Document:

exv10w62

 

[*]=information
redacted pursuant to a confidential treatment request. Such omitted
information has been filed separately with the Securities and
Exchange Commission.

Exhibit 10.62

AGREEMENT TO PROVIDE QSE AND MARKETING SERVICES

     This Agreement to Provide QSE and Marketing Services (“Agreement”) is effective as of August
1, 2005 (“Effective Date”) between Commerce Energy, Inc. (“Customer” or “Commerce Energy”), a
California corporation, and Tenaska Power Services Co. (“TPS”), a Nebraska corporation. Customer
and TPS are also hereinafter referred to in this Agreement individually as “Party” and collectively
as the “Parties”

     This Agreement consists of and is governed by the Base Agreement and the General Terms and
Conditions attached hereto. The Parties are also Parties to the EEI Master Power Purchase and Sale
Agreement of even date herewith (“Master Agreement”) and the Security Agreement also of even date
herewith (“Security Agreement”).

     Customer and TPS desire to enter into this Agreement under which TPS will provide Customer
with Qualified Scheduling Entity (“QSE”) Services and Marketing Services. Accordingly, for and in
consideration, of the premises, together with other good and valuable consideration, the receipt
and sufficiency of which are acknowledged by each Party, Customer and TPS agree as follows:

BASE AGREEMENT

DESIGNATION

     Customer authorizes TPS to act, and TPS agrees to act as Customer’s exclusive provider of QSE
Services and Marketing Services for any Customer Facility or Customer Resource in the ERCOT Region
in accordance with the terms of this Agreement and the Governing Rules. Customer agrees that all
the Customer Facilities and Customer Resources served under the Load Serving Entity (“LSE”) name of
Commerce Energy, Inc. and under the LSE name of ACN Energy Inc. are included under this Agreement.
Customer agrees that it shall add or cause to be added to this Agreement the Customer Facilities
and Customer Resources served by any other LSE who is owned or controlled by Customer, or by an
Affiliate of Customer, provided that Customer shall provide TPS with thirty (30) days prior notice
of such addition (“Permitted LSE”); and provided further, that TPS shall not be obligated to start
service to an additional Permitted LSE until the Commencement Date applicable to that Permitted
LSE.

SERVICES

A. QSE SERVICES

     TPS will serve as the exclusive QSE for Customer and handle all communications with ERCOT for
Customer’s Transactions involving Customer during the term of this Agreement. TPS will use
commercially reasonable efforts to communicate to Customer any ERCOT directives affecting
Customer’s Transactions and will schedule Customer’s Products for Customer, in such quantities
requested by Customer. In the event Customer’s actual receipt or delivery of Products deviates
from quantities scheduled, TPS shall purchase or sell Products as required to keep Customer’s
Schedules, or Standing Schedules balanced. TPS shall acquire for Customer such types and
quantities of Ancillary Services required under the Governing Rules.

 

 

Where permitted under the Governing Rules, Customer may self arrange Ancillary Services.
During the term of this Agreement, Customer shall not schedule Customer’s Transactions involving
Customer directly with ERCOT or through any other Person except with TPS, as long as there is no
Force Majeure event or Event of Default caused by TPS. Subject to the further provisions of this
Agreement, TPS will submit, or cause to be submitted, Balanced Schedules and Resource Plans on
behalf of Customer to ERCOT, provide for acquisition and disposition of the Products with ERCOT and
third parties, and provide settlement and billing administration for ERCOT statements.

B. MARKETING SERVICES

     During the term of this Agreement, TPS shall have the exclusive right to procure, sell, and
deliver Products for any Customer Facility with ERCOT or third parties, unless Customer purchases
Energy or Ancillary Services bilaterally from another party (including TPS under the Master
Agreement), in which case Customer shall provide sufficient advance notice and information to allow
TPS to schedule such quantities of Energy and/or Ancillary Services with the party designated by
Customer. Whenever Customer lacks sufficient Energy and/or Ancillary Services to meet its load and
ERCOT obligations, TPS shall procure and schedule the necessary Energy and/or Ancillary Services,
including the option of utilizing Balancing Energy or Ancillary Services from ERCOT or third
parties. Whenever scheduled Energy or Ancillary Services exceed Customer’s actual load and/or
ERCOT obligations, then TPS will use commercially reasonable efforts to resell such scheduled but
unused Energy and/or Ancillary Services to ERCOT or to third parties, and Customer shall make TPS
whole for such Transactions including any applicable marketing fees.

TERM

     Unless this Agreement is terminated earlier pursuant to other provisions described herein,
this Agreement shall be effective as of the Effective Date, and shall have a primary term of twelve
(12) consecutive calendar months with the first (lst) day beginning on the Effective Date and
ending on the midnight that concludes the last calendar day of the twelfth (12th) month following
the Effective Date. This Agreement shall automatically renew and extend for successive one (1)
year terms unless terminated by either Party by giving a written notice to the other Party sixty
(60) calendar days prior to the end of the primary term or any renewal term.

PAYMENT

	A.	 	QSE Fees. Customer shall pay TPS each month a QSE Service Fee calculated as follows.
For all Monthly Volumes (including Energy and Ancillary Services) up to but not to exceed
40,000 MWh, Customer shall pay the greater of five-thousand dollars ($5,000) or thirty-five
cents ($0.35) per MWh. For the portion of Monthly Volumes in excess of 40,000 MWh, Customer
shall pay twenty cents ($0.20) per MWh. For purposes of this Agreement, “Monthly Volumes”
shall mean the greater of: (i) Customer’s volumes scheduled per interval for all intervals in
a billing month, or (ii) the ERCOT settlement volumes attributable to all output or
consumption of Facilities and Customer Resources for a billing month.

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	B.	 	Pass-Through Costs/Reimbursements. Customer shall pay TPS (i) all costs TPS pays
ERCOT and third parties in procuring, scheduling, and delivering the obtained Products,
including Balancing Energy and Ancillary Services and (ii) all applicable Pass-Through Costs.
In the event Ancillary Services that are sold, scheduled, or procured on behalf of Customer
(to ERCOT or third parties) are curtailed for any reason, including Force Majeure, Customer
shall reimburse TPS for any fees, costs, or charges assessed to TPS by ERCOT for acquiring
replacement Ancillary Services bilaterally from third parties.
	 
	C.	 	Balancing Energy. For Balancing Energy purchased or sold in any Settlement Interval,
attributable to Customer Facilities or purchased for a Customer Resource, TPS shall net such
purchases and sales of Balancing Energy over each calendar day. For any calendar day on which
Customer is a net seller of Balancing Energy, TPS shall not charge a marketing, fee for such
net sales of Balancing Energy. For any day on which Customer is a net purchaser of Balancing
Energy, TPS shall not charge a marketing fee for such net purchases of Balancing Energy,
provided however, if Customer’s net purchases of Balancing Energy for any calendar day exceed
ten percent (10%) of Customer Facilities’ total load obligations for such calendar day,
Customer shall pay TPS a Balancing Energy marketing fee equal to three and one-half percent
(3.5%) of the total net purchase cost of Balancing Energy for that calendar day.
	 
	D.	 	LSE Set Up Fee. Customer shall pay TPS a Set Up Fee of three thousand five hundred
dollars ($3,500) for each LSE served under this Agreement, within thirty (30) days of ERCOT’s
acceptance of a QSE Acknowledgement form fully executed by the Parties adding each additional
LSE; provided, however, that the Set Up Fee shall be zero dollars ($0) for the first three (3)
LSEs served under this Agreement. For avoidance of doubt, the Parties understand that
Customer shall receive service for the Commerce Energy LSE, the ACN Energy, Inc., LSE and one
additional Permitted LSE without incurring a Set Up Fee charge, and that any additional LSE
shall only be a Permitted LSE.
	 
	E.	 	Ancillary Service Sales to ERCOT. In the event TPS sells Ancillary Services (excluding
Balancing Energy) to ERCOT by submitting bids to sell such Ancillary Services to ERCOT, from
sources other than a Customer Resource, and/or capacity or contract controlled by Customer,
Customer shall pay TPS an ERCOT Ancillary Service marketing fee of fifteen percent (15%) of
the revenue TPS receives from ERCOT for such sales.
	 
	F.	 	Resource Marketing Fees, Customer agrees to provide no less than sixty (60) days’ advance
notice to TPS of its desire for TPS’s QSE to submit Ancillary Service bids (including
Balancing Energy bids) to ERCOT on behalf of or sourced from Customer Resources and/or
capacity or contract(s) controlled by Customer. Prior to submitting such Ancillary Service
bids (including Balancing Energy bids) to ERCOT on Customer’s behalf, sourced from the
referenced sources, the Parties agree to negotiate in good faith appropriate Resource
Marketing Fees for such services and amend this Agreement accordingly.

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     WITNESS that the Parties have executed this Agreement effective as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	COMMERCE ENERGY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Nick Cioll	 	 
	 

	 	Name:

Title:
	 	 

R. Nick Cioll

Vice President, Risk Management
	 	 
	 
	 	 	 	 	 	 
	 	 	TENASKA POWER SERVICES CO.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Trudy Harper	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:

Title:
	 	Trudy Harper

President	 	 

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GENERAL TERMS AND CONDITIONS

ARTICLE I

DEFINITIONS

     For purposes of this Agreement, the following capitalized terms shall have the meanings set
forth below. All other capitalized terms used in this Agreement, but not otherwise defined in this
Agreement, shall have the same meaning as defined in the following documents, and any conflicting
definitions contained in the following documents shall be applied in the following priority: the
Governing Rules; the Texas Public Utility Regulatory Act (“PURA”); the regulations promulgated by
the Public Utility Commission of Texas (“PUCT”).

     1.1 “Affiliate(s)” shall mean, with respect to any Person, (i) any other Person, directly or
indirectly, controlling, controlled by, or under common control with such Person, (ii) any other
Person under the joint control, directly or indirectly, of such Person, or (iii) any officer,
director, or employee of any Person described in subsection (i) or (ii) of this paragraph.

     1.2 “Ancillary Service(s)” shall have the same meaning as defined in the Governing Rules, as
such definition may be amended from time-to-time.

     1.3 “Balancing Energy” shall mean the Energy purchased from or sold to ERCOT necessary to
maintain a balance between the Energy schedules submitted by Customer and the actual quantities of
Energy attributable to Customer’s Transactions.

     1.4 “Business Day” shall mean any day on which Federal Reserve member banks in Texas are open
for business.

     1.5 “Commencement Date” shall mean the later of (i) the Effective Date or (ii) until all
requirements of Section 2.1 have been complied with.

     1.6 “Customer Facility” or “Customer Facilities” shall mean the electric load within the ERCOT
Region represented by Customer, or by any Affiliate of Customer.

     1.7 “Customer Resource” or “Customer Resources” shall mean the electric generating facilities
or load that are within the ERCOT Region and owned or operated by Customer, or of which Customer
has rights to affect the operation which is qualified to provide Energy and/or Ancillary Services
in the ERCOT Region, which shall be identified in Exhibit B attached hereto.

     1.8 “Due Date” shall mean the tenth (10th) day after receipt of the statement; provided,
however, if such day is not a Business Day, the next Business Day.

     1.9 “Energy” shall mean electric energy.

     1.10 “ERCOT” shall mean the Electric Reliability Council of Texas, Inc. or any successor
thereto.

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     1.11 “ERCOT Guides” shall mean those publications promulgated by ERCOT from time to time,
including the ERCOT publications titled “The Market Guide” and “ERCOT Operating Guides”,
instructing Persons how to conduct transactions within the ERCOT Region,

     1.12 “ERCOT Protocols” shall mean the documents adopted, published, and amended from time to
time by ERCOT, and approved by the PUCT, to govern electric transactions in the ERCOT Region,
including any attachments or exhibits referenced in the document, that contains the scheduling,
operating, planning, reliability, and settlement policies, rules, guidelines, procedures,
standards, and criteria of ERCOT, or any successor document thereto.

     1.13 “ERCOT Region” shall mean the geographic region within the State of Texas administered by
ERCOT.

     1.14 “Interest Rate” shall mean, for any date, the lesser of (i) the per annum rate of
interest equal to the “Prime Rate” as may from time to time be published in The Wall Street Journal
under “Money Rates” on such day (or if not published on such day, on the most recent preceding day
on which published), plus two percent (2%) or (ii) the maximum rate permitted by applicable law.

     1.15 “Marketing Services” shall mean the services described in the Base Agreement under the
heading “Marketing Services”.

     1.16 “Market Participant(s)” shall mean a Person that engages in any activity that is in whole
or in part the subject of the Governing Rules, regardless of whether such Person has executed a
standard form agreement with ERCOT.

     1.17 “MW” shall mean megawatt.

     1.18 “MWh” shall mean megawatt hour(s).

     1.19 “Pass-Through Costs” shall mean all actual costs that are incurred by TPS for or related
to transmission, distribution, delivery, scheduling, and QSE settlement with ERCOT and/or any other
third party for any Product that is applicable to the Services including, but not limited to:
transmission and distribution losses; resource imbalance charges or other imbalance charges; PUCT
fees; scheduling and mismatched schedule charges and processing fees; ERCOT fees, charges,
congestion charges or costs; any charges, fees, assessments, adders, or surcharges imposed or
authorized by any governmental authority, whether collected by ERCOT, a governmental authority, or
otherwise, for public purpose programs such as environmental renewable energy utilization; low
income or other social assistance, demand side management programs, and any other similar social
purpose program; any charges, fees, assessments, adders, or surcharges related to Energy
procurement by ERCOT or governmental authority, including, without limitation, charges for system
reliability, rate recovery, future payback of under-collections, amortization of above-market
energy purchases, and energy load repurchases; charges due to Uninstructed Deviation and
Unaccounted For Energy (as both are defined in the Governing Rules); Uninstructed Resource charges;
and/or all other applicable fees or charges related to acquiring and facilitating transmission and
distribution of Products that apply at the time such Services are provided hereunder.

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     1.20 “Permit(s)” shall mean, unless otherwise provided, any approval, waiver, exemption,
variance, franchise, permit, authorization, license, or similar order of or from any federal,
state, county, ,municipal, or other governmental body, instrumentality, agency, authority, or court
having jurisdiction over the matter in question.

     1.21 “Person(s)” shall mean an individual, corporation, voluntary association, joint stock
company, business trust, partnership, limited liability company, municipality (including any
municipal electric board, cooperative, power utility, agency, or subdivision), rural electric
cooperative, or other entity.

     1.22 “Point(s) of Delivery” shall mean the point(s) of interconnection between any Customer
Facility and the TDSP.

     1.23 “Product(s)” shall mean Balancing Energy, Energy, and/or Ancillary Services (collectively
and individually).

     1.24 “QSE Services” shall mean the services identified as “QSE Services” in the Base
Agreement.

     1.25 “Representatives” shall mean each Party’s respective directors, officers, and employees,
including, without limitation, attorneys, accountants, partners, and/or consultants.

     1.26 “Retail Electric Provider” or “REP” shall have the meaning given such term in the
Governing Rules.

     1.27 “Schedule(s)” shall mean balanced energy schedules, Ancillary Service schedules,
Ancillary Service bids, and/or Resource Plans (collectively and individually), provided to TPS by
Customer.

     1.28 “Services” shall mean QSE Services and Marketing Services (collectively or individually);
such services are identified in the Base Agreement.

     1.29 “Standing Schedule(s)” shall mean balanced energy schedules, Ancillary Service schedules,
Ancillary Service bids, and/or Resource Plans (collectively and individually), provided to TPS by
Customer which shall be in effect beginning with a certain date and until further notice from
Customer, in lieu of submitting such information on a daily basis.

     1.30 “Transaction(s)” shall mean a particular transaction agreed to by (i) the Parties and/or
(ii) either Party and a third party (including ERCOT) relating to the scheduling, delivery, sale,
and/or purchase of a Product.

     1.31 “Transmission and/or Distribution Service Provider (“TDSP”)” shall mean an entity that
owns or operates, for compensation in Texas, equipment or facilities to transmit and/or distribute
electricity, and whose rates for transmission service or distribution service, or both, is set by a
governmental authority.

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ARTICLE II

COMMENCEMENT

     2.1 Commencement. Upon execution of this Agreement, Customer and TPS shall complete
and submit any and all documentation or fulfill any other steps required by ERCOT and/or the PUCT,
if applicable, authorizing TPS to provide QSE Services on Customer’s behalf for Customer
Facility(ies). TPS’s obligations to perform Services under this Agreement shall not commence until
the Commencement Date.

ARTICLE III

GOVERNING RULES

     3.1 Governing Rules. Both Parties agree to abide by all applicable ERCOT Protocols,
ERCOT Guides, and any rule and/or directives of ERCOT or the PUCT (collectively “Governing Rules”).
For purposes of determining responsibility and rights of the Parties at any given time, in
addition to the terms and conditions of this Agreement, the Governing Rules, as amended, and which
are in effect at the time of performance or non-performance of an action, subject to the
continuation of any grandfathered provisions, shall govern with respect to that action. In the
event of a conflict between the Governing Rules and the terms and conditions set forth in this
Agreement, the Governing Rules shall prevail.

     3.2 ERCOT Dispatch Instructions. If TPS communicates any ERCOT Dispatch Instruction
to any Customer Resource(s) or Customer Facility(ies), then Customer shall immediately comply with
such ERCOT Dispatch Instruction, as appropriate; unless in the sole and reasonable judgment of
Customer, such compliance would create a threat to safety, risk of bodily harm or damage to
equipment, or is not otherwise in compliance with the Protocols, in which case Customer will notify
TPS immediately of the reason for non-compliance and TPS will communicate such reason to ERCOT in
accordance with the Governing Rules. Customer shall be responsible for any charges, penalties, or
other action initiated by ERCOT, the PUCT, or other Market Participants due to non-compliance with
these requirements.

ARTICLE IV

SCHEDULING

     4.1 Day Ahead Schedule. Customer shall provide TPS (via facsimile, email, or through
other electronic communication) with either (a) one (1) day-ahead (or two (2) day-ahead if required
by ERCOT) Schedules including Balanced Energy schedules, Ancillary Service schedules, Ancillary
Service bids, and/or Resource Plans at least two (2) hours prior to the QSE deadline specified by
the Governing Rules for submitting such information to ERCOT or (b) Standing Schedules including
Balanced Energy schedules, Ancillary Service schedules, Ancillary Service bids, and/or Resource
Plans. TPS will implement and rely upon such Schedules until changed upon written notice from
Customer. Customer shall provide TPS with all Ancillary Service bid submittal information required
by the Governing Rules, in a mutually agreeable format. If, in TPS’s sole reasonable opinion,
Customer’s Ancillary Service bid(s) do not comport with the Governing Rules, TPS will notify
Customer as soon as reasonably practicable. However, TPS retains the right to modify such bids as
necessary to comport with the Governing Rules to ensure timely submission to ERCOT, or to refrain
from submitting such

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bids. TPS may also decline to accept or submit bids for which there is not adequate credit
support under Section 9.6 or the Security Agreement. Customer shall meet the receipt, delivery,
and/or performance requirements associated with acceptance or deployment by ERCOT of any Ancillary
Service bid or schedule as specified in the Governing Rules, and TPS will notify Customer promptly
of acceptance or deployment by ERCOT of any of Customer’s Ancillary Service bids; provided,
however, Customer may withdraw Customer’s bid prior to ERCOT’s acceptance of such bid submittal
without penalty.

     4.2 Changes to Schedule. Customer may change its day-ahead Schedule and/or Standing
Schedule (collectively, “Schedule(s)”), but the timing of any change shall comply with the
Governing Rules, and Customer shall notify TPS of any change promptly, but at least one (1) hour
prior to the time such change must be submitted to ERCOT in accordance with the Governing Rules.
Such notices shall be made by telephone to TPS’s 24-hour Scheduling Desk and followed up by written
communication via facsimile, email, or through other electronic communication. TPS will use
commercially reasonable efforts to implement such change(s) as soon as reasonably practicable;
provided, however, that to the extent TPS has already committed to arrangements for purchase, sale,
or resale of Energy or Ancillary Services based on the Schedule previously furnished to TPS by
Customer for the same time period, then TPS will honor those arrangements and will make additional
purchases and sales of Energy and/or Ancillary Services required as a result of such Schedule
change(s) to keep Customer’s Schedules balanced, and Customer shall reimburse TPS for all
reasonable costs incurred by TPS in such purchases, sales, and to replace Ancillary Services.
Customer shall give TPS notice of any scheduled outage, unavailability, or reduced capability of
any Customer Resource or Customer Facility as soon as reasonably practicable in accordance with the
Governing Rules and if such unavailability or reduced capability will affect the Schedule. In the
event that any subsequent Schedule given to TPS differs from a prior Schedule for the same time
period, such subsequent Schedule shall supersede the prior Schedule, and TPS will rely upon and
implement the most recent Schedule when scheduling quantities for Customer for the time period
required by ERCOT.

     4.3 Scheduling and Mismatched Schedule Processing, Fees. TPS will use commercially
reasonable efforts to schedule Customer’s energy obligations and quantities of supply on Customer’s
behalf pursuant to Customer’s Schedules; provided, however, TPS may rescind Customer’s requested
Schedule if Customer Schedules are mismatched. In addition, TPS shall not be required to employ
extraordinary means or to incur hardship or unreimbursed costs to schedule a Transaction for
Customer. TPS will pay any Mismatched Schedule Processing Fees assessed by ERCOT for any
mismatched schedules submitted by TPS where the mismatch in Schedules is caused by TPS, and
Customer shall pay any Mismatched Schedule Processing Fees where the mismatched schedule is caused
by Customer or Customer’s counterparties.

     4.4 Over-Consumption of Energy and Ancillary Services. Any Energy and Ancillary
Services, required to meet the obligation of Customer Facilities and which are not supplied by
bilateral purchases, will be purchased by TPS from the ERCOT Balancing Energy and Ancillary Service
markets, or as otherwise mutually agreed between the Parties.

     4.5 Under-Consumption of Energy and Ancillary Services. Any Energy and Ancillary
Services, which Customer has procured through third party bilateral purchases and

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which are not utilized to meet the obligations of Customer Facilities, will be sold by TPS to
the ERCOT Balancing Energy and Ancillary Service markets, or as otherwise mutually agreed between
the Parties.

     4.6 Third-Party Transactions. Customer may purchase Energy and Ancillary Services
under separate transactions with third parties (including TPS under the Master Agreement, but
excluding ERCOT). TPS will provide all necessary QSE Services on Customer’s behalf to use the
Energy and Ancillary Services that Customer may procure by such third party transactions.

     4.7 Incorrect or Incomplete Data. Data provided by Customer to TPS for any submission
to ERCOT shall be complete and correct in all material respects to enable a timely submission
acceptable to ERCOT, In the event such information provided by Customer to TPS relating to the
scheduling of any quantity of Energy and Ancillary Services by TPS on behalf of Customer becomes
incorrect or is incomplete, Customer agrees to make TPS financially whole for any Balancing Energy
costs, Ancillary Services costs, Pass-Through Costs, or other costs incurred by TPS resulting from
submissions to ERCOT based upon such incorrect or incomplete Customer data.

     4.8 Scheduled Transactions Beyond Term of Agreement. As to any Transaction scheduled
hereunder which continues by its terms beyond any termination of this Agreement, then this
Agreement shall remain in full force and effect as to that scheduled Transaction and shall continue
to govern that Transaction for its duration. Further, any obligations accrued during the term of
this Agreement (including fees, charges, or reimbursement applicable under this Agreement) shall
become due and payable when assessed, even if assessment occurs after termination of this
Agreement. Notwithstanding any of the above, TPS may terminate the Services under this Agreement
immediately upon assertion by the PUCT of jurisdiction over QSEs or upon consideration by the PUCT
of any order asserting jurisdiction over QSEs that in TPS’s sole reasonable judgment would cause a
material adverse impact upon TPS.

     4.9 Commercially Reasonable Standard. TPS will use commercially reasonable efforts to
procure, schedule, deliver, buy, and sell all Products under the terms of this Agreement at
prevailing market prices.

     4.10 Recordings. Each Party consents to the recording of any telephone conversations
between the Parties. The contents of such telephone recording may be utilized to determine the
intent of the Parties in any dispute arising under this Agreement, and such telephone record shall
be deemed a record of any information, Confirmation, consent, bid, authorization, instruction or
other Transaction under this Agreement, which may be submitted in evidence in any proceeding or
action related to this Agreement. Each Party waives objection to the admission in court of such
recording based on the “Best Evidence Rule” or other legal principles. Such telephone recording
shall be the controlling evidence of the Parties’ agreement with respect to any particular
information, Confirmation, consent, or other Transaction in the event a written Confirmation of
that information, Confirmation, consent, or other Transaction is not fully executed or accepted by
both Parties. A fully, executed written Confirmation agreed to by both Parties shall prevail over
a recording of a Transaction. Each Party waives any further notice of such monitoring or recording
and agrees to note its officers and employees and obtain their consent to any such monitoring or
recording.

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ARTICLE V

ERCOT SETTLEMENTS AND PASS-THROUGH COSTS

     5.1 ERCOT Settlements and Pass-Through Costs. TPS will administer all settlements
with ERCOT and other third parties, and will invoice or credit Customer for payments TPS made to or
received from ERCOT or other third parties for any Pass-Through Costs related to any Customer
Transaction(s) or Services, and for other charges and fees and Pass-Through Costs apportionable to
Customer under the terms of this Agreement. The Parties understand that TPS will not credit
Customer for such settlement payments until TPS has been credited for such payment. In addition,
the Parties understand that when ERCOT or third parties short pay or fail to pay TPS amounts
related to Customer Transactions, then TPS shall not pay Customer the unpaid amount for such
Transactions until TPS has received such unpaid amounts due from ERCOT and/or third parties related
to such Transactions. TPS will then forward to Customer any payments received from ERCOT or third
parties. Customer shall reimburse TPS for all Pass-Through Costs assessed by ERCOT or other third
parties related to or apportionable to Customer’s Transactions or Services. Customer shall
reimburse TPS for all costs of Balancing Energy, Energy, and Ancillary Services supplied under this
Agreement to facilitate Customer Transactions, including costs of replacing Energy and Ancillary
Services that Customer had procured and made available but failed to deliver, even when the failure
to deliver Energy and Ancillary Services occurred due to Force Majeure, whether declared by TPS or
Customer. Customer shall pay its load ratio share, if any, of all unpaid payments assessed to TPS
by ERCOT (currently assessed under Section 9.4.4 of the ERCOT Protocols), and TPS shall pass
through any corresponding reimbursements of unpaid payments received from ERCOT. Additionally,
Customer shall pay its apportionable share of all other Pass-Through Costs assessed against TPS by
ERCOT or the PUCT, as applicable to Customer. As used in the previous sentence, the term
“apportionable” shall mean that Customer shall pay all Pass-Through Costs directly allocable to
Customer’s Transactions and/or Services, and in addition, in cases where TPS lacks sufficient
information to specifically assign particular Pass-Through Costs to particular Transactions, or is
assessed a fee or charge as a QSE, which charge may be based on the volume of Transactions TPS
schedules, or based upon the portion of TPS’s customer base which constitutes Load Serving
Entities, or some other basis not related to a particular Transaction, then Customer shall pay a
proportionate share of any such Pass-Through Costs. These obligations shall survive the
termination of this Agreement. Customer reserves the right to review the calculation of such
Pass-Through Costs and may request TPS provide documentation in support of Pass-Through Costs.

     5.2 Reconciliation. TPS will use commercially reasonable efforts to reconcile all
ERCOT statements and Pass-Through Costs related to any Customer Facility, Customer Resource, and/or
Customer Transaction. Customer may dispute any TPS invoice by providing TPS with reasonable notice
prior to any deadline for disputing applicable ERCOT or third party settlement statements
established in the Governing Rules, or be deemed to concur in the accuracy of the invoice.
Customer may review information related to the disputed charge(s) in the applicable supporting
statement, provided, however, the exercise of this right shall not extend the then-applicable
period within which Customer must challenge any such invoice. At Customer’s election, if Customer
disputes the accuracy of any invoice relating to Pass-Through Costs, TPS agrees to act on
Customer’s behalf in disputing Pass-Through Costs with ERCOT acting in accordance with the
Governing Rules at Customer’s sole expense; provided, however,

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at any time in the dispute resolution process, TPS may cease such efforts to contest
Pass-Through Costs in the event TPS determines, and Customer concurs, that such Pass-Through Costs
are correct or that such dispute resolution is unlikely to be successful in adjusting the disputed
Pass-Through Costs. Customer shall be solely responsible for verifying the accuracy of settlement
data that is used to calculate Pass-Through Costs or credits to and from ERCOT. Customer must
provide TPS with any supporting data relating to the dispute with sufficient notice for TPS to
provide such data to ERCOT under the applicable Governing Rules. If such data is not submitted on
time, or the dispute resolution is adverse to Customer, Customer shall pay all Pass-Through Costs
based upon ERCOT settlement data. TPS shall not be responsible to Customer for errors in meter or
usage data utilized by ERCOT in settlement calculations. TPS will make Energy usage and other
applicable information available to Customer to permit Customer to perform necessary
reconciliations or shadow settlements on a timely basis so that Customer can Make a proper
assessment of ERCOT statements and Pass-Through Costs to determine if there is reason to dispute
any TPS invoice.

ARTICLE VI

TAXES

     6.1 Taxes. TPS will collect and remit to the State of Texas and municipalities any
state sales taxes, municipal taxes, or assessments applicable to the sale, transmission, or
distribution of Products or other Services provided by or through TPS under this Agreement to a
Customer Facility, and Customer shall pay TPS such applicable taxes. If any such sale to a
Customer Facility is exempt from state sales taxes, Customer shall provide TPS with an exemption
certificate documenting the sales tax exemption. Customer shall be liable for its own gross
receipts and sales taxes.

     Customer shall agree to cooperate with TPS in the event that the State of Texas Comptroller or
a municipality ever audits or challenges TPS’s compliance with the rules and regulations governing
the payment of taxes related to a Customer Facility for Services under this Agreement.
Furthermore, Customer agrees to indemnify TPS for any taxes, penalties, late fees, or other charges
assessed to TPS by the State of Texas or municipalities for uncollected and owed taxes associated
with a Customer Facility for Services under this Agreement which were the obligation of Customer.
This provision shall survive the termination of this Agreement and shall stay in full force and
effect for five (5) years following the termination of this Agreement.

ARTICLE VII

INDEMNITIES AND LIABILITIES

     7.1 INDEMNITIES. EXCEPT TO THE EXTENT CAUSED BY TPS’S WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE, CUSTOMER UNDERSTANDS AND AGREES THAT CUSTOMER SHALL RELEASE, INDEMNIFY, AND HOLD TPS
HARMLESS FROM ALL LIABILITY, COSTS, CLAIMS, LOSSES, OR CAUSES OF ACTION, INCLUDING PERSONAL INJURY,
PROPERTY LOSS, PROPERTY DAMAGE, OR DEATH, HOWEVER CAUSED, ASSERTED BY ERCOT OR THIRD PARTIES
ARISING FROM OR RELATED TO THIS AGREEMENT AND ANY TRANSACTION MADE UNDER THIS AGREEMENT, AND
CUSTOMER SHALL REIMBURSE TPS FOR TPS’S REASONABLE COSTS, INCLUDING ATTORNEY FEES, OF DEFENDING
AGAINST SUCH CLAIMS.

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CUSTOMER UNDERSTANDS THAT IT IS INDEMNIFYING TPS FOR TPS’S OWN NEGLIGENCE FOR SUCH THIRD-PARTY
CLAIMS. CUSTOMER SHALL ALSO REIMBURSE TPS FOR ITS REASONABLE OUT-OF-POCKET COSTS, INCLUDING
REASONABLE ATTORNEYS’ FEES, IN THE EVENT TPS BECOMES INVOLVED AS A DEPONENT OR RECIPIENT OF A
SUBPOENA IN ANY DISPUTE BETWEEN CUSTOMER AND A THIRD PARTY RELATED TO ANY TRANSACTIONS UNDER THIS
AGREEMENT.

     7.2 LIMITATION OF LIABILITY. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL,
PUNITIVE, LOST PROFIT, LOST OPPORTUNITY, BUSINESS INTERRUPTION, OR EXEMPLARY DAMAGES FOR ANY CLAIM
OR CAUSE OF ACTION RELATED TO THIS AGREEMENT, WHETHER ARISING FROM BREACH OF CONTRACT, WARRANTY,
TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), STATUTE, OR OTHERWISE. MOREOVER, NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCLUDING ANY LIABILITY FOR PAYMENTS OR CREDITS DUE
CUSTOMER UNDER THE BASE AGREEMENT, UNLESS THE CLAIMS OR OBLIGATIONS ARE CAUSED BY TPS’S WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE, FOR EACH MONTH OF SERVICE, THE LIABILITY OF TPS TO CUSTOMER FOR ANY
OBLIGATIONS, INCLUDING INDEMNITIES, UNDER THIS AGREEMENT SHALL BE LIMITED TO A MAXIMUM OF THE
MONTHLY FEES CHARGED TO CUSTOMER BY TPS PURSUANT TO THE BASE AGREEMENT FOR SERVICES FOR THE MONTH
IN WHICH THE EVENT GIVING RISE TO THE CLAIM OCCURRED, EXCLUSIVE OF PRODUCT COSTS AND PASS-THROUGH
COSTS.

     7.3 PRODUCT DELIVERY. CUSTOMER UNDERSTANDS AND AGREES THAT ACTUAL DELIVERY OF
PRODUCTS TO CUSTOMER SHALL BE PERFORMED BY CUSTOMER’S TDSP, THROUGH A TRANSMISSION GRID CONTROLLED
BY ERCOT, AND THAT TPS HAS NO CONTROL OVER, AND SHALL HAVE NO LIABILITY FOR THE PRODUCTS OR THE
DELIVERY OF PRODUCTS TO CUSTOMER AFTER TPS HAS SUBMITTED A SCHEDULE FOR THE PRODUCTS TO ERCOT. TPS
SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE ACTS OR OMISSIONS OF ERCOT, THE TDSP, AND THIRD
PARTIES RELATED TO THE PRODUCTS OR DELIVERY OF PRODUCTS TO CUSTOMER. CUSTOMER AGREES AND
ACKNOWLEDGES THAT IN THE EVENT THAT DELIVERY OF ENERGY OR OTHER PRODUCTS TO CUSTOMER ARE CURTAILED
OR DISRUPTED, THROUGH FORCE MAJEURE OR OTHERWISE, CUSTOMER SHALL CONTACT ITS TDSP FOR ASSISTANCE IN
RESTORING SERVICES.

ARTICLE VIII

NOTICES/TERMINATION

     8.1 Notices. Unless otherwise provided in this Agreement, any notices given under
this Agreement must be in writing and personally delivered or sent by mail or facsimile to such
Persons or locations designated on Exhibit A and shall be deemed given and effective when delivered
by hand or upon:

13

 

          (A) three (3) days after such notice is deposited in the United States mail with postage
prepaid for transmittal by registered or certified mail, return receipt requested;

          (B) one (1) day after such notice is placed in the hands of a recognized commercial mail or
courier service for overnight delivery; or

          (C) the Business Day on the date such notice was sent by telegram, telefax, telex, or telecopy
with confirmation of receipt of such facsimile by confirmed facsimile transmission, provided that
such facsimile receipt occurred during Business Hours of such Business Day. For facsimile
transmissions received after such Business Hours of such Business Day at the receiving location,
notice shall be deemed effective upon the opening of Business Hours of the next Business Day.

     8.2 Customer’s Termination Responsibilities. If TPS ceases to be Customer’s QSE for
Customer due to termination of this Agreement or any other reason, Customer shall be responsible
for notifying ERCOT, the PUCT, and any other third parties, if applicable, involved relating to
this Agreement that IFS is no longer Customer’s QSE. After TPS ceases to be Customer’s QSE,
Customer shall be financially responsible for all costs, charges, assessments fees, adjustments, or
revisions (collectively “Termination Charges”) that relate in anyway to any Product or Schedules
applicable to Customer after the termination of this Agreement. If TPS receives any statements
reflecting any Termination Charges from any third party relating to Customer, TPS will invoice
Customer, and Customer shall pay the invoice by the Due Date. If Customer does not make such
payment to TPS by the Due Date, TPS shall pursue all legal remedies in the collection of such
payment, and Customer shall be responsible for the invoiced amount and all other costs associated
with the collection of such amount, including attorney fees. If Customer disputes the Termination
Charges, Customer shall comply with Section 9.5 of this Agreement. This Section 8.2 shall survive
termination of this Agreement.

ARTICLE IX

BILLING AND PAYMENT

     9.1 Invoices. All Transactions hereunder shall be accounted for on the basis of the
settlement procedures set by the Governing Rules. The accounting period for Transactions hereunder
shall be one (1) calendar month. TPS will provide monthly invoices which detail the Services and
quantity of Products scheduled, purchased, or sold for Customer during the billing month, as
determined by ERCOT’s statements, together with the cost of such Services and Products and related
Pass-Through Costs. In the event the ERCOT statement conflicts with Customer’s records, the ERCOT
statement shall govern. TPS’s invoice will show what each Party owes (or is owed) pursuant to this
Agreement.

     9.2 Payment Date. TPS will use commercially reasonable efforts to transmit monthly
invoices to Customer for the amount owed for the billing month’s Transactions. All payments to
either Party, as set forth in the invoices, shall be made by ACH or wire transfer on or before the
Due Date. Invoices may be based upon estimated quantities, costs and prices and adjusted by
subsequent invoices once actual quantities, costs and prices become known.

14

 

     9.3 Late Payment. Amounts owed, but not paid on or before the Due Date shall be
payable with interest at the Interest Rate calculated daily from the Due Date until payment is
received; provided, however, TPS shall not pay interest on payments from ERCOT or the PUCT.

     9.4 Offset. In the event that Customer and TPS are each required to pay an amount to
the other in the same month pursuant to this Agreement, then such amounts shall be aggregated, and
the Parties shall discharge their obligations to pay through offset. In such an offset, the Party
owing the greater aggregate amount shall pay to the other Party the net difference between the
amounts owed. The Parties agree that any Transaction for purchase or sale of Balancing Energy,
Energy, and Ancillary Services shall constitute a “forward contract” within the meaning of the
United States Bankruptcy Code.

     9.5 Billing Disputes. In the event Customer, in good faith, disputes any TPS invoice,
Customer shall provide TPS with written notice of the disputed amounts, together with a statement
describing the particulars of the dispute, including the calculations with respect to any errors or
inaccuracies. TPS agrees to work diligently with Customer to clarify and or correct any error or
suspected errors on the invoices before the Due Date. Except to the extent that TPS agrees that
any amount is not due, the Party owing any amount shall pay all amounts of Pass-Through Costs,
assessed pursuant to Section 5.1, even if disputed, set forth in the TPS invoice on or before the
Due Date. If it is subsequently determined that Customer has overpaid or underpaid amounts
actually due, the Parties will make any necessary adjustments within ten (10) days after
determination of any overpayment or underpayment. Subject to Section 9.3, the Party in receipt of
any overpayments shall refund such overpayments with interest accrued at the Interest Rate from the
date payment was received. The obligations hereunder shall survive the termination of this
Agreement.

     9.6 Credit Terms. The Parties stipulate that the Security Agreement shall override
any conflicting term in this Section 9.6, and that as long as Customer is in compliance with the
Security Agreement, Customer shall be deemed to meet TPS’s credit policies and requirements, and
shall be in compliance with this Section 9.6. This Section 9.6 shall govern TPS’s credit and
performance obligations, and upon termination of the Security Agreement, this Section 9.6 shall
govern both Parties credit obligations.

     Customer’s obligation to utilize and continue TPS’s Services under this Agreement is
conditioned upon TPS satisfying Customer’s credit policies and requirements, and TPS’s obligation
to provide and continue Services to Customer under this Agreement is conditioned upon Customer
satisfying TPS’s credit policies and requirements. Each Party shall provide the other Party
adequate assurance of its creditworthiness prior to the Services commencing under this Agreement,
and provide adequate credit support throughout the term of this Agreement for all amounts owed,
whether billed or unbilled, including the amount of credit exposure created by deviations in the
current market value of a Product or New Product from the value or price of such Product or New
Product prevailing at the time a Transaction was entered (“Credit Exposure”). Unless a Party has
received adequate credit support, in its sole reasonable opinion, that Party shall not be obligated
to perform any Services or Transactions under this Agreement: If a Party’s creditworthiness suffers
a material adverse change, or market changes cause the other Party’s Credit Exposure to increase,
the other Party may make written demand for satisfactory security for such Party’s performance. A
Party’s right to demand security for performance shall

15

 

include the right to demand reasonable security for future payment of amounts such Party, in
its sole reasonable discretion, estimates to be due resulting from adjustments to ERCOT settlement
statements under the statement correction and true-up process described in Section 9.9. Unless
otherwise mutually agreed, such Party shall be responsible for providing within three (3) Business
Days from receipt of a written demand by the other Party, a commercially reasonable assurance of
performance in accordance with this Section 9.6, which may include, but shall not be limited to,
prepayments, posting of letters of credit or bonds, guaranties, or other similar reasonable forms
of security that are reasonably acceptable to the requesting Party. A Party’s failure to provide
such security in accordance with this Section 9.6 shall provide the requesting Party with the right
to withhold further performance until such security is received. Notwithstanding anything
contained in this Agreement to the contrary, TPS shall not be under any obligation to (i) enter or
continue any Transaction with Customer or third parties if the term thereof might extend beyond the
term of this Agreement, (ii) enter or continue Transactions with third parties if the Transaction
is not allowable or acceptable under TPS’s generally applicable credit policies used in credit and
risk management for and on behalf of TPS, (iii) enter or continue any Transaction with third
parties if TPS is unable to agree to terms for entering or continuing the Transaction, in TPS’s
sole reasonable discretion, or (iv) enter or continue any Transactions with a third party if any
potential counterparty in a potential Transaction, or counterparty in a continuing Transaction,
fails to provide financial security that TPS, in its sole reasonable discretion, believes is
necessary to eliminate concerns TPS has about its credit exposure.

     9.7 ERCOT Credit Requirements. In the event that the amount of collateral TPS is
required to post with ERCOT to provide credit security relating to or arising from Customer
Transactions (pursuant to Section 16.2 or other credit provisions of the ERCOT Protocols) exceeds
two million dollars ($2,000,000) (“Collateral Threshold”), Customer shall post cash with TPS for
the amount of credit TPS is required to post with ERCOT in excess of that Collateral Threshold or
post a guaranty directly to ERCOT to secure obligations to ERCOT relating to or arising from
Customer transactions in excess of the Collateral Threshold. Customer shall post such cash
collateral or guaranty within seventy-two (72) hours of TPS’s request for such additional
collateral. In the event ERCOT will not accept a guaranty from Customer, Customer shall be
required to post with ERCOT collateral suitable to ERCOT.

     9.8 Audit. Each Party has the right, at its sole expense and during normal working
hours and upon reasonable written notice to the other Party, to examine the records of the other
Party or its own records as necessary to verify the accuracy of any invoice, charge, or computation
made pursuant to this Agreement. If any such examination reveals any inaccuracy in any invoice,
the necessary adjustments in such invoice and the payments thereof shall be promptly made together
with interest at the Interest Rate, if applicable, from the original date of payment; provided that
no adjustment for any invoice or payment shall be made unless objection to the accuracy thereof was
made prior to the lapse of two (2) years from the date that the disputed invoice was delivered;
and, provided, further, that no adjustment shall be made to invoices or summaries related to ERCOT
settlement statements that ERCOT has deemed final under the Governing Rules. In addition,
adjustments to any invoice may be made up to four (4) years from the date that the particular
Transactions were completed to adjust for (i) corrections made by ERCOT to prior ERCOT statements
and/or (ii) tax claims. This paragraph of this Agreement shall survive any termination of the
Agreement for a period of four (4) years from the

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date of such termination of this Agreement for the purpose of the right to examine records and
such invoice and payment objections and corrections.

     9.9 ERCOT True-Up/Credit Provisions. The Parties understand and agree that ERCOT
issues, revises, and restates its settlement statements in accordance with the Governing Rules (as
described in Section 7 of the ERCOT Protocols, the “ERCOT Settlement Process”). To accommodate the
ERCOT Settlement Process, the Parties agree that no invoice rendered by TPS to Customer under this
Agreement shall be final until and unless ERCOT has determined that no further restatement or
resettlement of such month shall occur and TPS has transmitted an invoice to Customer for that
month, reflecting any and all ERCOT settlement statements applicable to that month. In each
month’s invoice to Customer, TPS will include any revisions or corrections to prior months’
invoices arising from the ERCOT Settlement Process. The Parties agree and understand that the
ERCOT Settlement Process could result in Customer owing additional payments to TPS or being owed
payments by TPS. Upon receipt of each invoice, and not later than the Due Date, Customer shall pay
TPS any amounts owed, and TPS shall pay Customer any amounts owed, which arise from the ERCOT
Settlement Process.

          9.9.1 Upon termination of the Agreement, TPS will make an estimate, in its sole reasonable
discretion, of any amounts by which ERCOT may adjust prior settlement statements during the ERCOT
Settlement Process for months of Service under the Agreement, and will advise Customer of such
estimated amounts. After applying the netting provisions of Section 9.4, the Party owed the
greater aggregate amount may demand reasonable security of performance pursuant to Section 9.6, and
upon request, the Party estimated to owe the greater aggregate amount shall provide such
guaranties, letters of credit, or other security acceptable to the requesting Party in its sole
reasonable discretion. TPS will continue to transmit settlement invoices to Customer, as described
in Section 9.9 above. Upon receipt of each invoice and not later than the Due Date, Customer shall
pay TPS any amounts owed, and TPS shall pay Customer any amounts owed, which arise from the ERCOT
Settlement Process. Section 9.9 and Section 9.9.1 shall survive termination of the Agreement until
the ERCOT Settlement Process for months of Service under the Agreement is complete, invoices have
been issued to Customer, and payments between the Parties have been resolved.

     9.10 Statements Received After Termination of This Agreement. After termination of
this Agreement, if TPS receives any statements from third parties, whether adjustments or
revisions, attributable to Customer Transactions or Services under the Agreement, TPS will invoice
Customer accordingly. TPS will continue to send monthly invoices to Customer reflecting any
revisions, corrections, or adjustments to prior months’ statements from any third party until TPS
has transmitted invoices which reflect corrections for any month made by any third party,
applicable to Customer’s Transactions for such month. For each post-Agreement invoice, Customer
shall pay TPS any amounts owed, and TPS shall pay Customer any amounts owed, by the Due Date. This
Section 9.10 shall survive termination of the Agreement until accounting and billing for all third
party Transactions for months of Service under the Agreement is complete, invoices have been issued
to Customer, and payments between the Parties have been resolved.

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ARTICLE X

DEFAULTS AND REMEDIES

     10.1 Events of Default. To define an “Event of Default” under this Agreement, the
Parties agree to incorporate by reference here Section 5.1 of the Master Agreement (“Section 5.1”),
so that this Section 10.1 should be read as a verbatim replica of Section 5.1; provided however,
that the reference in Section 5.1(e) of the Master Agreement to “Article Eight” should be changed
to refer to “Sections 9.6 and 9.7”, and subsection (g) of Section 5.1 should be stricken.

     10.2 Rights of Non-Defaulting Party. Upon an Event of Default as defined in Section
10.1, the Non-Defaulting Party may suspend performance or terminate this Agreement, and pursue
collection of damages and any other remedy at law or equity, or otherwise provided under this
Agreement.

ARTICLE XI

FORCE MAJEURE

     11.1 Force Majeure. Subject to Section 11.2, neither Party shall be considered to be
in default in the performance of any obligations under this Agreement (other than the obligation to
make a payment of amounts owed) when a failure of performance results from Force Majeure. The term
“Force Majeure” means causes that are beyond the control of the Party affected which, by exercise
of due diligence, such Party could not reasonably have been expected to avoid and which, by
exercise of due diligence, it has been unable to overcome and not the result of the fault or
negligence of such Party including, but not limited to: flood, earthquake, tornado, hurricane,
storm, or fire; acts of terrorism; civil disobedience, strikes, or other labor dispute; labor or
material shortage; sabotage; restraint, order, rule, or regulation of any court, governmental body,
or public authority, including ERCOT (whether valid or invalid); action or non-action by or
inability to obtain or keep the necessary authorizations or approvals from any governmental agency
or authority; equipment malfunction or failure not caused by the Party claiming Force Majeure
(including computer hardware or software malfunction); loss or disruption of essential office
equipment and services, such as loss or disruption of electric power, telephone service, internet,
or satellite communications.

     11.2 Due Diligence. No Party, however, shall be relieved of liability for failure of
performance hereunder based on Force Majeure if such failure is due to causes arising out of its
own negligence or due to removable or remediable causes which it fails to remove or remedy within a
reasonable time period. A Party claiming Force Majeure must exercise due diligence to overcome the
Force Majeure event. Either Party rendered unable to fulfill any of its obligations under this
Agreement by reason of Force Majeure shall give prompt written notice of such fact to the other
Party and shall exercise due diligence to remove such inability with all reasonable dispatch.

     11.3 Obligations During Force Majeure. Notwithstanding any other provisions as stated
in Article 11, an event of Force Majeure does relieve a Party of any of its obligations under the
Governing Rules and this Agreement that the Party can reasonably perform during a Force Majeure
event, and does not excuse a Party of its obligations to make payments for

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obligations arising prior to the Force Majeure event, or of any payment obligations for
non-performance arising pursuant to the Governing Rules and this Agreement.

ARTICLE XII

REPRESENTATIONS AND WARRANTIES

     12.1 Mutual Representations and Warranties. Each Party represents and warrants to the
other Party that:

          (A) it is duly organized, validly existing, and in good standing under the laws of the
jurisdiction under which it is organized, and is authorized to do business in the State of Texas;

          (B) it has the full power and authority to enter into this Agreement and perform all of the
specified obligations, representations, warranties, and covenants under this Agreement;

          (C) the execution, delivery, and performance of this Agreement have been duly authorized by
all requisite action of its governing body, and the Person signing this Agreement on its behalf was
duly authorized to execute and deliver this Agreement on its behalf;

          (D) it has obtained, or shall obtain prior to beginning performance under this Agreement, all
licenses, registrations, certifications, Permits, and other authorizations; and has taken, or shall
take prior to beginning performance under this Agreement, all actions required by applicable laws
or governmental regulations with the exception of licenses, registrations, certifications, Permits,
or other authorizations that do not materially affect performance under this Agreement;

          (E) it is not in violation of any contracts, laws, ordinances, or governmental rules,
regulations, or orders of any governmental authority or arbitration board materially affecting
performance of this Agreement and to which it is subject;

          (F) it is not bankrupt, does not contemplate becoming bankrupt nor, to its knowledge, will
become bankrupt;

          (G) it is solely responsible for keeping itself informed of and understanding its respective
responsibilities under the Governing Rules and the ERCOT Operating Guides, and any laws, rules,
regulations, and tariffs approved by any governmental authority with jurisdiction over the matters
specified herein; and

          (H) it acknowledges and affirms that the foregoing representations, warranties, and covenants
are continuing in nature throughout the term of this Agreement.

     12.2 Customer Representations and Warranties. Customer represents and warrants that
Customer has made all required registrations with and received all required certifications and
approvals from the PUCT and has made all required registrations with and received any necessary
qualifications from ERCOT to serve as a REP and to otherwise perform this Agreement.

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     12.3 TPS Representations and Warranties. TPS represents and warrants that TPS is a
qualified QSE within ERCOT and has been authorized by ERCOT to communicate and schedule
Transactions with ERCOT.

     12.4 Both Parties’ Covenants. Each Party covenants that it shall cause these
representations and warranties to be true and correct throughout the term of this Agreement. If at
any time these representations and warranties cease to be true and correct in any material way, and
the affected Party cannot cure such problem, this Agreement shall be terminated immediately,
notwithstanding any other provision in this Agreement.

ARTICLE XIII

MISCELLANEOUS

     13.1 Disclaimer. This Agreement shall not constitute, create, or otherwise recognize
the existence of a joint venture, association, partnership, or other formal business entity of any
kind among the Parties, and the rights and obligations of the Parties shall be limited to those set
forth in this Agreement.

     13.2 Assignment. Neither Party shall assign this Agreement or its rights hereunder
without the prior written consent of the other Party, which consent may not be reasonably
withheld,; provided, however, either Party may, without the consent of the other Party (and without
relieving itself from liability hereunder), (i) transfer, sell, pledge, encumber or assign this
Agreement or the accounts, revenues or proceeds hereof in connection with any financing or other
financial arrangements, (ii) transfer or assign this Agreement to an Affiliate of such Party so
long as such Affiliate’s creditworthiness is equal to or higher than that of such Party or the
Guarantor, if any, for such Party, or the obligations of such Affiliate are guaranteed by such
Party or its Guarantor, if any, in accordance with a guaranty agreement in form and substance
satisfactory to the other Party, or (iii) transfer or assign this Agreement to any person or entity
succeeding to all or substantially all of the assets of such Party whose creditworthiness is equal
to or higher than that of such Party or its Guarantor, if any; provided, however, that in each such
case, any such assignee shall agree in writing to be bound by the terms and conditions hereof and
so long as the transferring Party delivers such tax and enforceability assurance as the
non-transferring Party may reasonably request.

     13.3 Laws and Regulations. This Agreement shall be subject to all present and future
state and federal laws, orders, directives, rules, and regulations of any governmental body or
official having jurisdiction. This Agreement shall be construed in accordance with the laws of
Texas, without recourse to conflict of laws or choice of laws principles.

     13.4 Prior Agreements. This Agreement, as of the Effective Date, supersedes all other
agreements between the Parties concerning the subject matter of this Agreement. For avoidance of
doubt, the Parties agree that as to all future Transactions and Schedules, the Parties hereby
terminate the Agreement for QSE and Marketing Services of April 1, 2002, as amended, between ACN
Energy, Inc. and TPS (“Assigned Agreement”), which Customer accepted by assignment pursuant to the
Assignment and Assumption Agreement of July 14, 2005, and agree that all Transactions and Schedules
implemented by TPS for Customer after the Effective Date of this Agreement shall be governed by
this Agreement; provided, however, in the event that the

20

 

ERCOT Settlement Process results in a restatement or resettlement of ERCOT settlement
statements applicable to Transactions or Schedules implemented under the Assigned Agreement, then
TPS shall invoice Customer, and Customer shall pay TPS, pursuant to the terms of the Assigned
Agreement for charges and costs related to Transactions and Schedules implemented under the
Assigned Agreement.

     13.5 Counterparts. This Agreement may be executed in multiple counterparts, including
facsimile(s), each one of which shall be considered an original Agreement, but all of which
together shall constitute one and the same instrument.

     13.6 Waiver. No waiver by either Party hereto of any one or more defaults by the
other in the performance of any of the provisions of this Agreement shall be construed as a waiver
of any other default or defaults whether of a like kind or different nature.

     13.7 Amendments. This Agreement shall not be amended without the written consent of
both Parties.

     13.8 Severability. Any provision, article, or section declared or rendered unlawful
by a court of law or regulatory agency with jurisdiction over the Parties, or deemed unlawful
because of a statutory change, shall not otherwise affect the other lawful obligations that arise
under this Agreement. In the event any provision of this Agreement is declared invalid, the
Parties shall promptly negotiate to restore this Agreement as near as possible to its original
intent.

     13.9 Assumption by Customer of Another REP’s Sales Contracts. In TPS’s sole
discretion, in the event that a Texas Retail Electric Provider (“REP”) has defaulted under one or
more of its agreements with TPS, and TPS has the right to assume such REP’s retail contracts and
elects to do so, upon such assumption of REP retail contracts, TPS shall have the right to assign
such retail contracts to Customer, subject to the following general principles and procedures: (1)
Customer would promptly assume (or cause a Customer LSE to assume) REP customer sales contracts “AS
IS” and would simultaneously assume the wholesale supply arrangement between the defaulting REP and
TPS; (2) TPS would furnish assurances to Customer that a positive margin exists between the
defaulting REP’s customer sales contracts and the defaulting REP/TPS supply contract; (3) TPS would
guaranty a minimum dollar per MWh margin (to be determined based on the value of the defaulting REP
retail customer contracts portfolio or some other mutually agreed upon value, e.g., fifty cents
($0.50), per MWh to cover the cost of operations); (4) TPS would furnish the defaulting REP
customer portfolio in such a manner that would permit easy review and assessment by Customer, e.g.,
TPS will denote non-standardized language components in any defaulting REP customer sales
contracts, e.g., varying late fee payment to one percent (1%), etc; (5) Customer would be prepared
to issue notices promptly to former defaulted REP customers regarding its assumption of the
defaulting REP customer sales contracts; (6) Customer would work with TPS to identify any
additional steps that are necessary to complete Customer’s assumption of the defaulting REP
customer sales contracts and the defaulting REP/TPS supply contract(s), and (7) upon assumption of
the defaulting REP’s customer sales customers by Customer or a Customer LSE, the additional load
represented by such defaulting REP customer sales contracts shall become included under this
Agreement as Customer Facilities.

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EXHIBIT A

NOTICE INFORMATION

Notices and Correspondence to TPS shall be sent to:

Tenaska Power Services Co.

1701 East Lamar Boulevard, Suite 100

Arlington, Texas 76006

Attn: Manager, Contract Administration

Telephone: (817)303-1110/Fax: (817) 303-1867

	 	 	 
	If to TPS’s 24-hour Scheduling Desk:
	Telephone:

	 	(817) 462-1509
	Fax:

	 	(817) 303-1863
	Email Address:

	 	tnskQSE@tnsk.com

Statements and bills shall be sent to TPS at:

Tenaska Power Services Co.

1044 North 115th Street, Suite 400

Omaha, Nebraska 68154

Attn: Accounts Payable

Telephone: (402) 691-9553 / Fax: (402) 938-1677

Payments to TPS shall be ACH or wire transferred to:

First National Bank of Omaha

Omaha, Nebraska 68154

Tenaska Power Services Co.

ABA No: [*]

Account No: [*]

DUNS No: 01-501-6913

	 	 	 
	Notices and correspondence to Customer shall be sent to:
	Commerce Energy, Inc.
	600 Anton Boulevard, Suite 2000
	Costa Mesa, CA 92626
	Attn. Rob Gunnin
	Telephone:

	 	(714) 259-2502
	Fax:

	 	(714) 259-2592

Statements and bills shall be sent to Customer at:

Commerce Energy, Inc.

600 Anton Boulevard, Suite 2000

Costa Mesa, CA 92626

Attn : Tracy Morgan

	 	 	 
	Payments to Customer shall be ACH or wire transferred to:
	Name of Bank:

	 	Union bank of California
	Bank Location:

	 	Irvine, CA
	Account Name:

	 	Commerce Energy, Inc.
	ABA No: [*]
	Account No: [*]
	DUNS No: 1763 43341

[*] = information redacted pursuant to a confidential treatment request.
Such omitted information has been filed separately with the Securities and Exchange Commission.

A-1 

 

EXHIBIT B

CUSTOMER RESOURCES(S)

B - 1exv10w63

 

[*]=information
redacted pursuant to a confidential treatment request. Such omitted
information has been filed separately with the Securities and
Exchange Commission.

Exhibit
10.63

SECURITY AGREEMENT

          This SECURITY AGREEMENT (this “Agreement”) is made this 1st day of August, 2005,
between COMMERCE ENERGY, INC., a California Corporation (“Commerce Energy”), and
TENASKA POWER SERVICES CO., a Nebraska corporation (“TPS”).

WITNESSETH:

          WHEREAS, Commerce Energy and TPS are parties to that certain EEI Power Purchase and Sale
Agreement dated August 1, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Master Agreement”);

          WHEREAS, Commerce Energy and TPS are parties to that certain Agreement for QSE and Marketing
Services dated August 1, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “QSE Agreement” and, together with the Master Agreement, the “Energy
Agreements”);

          WHEREAS, Commerce Energy has accepted and assumed by assignment from ACN Energy, Inc. certain
agreements identified in that certain Assignment and Assumption Agreement dated as of July 14,
2005, between ACN Energy, Inc., TPS, and Commerce Energy (with the assigned agreements identified
therein referenced in this Agreement as the “Assigned Agreements”);

          WHEREAS, Commerce Energy is a wholly-owned subsidiary of Commerce Energy Group, Inc.
(“Commerce Energy Group”), a Delaware corporation; and

          WHEREAS, in order to induce TPS to enter into the Energy Agreements and the other Transaction
Documents and to induce TPS to perform its obligations under the Energy Agreements and the Assigned
Agreements, Commerce Energy has agreed to grant a continuing Lien on the Collateral (as hereinafter
defined) to secure the prompt and complete payment, observance and performance of, among other
things, the obligations of Commerce Energy arising under the Energy Agreements and the Assigned
Agreements (being hereinafter referred to as the “Secured Obligations”), by the granting of
the security interest contemplated by this Agreement.

          NOW, THEREFORE, for and in consideration of the recitals made above and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

          1. Defined Terms.

(a) All capitalized terms used herein without definition shall have the meanings ascribed thereto
in the Master Agreement and if not defined therein, in the QSE Agreement.

(b) “Affiliate” means, as to any person, any entity that directly or indirectly controls,
is controlled by, or is under common control with, such person. For purposes of this definition,
“control” means the possession, directly or indirectly, of the power to (a) vote ten percent (10%)

 

 

or more of the securities having ordinary voting power for the election of directors of such
person, or (b) direct or cause the direction of management and policies of a business, whether
through the ownership of voting securities, by contract or otherwise and either alone or in
conjunction with others or any group.

(c) “Chattel Paper” means “chattel paper” as that term is defined in the UCC and, in any
event, including, tangible chattel paper and electronic chattel paper.

(d) “Collateral Balance Report” means the monthly projections and weekly actual
calculations prepared by Commerce Energy setting forth the lines of credit available to and
receipts, disbursements and cash flow of Commerce Energy.

(e) “Commercial Credit Line” means the principal amount of that certain unsecured
commercial credit line established by TPS for Commerce Energy from time to time, which shall not be
less than $1,000,000 (unless reduced below such amount in accordance with this Agreement):
provided that Commerce Energy Group has provided a guaranty in an amount not less than
$1,000,000 in form and substance reasonably acceptable to TPS.

(f) “Credit Amount” has the meaning given to such term in Section 6(e)(ii).

(g) “Credit Exposure Ratio” has the meaning given to such term in Section 6(1).

(h) “ERCOT” means the Electric Reliability Council of Texas, or any successor thereto.

(i) “ERCOT Protocols” means the document adopted, published and amended from time to time by
ERCOT, and approved by the PUCT to govern electric transactions in the ERCOT Region, including any
attachments or exhibits referenced in the document, that contain the scheduling, operations,
planning, reliability and settlement policies, rules, guidelines, procedures, standards and
criteria of ERCOT, or any successor document thereto

(j) “ERCOT Region” means the geographic region within the State of Texas administered by
ERCOT.

(k) “Instruments” means “instruments”, “promissory notes”, “letters of credit”, “drafts”,
“documents”, “letter of credit rights” and “investment property” (each as defined in the UCC),
whether certificated or uncertificated, including, security entitlements, securities accounts,
commodity contracts, commodity accounts, and any and all supporting obligations in respect thereof.

(l) “Lien” means any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, or

other encumbrance.

(m) “Lockbox”
means post office box number 644010 and bank account number [*]
related thereto established in the name of “Tenaska Power Services Co. as Pledgee of Commerce
Energy, Inc.” pursuant to the Lockbox Agreement.

(n) “Lockbox Agreement” means that certain Blocked Account Control Agreement (with Lockbox
Services) dated as of August 1, 2005 among Commerce Energy, TPS and U.S. Bank

[*]=information
redacted pursuant to a confidential treatment request. Such omitted
information has been filed separately with the Securities and
Exchange Commission.

 

 

National Association, as such agreement may be amended, restated, supplemented or otherwise
modified from time to time.

(o) “Net Present Value” has the meaning given to such term in Section 6(e)(ii)(6).

(p) “Non-ERCOT Funds” means funds which are on deposit in the Lockbox which result from
activities of Commerce Energy (whether arising from the sale by Commerce Energy of power or
otherwise) outside of the ERCOT Region, but solely to the extent deposited in the Lockbox by error
or inadvertence. For the avoidance of doubt, “Non-ERCOT Funds” shall not include amounts deposited
by Commerce Energy to increase the Credit Amount established in Section 6(e)(ii).

(q) “Notice of Control” has the meaning given to such term in Section 10(i).

(r) “PUCT” means the Public Utility Commission of Texas, or any successor thereto.

(s) “RSC” means each of those certain electric retail sales customers in the ERCOT Region
served by Commerce Energy or an Affiliate, or acquired from ACN Energy, Inc. pursuant to the
Assigned Agreements, from whom Commerce Energy has rights to receive payments (which shall be
listed on the Collateral Balance Report, as the same may be amended from time to time).

          “RSC Contract” means any contract, agreement, letter of understanding, service tariff,
or billing arrangement with an RSC for retail sale of electricity in the ERCOT Region, including
but not limited to an RSC Term Contract.

(u) “RSC Term Contract” means a Term Contract with an RSC who is either in the Large Non
Residential customer class (as defined by the PUCT) or in the Small Non Residential customer class
(as defined by the PUCT) consuming above 50 kw, and all other Term Contracts with an RSC to be
included solely at TPS’ option, for retail sale of electricity in the ERCOT Region including,
without limitation, those contracts and agreements listed on Exhibit A attached hereto, as
the same may be amended from time to time.

(v) “RSC Revenues” means all cash, property, Chattel Paper, Instruments or other value
transferred, paid, payable, distributed or distributable to or for the account of Commerce Energy
by RSCs as payment for electric energy purchases and related services and any other right of
Commerce Energy to payment pursuant to a RSC Contract.

(w) “Specified Event of Default” means (i) an Event of Default under and as defined in the
Master Agreement; (ii) an Event of Default under and as defined in the QSE Agreement; (iii) an
Event of Default under the Assigned Agreements; (iv) the failure of Commerce Energy to perform,
comply with or observe any term, covenant or obligation applicable to it under this Agreement with
respect to its provision to TPS of any required report, statement, or information if such failure
shall remain unremedied for fifteen (15) days after written notice thereof shall have been given to
Commerce Energy by TPS; or (v) the failure of Commerce Energy to perform, or comply with, or
observe any other term, covenant or obligation applicable to it under this Agreement if such
failure shall remain unremedied for three (3) Business Days after written notice thereof shall have
been given to Commerce Energy by TPS.

3

 

(x) “Term Contracts” means any contract, agreement or letter of understanding having an
initial term of at least a six month period.

(y) “Transaction Documents” means this Agreement, the Energy Agreements, the Assigned
Agreements, any transaction confirmations entered pursuant to the Master Agreement, the Lockbox
Agreement and all other agreements, Instruments or documents which are executed and delivered from
time to time by Commerce Energy or Commerce Energy Group to TPS in connection with or in support of
the Energy Agreements.

(z) “UCC” means the Uniform Commercial Code as in effect from time to time in the State

of Texas.

          2. Grant of Security. Commerce Energy hereby unconditionally grants, assigns and
pledges to TPS a continuing security interest in and security title to (together with a right of
setoff) (hereinafter referred to as the “Security Interest”), Commerce Energy’s right,
title and interest in and to the following, whether now owned or hereafter acquired or arising
(collectively, the “Collateral”):

(a) all of Commerce Energy’s interest in the Lockbox (other than Non-ERCOT Funds which may from
time to time be deposited therein);

(b) all of Commerce Energy’s interest in the Lockbox Agreement;

(c) all RSC Term Contracts;

(d) all of Commerce Energy’s interests in the Assigned Agreements;

(e) all billed and unbilled (based on the energy provided to the RSC but not yet billed due to the
timing of customer meter count cycles) accounts receivable resulting from the RSC Contracts (the
“Accounts”);

(f) all RSC Revenues, security deposits, prepayments, credit card account payments and
authorizations and other supporting obligations of RSCs related to the RSC Contracts; and

(g) all of the proceeds and products, whether tangible or intangible, of any of the foregoing, and
any and all RSC Revenues, money, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, and all proceeds of any such
proceeds, or any portion thereof or interest therein (the “Proceeds”).

          3. Security for Obligations. This Agreement and the Security Interest created hereby
secures the payment and performance of all the Secured Obligations. Without limiting the generality
of the foregoing, this Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Commerce Energy to TPS but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy action involving Commerce
Energy.

          4. Commerce Energy Remains Liable. Anything herein to the contrary notwithstanding,
(a) Commerce Energy shall remain liable under the contracts and agreements

4

 

included in the Collateral to the extent set forth therein to perform all of the duties and
obligations thereunder to the same extent as if this Agreement had not been executed, (b) the
exercise by TPS of any of the rights hereunder shall not release Commerce Energy from any of its
duties or obligations under the contracts and agreements included in the Collateral, and (c) TPS
shall not have any obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall TPS be obligated to perform any of the
obligations or duties of Commerce Energy hereunder or to take any action to collect or enforce any
claim for payment assigned hereunder. Until a Specified Event of Default shall occur and be
continuing, except as otherwise provided in this Agreement, the Energy Agreements or other
Transaction Documents, Commerce Energy shall have the right to possession and enjoyment of the
Collateral for the purpose of conducting the ordinary course of its business, subject to and upon
the terms hereof and of the Energy Agreements and other Transaction Documents.

          5. Representations and Warranties. Commerce Energy hereby represents and

warrants as follows:

(a) The exact legal name of Commerce Energy is set forth on the signature pages of this Agreement.
Commerce Energy does not conduct, and, during the five-year period immediately preceding the date
of this Agreement, Commerce Energy has not conducted, business under any trade name or other name
other than those set forth on Schedule 1 attached hereto. The Internal Revenue Service
taxpayer identification number and the organizational identification number issued by the state of
formation of Commerce Energy is listed next to Commerce Energy’s name on Schedule 1
attached hereto.

(b) This Agreement creates a valid security interest in the Collateral of Commerce Energy, to the
extent a security interest therein can be created under the UCC, securing the payment of the
Secured Obligations. Except to the extent a security interest in the Collateral cannot be perfected
by the filing of a UCC financing statement under the UCC, all filings and other actions necessary
or desirable to perfect and protect such security interest have been duly taken or will have been
taken upon the filing of UCC financing statements listing Commerce Energy, as a debtor, and TPS, as
secured party, in the jurisdiction(s) listed next to Commerce Energy’s name on Schedule 2
attached hereto. Upon the making of such filings, TPS shall have a perfected security interest in
the Collateral of Commerce Energy to the extent such security interest can be perfected by the
filing of a financing statement under the UCC free and clear of any Liens other than the Lien of
TPS. Commerce Energy, as of the date of this Agreement, is incorporated in the State of California.

          6. Covenants. Commerce Energy covenants and agrees with TPS that from and after the
date of this Agreement and until the date of termination of this Agreement, Commerce Energy shall
abide by the following:

(a) Control Agreements. Commerce Energy shall enter into the Lockbox Agreement with TPS and
U.S. Bank, National Association for the Lockbox.

(b) Change Name; Reincorporate. Commerce Energy covenants and agrees that it will not,
without at least thirty (30) days prior written notice to TPS, change its name or reincorporate or

5

 

reorganize itself under the laws of any jurisdiction other than the jurisdiction in which Commerce
Energy is incorporated or organized as of the date of this Agreement.

(c) Transfers and Other Liens. Commerce Energy shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the
Collateral, except as expressly otherwise permitted by the Transaction Documents, or (ii) create or
permit to exist any Lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the Liens of TPS. The inclusion of Proceeds in the
Collateral shall not be deemed to constitute TPS’ consent to any sale or other disposition of any
of the Collateral except as expressly permitted in this Agreement or the other Transaction
Documents.

(d) Deposits into the Lockbox. (i) All RSC Revenues received by Commerce Energy (whether
distributed or paid to Commerce Energy or an Affiliate by any other person or entity) shall be
deposited into the Lockbox; (ii) on or prior to the date of this Agreement, Commerce Energy shall
have irrevocably instructed each RSC and all other persons or entities paying RSC Revenues to make
such payments to the Lockbox; (iii) Commerce Energy shall instruct all future RSCs and all other
persons or entities at any time paying RSC Revenues to make such payments to the Lockbox; and (iv)
Commerce Energy shall use all commercially reasonable efforts to cause all such persons or entities
to agree to make such payments to the Lockbox.

(e) Collateral Balance Reports.

               (i) Delivery of Collateral Balance Report. No later than five (5) Business Days before
the first day of each month, Commerce Energy will prepare and make available to TPS a monthly
forecast of its estimated receipts and disbursement schedule which will include all planned
disbursement amounts that Commerce Energy will pay from the Lockbox including an estimate of energy
costs (both TPS costs and third-party supplier costs), utility charges, counterparty cash
withdrawals, bank administration fees, fees payable to TPS under the QSE Agreement, and any fees
payable to ERCOT not previously paid by TPS on behalf of Commerce Energy. Commerce Energy will
update this forecast each week during such month to reflect actual receipts and disbursements for
such week and adjust forecasts for the remainder of such month.

               (ii) Determination of Credit Amount. Subject to the terms and conditions of the Energy
Agreements, this Agreement and the other Transaction Documents, TPS agrees to provide credit to
Commerce Energy pursuant to the Energy Agreements from time to time in an amount not to exceed the
Credit Amount. Commerce Energy will provide TPS with a report (which shall be included in the
Collateral Balance Report) setting forth the calculation of the Credit Amount and Credit Exposure
Ratio (calculated as of the end of the Business Day immediately preceding such calculation day) not
later than five (5) days prior to the end of each month, and shall update the report setting forth
the Credit Amount and Credit Exposure Ratio each week during each month to reflect actual amounts
for such week and adjust the Credit Amount and Credit Exposure Ratio forecasts for the remainder of
such month. For purposes hereof, the “Credit Amount” shall mean the sum of the following
(as determined as of any date of calculation):

6

 

               (1) 100% of all Accounts which have been billed by Commerce Energy to the account
debtor, the payment of which is not more than ninety (90) days past due;

               (2) 100% of all Accounts for which energy has been delivered by Commerce Energy but
which have not yet been billed by Commerce Energy to the account debtor; plus 

               (3) all funds on deposit in the Lockbox, other than Non-ERCOT

Funds; plus

               (4) the amount of the Commercial Credit Line; plus

               (5) the aggregate undrawn amount of all letters of credit issued to TPS in a faun and
from a bank reasonably acceptable to TPS for the account of Commerce Energy with TPS listed
as the beneficiary: plus

               (6) 100% of the Net Present Value of the RSC Term Contracts. For purposes hereof,
“Net Present Value” shall mean the aggregate amount of all RSC Term Contracts, as
calculated by the weighted average sales price of such contracts over the life of such
contracts, minus the reasonably projected cost of Commerce Energy’s energy acquisition and
delivery service expenses, discounted to present value using a discount rate equal to the
prime rate (as published in the Wall Street Journal) in effect from time to time.

               (iii) Delivery of Distribution Statements. For each payment from the Lockbox, Commerce
Energy shall prepare a distribution statement in the form attached hereto as Exhibit B (a
“Distribution Statement”) for the undisputed portion of any invoice, which Distribution
Statement shall set forth the undisputed amount due each party and shall be signed by Commerce
Energy. With respect to the disputed portion(s) of an invoice, if any, Commerce Energy shall agree
to either continue investigating the circumstances surrounding the amount in dispute or, if
necessary, proceed to dispute resolution pursuant to requirements of the Energy Agreements. TPS
shall be receive a copy of all Distribution Statements with the weekly update provided pursuant to
Section 6(e)(i) and shall have the right to request supporting documentation, which shall
be provided by Commerce Energy within three (3) Business Days of such request by TPS in writing.

(f) Lockbox Balance. Commerce Energy shall not permit the balance of the Lockbox to be less
than one hundred thousand and No/100 dollars ($100,000).

(g) Payment of Bills. Commerce Energy shall timely pay all bills due for services performed
in the ERCOT Region (i.e. supply payments, utility charges, bank administration fees, fees payable
to TPS under the QSE Agreement, and any fees payable to ERCOT not previously paid by TPS on behalf
of Commerce Energy).

(h) Form of RSC Term Contracts. Commerce Energy shall obtain TPS’s prior approval of the
RSC Term Contract form for structured term transactions, and such RSC Term Contracts shall contain
assignment provisions reasonably satisfactory to TPS. All structured RSC Term Contracts shall be
hedged pursuant to the Commerce Energy approved Risk Policies and

7

 

Procedures, a copy of which shall be provided to TPS. The Commerce Energy Risk Oversight Committee
will approve any deviation from these policies and shall promptly report such deviation to TPS.

(i) Audit of Collateral. Commerce Energy agrees TPS may audit any Account or RSC Term
Contract on a quarterly basis provided that TPS requests such audit no later than fifty (50)
calendar days after the end of any of fiscal quarter of Commerce Energy (i.e. fifty (50) calendar
days after January 31, April 30, July 31 and October 31).

(j) Minimum Net Worth. Commerce Energy agrees that, in the event Commerce Energy Group
fails to maintain a minimum net worth of $60,000,000, as adjusted for auditable non-cash items and
as set forth in the most recent Form 10-Q or 10-K for Commerce Energy Group filed with the United
States Securities and Exchange Commission, then TPS shall have the right to reduce the Commercial
Credit Line to any amount less than $1,000,000 at its sole discretion.

(k) Collateral Lists. On a monthly basis, Commerce Energy shall provide TPS with a schedule
of the current RSC Term Contracts (which shall include the name and address of each RSC, and a
description of the nature of each RSC Term Contract and the current estimated Net Present Value of
each RSC Term Contract).

(l) Credit Exposure. Commerce Energy shall maintain a Credit Exposure Ratio of 1.00 or
greater. For purposes of this Agreement, “Credit Exposure Ratio” shall mean the Credit
Amount divided by the TPS Actual Credit Exposure. For purposes of this Agreement,
the “TPS Actual Credit Exposure” shall mean (i) 100% of the amounts that have been billed
by TPS to Commerce Energy under the Energy Agreements and Assigned Agreements which remain unpaid,
plus (ii) 100% of unbilled amounts of energy delivered by TPS to Commerce Energy under the
Energy Agreements and Assigned Agreements, plus (iii) 100% of amounts of energy TPS has
committed to deliver to Commerce Energy, but has yet to deliver to Commerce Energy for the balance
of the current month, plus (iv) 100% of TPS’s estimate of unbilled settlement charges
incurred by TPS under the QSE Agreement.

          7. Access to Lockbox.

(a) Unless a Notice of Control under the Lockbox Agreement shall have been delivered by TPS and
shall remain in effect, (1) Commerce Energy shall have the right from time to time to withdraw
funds or request electronic fund transfers or ACH transfers against amounts on deposit in the
Lockbox and (2) Commerce Energy shall have the right from time to time to distribute amounts on
deposit in the Lockbox to any person, including Commerce Energy. Notwithstanding anything herein to
the contrary, in the event any Non-ERCOT Funds are on deposit in the Lockbox, if TPS shall have
delivered a Notice of Control under the Lockbox Agreement, such Non-ERCOT Funds shall be disbursed
by TPS to Commerce Energy as soon as possible, but in any event no less frequently than weekly.

(b) TPS shall be granted read only on-line access to the Lockbox in order to permit TPS to view the
balance of the Lockbox at any time, and from time to time, and shall have the right to request
supporting documentation for such balance from Commerce Energy.

8

 

          8. Further Assurances.

(a) Commerce Energy agrees that from time to time, at its own expense, it will promptly execute and
deliver all further instruments, notices and documents, and take all further action, that may be
necessary or that TPS may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable TPS to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral.

(b) Commerce Energy authorizes the filing of such financing or continuation statements, or
amendments thereto, and Commerce Energy will execute and deliver to TPS such other instruments or
notices, as may be necessary or as TPS may reasonably request, in order to perfect and preserve the
Security Interest granted or purported to be granted hereby.

(c) Commerce Energy authorizes TPS to file, transmit, or communicate, as applicable, UCC financing
statements, in-lieu financing statements, continuation statements and amendments describing the
Collateral, in order to perfect TPS’ security interest in the Collateral without Commerce Energy’s
signature to the extent permitted by applicable law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by applicable law. Commerce Energy also hereby
ratifies its authorization for TPS to have filed in any jurisdiction any UCC financing statements,
in-lieu of UCC financing statements or amendments thereto if filed prior to the date hereof.

(d) Commerce Energy acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement filed in connection with
this Agreement without the prior written consent of TPS, subject to Commerce Energy’s rights under
Section 9-509(d)(2) of the UCC.

          9. TPS’ Duties. The powers conferred on TPS hereunder are solely to protect
TPS’ interest in the Collateral and shall not impose any duty upon TPS to exercise any such powers.
Except for the safe custody of any Collateral in its actual possession and the accounting for
moneys actually received by it hereunder and the disbursement of funds from the Lockbox to continue
compliance with the ERCOT Protocols and the applicable PUCT rules set forth in Section 10,
TPS shall have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any Collateral. TPS shall
be deemed to have exercised reasonable care in the custody and preservation of any Collateral in
its actual possession if such Collateral is accorded treatment substantially equal to that which
TPS accords its own property.

          10. Remedies. Upon the occurrence and during the continuance of a Specified
Event of Default:

(a) TPS may exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein, in the other Transaction Documents, or otherwise available to it, all the
rights and remedies of a secured party upon a default under the UCC. TPS shall have full power to
sell, lease, transfer or otherwise deal with the Collateral in its own name or that of Commerce
Energy. TPS may require that some or all of the RSC Term Contracts be assigned to TPS;

9

 

provided, however, that nothing herein shall require TPS to accept assignment of
any such RSC Term Contracts. TPS may sell the Collateral or any part thereof in a public or private
sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold
on a recognized market. TPS shall give Commerce Energy reasonable notice of the time after which
any private sale or any other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at lease ten (10) days prior
to the time of the private sale or disposition and specifically such notice shall constitute a
reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the
UCC, as in effect from time to time in any applicable jurisdiction. TPS may appoint a receiver who
may be an employee or Affiliate of TPS and who may serve, without bond, to act with respect to the
Collateral. All expenses relating to the disposition of the Collateral, including the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral and the reasonable
expenses of the receiver and its attorney, shall become a part of the Secured Obligations and shall
be payable on demand.

     (b) Any cash held by TPS as Collateral and all cash proceeds received by TPS in respect of any
sale of, collection from, or other realization upon all or any part of the Collateral shall be
applied in whole or in part by TPS against, all or any part of the Secured Obligations. Any surplus
of such cash or cash proceeds held by TPS and remaining after payment in full of all the Secured
Obligations and any Non-ERCOT Funds held by TPS shall be delivered to Commerce Energy.

     (c) TPS (or its designee) may proceed to perform any and all of the obligations of Commerce
Energy contained in any RSC Term Contract and may exercise any and all rights of Commerce Energy
therein contained as fully as Commerce Energy itself could.

     (d) TPS may ask, demand, collect, sue for, recover, compromise, receive and give acquittance
and receipts for moneys due and to become due under or in connection with the Collateral.

     (e) TPS may receive, indorse, and collect any drafts or other Instruments and Chattel Paper
comprising any part of the Collateral.

     (f) TPS may file any claims or take any action or institute any proceedings which TPS may deem
necessary or desirable for the collection of any of the Collateral or otherwise to enforce the
rights of TPS with respect to any of the Collateral.

     (g) TPS may supply goods, if any, necessary to fulfill in whole or in part the purchase order
of any Person obligated to Commerce Energy in respect of any Account.

     (i) TPS may deliver a notice under Section 3 of the Lockbox Agreement to U.S. Bank National
Association directing U.S. Bank National Association to comply with orders, notices, requests and
other instructions from TPS (such notice referred to herein as a (“Notice of Control”) and
exercise its rights under the Lockbox Agreement, including the right to control disbursements from
the Lockbox, withdraw and receive money from the Lockbox, and to apply such amounts in satisfaction
of the Secured Obligations.

10

 

                       Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, in the
event that TPS has delivered a Notice of Control under the Lockbox Agreement and at all times when
such Notice of Control is in effect, (x) TPS shall operate the Lockbox and disburse the funds
deposited from time to time therein in a timely manner to make all payments necessary to prevent
Commerce Energy from violating the ERCOT Protocols or the applicable rules of PUCT and (y) TPS
shall disburse any Non-ERCOT Funds on deposit in the Lockbox to Commerce Energy as soon as
possible, but in any event no less frequently than weekly.

          11. Remedies Cumulative. Each right, power, and remedy of TPS as provided for in this
Agreement or in the other Transaction Documents or now or hereafter existing at law or in equity or
by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other
right, power, or remedy provided for in this Agreement or in the other Transaction Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning
of the exercise or the refraining of the exercise by TPS, of any one or more of such rights, powers
or remedies shall not preclude the simultaneous or later exercise by TPS of any or all such other
rights, powers or remedies.

          12. Marshalling. TPS shall not be required to marshal any present or future collateral
security (including but not limited to the Collateral) for, or other assurances of payment of, the
Secured Obligations or any of them or to resort to such collateral security or other assurances of
payment in any particular order, and all of its rights and remedies hereunder and in respect of
such collateral security and other assurances of payment shall be cumulative and in addition to all
other rights and remedies, however existing or arising. To the extent that it lawfully may,
Commerce Energy hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of TPS’ rights and remedies under
this Agreement or under any other instrument creating or evidencing any of the Secured Obligations
or under which any of the Secured Obligations is outstanding or by which any of the Secured
Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully
may, Commerce Energy hereby irrevocably waives the benefits of all such laws.

          13. Indemnity and Expenses.

(a) Commerce Energy agrees to indemnify TPS from and against all claims, lawsuits and liabilities
(including reasonable attorneys’ fees) growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement) or any other Transaction Document, except
claims, losses or liabilities resulting from the gross negligence or willful misconduct of TPS.

(b) Commerce Energy shall, upon demand, pay to TPS the amount of any and all expenses, including,
without limitation, the reasonable fees and expenses of its counsel incurred and the fees and
expenses of any experts and agents, which TPS may incur in connection with (i) the custody,
preservation, use or operation of, or, upon a Specified Event of Default, the sale of, collection
from, or other realization upon, any of the Collateral in accordance with this Agreement and the
other Transaction Documents, (ii) the exercise or enforcement of any of the rights of TPS hereunder
or (iii) the failure by Commerce Energy to perform or observe any of the provisions hereof.

11

 

          14. Merger. Amendments: Etc. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS. REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this
Agreement, and no consent to any departure by Commerce Energy herefrom, shall in any event be
effective unless the same shall be in writing and signed by TPS, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given. No
amendment of any provision of this Agreement shall be effective unless the same shall be in writing
and signed by TPS and Commerce Energy.

          15. Addresses for Notices. All notices and other communications provided for
hereunder shall be given in the form and manner described under the Master Agreement and shall be
delivered to TPS and to Commerce Energy at the following addresses:

if to TPS, at:

Tenaska Power Services Co.

1701 East Lamar Boulevard

Suite 100

Arlington, Texas 76006

Attn: Manager, Contract Administration

Telephone:          (817) 303-1110

Fax:                     (817) 303-1867

if to Commerce Energy, at:

Commerce Energy, Inc.

600 Anton Boulevard

Suite 2000

Costa Mesa, CA 92626

Attn : Rob Gunnin

Telephone:           (714) 259-2502

Fax:                      (714) 259-2592

or, as to any party, at such other address as shall be designated by such party in a written notice
to the other party.

          16. Continuing Security Interest. This Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full force and effect until the Secured
Obligations have been paid in full or otherwise paid or performed to the satisfaction of TPS, (b)
be binding upon Commerce Energy, and its successors and assigns, and (c) inure to the benefit of,
and be enforceable by, TPS, and its successors, transferees and assigns. Upon payment in full, or
other payment or performance to the satisfaction of TPS, of the Secured Obligations, the Security
Interest granted hereby shall terminate and all rights to the Collateral shall revert to Commerce
Energy or any other Person entitled thereto. At such time, TPS will authorize the filing of

12

 

appropriate UCC termination statements to terminate such Security Interests. No transfer or
renewal, extension, assignment or termination of this Agreement or of the Energy Agreements, any
other Transaction Document, or any other instrument or document executed and delivered by Commerce
Energy to TPS nor any additional loans made by TPS to Commerce Energy, nor the taking of further
security, nor the retaking or re-delivery of the Collateral to Commerce Energy by TPS, nor any
other act of TPS shall release Commerce Energy from any obligation, except a release or discharge
executed in writing by TPS with respect to such obligation or payment of such obligation or upon
payment in full. or other payment or performance to the satisfaction of TPS, of the Secured
Obligations. TPS shall not by any act, delay, omission or otherwise, be deemed to have waived any
of its rights or remedies hereunder, unless such waiver is in writing and signed by TPS and then
only to the extent therein set forth. A waiver by TPS of any right or remedy on any occasion shall
not be construed as a bar to the exercise of any such right or remedy which TPS would otherwise
have had on any other occasion. Whenever the consent of TPS is required under this Agreement, the
granting of such consent by TPS in any instance shall not constitute continuing consent to any
subsequent instance where such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of TPS.

          17. Governing Law. This Agreement is intended to take effect as a sealed instrument
and shall be construed in accordance with and governed by the laws of the State of Texas, without
regard to the conflict of laws principles thereof, except to the extent that the validity or
perfection of the Security Interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of Texas.

          18. Miscellaneous.

(a) This Agreement may be executed in any number of counterparts, each of which shall be deemed to
be an original, but all such separate counterparts shall together constitute but one and the same
instrument. In proving this Agreement or any other Transaction Document in any judicial
proceedings, it shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom such enforcement is sought. Any signatures delivered by a party by
facsimile transmission or by e-mail transmission shall be deemed an original signature hereto.

(b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to
the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such provision in any
other jurisdiction.

(c) Headings used in this Agreement are for convenience only and shall not be used in connection
with the interpretation of any provision hereof

(d) The pronouns used herein shall include, when appropriate, either gender and both singular and
plural, and the grammatical construction of sentences shall conform thereto.

[remainder of page intentionally left blank]

13

 

          IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through
their duly authorized officers, as of the day and year first above written.

	 	 	 	 	 
	 	 	COMMERCE ENERGY, INC.
	 
	 

	 	By:
	 	/s/R. Nick Cioll
	 

	 	 	 	 
	 

	 	Name:
	 	R. Nick Cioll
	 

	 	Title:
	 	Vice President, Risk Management
	 
	 	 	TENASKA POWER SERVICES CO.
	 
	 

	 	By:
	 	/s/Trudy Harper
	 

	 	 	 	 
	 

	 	Name:
	 	Trudy Harper
	 

	 	Title:
	 	President

 

 

SCHEDULE 1 

NAME; FEIN; ORGANIZATIONAL

IDENTIFICATION NUMBER

 

 

SCHEDULE 2

LIST OF UCC FILING JURISDICTIONS

	 	 	 
	Name

	 	Jurisdiction(s)

	 
	Commerce Energy, Inc.

	 	California

 

 

EXHIBIT A

LIST OF COMMERCE ENERGY INC.’S RSC TERM CONTRACTS

 

 

EXHIBIT B

DISTRIBUTION STATEMENT

	 
	Date:                     , 2005

	 

	Name of Party to to be Paid:             
                 
                 
                 
                 

	 

	total Owed Party by Commerce Energy: $                                        

	 

	[INSERT OTHER INFORMATION]

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