<PAGE>   1
                                                                    EXHIBIT 10.2


                            POWER SERVICES AGREEMENT

                                     BETWEEN

                             CEDAR BRAKES I, L.L.C.

                                       AND

                          EL PASO MERCHANT ENERGY L.P.


September 20, 2000


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----

<S>                                                                        <C>
ARTICLE I  DEFINITIONS.........................................................2

ARTICLE II  GENERAL CONDITIONS OF DELIVERY AND ACCEPTANCE OF ELECTRIC
     ENERGY AND CAPACITY.......................................................3

     Section A Sale of Energy..................................................3

     Section B Sale of Capacity................................................4

     Section C Exceptions to Obligation to Accept Energy and Capacity..........5

     Section D Distribution Surcharges.........................................6

     Section E Reactive Power..................................................7

ARTICLE III  TERM; EFFECTIVENESS...............................................8

ARTICLE IV  PURCHASE PRICE AND PAYMENT CONDITIONS..............................9

     Section A Energy and Capacity Rates.......................................9

     Section B Transmission of Energy..........................................9

     Section C Binding Rate...................................................10

ARTICLE V  DELIVERY OF ENERGY AND CAPACITY....................................11

     Section A Scheduling.....................................................11

     Section B Rate of Delivery...............................................12

     Section C Minimum On-Peak Energy Deliveries..............................13

     Section D Make-up Energy Deliveries......................................13

     Section E Seller's Failure to Deliver Energy and Capacity................15

     Section F Seller's Failure to Deliver Annual Energy Deliveries...........17

ARTICLE VI  BILLING AND PAYMENT...............................................18
</TABLE>


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<TABLE>
<S>                                                                          <C>
ARTICLE VII  METERING/RECORDS.................................................19

ARTICLE VIII  LIABILITY.......................................................20

ARTICLE IX  FORCE MAJEURE.....................................................21

ARTICLE X  INDEMNIFICATION....................................................24

ARTICLE XI  WARRANTIES........................................................26

ARTICLE XII  EVENTS OF DEFAULT AND BREACH OF CONTRACT.........................27

     Section A Events of Default..............................................27

     Section B Remedies.......................................................30

ARTICLE XIII  ARBITRATION.....................................................31

ARTICLE XIV  ENTIRE AGREEMENT.................................................35

ARTICLE XV ASSIGNMENT/TRANSFER................................................36

ARTICLE XVI  CHOICE OF LAW....................................................37

ARTICLE XVII  CAPTIONS........................................................37

ARTICLE XVIII  COUNTERPARTS...................................................38

ARTICLE XIX  MISCELLANEOUS....................................................38

ARTICLE XX  RESERVATIONS......................................................39

ARTICLE XXI  SURVIVAL OF OBLIGATIONS..........................................40

ARTICLE XXII  NOTICES.........................................................40

EXHIBIT 1  ANNUAL ENERGY DELIVERIES...........................................43

EXHIBIT 2  CAPACITY AND ENERGY PURCHASE RATES ($/MWH).........................44
</TABLE>




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                            POWER SERVICES AGREEMENT

                  This Power Services Agreement ("Power Services Agreement") is
made and entered into September 20, 2000 by and between Cedar Brakes I, L.L.C.,
a Delaware limited liability company ("Cedar Brakes") and El Paso Merchant
Energy L.P., a Delaware limited partnership (the "Seller") (each individually
referred to as a "Party" and collectively as "Parties").

                                    RECITALS

                  WHEREAS, Public Service Electric and Gas Company (whether or
not the Amended and Restated PPA is still in full force and effect, "PSE&G") and
Newark Bay Cogeneration Partnership, L.P. ("NBCP") are parties to a Power
Purchase Agreement dated June 15, 1988, as amended by the First Amendment dated
January 28, 1991 (together referred to as the "Original Agreement"), providing
for the interconnection of the Facility with PSE&G and the sale by NBCP and the
purchase by PSE&G of the output of the Facility;

                  WHEREAS, pursuant to the Purchase and Sale Agreement among
Cedar Brakes and NBCP, dated as of September 20, 2000, NBCP transferred all its
right, title, interest and obligations under the Original Agreement to Cedar
Brakes;


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                  WHEREAS, PSE&G and the Seller have entered into an amendment
to the Original Agreement on March 21, 2000 (the "Amended and Restated PPA"),
the effectiveness of which is conditioned upon the transfer of NBCP's rights and
obligations under the Original Agreement to Cedar Brakes;

                  WHEREAS, Cedar Brakes is entering into this Power Services
Agreement in order to be able, inter alia, to assure itself of a supply of
Capacity and Energy sufficient to meet its obligations under the Amended and
Restated PPA; and

                  WHEREAS, Seller is willing to perform the various obligations
set forth herein in accordance with the terms and conditions hereof.

                  NOW, THEREFORE, in consideration of the recitals and mutual
covenants contained herein and other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the Parties hereto agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Unless otherwise specified, capitalized terms used herein but
not defined herein have the respective meanings assigned to such terms in the
Amended and Restated PPA; provided, however, that (i) references to "Seller" in
definitions incorporated from


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the Amended and Restated PPA shall be deemed to mean "Cedar Brakes" under this
Power Services Agreement and (ii) in the event of the termination of the Amended
and Restated PPA prior to the termination of this Power Services Agreement, the
definition of "Delivery Point" under this Power Services Agreement shall be
deemed to mean clauses (i) through (iii) only of the definition of Delivery
Point assigned to such term in the Amended and Restated PPA.

                                   ARTICLE II

                       GENERAL CONDITIONS OF DELIVERY AND
                   ACCEPTANCE OF ELECTRIC ENERGY AND CAPACITY

                  Seller agrees to deliver and Cedar Brakes agrees to accept,
during the term of this Power Services Agreement, Energy and Capacity delivered
by Seller, subject to and in accordance with the terms of this Power Services
Agreement. Seller may provide Energy and Capacity to Cedar Brakes, at Seller's
sole option, from any source of supply including the Facility or other sources.
Seller shall have the right to sell all or a portion of the Net Electrical Power
Output of the Facility to any third party purchaser without prior notice thereof
to Cedar Brakes, subject to Article II(D) below.

                                    SECTION A
                                 SALE OF ENERGY

                  Seller will sell and deliver Energy to Cedar Brakes that is
scheduled and delivered by Seller in accordance with Article V, and Cedar Brakes
will purchase and


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accept delivery of such Energy, at the Delivery Point(s). The annual quantities
of Energy which Seller shall schedule and deliver and which Cedar Brakes shall
purchase and accept, in each calendar year of this Power Services Agreement
commencing with the Year 2000 are set forth in Exhibit I (such quantity for each
such year, "Annual Energy Deliveries"). The Annual Energy Deliveries applicable
to the initial calendar year of the Term of this Power Services Agreement (if a
partial calendar year) shall be adjusted by multiplying the Annual Energy
Deliveries for such year times the number of days in such partial calendar year
divided by 365 days.

                                    SECTION B
                                SALE OF CAPACITY

                  Seller shall arrange for Capacity to be made available to
Cedar Brakes, which may include, at Seller's option, Capacity provided by the
Facility or from other sources of such Capacity, such that Cedar Brakes shall be
credited by PJM with at least one hundred twenty-three (123) MW per day of such
Capacity. Seller shall take all necessary steps utilizing PJM's "eCapacity"
mechanism, or as otherwise may be required by PJM, such that Cedar Brakes'
account with PJM shall reflect such one hundred twenty-three (123) MW per day of
Capacity as of the effective date of this Power Services Agreement and at all
times throughout the term hereof. Cedar Brakes agrees to cooperate with Seller
in making any submittals required by PJM.

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                  The amount of Capacity credits to be provided to Cedar Brakes
above is based on the methodology currently specified in the RAA. If such
methodology is no longer used by PJM, the minimum quantity of Capacity credits
Seller is required to provide hereunder (restated in terms of the new unit of
measurement) shall be calculated based upon the operation of the Facility during
the twelve (12) Month period from September 1, 1998 through August 31, 1999 or
such shorter period ending as of August 31, 1999 as may be specified in the new
measurement methodology. If the Amended and Restated PPA no longer requires
Cedar Brakes to obtain such Capacity credits, Seller shall provide Capacity to
Cedar Brakes in an amount equal to the amount specified in the measurement
methodology in effect immediately prior to the cancellation of such requirement.

                                    SECTION C
                       EXCEPTIONS TO OBLIGATION TO ACCEPT
                               ENERGY AND CAPACITY

                  Notwithstanding the above, and without derogating from the
provisions of Article IX of this Power Services Agreement, Cedar Brakes shall be
excused from accepting all or a portion of Seller's Energy and Capacity in the
event of a System Emergency, if such purchases would contribute to such System
Emergency.

                  Where practicable, Cedar Brakes shall give Seller advance
notice of any interruption, curtailment or reduction effected pursuant to this
Article, the circumstances

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requiring or necessitating the interruption, curtailment or reduction of Cedar
Brakes' acceptance of Energy and Capacity and, if able, the reasons therefor,
and the extent and duration thereof. In the event Cedar Brakes is unable, for
any reason, to give Seller advance notice of such an interruption, curtailment
or reduction of such acceptance of the Energy and Capacity, Cedar Brakes shall,
as soon thereafter as practicable, contact Seller to confirm such interruption,
curtailment or reduction, explaining the circumstances requiring or
necessitating the interruption, curtailment or reduction, and, if able, furnish
the reasons therefor and the extent and duration thereof. At Seller's request,
Cedar Brakes shall provide written notice to Seller explaining the circumstances
requiring or necessitating any interruption, curtailment or reduction of service
effective pursuant to this Article. Cedar Brakes will promptly notify Seller
when the reason for the interruption, curtailment or reduction no longer exists
and shall promptly resume the acceptance of the Energy and Capacity. Seller
expressly agrees that Cedar Brakes is not liable for damages of any kind to
Seller or any third party due to Cedar Brakes' failure to accept the Energy and
Capacity for any of the reasons expressed above.

                                    SECTION D
                             DISTRIBUTION SURCHARGES

                  Seller shall pay Cedar Brakes for the amount of any
Distribution Surcharges claimed by PSE&G pursuant to Article II(E) of the
Amended and Restated PPA within two (2) business days of receipt of a written
notice from Cedar Brakes stating

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the amount of such Distribution Surcharges. Seller shall pay such amounts due
pursuant to this Article II(D) into an account of Cedar Brakes in accordance
with written instructions provided by Cedar Brakes to Seller. Upon request by
Cedar Brakes, Seller shall provide Cedar Brakes with data demonstrating the Net
Electrical Power Output of the Facility for a given calendar year and the amount
of such Net Electrical Power Output sold to a customer of Seller for which the
exemption from Distribution Surcharges under Section 28 of the New Jersey
Competition Act, has been claimed.

                                    SECTION E
                                 REACTIVE POWER

                  Cedar Brakes may request, and, when requested, Seller shall
use best efforts to provide reactive power, leading or lagging, from the
Facility up to the operating limits of the Facility to the extent that it does
not require a reduction in the Net Electrical Power Output of the Facility and
there is no cost to the Seller or the Facility in connection with the provision
of such reactive power. Further, in the event of a System Emergency, Cedar
Brakes may request Seller to provide reactive power, leading or lagging, from
the Facility and, if Cedar Brakes makes such a request, Seller shall use best
efforts to provide same up to the operating limits of the Facility, whether or
not same requires a reduction in the Net Electrical Power Output of the
Facility. Notwithstanding the foregoing, Seller shall have no obligation to
provide reactive power as provided herein unless Seller is selling Energy
hereunder from the Facility or the Facility is otherwise running.

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         Seller shall have no obligation to provide ancillary services to Cedar
Brakes except for reactive power as set forth herein.

                                   ARTICLE III

                               TERM; EFFECTIVENESS

                  This Power Services Agreement shall become effective upon the
Effective Date under the Amended and Restated PPA. The term of this Power
Services Agreement shall run from the Effective Date until August 31, 2013. This
Power Services Agreement may be terminated by either of Cedar Brakes or Seller,
on ten (10) days prior written notice if Cedar Brakes terminates the Amended and
Restated PPA as the result of a default by PSE&G thereunder. This Power Services
Agreement may be terminated by Cedar Brakes or Seller on ten (10) days prior
written notice if Cedar Brakes fails to make the payment required in Article VI
hereof, and such failure continues for a period of thirty (30) days after notice
thereof has been given; provided, that, Seller shall have no right to terminate
this Power Services Agreement pursuant to this sentence if the reason for such
non-payment results directly or indirectly from Seller's failure to perform
under this Agreement.

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                                   ARTICLE IV

                      PURCHASE PRICE AND PAYMENT CONDITIONS

                                    SECTION A
                            ENERGY AND CAPACITY RATES

                  The rates payable by Cedar Brakes for Energy and Capacity
during the term of this Power Services Agreement are set forth in Exhibit II,
Part (A), contract rate. The delivery price for Energy and Capacity shall be
equal to the amount of Energy delivered by Seller as scheduled by Seller in
accordance with Article V times the relevant contract rate, and shall be billed
in accordance with Article VI.

                                    SECTION B
                             TRANSMISSION OF ENERGY

                  Seller shall be responsible for arranging transmission of all
Energy and Capacity which is delivered to Cedar Brakes and paying for all
related transmission charges and congestion costs to the Delivery Point. In the
event that Seller elects to deliver Energy and Capacity to a Delivery Point
specified in subpart (iv) of the definition of "Delivery Point", the delivery
price for such Energy shall be reduced by an amount equal to the difference (if
positive) between the locational marginal price at the Facility Interconnection
Point and the locational marginal price at the actual Delivery Point. If the
excess of the locational marginal price at the actual delivery point over the
locational marginal price at the Facility Interconnection Point exceeds the
delivery price for such


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Energy (such excess amount, the "Delivery Point Excess"), the payment to Seller
with respect to the corresponding billing period shall be reduced by a credit in
the amount of the Delivery Point Excess against the amount payable by Cedar
Brakes for the next succeeding Month; provided, that, if the amount of the
credit is greater than the amount payable by Cedar Brakes for a single Month,
Seller shall pay to Cedar Brakes an amount equal to such excess portion of the
credit (each, an "Article IV(B) Payment"). Such credit shall be calculated in
the same manner as the credit due to PSE&G under Article IV(B) of the Amended
and Restated PPA and shall be applied hereunder in the same Month(s) in which
the credit is applied to PSE&G under Article IV(B) of the Amended and Restated
PPA.

                                    SECTION C
                                  BINDING RATE

                  Each party, having entered into this Power Services Agreement
in good faith, hereby waives all rights on its part now or hereafter to
undertake any proceeding for the purpose of having the purchase rate, as
calculated in this Article IV of this Power Services Agreement, set aside or
adjusted as being unjust and unreasonable.

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                                    ARTICLE V

                         DELIVERY OF ENERGY AND CAPACITY

                                    SECTION A
                                   SCHEDULING

                  Not later than seven (7) business days prior to the
commencement of each calendar month, Seller shall provide Cedar Brakes with a
non-binding schedule of proposed deliveries of Energy for each hour of the
upcoming month (the "Monthly Schedule").

                  Notwithstanding the quantities set forth in a Monthly
Schedule, on the business day preceding the day of delivery of such Energy,
Seller shall provide Cedar Brakes with a final daily schedule for deliveries of
Energy no later than the time that is two hours prior to the time that PJM
requires submission of final schedules. The volumes set forth in the final daily
schedules may vary from each other and from the volumes set forth in Monthly
Schedules, provided that Seller shall schedule for delivery in any calendar year
an amount which is equal to the Annual Energy Deliveries for such year.

                  In the event Seller fails to furnish a final daily schedule or
a Monthly Schedule on or before the time specified in the second paragraph of
this Article V(A), the scheduled delivery of Energy shall be deemed to be that
specified in the Monthly schedule last delivered by Seller.

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                  Any Monthly Schedule or final daily schedule shall be
consistent with the requirements of this Article V.

                  Cedar Brakes hereby appoints Seller to be and act as its agent
to do and perform the scheduling obligations under this Power Services Agreement
and such other things as may be necessary or convenient thereto. As agent for
Cedar Brakes for such scheduling obligations, Seller is authorized to act for
Cedar Brakes in its own name or in the name of Cedar Brakes, as deemed necessary
or advisable by Seller.

                                    SECTION B
                                RATE OF DELIVERY

                  Seller may deliver Energy at a rate up to 150 MWh per hour,
provided that the rate of delivery may be up to 200 MW-hours per hour in any
hour in which Make-up Energy deliveries are scheduled in accordance with Article
V(D).

                  Seller shall schedule and deliver Energy at the same delivery
rate during all On-Peak Hours in any day and at the same delivery rate during
all Off-Peak Hours in any day, provided that (i) the delivery rate for On-Peak
Hours may vary from that for Off-Peak Hours in any day and (ii) the delivery
rate for On-Peak Hours or Off-Peak Hours in

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any day may vary from that for On-Peak Hours or Off-Peak Hours, as the case may
be, in any other day.

                                    SECTION C
                        MINIMUM ON-PEAK ENERGY DELIVERIES

                  During the Months of June, July, August and September of each
year (the "Summer Period"), Seller shall schedule and deliver to Cedar Brakes, a
minimum of 40,000 MWh per month during the On-Peak Hours in the Summer Period.

                  During the period of the year which is not included in the
Summer Period, Seller shall schedule and deliver to Cedar Brakes, a minimum of
an aggregate of 234,000 MWh during the On-Peak Hours.

                                    SECTION D
                            MAKE-UP ENERGY DELIVERIES

                  If Seller is unable to deliver Energy or Cedar Brakes is
unable to accept delivery of Energy which has been scheduled by Seller in
accordance with Article V(A) above, in either case due to an event of Force
Majeure or due to the occurrence of an event set forth in Article II(C)
("Curtailed Energy Deliveries"), Seller shall have the obligation to reschedule
deliveries of make-up quantities of Energy equivalent to such Curtailed Energy
Deliveries during comparable periods during the remainder of the Month in which
the event occurred ("Make-up Energy Deliveries"). If Seller is unable to deliver


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Energy or Cedar Brakes is unable to accept delivery of Energy which has been
rescheduled by Seller in accordance with the immediately preceding sentence,
Seller shall have the obligation to reschedule Make-up Energy Deliveries equal
to the Curtailed Energy Deliveries during comparable periods during the
remainder of the Month in which the event occurred. If Seller is unable to
reschedule Make-up Energy Deliveries due to an event of Force Majeure or due to
the occurrence of an event set forth in Article II(C), Seller shall have the
obligation to reschedule such Make-up Energy Deliveries during comparable
periods during the immediately following Month. To the extent that Seller fails
to (i) deliver scheduled quantities of Energy or (ii) in the case of Curtailed
Energy Deliveries under Article V(D), reschedule and deliver any such Make-up
Energy Deliveries in the immediately following Month, to the extent that Cedar
Brakes is permitted to reschedule and deliver such Make-up Energy Deliveries in
any subsequent Month under the Amended and Restated PPA, Seller shall be
obligated to reschedule the delivery of such Make-up Energy Deliveries during
comparable periods during such subsequent Month.

                  For the purposes of this Article V(D), a "comparable period"
for the scheduling and delivery of Make-up Energy Deliveries shall mean similar
On-Peak Hours, if the Curtailed Energy Deliveries were originally scheduled
during On-Peak Hours and similar Off-Peak Hours if the Curtailed Energy
Deliveries were originally scheduled during Off-Peak Hours.

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                                    SECTION E
                 SELLER'S FAILURE TO DELIVER ENERGY AND CAPACITY

                  If Seller fails for reasons other than a Force Majeure event
or in the event of an occurrence described in Article II(C), to deliver all or
part of the scheduled Energy at the Delivery Point, and PSE&G under the Amended
and Restated PPA permits Cedar Brakes to reschedule and deliver such Energy,
Seller shall have the obligation to reschedule delivery of such Energy. In the
event that Seller fails to deliver all or part of the Energy scheduled for
delivery hereunder or fails to schedule sufficient Energy to comply with Article
V(C) hereunder, the payment to Seller with respect to the corresponding billing
period shall be reduced by a credit against the amount payable by Cedar Brakes
for the next succeeding Month; provided, however, that if the amount of the
credit is greater than the amount payable by Cedar Brakes for a single Month,
Seller shall pay to Cedar Brakes the amount of such excess portion of the credit
(each, an "Article V(E) Energy Payment") on or before the last business day of
the following month. Such credit shall be calculated in the same manner as the
credit due to PSE&G under Article (V)(E) of the Amended and Restated PPA and
shall be applied hereunder in the same Month(s) in which the credit is applied
to PSE&G under Article V(E) of the Amended and Restated PPA.

                  If Seller fails for reasons other than a Force Majeure or in
the event of an occurrence described in Article II(D), during any calendar Month
to provide all or a part

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of the Capacity to Cedar Brakes pursuant to Section II(B) hereof, Cedar Brakes
shall use reasonable commercial efforts to purchase replacement Capacity in the
amount of such shortfall, and Seller will be obligated to reimburse Cedar Brakes
for all such replacement costs. In the event that Cedar Brakes, in spite of
using reasonable commercial efforts, is unable to purchase such Capacity
shortfall, then the payments due to Seller in respect of that Month shall be
reduced by a credit against the amount payable by Cedar Brakes for the next
succeeding Month in an amount equal to the deficiency charge, if any, or other
charges, as applicable, payable by Cedar Brakes under Section V(E) of the
Amended and Restated PPA; provided, however, that if the amount of the credit is
greater than the amount payable by Cedar Brakes for a single Month, Seller shall
pay to Cedar Brakes the amount of such excess portion of the credit (each, an
"Article V(E) Capacity Payment") on or before the last business day of the
following month. Such credit shall be calculated in the same manner as the
credit due to PSE&G under Article (V)(E) of the Amended and Restated PPA and
shall be applied hereunder in the same Month(s) in which the credit is applied
to PSE&G under Article V(E) of the Amended and Restated PPA.

                  The foregoing liquidated damages and the damages pursuant to
Article (V)(F) hereof shall be the sole damages to which Cedar Brakes shall be
entitled as the result of any failure by Seller to deliver Energy under this
Agreement, subject to Article XII.

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                                    SECTION F
                        SELLER'S FAILURE TO DELIVER ANNUAL ENERGY DELIVERIES

                  If Seller does not deliver the Annual Energy Deliveries (as
may be adjusted for any partial calendar year) required to be delivered pursuant
to Article II(A) hereof in any calendar year, then in addition to any amounts to
be credited to Cedar Brakes by Seller under Article V(E) hereof, Seller shall
pay to Cedar Brakes for such calendar year, as damages and not a penalty and as
part of the consideration for this Power Services Agreement, an amount (the
"Energy Shortfall Liquidated Damages") equal to the product of (i) the
difference between (1) the Annual Energy Deliveries for such calendar year and
(2) the Energy delivered by Seller for such calendar year multiplied by (ii) the
difference between (1) the liquidated damages rate for such calendar year set
forth on Exhibit II, Part B hereof and (2) the contract rate for such calendar
year set forth on Exhibit II, Part A hereof. Cedar Brakes shall prepare and
present to Seller on or before the fifth (5th) day of February of the succeeding
calendar year a statement of the Energy Shortfall Liquidated Damages due and
payable, if any, by Seller for the preceding calendar year in accordance with
the terms hereof. Seller shall pay such Energy Shortfall Liquidated Damages on
or before the fifth (5th) day after receipt of the invoice from Cedar Brakes
into an account of Cedar Brakes in accordance with written instructions provided
by Cedar Brakes to Seller. If the payment is not received by the due date
specified above, Seller shall pay to Cedar Brakes an interest charge on unpaid
amounts which shall accrue daily from the due date until the date upon which
payment is made at the then current late payment charge for

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commercial customers prescribed in PSE&G's Standard Terms and Conditions as may
be amended from time to time.

                                   ARTICLE VI

                               BILLING AND PAYMENT

                  Cedar Brakes shall prepare and present to Seller, on or before
the fifth day of the second subsequent Month, a statement and payment for Energy
and Capacity delivered to Cedar Brakes during the Month in accordance with
Article IV. Such statement shall indicate the total MWhs delivered during the
Month for both the On Peak Period and the Off Peak Period and the applicable
Energy and Capacity rates.

                  If the payment is not received by the due date specified
above, Cedar Brakes shall pay to Seller an interest charge on unpaid amounts
which shall accrue daily from the due date until the date upon which payment is
made at the then current late payment charge for commercial customers prescribed
in PSE&G's Standard Terms and Conditions as may be amended from time to time.

                  In the event Seller disputes any statement, Seller shall
present the dispute in writing and submit supporting documentation to Cedar
Brakes within a twenty (20) day period from receipt of such statement. Upon
receipt of notice of a dispute and supporting documentation, Cedar Brakes shall
have thirty-five (35) days from receipt of such notice

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to resolve any dispute with Seller. In the event that the dispute is not
resolved within the thirty-five (35) day period, either party may submit the
matter to arbitration in accordance with Article XIII. The disputed amount of
any statement disputed by Seller in accordance with the provisions of this
Article, which is ultimately determined to be due and owing by Cedar Brakes to
Seller, from the date originally due shall, until payment, accrue interest at
the then current late payment charge for commercial customers prescribed in
PSE&G's Standard Terms and Conditions as may be amended from time to time.

                  Cedar Brakes shall have the right to set off against any and
all amounts owed by Cedar Brakes to Seller pursuant to this Power Services
Agreement any and all amounts owed by Seller to Cedar Brakes or the El Paso
Energy Corporation ("El Paso") to Cedar Brakes under the Funding Agreement dated
as of September 26, 2000 between El Paso and Cedar Brakes or the Guaranty dated
as of September 20, 2000 entered into by El Paso in favor Cedar Brakes.

                                   ARTICLE VII

                                METERING/RECORDS

                  Metering of Energy and Capacity when delivered from the
Facility shall be conducted in accordance with the Interconnection Agreement and
when delivered from other sources shall be conducted in accordance with the
requirements of the PJM

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Operating Agreement, including with respect to verification of deliveries by or
on behalf of Seller at the Delivery Points.

                                  ARTICLE VIII

                                    LIABILITY

                  (a) Neither Party nor its officers, directors, partners,
agents, servants, employees, affiliates, parent, subsidiaries or respective
successors or assigns shall be liable to the other Party (except as provided for
in Article V of this Power Services Agreement or as otherwise provided for in
this Power Services Agreement) for claims for incidental, special, direct,
indirect or consequential damages whether such damages claim is based on a cause
of action based in warranty, negligence, strict liability, contract, operation
of law or otherwise except where such claim for damages arises out of, relates
to or results from the gross negligence of such Party or the willful disregard
by a Party of its obligations under this Power Services Agreement; provided,
however, that Cedar Brakes shall have the right to seek to recover from the
Seller (i) direct damages upon the occurrence of an Event of Default under this
Power Services Agreement as defined in and which has been established pursuant
to and in accordance with Article XII of this Power Services Agreement, (ii)
damages required to be set-off against the amount payable by PSE&G under Article
(V)(E) of the Amended and Restated PPA and (iii) indemnification payments
required to be made by Cedar Brakes to PSE&G under Article XII or Article XIII
of the Amended and Restated PPA.

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<PAGE>   24


                  (b) Notwithstanding anything in this Agreement to the
contrary, in the event of the termination of the Amended and Restated PPA prior
to the termination of this Power Services Agreement, the Parties hereby agree
that the Seller shall in no such event be liable to the Buyer under this Power
Services Agreement (including without limitation, liability imposed pursuant to
Article V(E) & (F) and Article X, XI and XII hereof) unless the Seller would
have been liable to the Buyer hereunder if the Amended and Restated PPA were in
full force and effect.

                                   ARTICLE IX

                                  FORCE MAJEURE

                  An event of "Force Majeure" as used herein means an event
beyond the reasonable control of the Party claiming Force Majeure which events
may include but are not limited to: acts of God; strikes, lockouts or other
similar such industrial disturbances; acts of the public enemy, wars, civil
disturbances, blockades, military actions, insurrections or riots; landslides,
floods, washouts, lightning, earthquakes, tornadoes, hurricanes, blizzards or
other storms or storm warnings; explosions, fires, sabotage or vandalism;
mandates, directives, orders or restraints of any governmental, regulatory or
judicial body or agency (other than mandates, directives, orders or restraints
either sought, approved or not contested by the party asserting Force Majeure or
issued in any bankruptcy or insolvency proceeding for the relief the party
asserting Force Majeure); any catastrophic physical failures or disruptions of
the PJM transmission system; breakage, defects,

                                       21
<PAGE>   25


malfunctioning, or accident to machinery, equipment, materials or lines of pipe
or wires; freezing of machinery, equipment, materials or lines of pipe or wires;
inability or delay in the obtaining of materials or equipment; inability to
obtain or utilize any permit, approval, easement, license or right-of-way;
events of Force Majeure as defined under and declared by either party to the
Amended and Restated PPA; provided, that, an event shall be deemed to be an
event of Force Majeure hereunder only to the extent that is deemed to be so
pursuant to the Amended and Restated PPA (whether or not the Amended and
Restated PPA is in full force and effect). The settlement of strikes, lockouts
or other similar such industrial disturbances shall be entirely within the
discretion of the Party directly affected. The requirement herein that any event
of Force Majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes, lockouts or other similar such industrial
disturbances when such course is, in the opinion of the Party directly affected,
inadvisable.

                  An event of Force Majeure shall not include (i) failures of
the equipment of the Party claiming Force Majeure which are due to (a) wear and
tear and (b) defects in manufacture, design or construction; (ii) any increase
in the cost of electricity supplies or costs associated with transmission system
operation, maintenance or congestion; (iii) unavailability of Capacity and/or
Energy from any source, regardless of price, for delivery to the Delivery Point
(except in the event of a System Emergency); (iv) interruption in service by a
transmission provider unless; (a) the Party contracting with

                                       22
<PAGE>   26


such transmission provider shall have made arrangements with such transmission
provider for the firm transmission, as defined under the transmission provider's
tariff, of the Energy to be delivered hereunder, and (b) such interruption is
due to an emergency or to an event of force majeure as defined under the
transmission provider's tariff; or (v) any change in economic conditions not
caused by a Force Majeure event.

                  In the event Cedar Brakes or Seller is rendered unable, wholly
or in part, by an event of Force Majeure, to perform any obligation it has under
this Power Services Agreement, it is agreed that, on Cedar Brakes or Seller
giving notice and full particulars of such event of Force Majeure to the other
Party, as soon thereafter as practicable, the obligations of Cedar Brakes or
Seller, so far as they are affected by such event of Force Majeure, shall be
suspended during the continuance of any inability or incapacity so caused, but
for no longer period and it is further agreed that such obligations shall be
suspended for no longer period than such event of Force Majeure (a) has
suspended the parties obligations under the Amended and Restated PPA or (b) in
the event that the Amended and Restated PPA is no longer in full force and
effect, would have suspended the parties obligations under the Amended and
Restated PPA as if it had remained in effect; provided however, neither Party
shall be relieved from any obligation to make any payment to the other required
under this Power Services Agreement. Cedar Brakes or Seller shall use best
efforts to remedy the cause of the Force Majeure with all reasonable dispatch.

                                       23
<PAGE>   27


                  Notwithstanding anything herein to the contrary, the
obligations of Seller under this Power Services Agreement to schedule and
deliver the Annual Energy Deliveries (other than the minimum on-peak energy
deliveries set forth in Article V(C)) shall not be excused or suspended by an
event of Force Majeure.

                  Neither Party shall be liable to the other for any claim(s),
loss(es), damage(s), liability(ies) or expense(s) sustained or incurred by Cedar
Brakes or Seller, arising out of, relating to, or resulting from Cedar Brakes'
or Seller's inability or incapacity to perform its obligations under this Power
Services Agreement due to any event of Force Majeure, as herein defined.

                                    ARTICLE X

                                 INDEMNIFICATION

                  Seller shall indemnify and hold harmless Cedar Brakes and each
and every one of its officers, agents, servants and employees, its successors
and assigns of, from and against any and all claims, demands and suits, actions,
and liabilities, losses, damages, and/or judgments, which may arise therefrom,
as well as against any fees, costs, charges or expenses which Cedar Brakes, its
officers, agents, servants and employees, its successors and assigns, incur in
the defense of any such claims, suits, actions or similar such demands made or
filed by any third-party, which in any manner arise out of, relate to, or result
from negligence, strict liability or breach of this Power Services Agreement by
Seller including

                                       24
<PAGE>   28


but not limited to the design, construction, engineering, installation,
operation, maintenance, repair, replacement, supervision, inspection, testing,
protection, reinforcement, reconstruction, decommissioning, removal, use,
control or ownership of its facilities and claims, suits, actions or similar
demands made or filed by PSE&G against Cedar Brakes pursuant to the Amended and
Restated PPA (including, without limitation, any claims, suits, actions or
demands made or filed by PSE&G pursuant to Articles XII, XIII and XIV of the
Amended and Restated PPA).

                  In case a claim is asserted or action brought against Cedar
Brakes as to which it believes it is entitled to indemnification under this
Article X, Cedar Brakes shall promptly notify Seller in writing of such claim or
action. Prompt notice as contemplated in the preceding sentence shall mean such
notice as would be required to enable Seller to assert and prosecute appropriate
defenses relative to such claim or such action in a timely fashion. Upon receipt
of such notice request for indemnification, Seller shall promptly make a
determination of whether it believes it is required to indemnify and shall
promptly notify Cedar Brakes in writing of that determination. If Seller
determines that it is required to indemnify Cedar Brakes pursuant to this
Article X, then Seller shall assume the defense of such claim or action,
including the employment of counsel and shall assume thereafter the payment of
all costs and expenses relative to the defenses of such claim or action. Cedar
Brakes shall cooperate in all reasonable respects with Seller in the defense of
such claim or action. Cedar Brakes shall have the right, at its own expense, to
employ

                                       25
<PAGE>   29


separate counsel in any such action and to participate in the defense thereof.
Seller shall not be liable for any settlement of any such claim or action
effected without its consent. Before settling any claim or action, Seller shall
demonstrate to Cedar Brakes that it has sufficient financial means or has made
adequate arrangements to make all payments under any such settlement as and when
due. Notwithstanding anything herein to the contrary, in the event that a claim
for indemnification hereunder relates to a claim for indemnification made by
PSE&G under Article XII or Article XIII of the Amended and Restated PPA or a
claim for damages made by PSE&G under Article XIV thereof, then within five (5)
days of receipt of a written notice from Cedar Brakes to Seller that states that
Cedar Brakes is required to pay indemnity payments or damages pursuant to the
Amended and Restated PPA and sets forth the amount of such indemnity payments or
damages, Seller shall pay such amounts into an account of Cedar Brakes in
accordance with written instructions provided by Cedar Brakes to Seller.

                                   ARTICLE XI

                                   WARRANTIES

                  Seller warrants and shall be obligated to supply to the
Delivery Points Energy and Capacity free and clear of any liens and/or adverse
claims which might attach to said Energy and Capacity prior to supply and
receipt by Cedar Brakes except with respect to any lien possessed by a
Financier. Seller agrees to indemnify and hold harmless Cedar Brakes against any
and all claims, demands, suits, actions, costs, and liabilities,

                                       26
<PAGE>   30


damages, losses and/or judgments arising out of, relating to or resulting from
any such adverse claim or lien, as well as against any fees, costs, charges or
expenses which Cedar Brakes might incur in the defense of any such claim, suit,
action or similar such demand made or filed by such person, its successors or
assigns, asserting such adverse claim. In effecting the right of or obligation
to indemnify pursuant to and in accordance with the provisions of this Article
XI, the procedural provisions set forth in Article X of this Power Services
Agreement shall govern. Notwithstanding anything herein to the contrary, in the
event that a claim for indemnification hereunder relates to a claim for
indemnification made by PSE&G under Article XIII of the Amended and Restated
PPA, then within five (5) days of receipt of a written notice from Cedar Brakes
to Seller that states that Cedar Brakes is required to pay indemnity payments
pursuant to Article XII of the Amended and Restated PPA and sets forth the
amount of such indemnity payments, Seller shall pay such amounts into an account
of Cedar Brakes in accordance with written instructions provided by Cedar Brakes
to Seller.

                                   ARTICLE XII

                    EVENTS OF DEFAULT AND BREACH OF CONTRACT

                                    SECTION A
                                EVENTS OF DEFAULT

                  Seller shall be in default under this Power Services Agreement
upon the happening or occurrence of any of the following events or conditions,
each of which shall


                                       27
<PAGE>   31


be deemed to be an "Event of Default," and each of which shall be considered a
breach of contract for purposes of this Power Services Agreement unless it is
cured in accordance with the provisions specified below:

         1.       Seller breaches or fails to observe or perform, any of the
                  material obligations, covenants, conditions, services or
                  responsibilities under this Power Services Agreement, unless,
                  within twenty-five (25) days after written notice from Cedar
                  Brakes specifying the nature of such breach or failure, Seller
                  either cures such breach or failure or, if such cure cannot be
                  completed within twenty-five (25) days, provides Cedar Brakes
                  with a plan reasonably acceptable to Cedar Brakes to cure such
                  breach or failure and commences and diligently pursues such
                  plan.

         2.       There is an assignment for the benefit of Seller's creditors,
                  or Seller is adjudged a bankrupt, or a petition is filed by or
                  against Seller under the provisions of any state insolvency
                  law or under the provisions of the federal bankruptcy laws, or
                  the business or principal assets of Seller are placed in the
                  hands of a receiver, assignee or trustee, or Seller is
                  dissolved, or Seller's existence is terminated, or its
                  business is discontinued; provided, however, that the events
                  described in this Paragraph 2 shall not constitute an Event of
                  Default or otherwise affect the validity of this Power
                  Services Agreement, so long as the terms, covenants and
                  conditions of this Power


                                       28
<PAGE>   32


                  Services Agreement on the part of Seller are performed, and in
                  such event, this Power Services Agreement shall continue to
                  remain in full force in accordance with the terms herein
                  contained.

         3.       Seller takes any actions which prevent Cedar Brakes from
                  performing any of the material obligations, covenants,
                  conditions, responsibilities or services under this Power
                  Services Agreement, unless, within twenty-five (25) days after
                  written notice from Cedar Brakes specifying the nature of such
                  action or failure to act, Seller either cures such action or
                  failure to act, or, such cure cannot be completed within
                  twenty-five (25) days, provides Cedar Brakes with a plan
                  reasonably acceptable to Cedar Brakes to cure such breach or
                  failure and commences and diligently pursues such cure.

         4.       Seller fails to (i) deliver Energy and Capacity to Cedar
                  Brakes for two hundred and forty (240) out of three hundred
                  and sixty five (365) days for any reason other than Force
                  Majeure or a curtailment in accordance with Article II(C) of
                  this Power Services Agreement and fails to pay the liquidated
                  damages associated with such failure as set forth in Article
                  V(E) or (ii) pay when due Energy Shortfall Liquidated Damages
                  or other payments required to be paid hereunder.

                                       29
<PAGE>   33

                                    SECTION B
                                    REMEDIES

                  In the event that Cedar Brakes claims that an Event of Default
has occurred, Cedar Brakes shall provide Seller with written notice thereof
(hereinafter referred to as Notice of Breach). The Notice of Breach shall state
the basis for such claim and any remedy sought. The Parties shall have
twenty-five (25) days within which to resolve the dispute via negotiation. If
within such twenty-five (25 day period after service of the Notice of Breach,
the Parties are unable to resolve their differences by negotiation, either Party
shall have the right to submit the dispute for resolution to either arbitration
or to any regulatory body having jurisdiction, such arbitration proceeding to be
joined with any arbitration proceeding under the Amended and Restated PPA to the
extent required by Article XIII.

                  The nature and extent of any damage incurred or sustained by
Cedar Brakes, as a result of any Event of Default shall be determined and
calculated as of the date the Event of Default commenced, taking into account
Cedar Brakes' obligation to act in a commercially reasonable manner to mitigate
damages.

                  Except as otherwise provided in this Article XII, neither
Party shall refuse to make, suspend or delay any payment(s) otherwise required
to be made under this Power Services Agreement or refuse to carry out any of its
obligations under this Power


                                       30
<PAGE>   34


Services Agreement for or on account of or as a result of an alleged breach of
this Power Services Agreement or Event of Default.

                  Any waiver by Cedar Brakes of any breach or Event of Default
shall be deemed to extend only to the particular breach or Event of Default
waived and shall not limit or otherwise affect any right(s) that Cedar Brakes
may have with respect to any other of future breach or Event of Default, whether
of a similar or different nature.

                                  ARTICLE XIII

                                   ARBITRATION

                  Any controversy, dispute or claim between the Parties to this
Power Services Agreement, which the Parties are unable to resolve by negotiation
or over which any regulatory body lacks jurisdiction or declines to initiate
proceedings, shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"), then in
effect, and the provisions of this Article. If arbitration is chosen by either
Party, no suit at law which seeks to resolve any controversy, dispute or claim
between the Parties shall be instituted by either Party hereto, except where
such suit is instituted to confirm an arbitration award received pursuant to
this Article. However, nothing contained herein shall deprive either Party of
any right to: (i) obtain injunctive or other equitable relief in any court in
the State of New Jersey, on an interim basis pending disposition of the
arbitration of any controversy, dispute or claim if

                                       31
<PAGE>   35


such relief is available under applicable principles of law and equity; and/or
(ii) assert any crossclaim, or third-party claim in any suit at law instituted
by a third-party; and/or (iii) file and prosecute any complaint at and with the
regulatory agency having jurisdiction or make and prosecute any claim or
position in any filing made with such regulatory agency by either party or some
third-party.

                  Any controversy, dispute or claim submitted to arbitration
shall be settled by arbitration in Newark, New Jersey in accordance with the
laws of the State of New Jersey. Any award entered pursuant to such arbitration
shall be binding on both Parties and judgment upon the award rendered or
received may be entered in the Superior Court of the State of New Jersey
pursuant to N.J.S.A. 2A:24-1 et seq.

                  Exclusive jurisdiction relative to the entry of judgment on
any arbitration award relative to any controversy or claim between the parties
shall be in any court of appropriate subject matter jurisdiction located in New
Jersey, and the Parties to this Power Services Agreement expressly subject
themselves hereby to the personal jurisdiction of said court for entry of any
such judgment and for the resolution of any dispute, action, or suit arising in
connection with the entry of such judgment.

                  The controversy or claim to be arbitrated shall be referred to
three (3) arbitrators, one to be selected by each party and the third to be
selected by the AAA. The selections to be made by the parties shall be made from
the list of the National Panel of

                                       32
<PAGE>   36


Arbitrators maintained by the AAA. The arbitrator to be selected by the AAA
shall be qualified to pass on any technical or engineering matters and shall be
independent of and acceptable to both Cedar Brakes and Seller. All decisions and
awards shall be made by a majority of the arbitrators, except for decisions
relating to discovery as set forth herein.

                  In the event any arbitrator dies, or refuses to act, or
becomes incapable, incompetent or unfit to act before hearings have been
completed and/or before an award has been rendered, a successor arbitrator may
be selected by the party who originally made the selection. The selection of the
successor arbitrator shall be made consistent with the selection procedure set
forth in the preceding paragraph.

                  The arbitrators selected pursuant to this Power Services
Agreement shall be governed by and apply the laws of the State of New Jersey and
federal law, as applicable, in conducting any arbitration proceeding and/or in
making any award.

                  Notice of a demand for arbitration (hereinafter referred to as
Demand for Arbitration) of any controversy or dispute between the Parties shall
be filed in writing with the AAA by the Party seeking arbitration and a copy of
same shall be served contemporaneously with such filing on the other Party. The
notice shall state, with specificity, the nature of the dispute and the remedy
sought. After such notice has been filed, the Parties may make discovery of any
matter relevant to such dispute before the hearing, to the extent and in the
manner provided by the Rules Governing Civil Practice in

                                       33
<PAGE>   37


the Superior Court contained in the Rules Governing the Courts of the State of
New Jersey. Any question that may arise with respect to the obligations of the
Parties relative to discovery and/or relative to the protection of the discovery
materials shall be referred solely to the arbitrator selected by the AAA. His
determination shall be final and conclusive. Discovery shall be completed not
later than ninety (90) days after filing of the notice of arbitration unless
such period for discovery is extended by the arbitrator selected by the AAA,
upon a showing of good cause by either Party to the arbitration.

                  The arbitrators may consider any material which is relevant to
the subject matter of any such controversy even if such material might also be
relevant to an issue or issues not subject to arbitration hereunder. A
stenographic record shall be made of any arbitration hearing.

                  Any costs associated with any arbitration under this Article,
including but not limited to attorney fees and witness expenses, shall be paid
by the Party against whom an award is entered unless the arbitrators by their
award otherwise provide.

                  Arbitration may not be utilized and the arbitrators selected
in accordance with this Article shall not possess the authority or power to
alter, amend or modify any of the terms or conditions or charges set forth in
this Power Services Agreement, and further, the arbitrators may not enter any
award which alters, amends or modifies such terms, conditions or charges in any
form or manner.

                                       34
<PAGE>   38


                  Notwithstanding anything herein to the contrary, each of the
Parties hereby agrees that the provisions of this Article XIII are intended to
operate, and shall operate, such that, in the event a dispute arises hereunder
which is submitted to arbitration and arbitration proceedings are initiated
under Article XV of the Amended and Restated PPA with respect to substantially
the same dispute or with respect to another dispute involving substantially the
same facts, such disputes shall be resolved jointly in a single proceeding by
the arbitration proceedings initiated under Article XV of the Amended and
Restated PPA. Such proceedings shall be conducted in accordance with the
provisions of Article XV of the Amended and Restated PPA. Seller hereby agrees
to be bound under this Power Services Agreement by the decision and award of the
arbitration panel in such proceedings.

                                   ARTICLE XIV

                                ENTIRE AGREEMENT

                  The Power Services Agreement constitutes the entire Agreement
between the Parties with respect to the matters contained herein and all prior
agreements with respect thereto are superseded hereby. Each Party confirms that
it is not relying on any oral representations or warranties of the other Party
except as specifically set forth herein. No additions, amendments or
modifications hereof or of any terms included herein shall be binding unless
duly executed by both Parties.

                                       35
<PAGE>   39


                                   ARTICLE XV
                               ASSIGNMENT/TRANSFER

                  Cedar Brakes may at any time and from time to time during the
term of this Power Services Agreement, without the consent of Seller assign its
rights in this Power Services Agreement to (i) any Financier(s) in connection
with the transfer, pledge, encumbrance or assignment of this Power Services
Agreement or the accounts, revenues, or proceeds hereof in connection with any
financing or other financial arrangements or (ii) to any person or entity
succeeding to all or substantially all of the assets of Cedar Brakes. Seller
shall, at Cedar Brakes' request, execute a consent to assignment provided that
the terms and conditions of same are reasonably acceptable to Seller. Seller may
not assign its rights and/or transfer its rights and obligations under this
Power Services Agreement without the prior written consent of Cedar Brakes,
which consent shall not be unreasonably withheld or delayed. Nothing contained
herein shall prevent Cedar Brakes from pledging or mortgaging all or any part of
its assets or interests in connection with any financing for or related to the
transactions contemplated herein.

                  Except as otherwise provided herein, Cedar Brakes may not
assign its rights and/or transfer its obligations under this Power Services
Agreement without the prior written consent of Seller. Seller shall not
unreasonably delay or withhold any approval of an assignment or
assignment/transfer by Cedar Brakes provided that the


                                       36
<PAGE>   40


assignee or assignee/transferee agrees to be bound by, subject to and to comply
with the terms and conditions of this Power Services Agreement.

                                   ARTICLE XVI

                                  CHOICE OF LAW

                  This Power Services Agreement shall be interpreted, construed,
governed by, performed and enforced in accordance with the laws of the State of
New Jersey and federal law, where applicable. All questions concerning the
validity, construction and enforceability of this Power Services Agreement as
well as questions concerning the sufficiency or other aspects of performance
under this Power Services Agreement shall be determined under the laws of the
State of New Jersey without recourse to the law governing conflict of laws.

                                  ARTICLE XVII

                                    CAPTIONS

                  The subject headings of the Articles of this Power Services
Agreement are inserted solely for the purpose of convenient reference and are
not intended to, nor shall same affect the meaning of any provision of this
Power Services Agreement.

                                       37
<PAGE>   41


                                  ARTICLE XVIII

                                  COUNTERPARTS

                  This Power Services Agreement may be executed in counterparts.
Each shall be deemed an original but together shall constitute one and the same
instrument.

                                   ARTICLE XIX

                                  MISCELLANEOUS

                  This Power Services Agreement and the obligations of the
Parties hereunder are subject to all present and future valid laws and to all
valid present and future orders, rules and regulations of any court or
regulatory authority having jurisdiction.

                  In case of conflict between any provisions hereof and any
applicable law, regulation or regulatory order, such applicable law, regulation
or regulatory order shall govern.

                  All terms defined in this Power Services Agreement shall have
the same defined meanings when used in any notice, correspondence, report or
other document made or delivered pursuant to or in connection with this Power
Services Agreement, unless the context shall otherwise require.

                                       38
<PAGE>   42

                  Each reference herein to Seller and Cedar Brakes shall be
deemed to include their respective successors and assigns.

                  All of the covenants, warranties, undertakings and agreements
of Seller and Cedar Brakes shall bind the respective Parties, their successors
and assigns.

                                   ARTICLE XX

                                  RESERVATIONS

                  No Party shall be prejudiced or bound, except as otherwise
specifically provided herein, nor shall any Party be deemed to have approved,
accepted, agreed or consented to any concept, theory or principle underlying or
supposed to underlie any of the matters contained herein, including but not
limited to any concept, theory, principle or method used to calculate the rates
provided for herein.

                  All Parties further understand and agree that the provisions
of this Power Services Agreement relate only to the specific matter referred to
herein and no Party or person waives any claim or right which it may otherwise
have with respect to any matter not expressly provided for herein.

                                       39
<PAGE>   43


                                   ARTICLE XXI

                             SURVIVAL OF OBLIGATIONS

                  Termination of this Power Services Agreement for any reason
shall not relieve Cedar Brakes or Seller of any obligation accruing or arising
with respect to the period prior to such termination and required by terms of
this Power Services Agreement to be performed at date subsequent to the date of
termination.

                                  ARTICLE XXII

                                     NOTICES

                  Any notice, request, demand, or statement which either Cedar
Brakes or Seller may desire to give to the other shall be in writing and except
as otherwise provided for in this Power Services Agreement shall be considered
as duly delivered when mailed by certified mail or delivered against receipt by
messenger or overnight courier addressed to said Party as follows:

(a)      If to CEDAR BRAKES I, L.L.C.
         1001 Louisiana Street
         Houston, TX 77002
         Attention: President

         With electronic mail copies to:
         sullivant@epenergy.com

                                       40
<PAGE>   44


(b)      If to Seller or to such other person or address as the addressee may
         have specified in a notice duly given as provided herein:

         El Paso Merchant Energy L.P.
         1001 Louisiana Street
         Houston, TX  77002
         Attention:

         With electronic mail copies to:
         sullivant@epenergy.com

         Except as otherwise provided in this Power Services Agreement, routine
communications and Billing Statements shall be considered as duly delivered when
mailed by either certified or ordinary mail.

(a)      If to CEDAR BRAKES I, L.L.C.
         1001 Louisiana Street
         Houston, TX 77002
         Attention:

         With electronic mail copies to:
         sullivant@epenergy.com

(b)      If to Seller or to such other person or address as the addressee may
         have specified in a notice duly given as provided herein:

         El Paso Merchant Energy L.P.
         1001 Lousiana Street
         Houston, TX  77002

         With electronic mail copies to:
         sullivant@epenergy.com


                                       41
<PAGE>   45


                  IN WITNESS WHEREOF, this Power Services Agreement has been
executed and delivered as of the date and year first above written.


                                          CEDAR BRAKES I, L.L.C.

                                          /s/ Thomas G. Kilgore
                                              ------------------------
                                          By:  Thomas G. Kilgore
                                          Its: Attorney in Fact


                                          EL PASO MERCHANT ENERGY L.P.


                                          /s/ Thomas G. Kilgore
                                              ------------------------
                                          By:  Thomas G. Kilgore
                                          Its: Attorney in Fact


                                       42
<PAGE>   46


                                    EXHIBIT 1

                            ANNUAL ENERGY DELIVERIES

<TABLE>
<S>                                     <C>
--------------------------------------- ----------------------------------------
Year                                    Annual Energy Deliveries (MWh)
--------------------------------------- ----------------------------------------
2000                                                     788,954
--------------------------------------- ----------------------------------------
2001                                                     788,954
--------------------------------------- ----------------------------------------
2002                                                     788,954
--------------------------------------- ----------------------------------------
2003                                                     811,229
--------------------------------------- ----------------------------------------
2004                                                     855,779
--------------------------------------- ----------------------------------------
2005                                                     855,779
--------------------------------------- ----------------------------------------
2006                                                     855,779
--------------------------------------- ----------------------------------------
2007                                                     855,779
--------------------------------------- ----------------------------------------
2008                                                     855,779
--------------------------------------- ----------------------------------------
2009                                                     855,779
--------------------------------------- ----------------------------------------
2010                                                     855,779
--------------------------------------- ----------------------------------------
2011                                                     855,779
--------------------------------------- ----------------------------------------
2012                                                     855,779
--------------------------------------- ----------------------------------------
2013                                                     570,519
--------------------------------------- ----------------------------------------
</TABLE>


                                       43
<PAGE>   47


                                    EXHIBIT 2

                   CAPACITY AND ENERGY PURCHASE RATES ($/MWH)

<TABLE>
<CAPTION>
--------------------- ----------------------- ----------------------
Year                  Contract Rate           Liquidated
                                              Damages Rate
--------------------- ----------------------- ----------------------
<S>                   <C>                     <C>
2001                          23.03                   70.74
--------------------- ----------------------- ----------------------
2001                          29.71                   72.17
--------------------- ----------------------- ----------------------
2002                          29.30                   73.53
--------------------- ----------------------- ----------------------
2003                          28.56                   74.64
--------------------- ----------------------- ----------------------
2004                          27.94                   75.44
--------------------- ----------------------- ----------------------
2005                          28.07                   76.96
--------------------- ----------------------- ----------------------
2006                          28.26                   78.74
--------------------- ----------------------- ----------------------
2007                          28.26                   80.34
--------------------- ----------------------- ----------------------
2008                          28.80                   82.13
--------------------- ----------------------- ----------------------
2009                          29.08                   83.88
--------------------- ----------------------- ----------------------
2010                          29.36                   85.76
--------------------- ----------------------- ----------------------
2011                          29.64                   87.67
--------------------- ----------------------- ----------------------
2012                          29.64                   89.63
--------------------- ----------------------- ----------------------
2013                          33.75                   92.43
--------------------- ----------------------- ----------------------
</TABLE>


                                       44