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                                                                   Exhibit 10.18




                                    AGREEMENT
                         FOR THE SALE OF ELECTRIC ENERGY
                      FROM THE SCRUBGRASS GENERATING PLANT


         THIS AGREEMENT, made and entered into this 7th day of August, 1987 by
and between PENNSYLVANIA ELECTRIC COMPANY (hereinafter "Penelec" or "Company"),
a public utility corporation organized and existing under the laws of the
Commonwealth of Pennsylvania and SCRUBGRASS POWER CORP. (hereinafter "SPC"), a
Pennsylvania corporation, hereinafter sometimes referred to collectively as the
"Parties", or individually as a "Party. "

                                   WITNESSETH:

         WHEREAS, Penelec is a Pennsylvania public utility corporation engaged
in the production, transmission and distribution of electric energy; and

         WHEREAS, SPC is a corporation which has undertaken to acquire,
construct, install and operate a certain waste-fired, electric generating
installation in Scrubgrass Township, Venango County, Pennsylvania (hereinafter
"Facility"), which was certified by the Federal Energy Regulatory Commission
("F.E.R.C.") at Docket No. QF-87-345-000 on June 3, 1987, as a qualifying small
power producer and/or cogenerator, said certification having been marked as
Appendix 1 attached hereto and made a part hereof; and

         WHEREAS, the Facility, also known as the Scrubgrass Generating Plant,
consists of one generating unit with an installed net capacity of approximately
eighty thousand (80,000) kilowatt ("KW"); and
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         WHEREAS, SPC intends to utilize bituminous and anthracite waste as the
principal energy sources for the Facility, and have the facility available for
the production and sale of electric energy on December 31, 1990; and

         WHEREAS, SPC intends to construct, own, maintain and operate a certain
115 kilovolt ("KV") electric transmission line extending approximately sixteen
(16) miles from the Facility to Penelec's Eclipse Substation in Venango County,
Pennsylvania ("Transmission Line"); and

         WHEREAS, SPC desires to sell the electric energy produced by the
Facility to Penelec and Penelec desires to purchase said electric energy under
the terms and conditions outlined below; and

         WHEREAS, SPC may from time to time require additional electric services
in the form of supplementary power, maintenance power, interruptible maintenance
power, back-up power, and interruptible back-up power, and Penelec desires to
provide said services to SPC under the terms and conditions outlined below

         NOW, THEREFORE in consideration of the mutual covenants and promises
set forth below, the Parties, intending to be legally bound hereunder, hereby
covenant, promise and agree as follows:

         A. Public Utility Commission Approval
            and Term of Agreement
         -------------------------------------

         1. This AGREEMENT shall be in full force and effect, binding upon the
Parties hereto, and enforceable in accordance with its terms, upon its execution
by the Parties hereto and after 



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the issuance of a valid, binding and final order of the Pennsylvania Public
Utility Commission ("PaPUC"), acceptable in form and substance to the Company in
its sole discretion, approving the recovery by Penelec from its customers of all
costs and charges proposed to be paid to SPC for electric energy delivered to
Penelec under this AGREEMENT.

         2. The term of this AGREEMENT shall be for a period of twenty (20)
years commencing with the date the Facility is declared in writing by SPC to be
in commercial operation ("Commercial Operation Date"). For purposes of this
AGREEMEMT, the "date of initial delivery of electric energy" shall be the first
date on which the Facility generates and delivers electric energy at the
Delivery Point (as hereinafter defined) as measured by Penelec's electric meter.
Unless otherwise specified herein, this AGREEMENT may not be extended, shortened
or otherwise modified unless by mutual agreement of the Parties in writing. 

         3.       (a) As promptly as practicable but in no event later than
         ninety (90) days following execution of this AGREEMENT, SPC shall
         provide the Company with detailed engineering, permitting, and
         construction schedules showing the critical path for the Facility. SPC
         shall promptly advise the Company thereafter in writing of any
         revisions, modifications or changes to such schedules

                  (b) SPC shall furnish the Company with quarterly written
         status reports describing the progress of the engineering, permitting,
         and construction of the Facility. Such reports shall include, in
         reasonably sufficient


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         detail, explanations of any delays in meeting scheduled dates for
         commencement or completion of any listed engineering, permitting for
         construction item.

                  (c) In the event SPC has not (1) obtained all principal
         federal and state environmental permits and authorization to construct
         and operate the Facility and (2) issued a purchase order (or entered
         into a legally binding commitment) for the Facility's principal energy
         conversion device on or prior to the dates specified in the schedules
         initially submitted to the Company, as revised from time to time with
         the prior written consent of the Company, SPC shall pay to the Company
         one-half the amount of liquidated damages as provided in Section Y,
         paragraph 2 hereof.

                  (d) In the event this AGREEMENT is not otherwise terminated
         pursuant to this Section A, and SPC pays to the Company the liquidated
         damage amount as provided in subparagraph (c) above, then within thirty
         (30) days after the end of the first billing month following the
         Commercial Operation Date, the Company shall credit SPC for amounts due
         to the Company hereunder, or otherwise reimburse SPC, for the full
         amount of such liquidated damage payment but without interest thereon.

                  (e) Notwithstanding the foregoing, if this AGREEMENT should
         terminate pursuant to this Section A, the Company shall be entitled to
         the full amount of any liquidated damages provided under Section Y
         hereof, less any amount


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         4. Notwithstanding anything contained in this AGREEMENT to the
contrary, if the Commercial Operation Date has not occurred on or prior to
December 31, 1990, regardless of the reasons for such failure, the Company may
terminate this AGREEMENT unless prior to such date SPC demonstrates to the
Company's reasonable satisfaction that SPC:

                  a. has commenced and there is ongoing a program of continuous
                     construction of the Facility pursuant to which SPC has
                     incurred direct construction expenses of not less than One
                     hundred million dollars ($100,000,000) and;

                  b. has furnished the Company with a revised construction
                     schedule for the Facility under which the Facility will be
                     operation not later than December 31, 1991. In such event,
                     the Commercial Operation Date shall be extended to December
                     31, 1991.

         5. The Company shall have no obligation to purchase any electric energy
from the Facility prior to October 1, 1990.

         B. Sale to and Purchase by 
            Penelec of Electric Energy
         -----------------------------

         1. SPC agrees to sell and deliver and Penelec agrees to purchase and
accept delivery of all electric energy made available from the Facility.

         2. For purposes of this AGREEMENT, the "Delivery Point" or point of
interconnection between the Company's electrical system and the Facility shall
be located at the 115 KV bus at Penelec's 



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<PAGE>
 
Eclipse Substation located in Venango County, Pennsylvania as shown on the
schematic diagram marked as Appendix 2, attached hereto and made a part hereof.
The Parties acknowledge and understand that the precise location of the Delivery
Point as hereinabove defined shall be dependent upon the exact location of the
Transmission Line.

         3. SPC shall interconnect the Facility with the Company's electrical
system and the Company shall interconnect its electric system with the Facility
at the Delivery Point upon the terms and conditions contained in this AGREEMENT.
SPC shall operate the Facility in parallel with the Company's electrical system.

         4. SPC shall construct, own, operate, maintain, etc., the Transmission
Line of 115 KV from the Facility to Penelec's Eclipse Substation in order to
facilitate the direct electric connection between SPC and Penelec. SPC shall
consult with Penelec prior to the commencement of construction of the
Transmission Line in order to obtain Penelec's approval of the most desirable
location of said electric line for the purpose of establishing the electrical
interconnection. For purposes of this AGREEMENT, the Transmission Line shall be
considered part of the Facility and electrical equipment, devices, and
facilities appurtenant thereto, which are owned and operated by SPC, and all
duties and responsibilities imposed under this AGREEMENT upon SPC with respect
to such equipment, etc., shall be equally applicable to the Transmission Line.

         C. Pricing For Services
         -----------------------

         1. For purposes of this AGREEMENT, the term "PJM Billing Rate" shall be
the monthly average of the hourly billing rates to



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the General Public Utilities Group ("GPU") for purchases by GPU from the
Pennsylvania-New Jersey-Maryland Interconnection ("PJM") or sales by GPU to PJM.

         2. Penelec shall pay SPC for electric energy delivered to Penelec's
electrical system (i.e., metered at the Delivery Point) from the Facility as
follows:

                  (a) For each month from the date of initial delivery of
         electric energy from the Facility until the Commercial Operation Date,
         Penelec shall pay SPC for electric energy delivered at a rate equal to
         the monthly average PJM Billing Rate less ten percent (10%).

                  (b) For each month of the first year commencing with the
         Commercial Operation Date, Penelec shall pay SPC a uniform rate of 6.6
         cents per KWH during on-peak hours and 2.6 cents per KWH during
         off-peak hours (See Section K, paragraphs 4 and 5, for definition of
         on-peak and off-peak hours), and thereafter, Penelec shall escalate
         these on-peak and off-peak rates by six percent (6%) each year, up to
         and including the tenth (10th) year of this AGREEMENT.

                  (c) For each month of the eleventh (11th) through the
         fifteenth (15th) years of this AGREEMENT, commencing with the
         Commercial Operation Date, Penelec shall pay SPC the average PJM
         Billing Rate for the month less fifteen percent (15%) per KWH.

                  (d) For each month of the sixteenth (16th) year through the
         twentieth (20th) years of this AGREEMENT



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         commencing with the Commercial Operation Date, Penelec shall pay SPC
         the average PJM Billing Rate for the month less twenty percent (20%)
         per KWH.

         3. The parties expect that the Pa. PUC will permit Penelec full
ratemaking recovery of all costs paid or proposed to be paid to SPC under the
AGREEMENT. If at any time during the term of this AGREEMENT, or any extensions
or renewals thereof, the PUC or any other public regulatory agency having
jurisdiction over the rates charged or recovered by Penelec from its customers,
fails to allow full ratemaking recovery for Penelec of all costs paid or
proposed to be paid by Penelec to SPC under the AGREEMENT, Penelec shall have no
obligation or responsibility under this AGREEMENT or otherwise to pay SPC for
any electric energy or capacity in excess of the amount allowed by the PUC for
ratemaking purposes. In the event the PUC or other public regulatory agency
having jurisdiction over the rates charged or recovered by Penelec from its
customers disallows for ratemaking purposes any costs previously paid by Penelec
to SPC under this AGREEMENT, SPC shall refund any amounts so disallowed within
thirty (30) days after written request by Penelec. In the event there is a
ratemaking disallowance of any costs paid or proposed to be paid by Penelec to
SPC as aforesaid, Penelec and SPC shall use all reasonable efforts to contest
such action.

         D. Performance Guarantee
         ------------------------

         1. In the event SPC delivers, generates and sells electric energy to
Penelec, commencing with the Commercial Operation Date, at an annual average
level which is less than eighty-five percent (85%) of the average of the net
electric energy made available from the Facility during rolling three (3) year
periods of

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operation, SPC shall make an incentive payment to Penelec in accordance with
the following:

                  (a) To determine whether SPC is to be assessed an incentive
         payment in any year after the first three (3) years of operation of the
         Facility, commencing with the Commercial Operation Date, the annual
         electric energy delivered by SPC to Penelec during on-peak hours shall
         be compared to the average annual electric energy delivered by SPC to
         Penelec during on-peak hours for the prior three (3) years. If said
         annual electric energy is less than eighty-five percent (85%) of the
         average three year electric energy output, then Penelec shall collect
         an incentive payment from UPC specified below.

                  (b) During the first ten (10) years of this AGREEMENT,
         commencing from the Commercial Operation Date, SPC shall be liable for
         and pay to Penelec an incentive payment equal to the difference between
         eighty-five percent (85%) of the three year average on-peak electric
         energy delivered and the actual annual on-peak electric energy
         delivered multiplied by 3.20 cents. Subsequent to the tenth (10th) year
         of this AGREEMENT, commencing from the Commercial Operation Date,. SPC
         shall continue to be liable for and pay to Penelec an incentive payment
         as calculated hereinabove, except that the 3.20 cents shall be
         compounded annually by one (1) plus the Gross National Product Implicit
         Price Deflator. Attached hereto as Appendix 3 and made a part of this
         AGREEMENT is an example of a statement ("Incentive Statement") which



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         shows, for illustrative purposes only, the development and calculation
         of a hypothetical annual incentive payment.

                  (c) The incentive payment shall be made to Penelec in six (6)
         equal monthly payments by applying (i.e. setting off) such sum against
         payments due and payable by Penelec to SPC for electric energy
         delivered during the first six (6) months after the Incentive Statement
         has been submitted to SPC. In the event that the incentive payment has
         not been made in full by SPC at the end of the six (6) month period
         stated above through the operation of the aforesaid procedure, SPC
         shall pay the unpaid balance of the incentive payment to Penelec within
         ten (10) days of the expiration of said six (6) month period. In the
         event SPC does not deliver sufficient electric energy to Penelec in any
         month to allow the set-off procedure to operate as stated herein, SPC
         shall pay to Penelec in cash any amount(s) which cannot be set-off. Any
         and all amounts due and owing Penelec under Section D of this AGREEMENT
         shall be immediately due and payable by SPC in the event of a default
         by SPC or a termination of this AGREEMENT under Section X hereof.

                  (d) Penelec shall submit the Incentive Statement by ordinary
         mail to SPC at the address specified in Section P of this AGREEMENT
         within thirty (30) days of the close of each year for which an
         incentive payment has been incurred. Upon receipt of the Incentive
         Statement, SPC shall promptly review its contents and advise Penelec of
         any purported errors, misstatements or other problems

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         which shall be settled by the Parties as expeditiously as possible.

                  (e) If Penelec does not receive written notice from SPC of any
         purported errors, misstatements or other problems with the Incentive
         Statement within thirty (30) days from the date of the Incentive
         Statement, said Incentive Statement shall be deemed acceptable to SPC
         and binding upon it, and Penelec shall commence the billing of the
         incentive payment and set-off procedure as set forth in Section D,
         paragraph 1(c).

         E. Suspense Account
         -------------------

         1.       (a) SPC and the Company hereby agree that a Suspense Account
         shall be established, effective on the Commercial Operation Date, to
         determine the cumulative difference between the payments to be made by
         the Company to SPC under this AGREEMENT ("Contract Rate") and an
         associated, forecasted PJM Billing Rate ("Projected Rate") as more
         fully set forth and shown on Appendix 4, attached hereto and made a
         part hereof.

                  (b) During the term of the Suspense Account, the difference
         between Contract Rate and Projected Rate for each kWh actually
         delivered shall be applied each month to the Suspense Account. If the
         Contract Rate is greater than the Projected Rate, the difference shall
         be credited to the Company in the Suspense Account. If the Projected
         Rate is greater than Contract Rate, the difference shall be debited to
         the Company in the Suspense Account.



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                  (c) The Suspense Account shall be terminated at the earliest
         of the following: (1) the end of the month that such Suspense Account
         equals zero, or (2) the Suspense Account has a credit balance to SPC,
         or (3) the end of the tenth (10th) year following the Commercial
         Operation Date. In the event there is a credit balance in the Suspense
         Account in favor of the Company at the time of termination of said
         account, SPC shall pay said amount to Penelec within thirty (30) days
         of Penelec's written request. In the event Penelec terminates the
         Agreement under Section X hereof, SPC shall pay any credit balance due
         to the Company and the Suspense Account shall thereupon terminate.
         Should SPC refuse or otherwise fail to make such payment, the surety
         bond or other evidence of security accepted by the Company securing
         such credit balance shall immediately be payable to the Company without
         presentment, notice or opportunity to cure.

                  (d) So long as the Suspense Account contains any cumulative
         credits due to the Company, SPC shall maintain a noncancellable surety
         or performance bond or irrevocable bank letter of credit in form and
         substance reasonably satisfactory to the Company, which provides for
         payment directly to the Company as beneficiary, or provide payment
         directly to the Company as beneficiary, or provide other security
         reasonably acceptable to the Company, to secure SPC's obligation
         hereunder to pay the amount of such cumulative credit. A copy of such
         bond or other


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         security reasonably acceptable to Penelec shall be provided to the
         Company prior to the Commercial Operation Date and on January 1 of each
         year until the termination of the Suspense Account.

                  (e) During the first calendar year in which the Commercial
         Operation Date occurs, the amount of the surety bond or such other
         security accepted by the Company shall equal the cumulative credit
         reasonably anticipated by the Company for such year. On January 1 of
         each subsequent year following the Commercial Operation Date until
         termination of the Suspense Account or termination of the AGREEMENT,
         whichever shall first occur, the amount of the surety bond or such
         other security accepted by the Company shall be increased or decreased
         to equal the amount of cumulative credit in the Suspense Account plus
         or minus the amount of cumulative credit or debit reasonably
         anticipated by the Company for the calendar year. If, at any time
         during the term of the AGREEMENT, the amount of the cumulative credit
         in the Suspense Account exceeds the amount of the surety bond or such
         other security accepted by the Company, the bond or security, as the
         case may be, shall upon ninety (90), days prior written notice from the
         Company be increased to equal the amount of such credit, plus the
         credit reasonably anticipated by the Company for the remainder of the
         calendar year.

         F. Start-Up Operations
         ----------------------

         1.       The Parties recognize that integration of the Facility 



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         with Penelec's electrical system during the start-up or commissioning
         of the Facility (i.e., prior to the Commercial Operation Date of the
         Facility) may result in both anticipated and unanticipated changes in
         SPC's electric energy and demand. To that end, the Parties agree to the
         following terms and conditions, which will apply during initial start-
         up operation of the Facility:

                           (a) SPC shall notify Penelec in writing at least
                  thirty (30) days prior to the date of initial delivery of
                  electric energy from the Facility and shall submit in writing
                  to Penelec the details of initial start-up operation, for
                  Penelec's review and assessment of the impact on Penelec's
                  electrical system. In no event shall SPC commence initial
                  delivery of electric energy from the Facility prior to October
                  1, 1990.

                           (b) To the extent deemed reasonably necessary by
                  Penelec, SPC shall initiate and maintain telephone
                  communications with Penelec's regional dispatchers on a
                  continuing basis during start-up operations.

                           (c) SPC shall provide Penelec written notice at least
                  thirty (30) days in advance of the Commercial Operation Date
                  of the Facility.

                           (d) Penelec shall provide all electric service
                  required by SPC during the period of start-up operations of
                  the Facility under the applicable tariff rate schedule filed
                  and approved by the PaPUC. Upon and after the Commercial
                  Operation Date, any and all ratchets and associated minimum
                  demands or charges that may be con-


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<PAGE>
 
                  tained in the aforementioned rate schedule shall be
                  eliminated.

                           (e) During the period of start-up operations of the
                  Facility, SPC shall conduct a performance test of the Facility
                  in accordance with the performance standards established by
                  the American Society of Mechanical Engineers, Power Test Code
                  or such reasonable equivalent specified by Penelec. SPC shall
                  provide Penelec advance notice of the test and Penelec shall
                  have the right to have representatives present at the time
                  thereof.

                  G. Business Interruption Insurance, Property Hazard Insurance
                     and Penelec Operation of the Facility
                  --------------------------------------------------------------

                  1. Not less than thirty (30) days prior to commencement of
construction of the Facility, Transmission Line and appurtenant equipment, SPC
shall procure and maintain in effect during the term of the AGREEMENT and in
accordance with this paragraph, Business Interruption Insurance and Property
Hazard Insurance to cover and otherwise insure against reasonable business risks
associated with damage to or other interruption of the use of the Facility and
appurtenant equipment. The following terms and conditions shall also apply with
respect to the aforesaid insurance requirements:

                     (a) All insurance policies specified in this Section shall
         name Penelec as an additional insured.

                     (b) Penelec understands and agrees that during the term of
         this AGREEMENT and any extensions or renewals thereof, its right to the
         proceeds of any Business.

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         Interruption Insurance or Property Hazard Insurance shall be
         subordinated to the rights of the construction lender and permanent
         lender of SPC, whose names and addresses will be provided by SPC to
         Penelec as soon as possible after execution of this AGREEMENT.

                     (c) Penelec reserves the right to review and approve the
         form, amount, deductibles and any other requirements of any and all
         Business Interruption Insurance and Property Hazard Insurance required
         by the permanent lender. Any approval required by Penelec shall not be
         unreasonably withheld.

                     (d) In the event a permanent lender does not require
         Business Interruption Insurance and Property Hazard Insurance, Penelec
         reserves the right to require said insurance coverages and to determine
         and specify the form, amount and deductibles applicable thereto.

                     (e) At a minimum, said Property Hazard Insurance shall
         insure the Facility, Transmission Line and all appurtenant equipment
         against all risk of physical loss or damage and said insurance policies
         shall be issued by reputable insurance companies doing business in the
         Commonwealth of Pennsylvania. Said insurance coverages shall not be in
         amounts less than the full replacement cost of the Facility,
         Transmission Line and appurtenant equipment.

                     (f) After Penelec's approval has been obtained, and not
         later than thirty (30) days prior to commencement 


                                      -16-
<PAGE>
 
         of construction of the Facility, Transmission Line and all appurtenant
         equipment, SPC shall provide to Penelec, by delivering to its corporate
         offices at 1001 Broad Street, Johnstown, Cambria County, Pennsylvania,
         a properly executed certificate of Property Hazard Insurance. SPC shall
         provide Penelec with a properly executed certificate of Business
         Interruption Insurance not later than thirty (30) days prior to the
         date of initial delivery of electric energy. Said certificates shall
         provide (1) the name of the insurance company, policy number and
         expiration date, (2) the coverages required and the limits on each and
         (3) a statement indicating that Penelec shall receive thirty (30) days'
         notice of cancellation or modification of any of the policies which may
         affect Penelec's interest.

                     (g) The insurance coverages required under this section
         shall be independent of and in addition to any and all insurance
         coverages required by Penelec pursuant to Section Q of this AGREEMENT.

                     (h) At its option, SPC may procure and maintain Business
         Interruption Insurance and Property Hazard Insurance under a blanket
         insurance policy covering property other than the Facility,
         Transmission Line and all appurtenant equipment, provided that all the
         terms and conditions of this Section have been satisfied.

         2. If at any time during the term of this AGREEMENT SPC or the
permanent lender fails to operate and maintain the Facility, Transmission Line
and/or appurtenant equipment for a 


                                      -17-
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period of sixty (60) days, or SPC defaults in the performance of its obligations
under this AGREEMENT or an event occurs which would give the Company the right
to terminate this AGREEMENT, Penelec shall have the option (but not the duty) to
assume management control of, and otherwise operate, the Facility, Transmission
Line and all appurtenant equipment under the following terms and conditions. For
purposes of this Section, the "failure to operate" shall not include the period
when the Facility does not operate: (1) due to an act or omission of Penelec, or
(2) due to equipment failure, if SPC has taken or is taking reasonable steps to
replace or repair said equipment or facilities, or (3) if there exists a bona
fide force majeure condition.

                     (a) Penelec shall exercise its option to assume management
         control and otherwise operate the Facility, Transmission Line and
         appurtenant equipment, after having given written notice of its
         intention to SPC and the permanent lender, and providing them a
         reasonable time under the circumstances to cure any and all outstanding
         defaults (or events which could lead to termination) under the
         AGREEMENT.

                     (b) Penelec's option to assume management control and
         otherwise operate the Facility, Transmission Line and all appurtenant
         equipment shall terminate upon such time when SPC or the permanent
         lender demonstrates to Penelec's satisfaction that it is able to meet
         all the obligations, duties, responsibilities, etc. imposed upon SPC
         under this AGREEMENT.

                     (c) Notwithstanding Penelec's option to assume 


                                      -18-
<PAGE>
 
         management control and otherwise operate the Facility, Transmission
         Line and appurtenant equipment, the Parties acknowledge and understand
         that SPC shall retain legal title to and ownership of the Facility and
         Transmission Line unless otherwise adjudicated by any court or
         regulatory body having appropriate jurisdiction.

                     (d) Penelec's assumption of management control and/or
         operation of the Facility, Transmission Line and appurtenant equipment
         shall not be construed as creating any duty or responsibility on
         Penelec's part for the continued operation of the Facility or the
         Transmission Line for the benefit of SPC or any third parties.

                     (e) SPC shall indemnify and hold Penelec harmless for any
         damages, claims, actions, lawsuits, etc. which Penelec may suffer or
         incur as a result of assuming management control and operation of the
         Facility under this Section.

                     (f) SPC shall reimburse Penelec for any and all costs and
         expenses reasonably incurred by Penelec in assuming operation of and
         operating the Facility, Transmission Line and/or appurtenant equipment,
         other than costs and expenses caused by Penelec's gross negligence, or,
         at the sole discretion of the Company, the Company may set off such
         costs and expenses against any amounts due SPC under this AGREEMENT.

                     (g) SPC waives any and all claims, damages, actions,
         lawsuits, etc. which it may have now or in the future 

                                      -19-
<PAGE>
 
         against Penelec as a result of any damage resulting to any property
         during any such time that Penelec exercises its option to assume
         management control and otherwise operate the Facility pursuant to this
         Section. The foregoing waiver shall not be applicable to any gross
         negligence on the part of Penelec during any such time that Penelec
         exercises its option to assume management control and operation of the
         Facility, Transmission Line or appurtenant equipment, pursuant to this
         Section.

                     (h) Notwithstanding the foregoing, should the Company
         assume management control and operation of the Facility under this
         Section, the Company may at any time return operation and control of
         the Facility to SPC without any further liability or obligation on the
         part of the Company, except such liability or obligation as may arise
         as a result of the gross negligence of Penelec.

         H. General Interconnection Requirements
         ---------------------------------------

         1. SPC shall design, construct, install, own and maintain all equipment
(including the Transmission Line), other than Penelec's billing meters and
monitoring equipment specified in this AGREEMENT, required to generate and
deliver electric energy to SPC's side of the Delivery Point. SPC shall furnish,
install, operate and maintain facilities such as, but not limited to, the
Transmission Line, relays, switches, circuit breakers, synchronizing equipment,
control and protective devices determined by the Company to be necessary for
parallel operation with Penelec's electrical system.



                                     - 20 -
<PAGE>
 
        2. All facilities on Penelec's side of the Delivery Point necessary to
provide the electrical connection from SPC to Penelec's electrical system, and
any transmission, distribution and/or substation additions required to accept
the electric energy produced by SPC including, but not limited to, transmission
or distribution lines, circuit breakers, controls and relaying as specified by
Penelec, will be provided by Penelec. The estimated costs, both direct and
indirect, including, but not limited to material and labor, of said facilities
shall be borne by SPC. All such payments shall be made in full to the Company
prior to the commencement of construction of said facilities.

         3. Within one hundred eighty (180) days of completion of the facilities
described in Section G, paragraph 2, Penelec shall send SPC in writing a
statement showing the difference between said estimated costs and Penelec's
actual costs for construction, installation, etc. of said facilities. In the
event the actual costs of said facilities exceed the estimated costs, SPC shall
pay the difference to Penelec within thirty (30) days of the statement date. In
the event the actual costs are less than the estimated costs, Penelec shall
refund the difference to SPC within thirty (30) days of the statement date.

         4. SPC shall comply in all respects with Penelec's "Protection
Requirements -- Customer-Owned Generation," marked as Appendix 5 attached hereto
and made a part hereof.

         5. At least sixty (60) days prior to the commencement of construction
of the Facility and the Transmission Line, SPC shall submit interconnection
plans and specifications (including single 



                                     - 21 -
<PAGE>
 
line diagrams and control and protective relay schemes as well as plans and
specifications for the Transmission Line) to Penelec for inspection and
acceptance.

        6. In the event the aforesaid plans and specifications are acceptable,
said plans and specifications shall be incorporated by reference herein and made
a part hereof. Penelec shall provide written notification to SPC of its
acceptance of the aforesaid plans and specifications within thirty (30) days
from receipt thereof.

         7. In the event the aforesaid plans and specifications are not
acceptable, the Company shall, within thirty (30) days of the receipt of all
information, notify SPC of rejection and the reasons for such rejection. Penelec
will consider subsequent submissions of plans and specifications in accordance
with procedures set forth in this paragraph and paragraphs 5 and 6 above.

         8. Interconnection equipment and devices on SPC's side of the Delivery
Point (including the Transmission Line) shall be constructed and operated in a
good and workmanlike manner and meet or exceed industry accepted standards of
good practice. To the extent applicable, SPC, its agents, workmen, employees,
contractors, subcontractors, etc. shall observe and follow the provisions of the
National Electric Safety Code, and the standards of the Institute of Electrical
and Electronics Engineers, the National Electrical Manufacturers Association and
the American National Standards Institute and any other applicable statutes,
codes or regulations in the construction and operation of said interconnection
equipment (including the Transmission Line).




                                     - 22 -
<PAGE>
 
         9. Prior to the interconnection of the Facility with the Company's
electrical system, SPC shall provide Penelec written certification of
satisfactory electrical and construction inspections of interconnection
equipment and devices on SPC's side of the Delivery Point (including the
Transmission Line) by a Company-approved inspector. Penelec will provide a list
of such approved inspectors upon request. Penelec may, at its sole discretion,
in lieu of the certificate of satisfactory electrical and construction
inspection by a Penelec recognized inspection agency, accept a letter of
certification from a registered professional engineer certifying satisfactory
electrical and construction connections and techniques and compliance with all
applicable codes.

         10. Acceptance by Penelec of SPC's plans and specifications for the
Facility, Transmission Line and/or interconnection equipment or Penelec's
engaging in interconnected operations with SPC does not and shall not be
construed (1) as confirmation or endorsement of the design of the Transmission
Line, Facility or SPC's interconnection equipment and devices or (2) as any
warranty Facility or any of its appurtenant equipment, including SPC's
interconnection equipment and devices.

         11. Penelec shall not, by reason of acceptance of SPC's plans and
specifications or by engaging in interconnected operations with SPC, be
responsible for strength, details of design, adequacy, or capability of the
Transmission Line, Facility or its appurtenant equipment (including SPC's
interconnection equipment and devices), nor shall the Company's approval of said
plans and specification be

                                      -23-
<PAGE>
 
deemed an endorsement or warranty of the Transmission Line, facility or its
equipment.

         12. SPC shall modify at its own expense SPC's electrical facilities,
including but not limited to the interconnection equipment and devices, as may
be reasonably required by the Company to meet changing requirements, including
but not limited to voltage changes, of the Company's electrical system.

         I. Character of Service
         -----------------------

         1. The Facility, when installed, constructed, and operational, shall
produce sinusoidal 60 hertz ("Hz") alternating current power.

         2. Output voltage of the Facility shall be compatible with the voltage
on Penelec's side of the Delivery Point.

         3. At no time shall operation of the Facility, including the generators
or any of their auxiliary devices, result in an electrical output in which the
sum of all harmonics superimposed on the 60 HZ wave exceeds the Institute of
Electrical and Electronic Engineers' standards as measured at the Delivery
Point. The operation of the Facility and appurtenant equipment, including the
Transmission Line, shall not adversely affect the nature and quality of service
the Company is required to provide its customers under the provisions of the
Pennsylvania Public Utility Code.

         J. Maintenance of Facility and Associated Equipment
         ---------------------------------------------------

         1. SPC shall continuously maintain the Facility, Transmission Line and
the interconnection equipment on its side of the Delivery Point, its associated
equipment and structures, wiring and devices, in a safe and proper operating
condition


                                      -24-
<PAGE>
 
consistent with all applicable statutes, regulations, codes, and the duties and
obligations listed in Section H of this AGREEMENT and in Appendix 5 attached
hereto.

         2. SPC shall develop and adhere to maintenance procedures for circuit
breakers, relays and auxiliary equipment in accordance with the manufacturer's
recommendations for such equipment and devices.

         3. SPC shall maintain a written maintenance and test log which shall
detail the type and frequency of all actual maintenance performed on circuit
breakers, relays and auxiliary equipment in accordance with the manufacturer's
recommendations. Upon reasonable notice by Penelec, SPC shall make the log
available for inspection by Penelec.

         4. On an annual basis (commencing from the date of initial delivery of
electric energy from SPC to Penelec), SPC shall submit a letter to Penelec
representing that maintenance and testing of the circuit breakers, relays and
auxiliary equipment have been performed in accordance with the manufacturer's
recommendations governing such equipment and devices.

         5. SPC shall pay Penelec for all reasonable costs associated with
Penelec's maintenance, repair, replacement etc. of all of Penelec's
interconnection equipment at or near Penelec's side of the Delivery Point,
except such costs which are the result of Penelec's gross negligence.

         K. Metering, Billing and Payment
         --------------------------------

         1. Electrical energy delivered from the Facility to the 


                                      -25-
<PAGE>
 
Company's electrical system shall be metered at the Delivery Point on an 
hour-by-hour basis.

         2. Commencing with the date of initial delivery of electric energy from
SPC to Penelec, SPC shall pay the Company a $150 per billing month service
charge for the administration costs associated with metering the electric energy
delivered to the Company's electrical system on an hour-by-hour basis. The
amount of the service charge shell apply for the first 36 months from the date
of execution of this AGREEMENT and, thereafter, a new rate may be determined and
established by Penelec in writing. Any new service charge established by Penelec
shall be reasonably related to the actual cost to the Company of administration
costs associated with this AGREEMENT.

         3. The Company shall install, at SPC's expense, all metering equipment
utilized in metering the delivery to Penelec of electric energy from the
Facility. Any electric meter measuring the delivery of electric energy to
Penelec shall register actual power flow only in the direction of Penelec.
Meters for measurement of reactive volt-ampere hours shall be required. All such
payments shall be made in full to the Company prior to the time of physical
interconnection of the Facility with the Company's electrical system.

         4. For the purposes of metering and billing, on-peak hours shall be
8:00 a.m. to 10:00 p.m., prevailing time, Monday through Friday. All other hours
shall be considered the off-peak period, including those hours noted in Section
K, paragraph 5.




                                     - 26 -
<PAGE>
 
         5. The following holidays, on the days such holidays are officially
observed, shall be considered off-peak: New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

         6. For the first ten (10) years of this AGREEMENT, commencing with the
Commercial Operation Date, Penelec shall determine the amount of electric energy
supplied to it by SPC during the month and shall submit to SPC within twenty
(20) business days of the close of the month full payment (less the service
charge) due by Penelec to SPC for electric energy delivered to Penelec during
that month During the initial start-up operation of the Facility and after the
aforesaid ten (10) year period, the submittal of payment from Penelec to SPC
shall be not later than forty-five (45) business days after the close of each
month. Attached hereto as Appendix 6 and made a part hereof is an example, for
illustrative purposes only, of a monthly statement which shall be submitted to
SPC.

         7. Penelec shall inspect and test all meters utilized in the delivery
of electric energy to Penelec upon their initial installation and at such other
times as Penelec thereafter deems necessary in the exercise of and consistent
with industry accepted standards of good practice. However, the meters shall be
inspected at least once every two years.

         8. Upon written request by SPC, Penelec shall inspect and/or test a
meter more frequently than once every two years. In the event an inspection
and/or test requested by SPC establishes a meter to be registering inaccurately
by more than two percent (2%)


                                      -27-
<PAGE>
 
of full scale, the cost of said inspection and/or test shall be borne by
Penelec. In all other instances (including the initial test and/or inspection of
meters), the cost of any meter test and/or inspection, regardless of which Party
requests it or the results thereof, shall be paid by SPC.

         9. Penelec shall give reasonable written notice to SPC of the time when
any meter inspection or test shall take place. and SPC may have representatives
present at the test or inspection. Any meter found to be inaccurate or defective
shall be adjusted, repaired or replaced, at SPC's sole cost and expense.

         10. If a meter fails to register, or if the measurement made by a meter
during a test varies by more than two percent (2%) of full scale (i.e., varies
by more then two percent (2%) either above or below the measurement made by the
standard meter used in the test), adjustment in payments to SPC or credits to
Penelec shall be made after correcting all measurements made by the inaccurate
meter for:

              (1) the actual period during which inaccurate measurements were
                  made, if the period can be reasonably determined; or

              (2) if the period during which inaccurate measurements occurred
                  cannot be reasonably determined, any adjustment shall be
                  determined by applying the percentage variation from the two
                  percent (2%) of full scale standard to the magawatthours (and
                  the price applicable thereto) delivered to Penelec at the
                  metering point from the date of the last 


                                      -28-
<PAGE>
 
                  previous meter test or the prior six months, whichever period
                  is less.

         L. Additional Services
         ----------------------

         1. Any electric energy SPC desires Penelec to furnish, such as
maintenance power, interruptible maintenance power, back-up power, interruptible
back-up power or supplemental power, shall be supplied by Penelec through the
Transmission Line and billed monthly to SPC through a meter separate and apart
from that used for electrical energy delivered by SPC to Penelec.

         2. Any electric meter measuring the delivery of electric energy to SPC
for any purpose under this AGREEMENT shall register actual power flow only in
the direction of SPC.

         3. In the event SPC desires back-up power, interruptible back-up power,
maintenance power and/or interruptible maintenance power, Penelec shall sell and
SPC shall purchase said power in accordance with the terms, conditions and rates
applicable thereto as set forth in Penelec's tariff rate QF or Rule 30,
whichever is appropriate, on file with the PaPUC, as may be amended from time to
time.

         4. In the event SPC desires supplemental power, Penelec shall sell and
SPC shall purchase such power in accordance with the terms, conditions and rates
applicable thereto as set forth in the appropriate tariff on file with the
PaPUC, as may be amended from time to time.

         M. Inspection of and Access to Electrical Equipment
         ---------------------------------------------------

         1. SPC grants to Penelec for the term of this AGREEMENT (and a
reasonable time thereafter) all necessary rights of way and 



                                      -29-
<PAGE>
 
easements to install, operate, maintain, repair, replace, relocate and/or remove
the Company's metering and other electrical equipment, including adequate and
continuing access rights on property of SPC. SPC shall execute such other
grants, deeds or documents as Penelec may require to enable Penelec to record
such rights of way and easements.

         2. If any portion of the Company's electrical equipment is to be
installed and/or operated upon property owned by a third person or entity other
than SPC, SPC shall, if Penelec is unable to do so without cost to the Company,
procure from the owner thereof all necessary permanent rights of way and
easements, in a form satisfactory to the Company, for the construction,
operation, maintenance, replacement and/or removal of Penelec's electrical
equipment upon such property.

         3. Upon reasonable notice by Penelec, SPC shall permit employees and/or
inspectors of the Company (a) to conduct such operating tests and/or inspections
as are necessary to ascertain that the Company's protective devices are
functioning properly, (b) to examine and/or test meters and monitoring equipment
and (c) to examine, inspect and/or test all other electrical equipment
associated with the delivery of electric energy to the Company's electrical
system.

         4. Within one hundred eighty (180) days of any termination of this
AGREEMENT, Penelec shall relinquish to SPC all rights-of-way and/or easements
previously granted to Penelec hereunder, except for rights-of-way, easements or
other property interests reasonably deemed necessary by Penelec to provide
electric


                                      -30-
<PAGE>
 
service to SPC. Penelec agrees to execute such other grants, deeds or documents
as SPC may reasonably require to enable SPC to record such relinquishment of
said rights-of-way and/or easements.

         N. Disconnection of Company System from the Facility
         ----------------------------------------------------

         1. Penelec shall have the right to disconnect the Facility from the
Company's electrical system (or otherwise curtail, interrupt or reduce purchases
of electric energy), upon reasonable notice of not less than eight (8) hours to
SPC, under any or all of the following conditions:

                  (a) Failure of SPC to comply with any or all inspection,
         testing or maintenance requirements imposed upon it under this
         AGREEMENT or any applicable statutes, regulations or codes; or

                  (b) In the event the operation of the transmission Line,
         Facility or appurtenant equipment results in an electrical output in
         which the sum of all harmonics superimposed on Penelec's 60 Hz wave
         exceeds five percent (5%), or the operation of the Facility,
         Transmission Line and/or appurtenant equipment adversely affects the
         nature and quality of service the Company is required to provide to its
         customers under the provisions of the Pennsylvania Public Utility Code;
         or;

                  (c) In the event the Company deems it necessary to install,
         construct, maintain, repair, replace, relocate, remove, investigate
         and/or inspect any of its electrical equipment or any part of its
         electrical system which in


                                      -31-
<PAGE>
 
         any way affects the safe delivery of electric energy to the Company
         from the Facility.

         2. Penelec shall have the right to disconnect the Facility from the
Company's electrical system (or otherwise curtail, interrupt or reduce purchases
of energy) without notice to SPC, or upon such notice as the Company is able to
provide under the circumstances, if there is an emergency, forced outage or
system operating condition (including "Unit Emergency Loading" but excluding
economic dispatch) which, under prudent electrical practices, requires immediate
disconnection of the Facility or curtailment of electric energy purchases. For
purposes of this AGREEMENT, "Unit Emergency Loading" refers to a condition that
exists on the PJM interconnection system or the Penelec/GPU system when all
generating units and purchased power are reduced to their normal minimum
capability and further reductions in generation output are required for proper
control of the system in meeting system load. Penelec shall limit its
curtailment of electric energy deliveries from the Facility due to Unit
Emergency Loading no more than four hundred (400) hours per calendar year and to
no more than eighty (80) separate occurrences per calendar year. Emergency
notification shall be made by means of the voice operating communication link
maintained in accordance with section BB paragraph 4.

         3. In the event Penelec disconnects the Facility from its electrical
system because of a situation described in (1)(a) or (b) of this Section,
Penelec shall reconnect the Facility as soon as reasonably practicable, upon
reasonable notice to SPC, upon certification by SPC in a form reasonably
satisfactory to Penelec that the


                                      -32-
<PAGE>
 
circumstance(s) giving rise to the disconnection has/have been corrected.

         4. In the event Penelec disconnects the Facility from its electrical
system due to a situation described in Paragraphs 1 (c) or 2, above, of this
Section, Penelec shall reconnect the Facility, upon reasonable notice to SPC, as
soon as reasonably practicable.

         0. Special Facilities
         ---------------------

         1. SPC shall bear the sole cost and expense of supplying and installing
any special facilities occasioned by the parallel operation and interconnection
of the Facility and/or the Transmission Line with the Company's electrical
system including, but not limited to, different voltage requirements, which are
deemed necessary by the Company for the safety, protection or reliability of its
electrical system or to assure the quality of service to other customers.

         2. In the event any special facilities must be installed, the Company
shall promptly inform SPC in writing of such requirements and give SPC
reasonable advance notice of when such equipment or facilities shall be in place
and operational.

         P. Notice
         ---------

         1. All notices, demands or requests required or permitted to be given
by either Party to the other under this AGREEMENT, or are delivered by either
Party shall be made by (1) depositing the same in any United States Post Office,
postage prepaid, for trans-(2) personally delivered to the Party, at the
following addresses:



                                     - 33 -
<PAGE>
 
              (a) Pennsylvania Electric Company 
                  1001 Broad Street 
                  Johnstown, Pennsylvania 15907

                  Attention: J. F. Furst, Vice President

              (b) Scrubgrass Power Corp. 
                  Box 419 
                  423 North 21st Street 
                  Camp Hill, Pennsylvania 17011

                  Attention: Joseph E. Cresci, President

                  with a copy to: 
                  Joseph L. Serafini, Esquire 
                  Rackemann, Sawyer & Brewster 
                  One Financial Center 
                  Boston, Massachusetts 02111

         2. Changes in the aforesaid names and/or addresses shall be made by the
notice procedure described in paragraph 1 of this Section.

         Q. Indemnity and Insurance
         --------------------------

         1. The Company does not, by acceptance of SPC's interconnection plans
and specifications or engaging in interconnected operations with SPC, assume any
responsibility or liability for damage or physical injury to (1) Company
property or electrical equipment; (2) the real or personal property of third
persons or corporations not a party to this AGREEMENT; (3) the Facility,
Transmission Line, real property, equipment and/or facilities and/or any
appurtenances thereto of SPC; and (4) any persons who may come in contact with
or upon the Transmission Line, Facility, real property, equipment and/or
facilities and/or any appurtenances thereto.

         2. Each Party shell indemnify the other Party, its officers, agents and
employees against any and all loss, damage, 


                                      -34-
<PAGE>
 
expense and liability to third persons for injury to or death of any persons, or
injury or damage to property proximately caused by the indemnifying Party's
negligent installation, construction, ownership, operation, repair, relocation,
replacement, removal or maintenance of, or by failure of, any of such Party's
equipment and/or facilities, including the Transmission Line, Facility, and/or
any appurtenances thereto used in connection with this AGREEMENT. The
indemnifying Party shall, on the other Party's request, in writing, defend any
suit asserting a claim covered by this indemnity. The indemnifying Party shall
pay all costs that may be incurred by the other Party in enforcing this
indemnity.

         3. Not later than thirty (30) days prior to commencement of
construction of the Facility, SPC and all general contractors performing any
services in connection with the construction and/or operation of the Facility or
any appurtenant equipment (including the Transmission Line), shall procure and
maintain in effect during the term of the AGREEMENT the following minimum
insurance coverages:

<TABLE>
<CAPTION>
  Type of Coverage                                   Liability Limits
  ----------------                                   ----------------
<S>                                                    <C>
Worker's Compensation                                  Statutory
Employer's Liability                                   $ 100,000 each accident
Comprehensive General Liability including
 Bodily Injury Liability                               $1,000,000 per occurrence
 Property Damage Liability                             $  500,000 per occurrence
 Blanket Contractual
 Underground Hazard
 Products and Completed Operations Hazard
 Broad Form Property Damage
</TABLE>




                                      -35-
<PAGE>
 
<TABLE>
<CAPTION>
    Type of Coverage                                       Liability Limits
    ----------------                                       ----------------
<S>                                                    <C>
Automobile Liability (Owned, Hired Non-owned)
Bodily Injury Liability                                $  500,000 per person
                                                       $1,000,000 per occurrence
Property Damage Liability                              $  500,000 per occurrence
</TABLE>

         4. All insurance policies, except said Worker's Compensation Insurance,
shall name Penelec as an additional insured.

         5. Not less than thirty (30) days prior to commencement of construction
of any and all facilities necessary to provide the electrical connection from
SPC to Penelec's electrical system, (including the Transmission Line), SPC shall
provide to Penelec, by delivering to its corporate offices at 1001 Broad Street,
Johnstown, Cambria County, Pennsylvania, properly executed certificates of
insurance. Said certificates must provide the following information:

                  (a) Name of insurance company, policy number and expiration
         date

                  (b) The coverages required and the limits on each, including
         the amount of deductibles or self-insured retentions.

                  (c) A statement indicating that Penelec shall receive thirty
         (30) days notice of cancellation or modification of any of the policies
         in which Penelec is named an additional insured or which may affect
         Penelec's interest.



                                     - 36 -
<PAGE>
 
         6. Penelec shall have the right to inspect the original policies of
insurance applicable to the AGREEMENT at SPC's place of business during regular
business hours.

         R. Representations and Warranties
         ---------------------------------

         1. SPC hereby represents and warrants as follows:

                  (a) SPC is a corporation duly organized and validly existing
         under the laws of the Commonwealth of Pennsylvania.

                  (b) SPC has all requisite power and authority to carry on the
         business to be conducted by it and to enter into and perform its
         obligations under this AGREEMENT.

                  (c) The execution and delivery of this AGREEMENT and the
         performance of the SPC's obligations hereunder have been duly
         authorized by all necessary action on the part of SPC.

                  (d) Prior to the Commercial Operation Date, SPC shall obtain
         all permits, licenses and other authorizations from governmental
         authorities as may be required to construct, operate and maintain the
         Facility and to perform its obligations hereunder and during the term
         hereof, SPC shall obtain all such additional governmental approvals,
         permits and licenses as may be required with respect to the Facility as
         soon as practicable. SPC shall maintain in full force and effect all
         such governmental permits,


                                      -37-
<PAGE>
 
         licenses and authorizations as may be necessary for the construction,
         operation or maintenance of the Facility.

                  (e) During the term of this AGREEMENT, the Facility will meet
         the requirements for a "qualifying facility" within the meaning of the
         Public Utility Regulatory Policies Act of 1978, as amended (16 USC (S)
         5796, at. seq.) and the regulations of the F.E.R.C. promulgated
         thereunder, as amended from time to time, and SPC shall make no
         modifications, alterations or other changes to its Facility or in the
         operation thereof which would cause the Facility to fail to meet such
         requirements which may be in effect from time to time during the term
         hereof.

                  (f) As of the date of initial delivery of electric energy and
         during the term of this AGREEMENT, the Facility shall be operated at
         all times by persons possessing the necessary education, experience and
         training to safely operate the Facility in accordance with applicable
         statutes, codes and regulations and the terms of this AGREEMENT.

         R. Liability and Dedication
         ---------------------------

         1. Nothing in this AGREEMENT shall be construed to create any duty,
standard of care or liability to any person not a Party to this AGREEMENT.

         2. No undertaking by either Party to the other under any provision of
this AGREEMENT shall constitute the dedication of the Party's electrical system,
equipment, or facilities or any portion 



                                      -38-
<PAGE>
 
thereof to the other Party or to the public, nor affect the status of Penelec as
a public utility corporation, or SPC as a corporation.

         3. Neither the Company nor SPC, nor their respective officers,
directors, partners, agents, employees, parents or affiliates, shall be liable
to the other Party or its parent, subsidiaries, affiliates, officers, directors,
partners, agents, employees, successors or assigns, for claims for incidental,
special, indirect or consequential damages of any nature connected with or
resulting from performance or non-performance of this AGREEMENT, including,
without limitation, claims in the nature of lost revenues, income or profits
(other than payments specifically "provided for and properly due under this
AGREEMENT) or losses, damages or liabilities under any financing, lending or
construction contracts, agreements or arrangements to which SPC may be a party,
irrespective of whether such claims are based upon warranty, negligence, strict
liability, contract, operation of law or otherwise.

         T. Force Majeure
         ----------------

         1. The term "force majeure" shall mean acts of God, the enforcement or
adoption of legislation or lawful rules, regulations or orders of any
governmental body, acts of the public enemy, riots, strikes, or other industrial
disturbances, labor or material shortages, fires, explosions, structural failure
or breakdown of SPC's or Penelec's facilities, or other causes of a similar
nature which are beyond the reasonable control of the Company or SPC and wholly
or partly prevent either Party from performing its respective obligations under
this AGREEMENT.




                                      -39-
<PAGE>
 
         2. If because of force majeure either Penelec or SPC is unable to carry
out its obligations under this AGREEMENT, and if such Party promptly gives the
other Party hereto written notice of such force majeur in detail, specifying
the nature, extent and expected duration of such force majeure, the obligations
and liabilities of the Party giving such notice and the corresponding
obligations and liabilities of the other Party shall be suspended to the extent
made necessary by and during the continuance of such force majeure.

         3. Any disabling effects of such force majeure shall be eliminated as
soon as and to the extent reasonably practicable, by the Party claiming force
majeure.

         4. No liabilities (including obligations to make required payments) of
either Party which arose before the force majeure shall be excused as a result
of the force majeure.

         5. Neither Party shall be required to prevent nor settle a strike,
walkout or other industrial labor dispute as a result of this Section.

         6. In the event any actions to alleviate the force majeure are
unsuccessful, or if such force majeure is of such severity as to substantially
prevent the performance under this AGREEMENT of the obligations of Penelec or
SPC, Penelec or SPC may terminate this AGREEMENT, except as to any outstanding
liabilities previously incurred hereunder.

         7. In no event shall a force majeure condition or event asserted at any
time by SPC under this AGREEMENT, extend, modify or 



                                      -40-
<PAGE>
 
otherwise alter the final anticipated Commercial Operation Date of December 31,
1991 as specified in Section A, paragraph 4(b).

         U. Several Obligations
         ----------------------

         1. Except where specifically stated in this AGREEMENT to be otherwise,
the duties, obligations and liabilities of the Parties are intended to be
several, not joint or collective. Nothing contained in this AGREEMENT shall ever
be construed to create an association, trust, partnership or joint venture or
impose a trust or partnership duty, obligation or liability on or with regard to
either Party. Unless stated otherwise, each Party shall be individually and
severally liable for its obligations under this AGREEMENT.

         V. Waiver
         ---------

         1. Any waiver at any time by either Party of its rights, duties and/or
obligations with respect to any default (or any event which could lead to
termination) under this AGREEMENT, or with respect to any other matters arising
in connection with this AGREEMENT, shall not be deemed a waiver with respect to
any subsequent default or other matter.

         W. Assignment
         -------------

         1. SPC shall not assign its rights or delegate its duties under this
AGREEMENT, nor any part of such rights or duties, without the written consent
Penelec. Any such assignment or delegation made without such writtem consent
shall be null and void.

         2. Consent for the aforesaid assignment shall not be withheld
unreasonably.




                                     - 41 -
<PAGE>
 
         3. SPC shall pay Penelec for any legal costs or other expenses
reasonably incurred by Penelec after execution of this AGREEMENT which relates
to SPC's attempts to obtain financing for the construction of the Facility
(including the Transmission Line) end/or appurtenant equipment or to effectuate
any assignments or other loan documents for SPC's benefit.

         4. Nothing contained in this Section shall prohibit Penelec from
assigning this AGREEMENT or all or part of Penelec's duties and obligations
hereunder to any of its affiliated or related companies or any successor entity
provided that the assignee shall agree to be bound by all the terms and
conditions hereof to the same extent as the Company.

         5. Penelec agrees to review and execute all documents reasonably
necessary to perfect SPC's assignment of this AGREEMENT to a financing
institution in connection with the financing of the Facility and appurtenant
equipment, so long as such documents do not alter, amend or diminish Penelec's
rights under this AGREEMENT.

         X. Termination
         --------------

         1. Penelec shall have the right to terminate this AGREEMENT without any
liability or responsibility hereunder, and without any obligation to maintain
the electrical interconnection facilities, under any or all of the following
conditions:

                  (a) SPC fails to deliver any electric energy to the Company
         for 365 consecutive days after the Commercial Operation Date;

                  (b) SPC fails for thirty (30) consecutive days to perform
         regular and required maintenance, testing 



                                      -42-
<PAGE>
 
         or inspection of the Transmission Line, Facility end appurtenant
         equipment after written notice of the need therefor by the Company;

                  (c) The Facility is not constructed and operating by December
         31, 1990, unless said date is extended in accordance with Section A,
         paragraph 4 of this AGREEMENT.

                  (d) SPC fails to provide the type and nature of electric
         energy described in Section H and I of this AGREEMENT for a reasonable
         period under the circumstances after written notice of such failure by
         the Company;

                  (e) SPC fails to pay Penelec any unpaid balance as shown in
         any Incentive Statement within the period and by the procedure
         specified in Section D paragraph 1(c).

                  (f) SPC fails to allow Company employees and/or inspectors to
         inspect, test or examine electrical equipment within seven (7) days
         after written notice by the Company;

                  (g) SPC continues to violate any code, regulation and/or
         statute applicable to the construction, installation or operation of
         the interconnection equipment and devices on SPC's side of the Delivery
         Point (as well as the Transmission Line), after written notice by the
         Company of such violation and affording SPC reasonable time to cure any
         such violation;

                  (h) SPC fails to perform any other duty or obligation
         (including the making of any required payments or the installation and
         construction of equipment) imposed


                                      -43-
<PAGE>
 
         upon it under this AGREEMENT, after written notice by the Company
         affording SPC reasonable time to cure any such failure

                  (i) The Facility fails at any time to maintain its status as a
         small power production facility under the rules and regulations of the
         F.E.R.C. and all applicable federal and state statutes after notice by
         Penelec to SPC affording SPC reasonable time to cure any such failure.

         2. SPC shall have the right to terminate this AGREEMENT without any
liability or responsibility arising therefrom if:

                  (a) Penelec fails to accept electric energy in violation of
         this AGREEMENT or;

                  (b) Penelec fails to make a payment for electric energy when
         due and payable upon written demand by SPC to Penelec for such payment,
         and Penelec does not cure such failure within thirty (30) days after
         receipt of written notice from SPC specifying such failure

         Y. Liquidated Damages
         ---------------------

         1. If SPC shall abandon or fail to complete construction of the
Facility by December 31, 1990 or this AGREEMENT is terminated by Penelec under
Section X hereof, it is acknowledged and agreed that the Company will suffer
damages which, as the result of the Company's dependence upon the delivery of
SPC's energy and capacity hereunder, the Company would be unable to mitigate
fully.

         2. The Company and SPC agree that the amount of actual damages suffered
by the Company under the foregoing circumstances 


                                      -44
<PAGE>
 
would be difficult or impossible to measure. Therefore, the Company and SPC
agree as follows:

                  (a) If SPC abandons completion of the Facility between the
         effective date of this AGREEMENT and December 31, 1990 or otherwise
         fails to complete construction of the Facility and have it operating by
         December 31, 1990, unless extended by an appropriate force majeure
         event or condition, SPC shall pay to the Company a one time liquidated
         damage amount equal to ten dollars ($10.00) per KW of the anticipated
         capacity of the Facility of 80,000 KW. SPC will secure payment of this
         liquidated damage amount by providing to the Company, within six (6)
         months of the execution of this AGREEMENT, a non-cancellable surety or
         performance bond or irrevocable bank letter of credit or other security
         in form and substance reasonably acceptable to the Company upon which
         the Company can draw if the Facility is abandoned prior to or is not
         completed and operating by December 31, 1990. Said surety bond or
         letter of credit will terminate upon the date of initial electric
         energy delivery from SPC to Penelec. At SPC's option, the initial
         surety bond or letter of credit may be replaced with other security
         acceptable to the Company.

                  (b) SPC shall execute any and all documents reasonably
         necessary to assure that Penelec's claim to and interest in the
         Security Fund is perfected.



                                     - 45 -
<PAGE>
 
         Z. Captions
         -----------

         1. All indices, titles, subject headings, section titles and similar
items are provided for the purpose of reference and convenience and are not
intended to be inclusive, definitive or to affect the meaning of the contents or
scope of this AGREEMENT.

         AA. Choice of Laws
         ------------------

         1. This AGREEMENT shall be construed and interpreted in accordance with
laws of the Commonwealth of Pennsylvania.

         BB. Miscellaneous Provisions
         ----------------------------

         1. Upon reasonable notice from Penelec, SPC agrees to provide Penelec
personnel access to all boiler, fuel preparation, and emission control
equipment, maintenance and availability records of the Facility for the term of
this AGREEMENT or any extension or renewals thereof. SPC may provide and Penelec
personnel shall accept an escort and Penelec shall abide by all applicable
safety measures that SPC deems reasonably necessary and advisable. Penelec
agrees not to release any information provided to it by SPC (other than to GPU
or its subsidiaries) with respect to matters contained in this paragraph without
SPC's prior written consent, which consent shall not be unreasonably with-held,
provided that prior to receiving such information, GPU or its existing
subsidiaries, as applicable, agrees in a writing substantially in the form
attached hereto as Appendix 7 to maintain the confidentiality of such
information.

         2. No structure or device shall be installed at a location where, for
any reason, it can fall in such manner as to 


                                      -46-
<PAGE>
 
contact, land upon or interfere with any Company-owned or operated lines,
electrical equipment or facilities.

         3. Penelec shall install, operate and maintain, at SPC's sole cost and
expense, telmetering equipment at Penelec's Substation for the transmission of
real and reactive power and hourly KWH, to the Company's dispatchers in order to
provide information deemed necessary by the Company to integrate operation of
the Facility with the Company's electrical system.

         4. SPC shall, at its sole cost and expense, install at the Facility an
operating voice communication link to Penelec's dispatchers.

         5. SPC shall operate its Facility so as to generate such reactive power
as may be deemed reasonably necessary by Penelec to maintain voltage levels and
reactive area support.

         6. SPC shall certify by annual letter delivered to Penelec on or before
January 30 of each year throughout the term of this AGREEMENT the continuing
status of the Facility as a qualifying small power production and/or
cogeneration facility as that term is used and defined in 18 C.F.R. Part 292
(1984) and under all applicable federal and state statutes and regulations. SPC
shall also provide Penelec with copies of all documents filed with the F.E.R.C.

         7. SPC shall provide written evidence of the current capacity of the
Facility to Penelec twice each calendar year; once during the period from
December through January, and once during the period from June through July.
Such evidence of capacity shall be in such form and manner reasonably specified
by Penelec.




                                     - 47 -
<PAGE>
 
         8. SPC shall comply in all respects with the Non-Utility Generation
guidelines for qualifying Facilities as set forth in Appendix 8, which is
attached hereto and made a part hereof.

         CC. Successors and Assigns
         --------------------------

         1. This AGREEMENT shall become effective upon its execution and after
the issuance of the order described in Section A, paragraph I and shall inure to
the benefit of and be binding upon the Company and SPC and their respective
successors and (to the extent permitted hereunder) assigns.

         DD. Entire Agreement
         --------------------

         1. This AGREEMENT constitutes the entire agreement between the Parties
hereto with respect to the matters contained herein and all prior agreements
with respect to the matters covered herein are superseded and each Party
confirms that it is not relying upon any representations or warranties of the
other Party, except as specifically set forth herein or incorporated by
reference hereto.

         IN WITNESS WHEREOF, the Parties hereto have caused this AGREEMENT to be
executed by their duly authorized representatives as of the date hereinabove set
forth:

ATTEST:      

/s/ E. Simmons                                    BY: /s/John  F. Furst
--------------------------------                     ---------------------------
    Secretary                                            John  F. Furst,
                                                         Vice President

ATTEST:                                           SCRUBGRASS POWER CORP.

/s/ Joseph Serafini                               BY: /s/Joseph E. Cresci
--------------------------------                     ---------------------------
    Secretary                                            Joseph E. Cresci,
                                                         President



                                     - 48 -