, death or property damage to third parties caused
             by the negligence or willful misconduct of the indemnifying Party
             that arise out of or are in any manner connected with the
             performance of this Agreement, except to the extent such injury or
             damage is attributable to the gross negligence or willful
             misconduct of, or breach of this Agreement by, the Party seeking
             indemnification hereunder.


     11.3    Survival.

The foregoing indemnity provisions shall survive expiration of the Term or
termination of this Agreement.

                                  ARTICLE XII
                            LIMITATION OF LIABILITY

     12.1    Limitation of Liability.  IN NO EVENT OR UNDER ANY CIRCUMSTANCES
SHALL EITHER PARTY (INCLUDING SUCH PARTY'S MEMBERS AND THEIR RESPECTIVE
AFFILIATES AND SUCH PARTY'S AND ITS MEMBERS' AND SUCH AFFILIATES' RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE TO THE OTHER PARTY
(INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATE'S
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) FOR ANY SPECIAL,
INCIDENTAL, EXEMPLARY, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES IN
THE NATURE OF LOST PROFITS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY OR
TORT (INCLUDING INTENTIONAL ACTS, ERRORS OR OMISSIONS, NEGLIGENCE, INDEMNITY,
STRICT LIABILITY OR OTHERWISE), EXCEPT TO THE EXTENT SUCH

                                       22
<PAGE>

TYPE OF DAMAGES ARE EXPRESSLY PROVIDED FOR HEREIN. A PARTY'S LIABILITY UNDER
THIS AGREEMENT SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES, OR IF LIQUIDATED
DAMAGES ARE EXCLUSIVELY SPECIFIED HEREIN, TO SUCH LIQUIDATED DAMAGES, AND ALL
OTHER DAMAGES AT LAW OR IN EQUITY ARE WAIVED.

                                 ARTICLE XIII
                        REPRESENTATIONS AND WARRANTIES

     13.1    By Fuel Manager.  Fuel Manager hereby represents and warrants that:

             (a)    Fuel Manager is a limited liability company duly organized
     and validly existing under the laws of Delaware and has the legal power and
     authority to own its properties, to carry on its business as now being
     conducted and to enter into this Agreement and carry out the transactions
     contemplated hereby and perform and carry out all covenants and obligations
     on its part to be performed under and pursuant to this Agreement.

             (b)    The execution, delivery and performance by Fuel Manager of
     this Agreement have been duly authorized by all necessary company action,
     and do not and will not require any consent or approval of Fuel Manager's
     members or any third party (including any governmental authority) other
     than that which has been obtained.

             (c)    The execution and delivery of this Agreement, the
     consummation of the transactions contemplated hereby and the fulfillment of
     and compliance with the provisions of this Agreement do not and will not
     conflict with or constitute a breach of or a default under, any of the
     terms, conditions or provisions of any legal requirements, or any
     organizational documents, agreement, deed of trust, mortgage loan
     agreement, other evidence of indebtedness or any other agreement or
     instrument to which Fuel Manager is a party or which it or any of its
     property is bound, or result in a breach of or a default under any of the
     foregoing.

             (d)    This Agreement constitutes the legal, valid and binding
     obligation of Fuel Manager enforceable in accordance with its terms, except
     as such enforceability may be limited by bankruptcy, insolvency,
     reorganization or similar laws relating to or affecting the enforcement of
     creditor's rights generally or by general equitable principles, regardless
     of whether such enforceability is considered in a proceeding in equity or
     at law.

             (e)    There is no pending or, to the knowledge of Fuel Manager,
     threatened action or proceeding affecting Fuel Manager before any
     governmental agency that purports to affect the legality, validity or
     enforceability of this Agreement.

     13.2    By Elwood.

Each of Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC
hereby represents and warrants with respect to itself that:

                                       23
<PAGE>

             (a)    It is a Delaware limited liability company duly organized
     and validly existing under the laws of the State of Delaware and has the
     legal power and authority to own its properties, to carry on its business
     as now being conducted and to enter into this Agreement and carry out the
     transactions contemplated hereby and perform and carry out all covenants
     and obligations on its part to be performed under and pursuant to this
     Agreement.

             (b)    The execution, delivery and performance by it of this
     Agreement have been duly authorized by all necessary company action and do
     not and will not require any consent or approval of it's Management
     Committee other than that which has been obtained.

             (c)    The execution and delivery of this Agreement, the
     consummation of the transactions contemplated hereby and the fulfillment of
     and compliance with the provisions of this Agreement do not and will not
     conflict with or constitute a breach of or a default under, any of the
     terms, conditions or provisions of any legal requirements, or any
     organizational documents, agreement, deed of trust, mortgage loan
     agreement, other evidence of indebtedness or any other agreement or
     instrument to which it is a party or which it or any of its property is
     bound, or result in a breach of or a default under any of the foregoing.

             (d)    This Agreement constitutes the legal, valid and binding
     obligation of it enforceable in accordance with its terms, except as such
     enforceability may be limited by bankruptcy, insolvency, reorganization or
     similar laws relating to or affecting the enforcement of creditor's rights
     generally or by general equitable principles, regardless of whether such
     enforceability is considered in a proceeding in equity or at law.

             (e)    There is no pending or, to its knowledge, threatened action
     or proceeding affecting Elwood before any governmental agency that purports
     to affect the legality, validity or enforceability of this Agreement.

                                  ARTICLE XIV
                                 FORCE MAJEURE

     14.1    Force Majeure Generally.  Except with respect to payment
obligations due from one party to the other hereunder, neither party shall be
responsible or liable for its failure to perform any obligation hereunder, or be
deemed in breach hereof, to the extent such failure to perform is due to the
occurrence of an event of "Force Majeure," as that term is defined in Section
14.2 as applicable to such party, provided that:

             (a)    The non-performing party (i) gives the other party prompt
     verbal notice of the occurrence and (ii) within forty-eight (48) hours of
     the beginning of the occurrence or by 5:00 p.m. Central Clock Time on the
     next Business Day after the beginning of the occurrence, whichever is the
     later to occur, gives the other party written notice describing the
     particulars of the occurrence;

                                       24
<PAGE>

             (b)    The suspension of performance is of no greater scope and of
     no longer duration than is required by the Force Majeure;

             (c)    The non-performing party uses its reasonable efforts to
     remedy its inability to perform;

             (d)    When the non-performing party is able to resume performance
     of its obligations under this Agreement, that party shall give the other
     party written notice to that effect; and

             (e)    The Force Majeure was not caused by or connected with any
     negligent or intentional acts, errors, or omissions, or failure to comply
     with any law, rule, regulation, order or ordinance by the party invoking
     the Force Majeure.

     14.2    Definition of Force Majeure.

             (a)    In the case of Elwood, "Force Majeure" under this Agreement
     means any delay in the performance of its obligations hereunder due solely
     to circumstances beyond its reasonable control, and that could not have
     been prevented by due diligence, of Elwood, including without limitation:
     acts of God; weather-related events affecting an entire geographic region;
     strikes or other labor difficulties; war; riots; requirements, actions, or
     failures to act on the part of governmental authorities or changes in the
     law or applicable regulations subsequent to the date hereof preventing
     performance; inability despite due diligence to obtain or renew required
     licenses; accident; earthquake, sabotage; or fire.

             (b)    In the case of Fuel Manager, "Force Majeure" under this
     Agreement means only and is limited to declarations of force majeure by
     Nicor Gas under the Nicor T&B Agreement, or by any of NBPL, APL, NGPL or
     any pipeline upstream of such pipelines under its tariff or transportation
     agreement, or by Peoples Gas under the Peoples Gas T&B Agreement, as the
     term "force majeure" is defined and applied in those documents, or a
     default by Nicor Gas under the Nicor T&B Agreement not due to Fuel
     Manager's failure to fulfill its responsibilities under this Agreement, if
     and only to the extent that such declaration(s) result(s) in a curtailment
     of transportation or storage service that directly impact Fuel Manager's
     ability to execute its responsibilities under this Agreement and are beyond
     the reasonable control of, and could not have been prevented by the due
     diligence of, Fuel Manager; provided, however, that if a declaration of
                                 --------  -------
     force majeure by any of NBPL, APL, NGPL is based on an outage of its
     pipeline system upstream of its interconnection with the facilities of
     Peoples Gas or Nicor Gas ("Pipeline Outage Condition") or if a declaration
     of force majeure by Nicor Gas is based on an outage of its pipeline system
     used to provide service to Elwood ("Nicor Gas Outage Condition") the
     parties agree that such Pipeline Outage Condition or Nicor Gas Outage
     Condition, as applicable, shall have the effect of converting Fuel
     Manager's obligation to provide a firm gas supply into a reasonable efforts
     obligation for the duration of the Pipeline Outage Condition or Nicor Gas
     Outage Condition, as applicable, and Fuel Manager shall be entitled to
     recover from Elwood (but only to the extent such costs have been approved
     by Elwood in advance) Fuel Manager's costs relating to Fuel Manager's

                                       25
<PAGE>

     performance during such Pipeline Outage Condition or Nicor Gas Outage
     Condition, as applicable. Notwithstanding the foregoing, if Fuel Manager
     uses its reasonable efforts to perform during a Pipeline Outage Condition
     or Nicor Gas Outage Condition, as applicable and, despite Fuel Manager's
     reasonable efforts and the exercise of Fuel Manager's due diligence, is
     unable to provide firm gas supply pursuant to this Agreement due to such
     Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable,
     then such event shall qualify as a "Force Majeure" for Fuel Manager under
     this Agreement, subject to the other limitations on Force Majeure set forth
     in this Section 13 of this Agreement. Notwithstanding the foregoing
     provisions of this subsection (b), the Parties agree that if a declaration
     of force majeure by Nicor Gas under the Nicor T&B Agreement results in the
     occurrence of a Special Day, such Nicor Gas declaration will not excuse the
     Parties' obligations to deliver and receive on such Special Day the
     quantity of Gas subsequently agreed upon pursuant to Section 3.1(a), but
     that such obligations may be excused by a subsequent declaration of force
     majeure by Nicor Gas.

     14.3    Exclusions from Force Majeure.  Notwithstanding the foregoing, the
term Force Majeure does not include (i) changes in market conditions that affect
the cost of Gas or any alternate supplies of Gas or (ii) Gas supply or
transportation interruptions, except to the extent that Gas is unavailable
generally on the NBPL, APL, NGPL, Nicor Gas or Peoples Gas systems at any price.

     14.4    Extended Force Majeure.  In no event will any condition of Force
Majeure extend this Agreement beyond its stated Term. If any condition of Force
Majeure delays a party's performance for a time period greater than thirty (30)
days, the party not delayed by such Force Majeure may terminate this Agreement,
without further obligation; provided, however, that if the Force Majeure cannot
                            --------  -------
be overcome within such thirty (30) days with the exercise of reasonable
diligence, the party not delayed shall grant an additional reasonable period of
time in which to overcome such Force Majeure. In no event will such additional
reasonable period of time exceed three (3) months.

                                  ARTICLE XV
                                 MISCELLANEOUS

     15.1    Notices.  All notices, requests, demands or statements provided for
in this Agreement shall be in writing and shall be sent by registered or
certified mail, by nationally recognized air courier service or by telecopy (if
confirmed by hard copy delivery by overnight air express). All such notices
shall be deemed given when received; provided, however, if a party refuses
                                     --------  -------
receipt of a notice, then such notice shall be deemed given when receipt is so
refused. Notices shall be sent to the following addresses:

                                       26
<PAGE>

     Fuel Manager:

          Cinergy Marketing & Trading, LLC
          1100 Louisiana, Suite 4900
          Houston, Texas 77002
          Attention: Contract Administration
          Telephone No.: 713-393-6813
          Fax No.: 713-890-3129

     with a copy to:

          Cinergy Marketing & Trading, LLC
          1100 Louisiana, Suite 4900
          Houston, Texas 77002
          Attention: Vice President-Marketing
          Telephone No.: 713-393-6854
          Fax No.: 713-890-3137

     Elwood:

          Elwood Energy LLC
          c/o Dominion Energy, Inc.
          5000 Dominion Blvd
          Glen Allen, Virginia 23060
          Attention: General Manager
          Fax No.: 804-273-2303
          Telephone No.: 804-273-3269

     with a copy to:

          Peoples Energy Resources Corporation
          150 North Michigan, 39/th/ Floor
          Chicago, IL 60601
          Attention: Elwood Energy Commercial Manager
          Telecopy No.: (312) 762-1635
          Telephone No.: (312) 762-1616

Each party shall have the right to change such notice address or add notice
parties, by a notice given as aforesaid.

     15.2    Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS. ELWOOD AND FUEL MANAGER EACH HEREBY
IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN HOUSTON, TEXAS WITH
REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION,
DELIVERY OR

                                       27
<PAGE>

PERFORMANCE OF THIS AGREEMENT, AND HEREBY IRREVOCABLY WAIVES ANY AND ALL
OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS
OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE
ELSE.

     15.3    Copies.  The parties shall provide copies to each other of any
filings they make to FERC or to any state or other federal regulatory agency
having jurisdiction if such filing relates to the subject of this Agreement.

     15.4    Non Waiver.  The failure of either party to insist in any one or
more instances upon strict performance of any provisions of this Agreement, or
to take advantage of any right hereunder shall not be construed as a waiver of
any such provisions or the relinquishment of any such right or any other right
hereunder.

     15.5    Headings.  The headings contained in this Agreement are used solely
for convenience and do not constitute a part of the Agreement between the
parties, nor should they be used to aid in the construction of the Agreement or
to limit meaning of any provision.

     15.6    Binding Effect.  This Agreement shall benefit and bind the parties
hereto and their permitted successors and assigns.

     15.7    Severability; Merger.  The various provisions and clauses of this
Agreement are severable, and the invalidity of any portion of this Agreement
shall not affect the validity of the remainder of the Agreement. This Agreement
constitutes the entire agreement and supersedes any prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.

     15.8    Confidentiality.  Each party agrees that the terms of this
Agreement are confidential and that it will treat in confidence all documents,
materials and other information marked "Confidential" or "Proprietary" by the
disclosing Party ("Confidential Information") which it shall have obtained
during the course of the negotiations leading to, and its performance of, this
Agreement (whether obtained before or after the date of this Agreement).
Confidential Information shall not be communicated to any third party (other
than, in the case of Elwood, to its Affiliates who have a need to know such
information, to its counsel, accountants, financial or tax advisors, or
insurance consultants, to prospective partners and other investors in Elwood and
their counsel, accountants, or financial or tax advisors, or in connection with
its financing or refinancing; and in the case of Fuel Manager, to its Affiliates
who have a need to know such information, or to its counsel, accountants,
financial advisors, tax advisors or insurance consultants (in each case such
parties hereafter referred to as "Representatives"). Each party hereby agrees to
be responsible for a breach of this provision by its Representatives. As used
herein, the term "Confidential Information" shall not include any information
which (i) is or becomes available to a party from a source other than the other
party, (ii) is or becomes available to the public other than as a result of
disclosure by the receiving party or its agents, (iii) is

                                       28
<PAGE>

required to be disclosed under applicable law or judicial, administrative or
regulatory process, but only to the extent it must be disclosed or (iv) was
previously known to the receiving party.

     15.9    Disagreements.

             (a)    The parties shall attempt in good faith to resolve all
     disputes promptly by negotiation, as follows. A party may give the other
     party written notice of any dispute not resolved in the normal course of
     business. Executives of both parties at levels at least one level above the
     personnel who have previously been involved in the dispute shall meet at a
     mutually acceptable time and place within ten (10) days after delivery of
     such notice, and thereafter as often as they reasonably deem necessary, to
     exchange relevant information and to attempt to resolve the dispute. If the
     matter has not been resolved within thirty (30) days from the referral of
     the dispute to senior executives, or if no meeting of senior executives has
     taken place within fifteen (15) days after such referral, either party may
     initiate legal action. If a party intends to be accompanied at a meeting by
     an attorney, the other party shall be given at least three (3) Business
     Days' notice of such intention and may also be accompanied by an attorney.
     All negotiations pursuant to this clause are confidential.

             (b)    The Parties agree that no written statements of position or
     offers of settlement made in the course of the negotiations described in
     Section 15.9(a) above will be offered into evidence for any purpose in any
     litigation or arbitration between the parties, nor will any such written
     statements or offers of settlement be used in any manner against either
     party in any such litigation or arbitration. Further, no such written
     statements or offers of settlement shall constitute an admission or waiver
     of rights by either party in connection with any such litigation or
     arbitration. At the request of either party, any such written statements
     and offers of settlement, and all copies thereof, shall be promptly
     returned to the party providing the same.

             (c)    If a disagreement should arise on any matter which is not
     resolved as provided in Section 15.9(a), then, pending the resolution of
     the disagreement, Fuel Manager shall continue to perform in a manner
     consistent with the applicable provisions of this Agreement and Elwood
     shall continue to pay all charges and perform all other obligations
     required in accordance with the applicable provisions of this Agreement.

     15.10   Survival.  Any provisions hereof which relate to the period after
the termination of this Agreement shall survive the termination of this
Agreement.

     15.11   Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute one and the same document.

                                       29
<PAGE>

     IN WITNESS WHEREOF, the undersigned have executed this Agreement.

ELWOOD ENERGY LLC                          CINERGY MARKETING & TRADING, LLC
By:   /s/ Tony W. Belcher                  By:   /s/ Douglas N. Schomtz
   --------------------------                  ------------------------------
Name:  Tony W. Belcher                     Name: Douglas N. Schomtz
     ------------------------                   -----------------------------
Title: General Manager                     Title: Vice President
      -----------------------                    ----------------------------

ELWOOD ENERGY II, LLC
By: /s/ Ronald D. Usher
   --------------------------
Name:  Ronald D. Usher
     ------------------------
Title: General Manager
      -----------------------

ELWOOD ENERGY III, LLC
By: /s/ Ronald D. Usher
   --------------------------
Name:  Ronald D. Usher
   --------------------------
Title: General Manager
   --------------------------

                                       30