Exhibit 10.8


 


REDACTED


 


EXECUTION COPY


 


KGen
Murray I and II LLC


1330
Post Oak Boulevard


Suite 1500


Houston,
TX  77056


 


Attn..
James Sweeney


 


Re:                             Letter Agreement (“Letter
Agreement”)


 


Gentlemen:


 


This
Letter Agreement with its Attachments A (Contract for Sales Transaction), B
(NAESB Contract) and C (Special Provisions to NAESB Base Contract) will confirm
the agreement of our respective companies to execute a transaction (the “Sale
Transaction”) whereby Sequent Energy Management, L.P. (“Seller”) will supply
and sell, and KGen Murray I and II LLC (“Buyer”), a subsidiary of KGen LLC (“KGen”),
will receive and buy certain quantities of natural gas to supply the Murray
Power Generation Facility Unit No. 1, located in Murray County, Georgia (“Murray
I”).  The Sale Transaction shall be
consummated in accordance with, and subject to, the terms and conditions set
forth in this Letter Agreement.  Buyer
and Seller are sometimes referred to herein individually as a “Party” and
collectively as the “Parties”).


 


1.                                       Contract. 
The Sale Transaction shall be made in accordance with this Letter
Agreement, the “Contract for Sales Transaction” attached hereto as Attachment “A”,
the NAESB Contract attached as Attachment “B” (the “Base Contract”) and the
Special Provisions to the NAESB Contract attached as Attachment “C” (the Base
Contract and the Special Provisions thereto are referred in this Agreement as
the “NAESB Agreement”, and this Letter Agreement and the “Contract for Sales
Transaction” attached hereto as Attachment “A” (collectively, the “Confirmation”)
constitute a “Transaction Confirmation” under the NAESB Agreement). To the
extent there is any conflict between the NAESB Agreement and the Confirmation,
the Confirmation shall control. 
References to “this Agreement” shall be deemed to be a reference to the
integrated contract formed by that NAESB Agreement and the Confirmation.


 


2.                                       Confidentiality.  The existence of this Agreement and its
contents are intended to be confidential and are not to be discussed with or
disclosed to any third party, except (i) to Georgia Power Company in
connection with the Contract for the Purchase of Firm Capacity and Energy dated
June 3, 2002, between Georgia Power Company and Buyer (as successor in
interest to Duke Energy Southeast Marketing, LLC pursuant to that certain
assignment and assumption agreement dated August 5, 2004), as amended by
that certain consent and amendment dated July 16, 2004, relating to the
Murray I plant (the “Murray I PPA”), (ii) to the lenders to KGen or Buyer,
(iii) with the express prior written consent of the other Party hereto and
(iv) as may be required or appropriate in response to any summons,
subpoena or discovery order or to comply with any applicable law, order,
regulation or ruling.


 


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3.                                       Governing Law.  This Agreement shall be governed by and
construed under the laws of the State of Texas.


 


Each
Party to this Agreement represents and warrants that it has full and complete
authority to enter into and perform this Agreement.  Each person who executes this Agreement on
behalf of either Party represents and warrants that such Party has full and
complete authority to do so and that such Party will be bound thereby.


 


If
the terms and conditions of this letter are in accord with your understanding,
please sign, and return the enclosed counterpart of this letter, no later than September 28,
2004, after which date, if not received, this Agreement shall be null and void.


 


IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement to be executed by their proper officers duly authorized in that
behalf, as of the day and year first above written.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  SEQUENT ENERGY MANAGEMENT, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RICHARD T. O’BRIEN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Richard T. O’Brien

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  AGREED AND ACKNOWLEDGED

  	
   

  	
   

  	
   

  
	
  this          day of
                              ,
  2004

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  KGEN MURRAY I AND II
  LLC

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ GERALD K.
  LINDNER

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name: G.K. Lindner

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title: CEO

  	
   

  	
   

  	
   

  
							



 


2

















 


Attachment “A”


Contract for Sales Transaction


 


Transaction:                             Term Natural Gas Supply to Murray 1 Plant


 


Seller:                                                                Sequent Energy Management, L.P.


 


Buyer:                                                             KGen Murray I and II LLC 


 


Buyer


Guarantor:                                        KGen LLC (“KGen”)


 


Delivery


Point:                                                                 Any receipt point on East Tennessee Natural
Gas (“ETNG”) into the transportation contracts to which Buyer is a party.  In the event the Facility interconnects with
a pipeline other than ETNG, Seller may make deliveries to the Facility off the
new pipeline interconnect.


 


Facility:                                                      Murray Power Generation Station No. I,
located in Murray County, Georgia


 


Pipelines:                                             All deliveries
will be made to the Delivery Point for further delivery to the Facility.  It is intended that such deliveries will be
made from upstream sources from Southern Natural Gas (SNG), Tennessee Gas
Pipeline (TGP), Texas Eastern Transmission (Tetco), and Transcontinental Gas
Pipeline (Transco)


 


Service:                                                      Firm service will be provided for volumes up
to 85,106 dt/day to serve the Facility pursuant to KGen’s or Buyer’s firm
transportation contracts with ETNG as described immediately below.  Interruptible service will be provided for
volumes above 85,106 dt/day.  Seller’s
delivery obligation is contingent upon Seller being appointed KGen’s or Buyer’s
agent under the transportation contracts of KGen or Buyer described below.


 


Transportation Contracts:


 


The following ETNG transportation contracts and any
others which may be added from time to time by K-Gen or Buyer:


 


Contract #410057, #410018,
#410098, #410059, #410063


 


Buyer shall remain responsible for delivery from the
Delivery Point to the Facility with Seller being made Buyer’s nomination and
confirmation agent for Buyer’s firm, interruptible, and balancing contracts on
ETNG.


 


Term:                                                                  Three years
beginning June 1, 2005 through May 30, 2008 with evergreen annual
rollover unless either party gives at least 90 days written notice prior to June 1,  2008 and each June 1 thereafter;
provided, however, that Buyer shall be permitted to terminate this Agreement
early without liability (other than for amounts then


 


3

















 


due and owing) on June 1, 2007 if Georgia Power Company makes a
tolling election under Section 12.5 of the Murray I PPA and the Buyer shall
provide the Seller written notice of such election promptly upon receipt from
Georgia Power Company. 


 


Commitment:                           Seller, as agent for Buyer under the
referenced Transportation Contracts, will provide full requirements delivered
firm for amounts of natural gas not to exceed *****.  Seller will provide interruptible delivered
service for amounts above ***** as reflected below during the Term.  Buyer and Seller recognize that the firm
receipt point entitlements into Buyer’s firm ETNG Transportation Contracts are
referenced in the attached Exhibit ’A’.


 


Pricing:                                                        Volumetric Charge: ***** on all quantities
scheduled to the Delivery Point


 


Commodity Charge


 


Commodity Charge for Day-ahead Swing Up
Volumes:  Buyer shall request swing up
volumes by ***** prior to flow in which case the Buyer shall receive ***** price
***** plus the Volumetric Demand Recovery plus Adders. 


 


Commodity Credit for Day-ahead Swing Down Volumes:
Buyer may request that Seller purchase volumes previously scheduled but
ultimately not needed by Murray I with notification of such swing down volumes
provided no later than ***** prior to flow. 
If Seller elects to purchase such volumes, Buyer shall receive the *****
price *****. 


 


Commodity Charge and Credit for Intra-day Swing up
and Swing Down Volumes:  Buyer’s request
for intra-day volumes shall be made no later than ***** prior to intra-day
cycle deadlines.  The price for intra-day
volumes shall be at ***** price. In the event Buyer and Seller cannot agree on
an Intra-Day Swing Up or Swing Down Price, Seller shall be under no further
obligation to supply intra-day Swing Up volumes or purchase from Buyer
intra-day Swing Down Volumes.


 


Base load Volumes: As an alternative to day-ahead or
intra-day volumes, Buyer may purchase base load volumes at Buyer’s option
either at: 


 


(1) ***** for the
applicable point of receipt (as needed to meet delivery requirements at the
Delivery Point and *****


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential treatment
has been requested with respect to the omitted portions.


 


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plus the ***** 
(Baseload volumes will be designated for a ratable daily quantity for
the prompt month, provided that Seller receives notification prior to *****; or



 


(2) ***** for the
applicable point of receipt (as needed to meet delivery requirements at the
Delivery Point and ***** plus the *****  (Baseload
volumes will be designated for a ratable daily quantity for the prompt month,
provided that Seller receives notification prior to *****. 


 


In the event that ***** and Buyer desires a fixed
price, Buyer and Seller will agree to a fixed price no later than *****.  In the event that Gas Daily does not publish
an index for *****, Buyer and Seller will agree to a fixed price no later than *****
prior to flow.


 


In the event Buyer elects to reduce baseload volumes
during a month, Buyer must notify Seller by ***** prior to the flow date
corresponding to the reduction in baseload volumes. For any notice received by
Seller after this time, the ***** shall apply. Seller shall invoice Buyer for
the entire baseload quantities originally scheduled as if such volumes were
fully delivered during the month; however, Seller will credit Buyer’s invoice
in an amount equal to the aggregate amount of (a) the ***** multiplied by (b) the
*****.


 


Triggering: Buyer has the right to trigger all or
part of Murray I’s natural gas requirements at ***** at any time for ***** but
not after *****.  Buyer may only trigger
such forward purchases after Buyer and Seller have executed a credit
arrangement that covers margining, such agreement to be in form and substance
that is mutually agreeable to Buyer and Seller.


 


Transportation Charges


 


ETNG Volumetric and Reservation Charges: Seller will
act as Buyer’s Agent for Buyer’s ETNG Transportation Contracts.  Buyer shall maintain responsibility for
paying all ETNG volumetric and reservation charges directly to ETNG.  Buyer shall be required to make such agency


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


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designation with ETNG in a timely manner to allow
Seller to fulfill its obligations. 
Seller shall have no obligation to deliver or liability to Buyer for any
failure to deliver if Buyer fails to timely pay such charges and/or make such
agency designation.


 


Volumetric Demand Recovery for Upstream Pipelines:  Seller as full requirements provider shall
maintain a number of transportation options to provide the contract quantities
into ETNG for delivery thereafter to Murray I pursuant to Buyer’s ETNG
Transportation Contracts.  Seller will
use the following table to recover the value of upstream pipeline
transportation charges, plus Adders, scheduled to the Delivery Point.


 


Murray I Firm Deliveries 


 


	
  Pipe

  	
   

  	
  Percentage

  	
   

  	
  Volumetric

  Demand

  Recovery

  	
   

  	
  Adders

  	
   

  
	
  SNG Zn 0 - Zn 3

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
  Tetco Ela – Mt. Pleasant (M1)

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
  TGP Zn 1 – Zn 1

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  



 


This Demand recovery shall be on a volumetric basis
and shall only be charged on quantities purchased. 


 


*****: Seller will include in its ***** to Buyer the
***** Changes in ***** will be passed through beginning with the effective
month.  Changes in the rates applicable
to the Transportation Contracts shall be passed through beginning with the
effective month.


 


Example Pricing 


 


***** 


 


Savings
to Buyer: 


 


Seller will seek to deliver the commodity on the
lowest cost transportation path available.  
Seller will also seek to remarket any unused firm transportation
capacity.   *****


 


Forecasts:                                         Buyer will provide to Seller each morning by
8:00 a.m. a forecast of the Murray I natural gas requirements for the
current day and following seven (7) days.


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


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Imbalance and Penalty
Management:


 


Seller and Buyer will undertake to minimize any
adverse financial impact resulting from an imbalance cash out, or Operational
Flow Order (“OFO”), or MAD penalty mechanism on the ETNG system (as specified
in Section 7 of the LMS-MA Rate Schedule (MAD Service Charge) and Section 14
of the ETNG GT&C’s) utilizing all the means and information available at
the time.  To the extent permitted by
applicable Law, Seller and Buyer agree to routinely exchange information on
both plant and pipeline operating conditions. 
Should a Preliminary Notice of OFO or actual OFO be issued, Seller and
Buyer agree to timely take any reasonable actions to mitigate any escalation of
the OFO into an Action Alert (with associated penalties for
non-compliance).  Seller and Buyer agree
to take immediate action to avoid Balancing Alerts and related penalty.  In the event that a MAD Service Charge is
issued, Seller and Buyer agree to take immediate action to prevent a Service
Charge and related Commodity Charge. 
Seller will notify Buyer of any of the above orders as soon as
practicable after such information is made available to Seller.  Should such financial penalty result from an
Action Alert, Balancing Alert or MAD Service Charge, the party responsible for
the penalty shall pay the penalty, or be reimbursed for such payment, in a
timely manner.


 


Financial Security:


 


Terms used but not defined in this Section shall
have the meanings ascribed to them in that certain Depositary Agreement dated
as of August 5, 2004 by and among KGen and its subsidiaries, The Bank of
New York, and other parties named therein (as amended, restated, supplemented
and in effect from time to time, the “Depositary Agreement”).  The Parties hereto further agree and
acknowledge that Seller is a “Fuel Provider” and that this Agreement is a “Fuel
Provider Agreement” as such terms are used in the Credit Agreement and the Depositary Agreement.   


 


1.                                       (a)                                  In addition to any and all rights of Seller
to demand and receive Adequate Assurance of Performance pursuant to the NAESB Agreement,
as security for Buyer’s payment obligations under this Agreement and as a
condition precedent to Seller’s obligation to make deliveries of natural gas to
Buyer pursuant to this Agreement, Buyer, in accordance with Section 6.05
of the Depositary Agreement, hereby irrevocably ASSIGNS, PLEDGES, HYPOTHECATES,
CONVEYS, SETS OVER AND TRANSFERS unto Seller, and does hereby GRANT to Seller a
continuing first priority lien on and security interest in, all of such party’s
right, title and interest in, to and under the following property, assets and
revenues, whether now owned or hereafter from time to time acquired and whether
now existing or in the future coming into existence: (i) *****  under the


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


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***** and (ii) all proceeds of any and all of the foregoing.  


 


(b)                                 Buyer will not restructure or amend the
Murray I PPA so as to render payments thereunder anything other than
Non-Distinguishable PPA Revenues or to render this Agreement anything
other than a Fuel Provider Agreement.


 


(c)                                  Buyer agrees to, and to cause and KGen to, in
accordance with Section 6.05 of the Depositary Agreement, assign, pledge,
hypothecate, convey, set over and transfer unto the Collateral Agent for the
benefit of Seller, and to grant to Seller a continuing first priority lien on
and security interest in, all of such party’s right, title and interest in, to
and under the following property, assets and revenues, whether now owned or
hereafter from time to time acquired and whether now existing or in the future
coming into existence: (i) the Receipt Account, and any and all credits and other balances of account carried
thereto or carried therein or transferred thereto, and any and all property
deposited or required to be deposited therein from time to time, or credited or
required to be credited to the Receipt Account, in each case only to the extent
that the foregoing constitutes the Murray Pledged Revenues associated with the Murray
Pledged Receivables and (ii) any
and all instruments, investment property, financial assets and general
intangibles on deposit in or related to any of the foregoing to the extent the
same constitute the proceeds of the Murray Revenues associated with the Murray
Pledged Receivables. 


 


(d)                                 For
purposes of defining terms herein which are not defined in this Agreement or in
the Depositary Agreement, the following definitions shall apply:


 


“Credit Agreement” means that certain Credit
Agreement, dated as of August 5,  2004 by and
among KGen, as borrower, the financial institutions from time to time parties
thereto, Buyer, the other guarantors party thereto and Credit Suisse First
Boston, acting through its Cayman Islands Branch, as administrative agent, sole
lead arranger and sole book runner thereunder and as Collateral Agent, as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time.


 


“Fuel Costs” means, with respect to each Fuel
Provider, on any date, the aggregate amount of unpaid costs for or directly
relating to fuel (including all applicable commodity, transportation, taxes,
and associated procurement charges) purchased by such Fuel Provider through
such date under its respective Fuel Provider Agreement.


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


8

















 


“Fuel Provider” means any Power Marketing Provider
or other Person (including financial institutions) that procures fuel or
otherwise arranges to acquire fuel on its own account (or account of a Person
other than a Borrower Party) for the benefit of any Project Company pursuant to
a Fuel Provider Agreement.


 


“Fuel Provider Agreement” means any agreement for
the sale of fuel, which may include Power Marketing and Fuel Procurement
Agreements, pursuant to which the payment for fuel procured for a Project
Company is made by the counterparty of such agreement on its own account or
account of a Person other than a Borrower Party (and not the account of a
Project Company) and any energy payment from the sale of energy generated from
such fuel is paid to a Project Company and not such counterparty.  For the avoidance of doubt, any Power
Marketing and Fuel Procurement Agreement which provides for the counterparty
thereunder to net its fuel purchases in respect of a Project from power
purchase agreement-revenues from the sale of power generated from such Project
shall not constitute a Fuel Provider Agreement.


 


“Murray Pledged Revenues” means energy payments made
by a Payor under the Murray I PPA or a Subject Murray PPA to the extent that
any such payments constitute Murray Pledged Receivables.


 


“Pledged Energy Payment Receivables” means, with
respect to any given energy payment receivables outstanding in favor of a
Project Company, on any date, the portion of such energy payment receivables
outstanding in favor of such Project Company equal to the Fuel Costs incurred
in respect of such receivables for energy sales from its respective Project
(excluding for the avoidance of doubt any capacity or similar payments not
calculated by reference to the cost of fuel) that have been pledged by such
Project Company to any Fuel Provider to secure such Fuel Provider’s Fuel Costs
pursuant to a Fuel Provider Agreement entered into with such Project Company
(or a Borrower Party on behalf of such Project Company).


 


“Power Marketing and Fuel Procurement Agreements”
means an agreement or agreements relating to power marketing and fuel
procurement services entered into in accordance with Section 6.02(p).


 


“Section 6.02(p):


 


Power Marketing and Fuel
Procurement and O&M Agreements.  


 


“Within ninety (90) days of the Funding Date,
each Project Company owning or leasing a Material Project shall enter into (A) a
Power Marketing and Fuel Procurement Agreement consistent with the Energy


 


9

















 


Marketing and Fuel Procurement Criteria and (B) an
O&M Agreement consistent with its obligations under the Project Agreements
to which it is a party, in each case, on terms and conditions reasonably
satisfactory to the Administrative Agent and with a creditworthy counterparty
with significant industry experience satisfactory to the Administrative Agent,
in each case, such approval not to be unreasonably withheld; provided, however,
that the Administrative Agent shall be deemed to have approved of any Power
Marketing and Fuel Procurement Agreement and O&M Agreement submitted to it
for review if the Administrative Agent fails to provide comments or a response
to Borrower or the applicable Project Company within five (5) Business
Days of the date upon which the Administrative Agent received a copy of any
such proposed agreement for review and approval.  With regards to Murray, the Power Marketing
and Fuel Procurement Agreement shall include, among other things, provisions
that permit the Murray Project Company to satisfy its obligations under the
Murray-1 PPA, that are not materially inconsistent with the fuel pricing
provisions of the Murray-1 PPA and that take into consideration, for purposes
of maximizing pass through of all fuel costs, the fuel pricing and delivery
points that determine the “Monthly Fuel Charges” (as defined in the Murray-1
PPA).  Within one hundred and eighty
(180) days of the date on which a Peaker is taken out of lay-up status and
resumes normal operations, each Operational Peaker that is not otherwise
covered by the terms of a then existing Power Marketing and Fuel Procurement
Agreement or Non-Murray O&M Agreement shall enter into, as applicable, a
Power Marketing and Fuel Procurement Agreement and shall enter into a
Non-Murray O&M Agreement adequate for purposes of operating and maintaining
such Operational Peaker in accordance with Prudent Engineering and Operating
Practice, which agreements may be terminated at any time if the applicable
Operational Peaker ceases normal operation.”


 


2.                                       The parties acknowledge (and Buyer agrees to
cause the Collateral Agent to acknowledge) that: (a) Murray Pledged
Revenues constitute the “Fuel Provider Portion of the Non-Distinguishable PPA
Revenues” for purposes of the Depositary Agreement and (b) the Murray
Pledged Receivables constitute “Pledged Energy Payment Receivables” under the
Depositary Agreement.


 


3.                                       The Buyer agrees to cause KGen to guarantee
payment of all amounts due and owing by Buyer to Seller pursuant to this
Agreement through the execution and delivery to Seller of a mutually agreeable
guaranty agreement. 


 


4.                                       The Buyer hereby authorizes the filing of (and
agrees to cause KGen to authorize the filing of) all financing statements in
connection with the assignment, lien and security interest herein agreed to be
granted and agrees, as a condition to Seller’s obligation to make deliveries of
natural gas to Buyer pursuant to this Agreement, to promptly execute and
deliver, and to cause to be executed and


 


10

















 


delivered to Seller by the Depositary, the
Collateral Agent, and others, from time to time, all security agreements, control
agreements, guaranty agreements, intercreditor agreements, subordination
agreements, releases, termination statements, notices, consents,
acknowledgements, filings and other agreements, instruments and documents, and
amendments thereto reasonably deemed necessary by Seller to create, perfect, protect and evidence
such assignment and such first-priority security interest and lien and to give
full effect to the intent and provisions of this Financial Security section of
this Agreement, all of which shall be in form and substance acceptable to
Seller in its sole discretion, including, but not limited to, any security
agreement and/or intercreditor agreement between Buyer, the Collateral Agent
and Seller as necessary to comply with the requirements of Section 6.05 of
the Depositary Agreement.


 


5.                                       In addition to the foregoing, in accordance
with Section 3.01(a) of the Depositary Agreement, Buyer hereby
irrevocably agrees to promptly deposit, and to cause each other applicable
Borrower Party to promptly deposit, the Murray Pledged Revenues associated with
the Murray Pledged Receivables into the Receipt Account maintained
pursuant to the Depositary
Agreement.  In addition, Buyer hereby
irrevocably directs, and agrees to irrevocably direct and to cause each other
Borrower Party to irrevocably direct, Georgia Power and each other Payor to
remit to the Receipt Account the
Murray Pledged Revenues associated with Murray Pledged Receivables and all
other payments due to Buyer under the Murray I PPA or any other Subject
Murray Agreement; provided that, to the
extent that any Payor under the Murray I PPA or any other Subject Murray
Agreement agrees to bifurcate payment of energy payments from capacity
payments, only energy payments shall be required to be made into the Receipts
Account in accordance with this sentence.    



 


6.                                       The Buyer agrees to cause the Depositary and
the Collateral Agent to execute an agreement with the Seller providing: 


 


(a)                                  that upon each deposit of Murray Pledged
Revenues into the Receipt Account, and delivery to the Depositary and
the Collateral Agent of a copy of the relevant invoice for natural gas
purchased under this Agreement at the time such invoice is delivered to the
Buyer, 


 


(i)                                     the
Depositary shall transfer from the Receipt Account to Seller’s Fuel Provider Account
(the “Sequent Account”) by wire transfer an amount equal to the amounts
owed to Seller for natural gas purchased under this Agreement as shown on such
invoice, but without the necessity of receiving any further instruction from
Buyer or the Receipt Account Transfer Direction for such transfer (which shall
nevertheless be provided to the Depositary at the time required by the
Depositary Agreement); provided, however, that the Depositary shall
not be required to make any such transfer if 


 


11

















 


(x)                                   Buyer,
within the later to occur of (A) two Business Days after each deposit into
the Receipt Account of Murray Pledged Revenues and (B) 10 days after Buyer’s
receipt of Seller’s invoice (such period, the “Review Period”), notifies the
Depositary and Seller in writing that Buyer in good faith disputes all or any
portion of the amount shown on such invoice, in which case the Depositary shall
transfer only the undisputed amount of such invoice and the dispute shall be
resolved by Seller and Buyer in the manner and within the times provided
elsewhere in this Agreement for the resolution of disputes, or 


 


(y)                                 the
Collateral Agent, acting in good faith, delivers to the Depositary and Seller
in accordance with this paragraph 6 a written Notice of Objection (as defined
in the Depositary Agreement) on or before the tenth day after delivery of the
Seller’s invoice to Buyer and the Collateral Agent, in which case the
Depositary shall transfer only the undisputed amount of such invoice and the
dispute shall be resolved by Seller and Buyer in the manner and within the
times provided elsewhere in this Agreement for the resolution of disputes;  


 


and


 


(ii)                                  subject
to the dispute rights of Buyer and Seller set out above, the Depositary shall
effect each such transfer on the Business Day immediately following the last
day of the Review Period; and 


 


(b)                                 for
a present, irrevocable instruction by the Buyer to the Depositary to make all transfers of the type described in clause
(a).


 


The Collateral Agent may deliver a Notice of
Objection with respect to an invoice only if the Collateral Agent reasonably
believes in good faith that such invoice is fraudulent, erroneous or otherwise
defective.  Each Notice of Objection
shall state the invoice with respect to which it is delivered, the reason for
the objection and shall state the portion, if any, of the amount shown on the
relevant invoice that is disputed.


 


7.                                       Buyer agrees and acknowledges that it does
not have, and shall not ever have or claim to have, any legal or equitable
right or claim to any amount in the Sequent Account, except to the extent the
amounts deposited therein may be in excess of the total amount then due and
owing to Seller under this Agreement.  


 


8.                                       All fees and charges of the Depositary,
and all other obligations and liabilities,
associated with the Receipt Account shall be the responsibility of Buyer,
and Seller shall have no liability therefor.


 


12

















 


9.                                       KGen and Buyer shall deliver to Seller:


 


(i)                                     concurrently with the delivery of any instructions by any Borrower Party to a
counterparty under the Murray I PPA or any other Subject Murray Agreement, a copy of such instructions, together
with such counterparty’s acknowledgement of receipt thereof and consent
thereto;


 


(ii)                                  within one Business Day of Buyer’s receipt
thereof from the Depositary, notice of each deposit into the Receipt Account with respect to the Murray Pledged
Receivables and the Murray Pledged Revenues and each transfer from the Receipt Account into the Sequent Account;


 


(iii)                               concurrently with Buyer’s delivery thereof to the Depositary, copies of
all Receipt Account Transfer Directions with respect to the Sequent Account;


 


(iv)                              promptly upon delivery thereof by Buyer, copies of all information
required to be provided by Buyer to the Depositary pursuant to Section 3.02
or 3.04 of the Depositary
Agreement, solely as such
information relates to (i) the Receipt Account, (ii) the
Sequent Account, and (iii) the Murray Pledged Revenues associated with
the Murray Pledged Receivables and all energy payment receivables from any and
all other purchasers of capacity and/or energy from the Murray I plant for
which natural gas is purchased under this Agreement;


 


(v)                                 promptly upon receipt thereof by Buyer,
copies of all notices and other information required to be provided by
Depositary under Section 3.03(b) of the Depositary Agreement, solely as such notices and other
information relate to (i) the
Receipt Account, (ii) the Sequent Account or (iii) the Murray Pledged Revenues associated with
the Murray Pledged Receivables and all energy payment receivables from any and
all other purchasers of capacity and/or energy from the Murray I plant for
which natural gas is purchased under this Agreement; and


 


(vi)                              promptly upon receipt thereof by Buyer, a copy of each Default Notice
and each Rescission Notice received by Buyer pursuant to Section 4.14 of
the Depositary Agreement.


 


10.                                 Buyer
agrees with Seller, and shall cause KGen,
the Depositary and Credit Suisse First Boston, acting through its Cayman
Islands Branch, as Collateral Agent for certain Secured Parties, to agree
with Seller, not to amend, modify,
restate or supplement Article III or Section 6.05 of the Depositary
Agreement (solely as such
Article or Section relates to (i) the Receipt Account, (ii) the
Sequent Account, (iii) deposits to either such account, (iv) transfers
from or to either such account, (v) instructions related to any of the
matters listed in clauses (i) through (iv), inclusive, preceding, (vi) the Murray Pledged Revenues


 


13

















 


associated with the Murray Pledged Receivables,
(vii) the security interests granted or to be granted Seller in accordance
with Section 6.05 of the Depositary Agreement, or (viii) any other
matters addressed in this Financial Security Section) without the prior written consent of Seller,
which Seller shall be free to withhold in its discretion.


 


11.                                 In the event that Georgia Power Company or
any other Payor does not make timely payment to Buyer under the Murray I PPA or
any other Subject Murray Agreement,
Buyer shall utilize its commercially reasonable efforts to immediately enforce
the payment and all other applicable provisions of the Murray I PPA or
such other Subject Murray Agreement;
provided, however, that Buyer’s inability or failure to collect any sums due
from Georgia Power or any other Payor shall in no event excuse Buyer from its
payment obligations to Seller, or restrict Buyer’s right to dispute such
amounts.


 


12.                                 In
accordance with Section 6.05 of the Depositary Agreement, the parties
agree for the benefit of the Collateral Agent that (i) the Lien granted
herein shall not adversely affect the Collateral Agent’s Security Interest in
the Account Collateral (including the Receipt Account as provided in the
Depositary Agreement) on behalf of the Secured Parties, (ii) Seller
acknowledges that it does not have any rights or interest in the Account Collateral
other than with respect to the Murray Pledged Revenues or the Receipt Account,
to the extent of the Murray Pledged Revenues in the Receipt Account, and (iii) the
right of Seller to receive the Murray Pledged Revenues shall be in conformity
with the Depositary Agreement.  In no
event shall the Lien granted by Buyer to the Collateral Agent for the benefit
of Seller extend beyond the Murray Pledged Revenues in the Receipt Account and
the Receipt Account to the extent of the Murray Pledged Revenues. Pursuant to Section 4
above and Section 6.05 of the Depositary Agreement, the parties shall
enter into one or more agreements with the Collateral Agent containing the
foregoing provisions.


 


Billing & Payment:


 


Seller shall invoice Buyer by the
tenth (10th) day of each month (commencing with July, 2005 for June business)
for all charges due Seller and all sharing proceeds due Buyer.  Payment is due to Seller on or before the fifteenth
(15th) day after Buyer’s receipt of such invoice.  If Buyer in good faith questions or contests
the amount due Seller, Buyer shall pay Seller all amounts not in dispute.  At the time of withholding, Buyer shall
provide Seller a written explanation of Buyer’s reasons for withholding
payment.  In such event, Seller shall
have the right and option to suspend deliveries until such dispute is resolved
to Seller’s satisfaction. 


 


Billing Disputes and Final
Accounting:


 


If Buyer questions or contests the
amount or propriety of any payment claimed by Seller to be due pursuant to this
Agreement, Buyer shall make payment to


 


14

















 


Seller of amounts not in dispute,
but may withhold amounts disputed in good faith until after the settlement of
such question or contest in accordance with this Section.  Notwithstanding the foregoing, Buyer shall
not be entitled to withhold any Taxes paid by Seller which are, as between
Buyer and Seller, the undisputed obligation of Buyer.  At the time of any such withholding, Buyer
shall provide Seller with a written explanation of Buyer’s reasons therefore;
provided, however, that the failure of Buyer to provide such explanation shall
not alter its right to withhold unless Buyer also fails to provide such written
explanation within five (5) Business Days of receipt of Seller’s written
inquiry concerning such withholding.


 


In the event Buyer questions or
contests the correctness of any charge or credit, Buyer shall provide Seller
with written notice of such amount and the basis for Buyer’s question or
contest.  Seller shall promptly review
the questioned charge or credit and shall notify Buyer of any error in Seller’s
determination of amounts owed by Buyer and issue an amended invoice in the
amount of any payment that Buyer is required to make in respect of such
redetermination.  If Buyer disputes in
good faith Seller’s amended invoice amount, then the matter shall be resolved
pursuant to the provisions for Arbitration as provided in Sections 20.2.1 and
20.2.2.2 of the Murray I PPA, as if such provisions were set forth herein.  To the extent Seller disagrees with Buyer’s
basis for questioning the original invoice, Seller shall provide written
explanation of its position.  


 


Seller shall have until the end of
one (1) year after the delivery of natural gas under this Agreement to
correct any invoice for payment due for such natural gas and deliver a
corrected invoice to Buyer.  Buyer shall
have until the end of one (1) year after its receipt of any invoice to
question or contest the correctness of any charge or credit made to Buyer on
such invoice.  If Buyer has made payment
under an invoice and thereafter questions or contests the correctness thereof,
Seller shall not be required to refund any payment received from Buyer until
such time as it is finally determined that Seller’s invoice was in error.


 


Other
Terms and Conditions:


 


“This Agreement” consists of (a) the Letter
Agreement, (b) Attachment “A” - Contract for Sales Transaction, (c) Attachment
“B” - the NAESB Contract by and between Seller and Buyer dated               
    , 2004 and (d) Attachment “C” - the Special
Provisions Addendum.  For the avoidance
of doubt, the provisions of paragraph 1 of the Letter Agreement apply to this
Agreement.  The Buyer and Seller agree
that no other confirmations (other than the Confirmation as described in such
paragraph 1) are required to effect the Sales Transaction.


 


Miscellaneous Provisions:


 


All provisions hereof are subject to all valid state
and federal laws, rules, orders and regulations of the FERC, and any state and
federal agencies with jurisdiction over any or all of the subject matter of
this Agreement.  Such laws, rules and


 


15

















 


regulations shall be presumed valid when issued and
the Parties shall be entitled to act in accordance therewith until the same
shall be invalidated by final non-appealable order of a court of competent
jurisdiction.


 


Liability of either Party under or arising out of
this Agreement shall be limited to actual, direct damages.  In no event shall either
Party be liable to the other for consequential, incidental, indirect, punitive,
exemplary, or special damages, lost profits or other business interruption
damages, regardless of whether the claim for such damages is asserted under a
theory of breach of agreement, tort, or any other theory of liability, and any
claim to such damages is expressly waived.


 


This Agreement shall be governed by and construed
under the laws of the State of Texas.


 


There are no third party beneficiaries to this
Agreement.


 


Notwithstanding any provision of this Agreement,
including the NAESB, Seller shall only be permitted to declare force majeure
under this Agreement if the applicable force majeure event affects firm
transportation and constitutes a force majeure event under an applicable
pipeline tariff used to deliver natural gas to the Facility, or if such event
is the result of an operational flow order that is not directed toward Seller’s
failure to comply with the applicable pipeline tariff.  In each case Seller shall be excused from
performance only so long as and to the extent that it is unable to reschedule transportation
volumes on unaffected pipelines at no additional cost to Seller.


 


Buyer represents and warrants that the provisions of
this Agreement in no way conflict with or violate its commitments and/or
obligations of any other Agreement including but not limited to those with its
lenders to which it and/or its parent, affiliates, and/or subsidiaries are a
party.


 


16

















 


EXHIBIT ’A’


 


Up
to *****:  At *****


 


Up
to *****: At *****


 


Up
to *****: At *****


 


Up
to *****: At *****


 


EXHIBIT ’B’


 


Example
Pricing - Murray 1


 


	
  Location

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Total Price

  	
   

  	
  *****

  	
   

  



 


 


For
illustrative purposes, the example above references ***** Also, certain
pipelines adjust fuel rates seasonally.


*****


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


17

















 


EXHIBIT ’C’


 


Sharing Associated with Least Cost Pathing on
Pipelines Upstream of ETNG:


 


Seller will invoice on scheduled delivered volumes
based upon the transportation paths shown in the Murray I Firm Deliveries table
(under “Transportation Charges” above), but actually deliver according to the
lowest cost transportation path available to Seller that will actually
flow.  Seller will credit Buyer with *****
of the savings generated through use of the lowest available cost path that
will flow against the pro-rata receipt points specified in the table
herein.  Such credit shall be reflected
as a separate line item in Seller’s monthly invoice to Buyer.  For purposes hereof, “savings” shall be
calculated by way of example on the attached Exhibit ’B’.  Seller makes no warranty or representation
that there will be any “savings” resulting from these activities.


 


Example Sharing - Murray 1


 


	
  Location

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  	
  *****

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Share Price

  	
   

  	
  *****

  	
   

  



 


Assuming a daily delivery of ***** SEM would share ***** of the ***** Buyer, or *****


 


Note:
Example sharing is based on the actual SEM dispatch to Murray 1. For
illustrative purposes, we have assumed 75% actual ***** and ***** Actual
sharing will vary based on SEM’s actual daily dispatch.


 


For
illustrative purposes, the example above references ***** Also, certain
pipelines adjust fuel rates seasonally.


 


Pricing
will utilize fuel rates applicable to the month of flow


 


Sharing Associated with remarketing ETNG firm
transportation:


 


SEM shall share with Buyer ***** of any gross
profits associated with Seller’s remarketing Buyer’s firm transportation
capacity on ETNG.  For purposes hereof, “gross
profits” shall be calculated as follows: 
*****.  Seller makes no warranty or
representation that there will be any “gross profits” resulting from these
activities.


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


18

















 


Attachment C


 


SPECIAL PROVISIONS TO NAESB BASE CONTRACT


 


Sequent
Energy Management, L.P.,
a Georgia limited partnership (“Sequent”), and KGen Murray
I and II LLC (“Counterparty”) hereby agree effective as of the       
day of                           ,
2004, to the following special provisions (“Special Provisions”) to the NAESB
Base Contract for Sale and Purchase of Natural Gas (“Base Contract”), which
hereby modifies and amends the Base Contract dated and effective as of the date
hereof between Sequent and Counterparty. 
Unless specifically agreed otherwise in a Transaction Confirmation, the
Base Contract, as modified by these Special Provisions, shall apply to all
transactions for the purchase and sale of Gas between the parties.  All capitalized terms not otherwise defined
herein shall have the meaning set forth in the Base Contract. 


 


1.                                       Section 10.1 is hereby
amended by adding the following to the end of Section 10.1:


 


Notwithstanding the foregoing, Sequent agrees not to demand
Adequate Assurance of Performance unless and until Sequent determines that the
amount which would be owed by the Counterparty pursuant to Section 10.3.1
of the Base Contract is in excess of *****  (the “Exposure Threshold”); provided,
however, that Sequent reserves the right to reduce the Exposure Threshold at
any time upon five (5) Business Days prior notice to Counterparty to a
lesser amount as determined by Sequent in its sole discretion.  Sequent shall notify the Counterparty when
the Exposure Threshold is approximately ***** or approximately within ***** of the “Exposure Threshold” if it has been adjusted.  


 


2.                                       The following is added at the end of Subsection 10.2
(viii) and before the remainder of Section 10.2:


 


“or (ix) breach any
material covenant or obligation herein or in any guaranty provided on behalf of
such party (other than any covenant or obligation listed as a specific Event of
Default) provided such failure is not remedied within 10 Days following Notice
of such failure;”


 


3.                                       Section 10.5 is hereby
deleted in its entirety and replaced with the following:


 


The parties specifically agree that this Contract and
all transactions pursuant hereto are “forward contracts” as such term is
defined in 11 U.S.C. § 101(25) of the United States Bankruptcy Code and
that each party is a “forward contract merchant” as such term is defined in Section 101(26)
of the United States Bankruptcy Code. 
Each party further agrees that the other party is not a “utility” as such
term is used in 11 U.S.C. Section 366, and each party agrees to waive and
not to assert the applicability of the provisions of 11 U.S.C. Section 366
in any bankruptcy proceeding involving such party.  In addition, each party agrees that
alternative market sources of gas are available.


 


 






*** Certain information on this page has been omitted and filed
separately with the SEC.  Confidential
treatment has been requested with respect to the omitted portions.


 


19

















 


4.                                       The following additional
language is added in Section 14.1 immediately prior to “, or (ii)”: “and
Seller shall reasonably cooperate with Buyer and its lenders in the execution
of a reasonable and customary consent agreement relating to such assignment and
acceptable to both Sequent and Counterparty”.


 


5.                                       The following new Section 14.12 is added
at the end of Section 14:


 


When
Counterparty enters into a transaction with Sequent, Sequent may be acting as
principal for its own account or representing one of our affiliated utilities
which include Atlanta Gas Light Company, Chattanooga Gas Company or Virginia
Natural Gas, Inc., provided that regardless of whether it is representing
one of its affiliated utilities, the obligations of Sequent are the same as if
it had entered into such transaction for its own account.


 


20

















 


IN
WITNESS WHEREOF, the parties have executed these Special Provisions to
supplement and, where applicable, to modify and supersede the Base Contract by
and between the parties.


 


 


	
  SEQUENT ENERGY MANAGEMENT, L.P.

  	
   

  	
  KGEN MURRAY I AND II LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ RICHARD T. O’BRIEN

  	
   

  	
  By:

  	
  /s/ GERALD K. LINDNER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Richard
  T. O’Brien

  	
   

  	
  Name:

  	
    Gerald
  K. Lindner

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    CEO

  	
   

  	
  Title:

  	
    CEO

  	
   

  
								



 


21