Document:

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                                                                 Exhibit 10.16.4

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             AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

                                     made by

                         EME HOMER CITY GENERATION L.P.

                                   in favor of

                              THE BANK OF NEW YORK
                                 as successor to

                    UNITED STATES TRUST COMPANY OF NEW YORK,
                               as Collateral Agent

                          Dated as of December __, 2001

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                                TABLE OF CONTENTS
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                                                                                                PAGE
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SECTION 1. DEFINED TERMS...........................................................................1
         1.1      Definitions......................................................................1
         1.2      Other Definitional Provisions....................................................3

SECTION 2. PLEDGE; GRANT OF SECURITY INTEREST......................................................3

SECTION 3. REPRESENTATIONS AND WARRANTIES..........................................................3
         3.1      Title; No Other Liens............................................................3
         3.2      Perfected First Priority Liens...................................................3
         3.3      Chief Executive Office...........................................................4

SECTION 4. COVENANTS...............................................................................4
         4.1      Delivery of Instruments, Certificated Securities and Chattel  Paper..............4
         4.2      Maintenance of Perfected Security Interest Further Documentation.................4
         4.3      Changes in Locations, Name, etc..................................................4
         4.4      Notices..........................................................................5

SECTION 5. REMEDIAL PROVISIONS.....................................................................5
         5.1      Proceeds to be Turned Over To Collateral Agent...................................5
         5.2      Deposits; Application of Proceeds................................................5
         5.3      Direction of Secured Parties.....................................................6
         5.4      Code and Other Remedies..........................................................6
         5.5      Waiver; Deficiency...............................................................7

SECTION 6. THE COLLATERAL AGENT....................................................................7
         6.1      Collateral Agent's Appointment as Attorney-in-Fact, etc..........................7
         6.2      Duty of Collateral Agent.........................................................8
         6.3      Execution of Financing Statements................................................9
         6.4      Authority of Collateral Agent....................................................9

SECTION 7. MISCELLANEOUS...........................................................................9
         7.1      Amendments in Writing............................................................9
         7.2      Notices..........................................................................9
         7.3      No Waiver by Course of Conduct; Cumulative Remedies.............................10
         7.4      Successors and Assigns..........................................................10
         7.5      Set-Off.........................................................................10
         7.6      Counterparts....................................................................11
         7.7      Severability....................................................................11
         7.8      Section Headings................................................................11
         7.9      Integration.....................................................................11
         7.10     GOVERNING LAW...................................................................11
         7.11     Submission To Jurisdiction; Waivers.............................................11
         7.12     Acknowledgements................................................................12
         7.13     Releases........................................................................12

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         7.14     Security Interest Absolute......................................................13
         7.15     WAIVER OF JURY TRIAL............................................................14

SCHEDULES

Schedule 1........Notice Addresses
Schedule 2........Perfection Matters
Schedule 3........Jurisdictions of Organization and Chief Executive Offices
</Table>

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           AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT, dated as of
December __, 2001, made by EME HOMER CITY GENERATION L.P., a Pennsylvania
limited partnership ("THE PLEDGOR") in favor of THE BANK OF NEW YORK, as
successor to UNITED STATES TRUST COMPANY OF NEW YORK, as collateral agent for
the Secured Parties (as defined below) (in such capacity, the "COLLATERAL
AGENT").

                                    RECITALS

           A.    Contemporaneously herewith, the Pledgor will enter into a
transaction pursuant to the Participation Agreements listed on Schedule 1 (as
amended, modified and supplemented and in effect from time to time, each
"PARTICIPATION AGREEMENT") whereby the Pledgor will sell certain of its
generating assets to the Owner Lessor and the Owner Lessor will lease such
generating assets to the Pledgor under the Facility Lease.

           B.    In consideration of the transactions contemplated by each of
the Participation Agreements, the Pledgor will be obligated to pay to the
Secured Parties the aggregate amount of all obligations owed by the Pledgor to
the Secured Parties under each Participation Agreement and the other Operative
Documents related thereto (the "LEVERAGED LEASE OBLIGATIONS").

           C.    In satisfaction of the requirements of the Secured Parties,
the Pledgor desires by this Agreement and the other Security Documents (as
defined below) to provide collateral as security for its obligations under each
Participation Agreement and the other Operative Documents related thereto

           D.    In order to simplify administration of such collateral and to
provide for the orderly enforcement of their respective rights, the Secured
Parties (as defined below) have appointed the Collateral Agent to serve as
their common representative, to be the beneficiary under any pledge intended to
benefit the Secured Parties, and to hold the liens created, or to be created,
under all Operative Documents.

           E.    It is a condition precedent to the approval by the Secured
Parties of the transactions contemplated by the Operative Documents that the
Pledgor shall have executed and delivered this Agreement to the Collateral
Agent for the benefit of the Secured Parties.

           NOW, THEREFORE, in consideration of the premises, the Pledgor hereby
agrees with the Collateral Agent, for the benefit of the Secured Parties, as
follows:

                            SECTION 1. DEFINED TERMS

           1.1    DEFINITIONS. (a) Unless otherwise defined herein, terms
defined in the Participation Agreement and used herein shall have the meanings
given to them in each Participation Agreement.

           (b)   The following terms shall have the following meanings:

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           "AGREEMENT": this Amended and Restated Guarantee and Collateral
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.

           "CERTIFICATED SECURITY": the collective reference to (i) any
"certificated security" as defined in Section 8-102(a)(4) of the New York UCC
and (ii) all limited liability company certificates, partnership interest
certificates and certificated options therefor that may be issued or granted by
any issuer.

           "COLLATERAL": as defined in SECTION 2.

           "COLLATERAL ACCOUNT": any collateral account established by the
Collateral Agent as provided in SECTION 5.1.

           "FACILITY LEASE": as defined in each Participation Agreement.

           "GENERAL INTANGIBLES": all "general intangibles" as such term is
defined in Section 9-106(a)(42) of the New York UCC excluding with respect to
the Pledgor, all emissions allowances and credits and all contracts,
agreements, instruments and indentures in any form, and portions thereof, to
which the Pledgor is a party or under which the Pledgor has any right, title or
interest or to which the Pledgor or any property of the Pledgor is subject, as
the same may from time to time be amended, supplemented or otherwise modified.

           "LEASE EVENT OF DEFAULT": as defined in each Participation Agreement.

           "LEASE INDENTURE TRUSTEE": as defined in each Participation
Agreement.

           "LEASE SUBORDINATION AGREEMENT": the Lease Subordination Agreement,
dated as of December __, 2001, among the Owner Lessors, the Owner Participant
and the Lease Indenture Trustee.

           "NEW YORK UCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.

           "PERSON": any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency or
other entity, whether acting in an individual, fiduciary or other capacity.

           "PLEDGOR": as defined in the PREAMBLE.

           "PROCEEDS": all "proceeds" as such term is defined in Section
9-102(a)(64) of the New York UCC.

           "SECURED PARTIES": the Collateral Agent, the Owner Lessors and the
Owner Participant.

           "SECURITIES ACT": the Securities Act of 1933, as amended.

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           1.2   OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof",
"herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section, schedule, appendix and exhibit
references are to this Agreement unless otherwise specified.

           (b)   Each reference in this Agreement to a Operative Document or
other agreement shall be deemed to refer to such Operative Document or other
agreement as the same may be amended, supplemented or otherwise modified from
time to time.

           (c)   Any term defined by reference to an agreement, instrument or
other document shall have the meaning so assigned to it whether or not such
agreement, instrument or document is in effect.

           (d)   Each reference in this Agreement to a Person shall be deemed
to include such Person's successors and assigns.

           (e)   Each reference in this Agreement to a Requirement of Law shall
be deemed to refer to such Requirement of Law as the same may be amended,
supplemented or otherwise modified from time to time.

           (f)   The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

                 SECTION 2. PLEDGE; GRANT OF SECURITY INTEREST

           The Pledgor hereby pledges and grants to the Collateral Agent, for
the benefit of the Secured Parties, a security interest in all of the General
Intangibles now owned or at any time hereafter acquired by the Pledgor or in
which the Pledgor now has or at any time in the future may acquire any right,
title or interesttogether with all Proceeds thereof (collectively, the
"COLLATERAL"), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Leveraged Lease Obligations.

                   SECTION 3. REPRESENTATIONS AND WARRANTIES

           The Pledgor hereby represents and warrants, with respect to itself
and its Collateral, to the Collateral Agent and each Secured Party that:

           3.1   TITLE; NO OTHER LIENS. Except for the security interest
granted to the Collateral Agent pursuant to this Agreement, the Pledgor owns
each item of the Collateral free and clear of any and all Liens or claims of
others. No financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Collateral Agent pursuant to this
Agreement or as are permitted by the Operative Documents.

           3.2   PERFECTED FIRST PRIORITY LIENS. The security interests granted
pursuant to this Agreement upon completion of the filings and other actions
specified on SCHEDULE 2 (which, in the case of all filings and other documents
referred to on said SCHEDULE, have been delivered to

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the Collateral Agent in completed and duly executed form) will (a) constitute
valid and enforceable perfected security interests in all of the Collateral in
favor of the Collateral Agent as collateral security for the Leveraged Lease
Obligations to the extent that a security interest may be perfected by filing
and/or the other actions specified on SCHEDULE 2, and (b) are prior to all
other Liens on the Collateral in existence on the date hereof except for Liens
permitted by the Operative Documents and which have priority over the Liens on
the Collateral by operation of law.

           3.3   CHIEF EXECUTIVE OFFICE. On the date hereof, the Pledgor's
jurisdiction of organization and the location of the Pledgor's chief executive
office or sole place of business are specified on SCHEDULE 3.

                              SECTION 4. COVENANTS

           The Pledgor covenants and agrees with the Collateral Agent and the
Secured Parties that, from and after the date of this Agreement until the
Leveraged Lease Obligations shall have been paid in full:

           4.1   DELIVERY OF INSTRUMENTS, CERTIFICATED SECURITIES AND CHATTEL
PAPER. If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument, Certificated Security or
Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be
immediately delivered to the Collateral Agent, duly indorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to this
Agreement.

           4.2   MAINTENANCE OF PERFECTED SECURITY INTEREST FURTHER
DOCUMENTATION. (a) The Pledgor shall take any and all actions that may be
necessary or, in the reasonable discretion of the Collateral Agent, prudent to
maintain the security interest created by this Agreement as a perfected
security interest having at least the priority described in SECTION 3.2 and
shall defend such security interest against the claims and demands of all
Persons whomsoever.

           (b)   The Pledgor will furnish to the Collateral Agent and the
Secured Parties from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection therewith as
the Collateral Agent may reasonably request, all in reasonable detail.

           (c)   At any time and from time to time, upon the written request of
the Collateral Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Collateral Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including (i) filing any financing or continuation statements under the Uniform
Commercial Code (or other similar laws) in effect in any jurisdiction with
respect to the security interests created hereby and (ii) taking any actions
necessary to enable the Collateral Agent to obtain "control" (within the
meaning of the applicable Uniform Commercial Code) with respect thereto.

           4.3   CHANGES IN LOCATIONS, NAME, ETC. The Pledgor will not, except
upon 30 days' prior written notice to the Collateral Agent and delivery to the
Collateral Agent of all additional executed financing statements and other
documents reasonably requested by the

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Collateral Agent to maintain the validity, perfection and priority of the
security interests provided for herein:

                       (i)    change its jurisdiction of organization or the
      location of its chief executive office or sole place of business from that
      referred to in SECTION 3.3; or

                       (ii)   change its name, identity or corporate structure
      to such an extent that any financing statement flied by the Collateral
      Agent in connection with this Agreement would become misleading.

           4.4   NOTICES. The Pledgor will advise the Collateral Agent
promptly, in reasonable detail, of:

           (a)   any Lien (other than security interests created hereby or
Liens permitted under the Operative Documents) on any of the Collateral which
could reasonably be expected to have a material adverse effect on the ability
of the Collateral Agent to exercise any of its remedies hereunder; and

           (b)   of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.

                         SECTION 5. REMEDIAL PROVISIONS

           5.1   PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT. If a Lease
Event of Default shall occur and be continuing, all Proceeds received by the
Pledgor consisting of cash, checks and other near-cash items shall be held by
the Pledgor in trust for the Collateral Agent, segregated from other funds of
the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over
to the Collateral Agent in the exact form received by the Pledgor (duly
indorsed by the Pledgor to the Collateral Agent, if required). All Proceeds
received by the Collateral Agent hereunder shall be held by the Collateral
Agent in a Collateral Account maintained under its sole dominion and control.
All Proceeds while held by the Collateral Agent in a Collateral Account (or by
the Pledgor in trust for the Collateral Agent and the Secured Parties) shall
continue to be held as collateral security for all the Leveraged Lease
Obligations and shall not constitute payment thereof until applied as provided
in SECTION 5.2.

           5.2   DEPOSITS; APPLICATION OF PROCEEDS. Upon the creation of any
Collateral Account, the Collateral Agent shall also establish 8 subaccounts of
such Collateral Account, one subaccount with respect to each Facility Lease and
the other Operative Documents related thereto. All deposits into the Collateral
Account shall be credited to each subaccount based upon such Owner Lessor's
Percentage of such deposited amount. If a Lease Event of Default shall have
occurred and be continuing, at any time thereafter at the Collateral Agent's
election, the Collateral Agent may apply all or any part of Proceeds held in
the applicable subaccount of any Collateral Account in payment of the Leveraged
Lease Obligations in accordance with the applicable Participation Agreement and
the other applicable Operative Documents, and any part of such funds which the
Collateral Agent elects not so to apply and deems not required as collateral
security for any Leveraged Lease Obligations shall be paid over from time to
time by

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the Collateral Agent to the Pledgor or to whomsoever may be lawfully entitled
to receive the same. Any balance of such Proceeds in a subaccount remaining
after applicable Leveraged Lease Obligations shall have been paid in full shall
be paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive the same. It is acknowledged and agreed that sums on deposit in any
subaccount of the Collateral Account shall be held for the benefit of the
applicable Owner Lessor (as collateral for the Leveraged Lease Obligations
under the applicable Facility Lease and the applicable Operative Documents and
shall not constitute collateral for, and shall not be applied to the repayment
of, any obligations of the Facility Lessee owing to any other Owner Lessor
under any other Facility Lease (or other applicable Operative Documents).

           5.3   DIRECTION OF SECURED PARTIES. As provided in the Ownership and
Operating Agreement, which is assigned to each Bondholder Trustee, the Majority
in Interest of Owner Lessors shall be entitled to give and refrain from giving
consents and directions to the Collateral Agent on behalf of all the Secured
Parties (and all Secured Parties shall be bound by such action).

           5.4   CODE AND OTHER REMEDIES. Subject to Article XIV of each
Participation Agreement, if a Lease Event of Default shall occur and be
continuing, the Collateral Agent, on behalf of the Secured Parties, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the applicable Leveraged Lease Obligations, all rights and remedies
of a secured party under the New York UCC or any other applicable law. Without
limiting the generality of the foregoing, the Collateral Agent, without demand
of performance or other demand, presentment, protest, advertisement or notice
of any kind (except any notice required by law referred to below) to or upon
the Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Collateral Agent or any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent or any Secured Party shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Pledgor, which right or
equity is hereby waived and released. The Pledgor further agrees, at the
Collateral Agent's request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably
select, whether at the Pledgor's premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any action taken by it pursuant to this SECTION
5.3, after deducting all reasonable costs and expenses of every kind incurred
in connection therewith or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Collateral Agent and the Secured Parties hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Leveraged Lease Obligations, in such order as the
Collateral Agent may elect, and only after such application and after the
payment by the Collateral Agent of any other amount required by any provision
of law, including, without limitation, Section 9-615(a)(3) of the New York UCC,
need the Collateral Agent account for the

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surplus, if any, to the Pledgor. To the extent permitted by applicable law, the
Pledgor waives all claims, damages and demands it may acquire against the
Collateral Agent or any Secured Party arising out of the exercise by them of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition.

           5.5   WAIVER; DEFICIENCY. The Pledgor waives and agrees not to
assert any rights or privileges which it may acquire under [Section 9-112] of
the New York UCC.

                        SECTION 6. THE COLLATERAL AGENT

           6.1   COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a)
The Pledgor hereby irrevocably constitutes and appoints the Collateral Agent
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Pledgor and in the name of the Pledgor or in its own
name, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, the Pledgor
hereby gives the Collateral Agent the power and right, on behalf of the
Pledgor, without notice to or assent by the Pledgor, to do any or all of the
following:

                       (i)    in the name of the Pledgor or its own name, or
      otherwise, take possession of and indorse and collect any checks, drafts,
      notes, acceptances or other instruments for the payment of moneys due
      under any Collateral and file any claim or take any other action or
      proceeding in any court of law or equity or otherwise deemed appropriate
      by the Collateral Agent for the purpose of collecting any and all such
      moneys due under any Collateral whenever payable;

                       (ii)   pay or discharge taxes and Liens levied or placed
      on or threatened against the Collateral, effect any repairs or any
      insurance called for by the terms of this Agreement and pay all or any
      part of the premiums therefor and the costs thereof,

                       (iii)  execute, in connection with any sale provided for
      in SECTION 5.3 or 5.4, any indorsements, assignments or other instruments
      of conveyance or transfer with respect to the Collateral; and

                       (iv)   (1) direct any party liable for any payment under
      any of the Collateral to make payment of any and all moneys due or to
      become due thereunder directly to the Collateral Agent or as the
      Collateral Agent shall direct; (2) ask or demand for, collect, and
      receive payment of and receipt for, any and all moneys, claims and other
      amounts due or to become due at any time in respect of or arising out of
      any Collateral; (3) sign and indorse any invoices, freight or express
      bills, bills of lading, storage or warehouse receipts, drafts against
      debtors, assignments, verifications, notices and other documents in
      connection with any of the Collateral; (4) commence and prosecute any
      suits, actions or proceedings at

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      law or in equity in any court of competent jurisdiction to collect the
      Collateral or any portion thereof and to enforce any other right in
      respect of any Collateral; (5) defend any suit, action or proceeding
      brought against the Pledgor with respect to any Collateral; (6) settle,
      compromise or adjust any such suit, action or proceeding and, in
      connection therewith, give such discharges or releases as the Collateral
      Agent may deem appropriate; and (7) generally, sell, transfer, pledge and
      make any agreement with respect to or otherwise deal with any of the
      Collateral as fully and completely as though the Collateral Agent were
      the absolute owner thereof for all purposes, and do, at the Collateral
      Agent's option and the Pledgor's expense, at any time, or from time to
      time, all acts and things which the Collateral Agent deems necessary to
      protect, preserve or realize upon the Collateral and the Collateral
      Agent's and the Secured Parties' security interests therein and to effect
      the intent of this Agreement, all as fully and effectively as the Pledgor
      might do.

           Anything in this SECTION 6.1(a) to the contrary notwithstanding, the
Collateral Agent agrees that it will not exercise any rights under the power of
attorney provided for in this SECTION 6.1(a) unless a Lease Event of Default
shall have occurred and be continuing.

           (b)   If a Lease Event of Default shall have occurred and be
continuing, if the Pledgor fails to perform or comply with any of its
agreements contained herein, the Collateral Agent, at its option, but without
any obligation so to do, may perform or comply, or otherwise cause performance
or compliance, with such agreement.

           (c)   The expenses of the Collateral Agent incurred in connection
with actions undertaken as provided in this SECTION 6.1, together with interest
thereon at a rate per annum equal to the highest rate per annum at which
interest would then be payable on any category of past due Leveraged Lease
Obligations under the Participation Agreement and the other Operative
Documents, from the date of payment by the Collateral Agent to the date
reimbursed by the Pledgor, shall be payable by the Pledgor to the Collateral
Agent on demand.

           (d)   The Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.

           6.2   DUTY OF COLLATERAL AGENT. The Collateral Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it with the same degree of care as the
Collateral Agent deals with similar property for its own account. Neither the
Collateral Agent, any Secured Party nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Collateral Agent and the Secured Parties hereunder are solely
to protect the Collateral Agents and the Secured Parties' interests in the
Collateral and shall not impose any duty upon the

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Collateral Agent or any Secured Party to exercise any such powers. The
Collateral Agent and the Secured Parties shall be accountable only for amounts
that they actually receive as a result of the exercise of such powers, and
neither they nor any of their officers, directors, employees or agents shall be
responsible to the Pledgor for any act or failure to act hereunder, except for
(i) their own gross negligence or willful misconduct or (ii) breach of their
obligations under this Agreement.

           6.3   EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402
of the New York UCC and any other applicable law, the Pledgor authorizes the
Collateral Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of the Pledgor in such form and in such offices as the Collateral
Agent determines appropriate to perfect the security interests of the
Collateral Agent under this Agreement. A photographic or other reproduction of
this Agreement shall be sufficient as a financing statement or other filing or
recording document or instrument for filing or recording in any jurisdiction.

           6.4   AUTHORITY OF COLLATERAL AGENT. The Pledgor and each Secured
Party by accepting the benefits of this Agreement acknowledges that the rights
and responsibilities of the Collateral Agent under this Agreement with respect
to any action taken by the Collateral Agent or the exercise or non-exercise by
the Collateral Agent of any option, voting right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Collateral Agent and the Secured Parties, be
governed by the Operative Documents and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Collateral Agent and the Pledgor, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Secured Parties with full and valid
authority so to act or refrain from acting, and the Pledgor shall not be under
any obligation, or entitlement, to make any inquiry respecting such authority.

                            SECTION 7. MISCELLANEOUS

           7.1   AMENDMENTS IN WRITING. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
writing and in accordance with the Participation Agreement.

           7.2   NOTICES. All notices and other communications to any party
hereto shall be in writing or by facsimile and addressed, delivered or
transmitted to such party at its address or facsimile number set forth on
Schedule 1 or at such other address or facsimile number as may be designated by
such party in a notice to the other parties.

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           7.3   NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. Neither
the Collateral Agent nor any Secured Party shall by any act (except by a
written instrument pursuant to SECTION 7.1), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Lease Event of Default. No failure to exercise, nor any delay
in exercising, on the part of the Collateral Agent or any Secured Party, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent or any Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent or such
Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.

           7.4   SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding
upon the successors and assigns of the Pledgor and shall inure to the benefit
of the Collateral Agent and the Secured Parties and their successors and
assigns; PROVIDED that the Pledgor may not assign, transfer or delegate any of
its rights or obligations under this Agreement without the prior written
consent of the Collateral Agent.

           (b)   In order to secure the Lessor Notes of each Owner Lessor, such
Owner Lessor will assign and grant a first priority security interest in favor
of its applicable Lease Indenture Trustee in and to all of such Owner Lessor's
right, title and interest in, to and under this Agreement (other than to the
extent relating to Excepted Payments and the rights to enforce and collect the
same). The Facility Lessee hereby consents to such assignment and to the
creation of such Lien and security interest and acknowledges receipt of copies
of the Lease Indenture, it being understood that such consent shall not affect
any requirement or the absence of any requirement for any consent of the
Facility Lessee under any other circumstances. Unless and until the Collateral
Agent shall have received written notice from the Lease Indenture Trustee that
the Lien of the applicable Lease Indenture has been fully discharged, the
applicable Lease Indenture Trustee shall have the right to exercise the rights
of such Owner Lessor under this (other than with respect to Excepted Payments
and the rights to enforce and collect the same) to the extent set forth in and
subject in each case to the exceptions set forth in the applicable Lease
Indenture.

           7.5   SET-OFF. The Pledgor hereby irrevocably authorizes the
Collateral Agent and each Secured Party at any time and from time to time (i)
upon the occurrence of a Lease Event of Default of the kind described in
clauses (a), (b), (g) and (h) of Article XVI of the Facility Lease or (ii) upon
the occurrence and continuance beyond the applicable grace period, if any, of
any other Lease Event of Default and with the consent of the Secured Parties,
without notice to the Pledgor, any such notice being expressly waived by the
Pledgor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Collateral Agent or such Secured Party to or for the credit or the
account of the Pledgor, or any part thereof in such amounts as the Collateral
Agent or such Secured Party may elect, against and on account of the
obligations and liabilities of the Pledgor to the Collateral Agent or such
Secured Party hereunder and claims of every nature and description of the

                                       10
<Page>

Collateral Agent or such Secured Party against the Pledgor, in any currency,
whether arising hereunder, under the Participation Agreement, any other
Operative Document or otherwise, as the Collateral Agent or such Secured Party
may elect, whether or not the Collateral Agent or any Secured Party has made
any demand for payment and although such obligations, liabilities and claims
may be contingent or unmatured. The Collateral Agent and each Secured Party
shall notify the Pledgor promptly of any such set-off and the application made
by the Collateral Agent or such Secured Party of the proceeds thereof, PROVIDED
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Collateral Agent and each Secured
Party under this SECTION 7.5 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Collateral
Agent or such Secured Party may have.

           7.6   COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

           7.7   SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

           7.8   SECTION HEADINGS. The Section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

           7.9   INTEGRATION. The Security Documents represent the agreement of
the Pledgors, the Collateral Agent and the Secured Parties with respect to the
subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any Secured Party
relative to subject matter hereof and thereof not expressly set forth or
referred to in the Security Documents. The Security Documents supersede any and
all prior agreements and understandings, oral or written, relative or with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any Secured Party
relative to the subject matter hereof not expressly set forth or referred to
herein or in the other Security Documents.

           7.10  GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

           7.11  SUBMISSION TO JURISDICTION; WAIVERS. The Pledgor (and, with
respect to paragraph (e) below only, the Collateral Agent and each of the
Secured Parties) hereby irrevocably and unconditionally:

           (a)   submits for itself and its property in any legal action or
proceeding relating to the Operative Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of

                                       11
<Page>

New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;

           (b)   consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;

           (c)   agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Pledgor at its address referred to in SECTION 7.2 or at such other address of
which the Collateral Agent shall have been notified pursuant thereto;

           (d)   agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and

           (e)   waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.

           7.12  ACKNOWLEDGEMENTS. The Pledgor hereby acknowledges that:

           (a)   it has been advised by counsel in the negotiation, execution
and delivery of the Security Documents to which it is a party;

           (b)   neither the Collateral Agent nor any Secured Party has any
fiduciary relationship with or duty to the Pledgor arising out of or in
connection with any Security Documents, and the relationship between the
Pledgor, on the one hand, and the Collateral Agent and Secured Parties, on the
other hand, in connection herewith or therewith is solely that of debtor and
creditor; and

           (c)   no joint venture is created by any Security Document or
otherwise exists by virtue of the transactions contemplated hereby among the
Secured Parties or among the Pledgor and the Secured Parties.

           7.13  RELEASES. (a) At such time as the Obligations shall have been
paid in full, the Collateral shall automatically be released from the Liens
created hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of the Collateral Agent and the
Pledgor hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Pledgors. At the request and sole expense of the Pledgor
following any such termination, the Collateral Agent shall deliver to the
Pledgor any Collateral held by the Collateral Agent hereunder, and execute and
deliver to the Pledgor such documents as the Pledgor shall reasonably request
to evidence such termination.

           (b)   If any of the Collateral shall be sold, transferred or
otherwise disposed of by the Pledgor in a transaction permitted by the
Participation Agreement, then the Collateral Agent, at the request and
reasonable and sole expense of the Pledgor, shall execute and deliver to

                                       12
<Page>

the Pledgor all releases or other documents reasonably necessary or desirable
for the release of the Liens created hereby on such Collateral.

           7.14  Security Interest Absolute.

           (a)   The obligations of the Pledgor under this Agreement are
independent of the Obligations and a separate action or actions may be brought
and prosecuted against the Pledgor to enforce this Agreement, irrespective of
whether any action is brought against another pledgor or any guarantor of the
Obligations or whether another pledgor or any guarantor of the Obligations is
joined in any such action or actions. All rights of the Owner Lessor and the
pledge, hypothecation and security interest hereunder, and all obligations of
the Pledgor hereunder, shall be absolute and unconditional, to the extent
permitted by Requirements of Law, irrespective of:

                       (i)    any lack of validity or enforceability of any
      Operative Document or any other agreement or instrument relating thereto;

                       (ii)   any change in the time, manner or place of
      payment of or in any other term of, all or any of the Obligations, or any
      other amendment or waiver of or any consent to any departure from any
      Operative Document, including, without limitation, any increase in the
      Obligations resulting from the extension of additional credit to the
      Pledgor;

                       (iii)  any taking, exchange, release or non-perfection
      of any other collateral, or any taking, release or amendment or waiver of,
      or consent to departure from any guaranty, for all or any of the
      Obligations;

                       (iv)   any manner of application of the Collateral, or
      proceeds thereof, to all or any of the Obligations, or any manner of sale
      or other disposition of any other collateral for all or any of the
      Obligations;

                       (v)    any change, restructuring or termination of the
      structure or existence of the Pledgor; or

                       (vi)   any other circumstances which might otherwise
      constitute a defense available to, or a discharge of, the Pledgor or a
      third party grantor of a security interest.

           The Pledgor hereby waives, to the maximum extent permitted by law
(i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a mortgage or deed of trust on real
property if the real property is sold under a power of sale contained in the
mortgage, and all defenses based on any loss whether as a result of any such
sale or otherwise, of Pledgor's right to recover any amount, whether by right
of subrogation or otherwise; (ii) all rights under any law to require the Owner
Lessor to pursue the Pledgor, or any other Person, any security which Owner
Lessor may hold, or any other remedy before

                                       13
<Page>

proceeding against the Pledgor; (iii) all rights of reimbursement or
subrogation, all rights to enforce any remedy that the Owner Lessor may have
against the Pledgor, and all rights to participate in any security held by the
Owner Lessor until the Obligations have been paid and performed in full; (iv)
all rights to require the Owner Lessor to give any notices of any kind,
including, without limitation, notices of nonpayment, nonperformance, protest,
dishonor, default, delinquency or acceleration, or to make any presentments,
demands or protests, except as set forth herein or expressly provided in the
Participation Agreement; (v) all rights to assert the bankruptcy or insolvency
of the Pledgor as a defense hereunder or as the basis for rescission hereof;
(vi) all rights under any law purporting to reduce the Pledgor's obligations
hereunder if the Obligations are reduced; (vii) all defenses based on the
disability or lack of authority of the Pledgor or any Person, the repudiation
of the Operative Documents by the Pledgor or any Person, the failure by the
Owner Lessor to enforce any claim against the Pledgor, or the unenforceability
in whole or in part of any Operative Documents; (viii) all suretyship and
guarantor's defenses generally; (ix) all rights to insist upon, plead or in any
manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets, redemption or similar law,
or exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by the Pledgor of its obligations
under, or the enforcement by the Owner Lessor of, this Agreement; (x) any
requirement on the part of the Owner Lessor to mitigate the damages resulting
from any default; and (xi) except as otherwise specifically set forth herein,
all rights of notice and hearing of any kind prior to the exercise of rights by
the Owner Lessor upon the occurrence and during the continuation of a Lease
Event of Default to repossess with judicial process or to replevy, attach or
levy upon the Collateral. To the extent permitted by law, the Pledgor waives
the posting of any bond otherwise required of the Owner Lessor in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach, or levy upon the Collateral, to enforce any judgment or other security
for the Obligations, to enforce any judgment or other court order entered in
favor of Owner Lessor, or to enforce by specific performance, temporary
restraining order, preliminary or permanent injunction, this Agreement or any
other agreement or document between the Pledgor and the Owner Lessor. The
Pledgor further agrees that upon the occurrence and during the continuation of
a Lease Event of Default, the Collateral Agent may elect to nonjudicially or
judicially foreclose against any real or personal property security it holds
for the Obligations or any part thereof, or to exercise any other remedy
against the Pledgor, any security or any guarantor, even if the effect of that
action is to deprive the Pledgor of the right to collect reimbursement for any
sums paid by the Pledgor to the Collateral Agent.

           7.15  WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.

                                       14
<Page>

           IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed and delivered as of the date first above written.

                                      EME HOMER CITY GENERATION L.P.,

                                      By:   Mission Energy Westside, Inc.,
                                            its General Partner

                                      By:
                                            -----------------------------------
                                            Name:
                                            Title:

Acknowledged and Agreed as of the date hereof:
THE BANK OF NEW YORK, as successor to
UNITED STATES TRUST COMPANY OF
   NEW YORK, as Collateral Agent

By:
      -----------------------------------------------------
      Name:
      Title:

                                       15
<Page>

                                                                   SCHEDULE 1 to
                         AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

                                NOTICE ADDRESSES

EME HOMER CITY GENERATION L.P.

18101 Von Karman Avenue
Suite 1700
Irvine, CA 92612-1046
Attention:   TreasurerTelephone:    949-752-5588 Facsimile:   949-752-5624

                                       16
<Page>

                                                                   SCHEDULE 2 to
                         AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

                            FILINGS AND OTHER ACTIONS
                     REQUIRED TO PERFECT SECURITY INTERESTS

                         UNIFORM COMMERCIAL CODE FILINGS
<Table>
<Caption>
-------------------------------------------------------------------------------
PLEDGOR                                  UCC FILING OFFICES
-------------------------------------------------------------------------------
<S>                                     <C>
EME Homer City Generation L.P.           California Secretary of State
                                         Pennsylvania Secretary of State
                                         Indiana County, PA
-------------------------------------------------------------------------------
</Table>

                                       17
<Page>

                                                                   SCHEDULE 3 to
                         AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

       LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE

<Table>
<Caption>
PLEDGOR                                JURISDICTION               LOCATION
-------                                ------------               --------
<S>                                   <C>                        <C>
EME Homer City Generation L.P.         PA                         18101 Von Karman Avenue
                                                                  Suite 1700
                                                                  Irvine, California 92612-1046
</Table>

                                       18<Page>

================================================================================

                                                                Exhibit 10.18.2

                 AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT

                                     between

                         EME HOMER CITY GENERATION L.P.

                                       and

                              THE BANK OF NEW YORK

                               as Collateral Agent

                     --------------------------------------

                          Dated as of December __, 2001

                     --------------------------------------

================================================================================

<Page>

<Table>
<Caption>

                                TABLE OF CONTENTS

                                                                                      PAGE
<S>                                                                                   <C>
ARTICLE I DEFINITIONS....................................................................2
   SECTION 1.1       DEFINED TERMS.......................................................2
   SECTION 1.2       OTHER DEFINITIONAL PROVISIONS.......................................6

ARTICLE II AGREEMENT OF COLLATERAL AGENT; CREATION OF ACCOUNTS; GRANT OF
                     SECURITY INTERESTS..................................................6
   SECTION 2.1       AGREEMENT OF COLLATERAL AGENT.......................................6
   SECTION 2.2       CREATION OF ACCOUNTS AND SUBACCOUNTS................................7
   SECTION 2.3       DELIVERY OF REVENUES, ETC. TO COLLATERAL AGENT......................8
   SECTION 2.4       SECURITY INTERESTS IN THE LESSEE ACCOUNTS...........................8
   SECTION 2.5       SECURITIES ACCOUNTS.................................................9

ARTICLE III DEPOSITS INTO ACCOUNTS......................................................10
   SECTION 3.1       REVENUE ACCOUNT....................................................10
   SECTION 3.2       RECOVERY EVENT PROCEEDS ACCOUNT....................................10
   SECTION 3.3       RESERVE ACCOUNT....................................................10
   SECTION 3.4       EQUITY ACCOUNT.....................................................11
   SECTION 3.5       DEPOSITS IRREVOCABLE...............................................11

ARTICLE IV TRANSFERS FROM ACCOUNTS......................................................11
   SECTION 4.1       REVENUE ACCOUNT....................................................11
   SECTION 4.2       RECOVERY EVENT PROCEEDS ACCOUNT....................................12
   SECTION 4.3       SENIOR RENT PAYMENT ACCOUNT........................................13
   SECTION 4.4       RESERVE ACCOUNT....................................................13
   SECTION 4.5       PERMITTED INDEBTEDNESS ACCOUNT.....................................14
   SECTION 4.6       EQUITY ACCOUNT.....................................................14
   SECTION 4.7       SUPPLEMENTAL EQUITY ACCOUNT........................................16
   SECTION 4.8       SUBORDINATED RENT PAYMENT ACCOUNT..................................16
   SECTION 4.9       SUBORDINATED RESERVE ACCOUNT.......................................16
   SECTION 4.10      SUSPENDED DISTRIBUTIONS ACCOUNT....................................16
   SECTION 4.11      DELIVERY OF REQUEST LETTERS........................................17
   SECTION 4.12      SHORTFALL NOTICES..................................................17
   SECTION 4.13      TRANSFERS FROM ACCOUNTS DURING A DEFAULT PERIOD....................17
   SECTION 4.14      COLLATERAL AGENT'S CALCULATIONS....................................19
   SECTION 4.15      INSUFFICIENT AMOUNTS...............................................19

ARTICLE V INVESTMENT ...................................................................20

                                       i
<Page>

ARTICLE VI COLLATERAL AGENT.............................................................20
   SECTION 6.1       RIGHTS, DUTIES, ETC................................................20
   SECTION 6.2       RESIGNATION OR REMOVAL.............................................21

ARTICLE VII DETERMINATIONS..............................................................21

ARTICLE VIII MISCELLANEOUS..............................................................22
   SECTION 8.1       INDEMNIFICATION OF COLLATERAL AGENT................................22
   SECTION 8.2       WAIVER OF RIGHT OF SET-OFF.........................................22
   SECTION 8.3       TERMINATION........................................................22
   SECTION 8.4       SEVERABILITY.......................................................23
   SECTION 8.5       COUNTERPARTS.......................................................23
   SECTION 8.6       AMENDMENTS.........................................................23
   SECTION 8.7       APPLICABLE LAW.....................................................23
   SECTION 8.8       NOTICES............................................................23
   SECTION 8.9       BENEFIT OF SECURITY DEPOSIT AGREEMENT..............................24

</Table>

                                       ii

<Page>

                  AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT, dated as
of December __, 2001 (this "Agreement"), between EME HOMER CITY GENERATION
L.P., a Pennsylvania limited partnership ("EME Homer City" or the "FACILITY
LESSEE"), and THE BANK OF NEW YORK, as collateral agent for the Secured
Parties (as defined below) (in such capacity, the "COLLATERAL AGENT").

                                    RECITALS

                  A.       Contemporaneously herewith, EME Homer City will
enter into a transaction pursuant to the Participation Agreements listed on
SCHEDULE 1 by and among EME Homer City, the Owner Lessor, [ ], not in its
individual capacity but solely as Owner Manager, the Owner Participant, Homer
City Funding LLC, as Lender, the Lease Indenture Trustee, the Security Agent
and The Bank of New York, not in its individual capacity but solely as
Bondholder Trustee (as amended, modified and supplemented and in effect from
time to time, collectively, the "PARTICIPATION AGREEMENTS") whereby EME Homer
City will sell undivided interests in its generating assets to the Owner
Lessors and the Owner Lessors will lease such undivided interests in its
generating assets to EME Homer City under the Facility Leases.

                  B.       In consideration of the transactions contemplated by
the Participation Agreements, EME Homer City will be obligated to pay to the
Secured Parties the aggregate amount of all obligations owed by EME Homer City
to the Secured Parties under the Operative Documents (the "LEVERAGED LEASE
OBLIGATIONS").

                  C.       In satisfaction of the requirements of the Secured
Parties, the Facility Lessee desires by this Agreement to provide interests in
certain Accounts as security for EME Homer City's obligations under the
Participation Agreements and the other Operative Documents (as defined below).

                  D.       In order to simplify administration of such Accounts
and to provide for the orderly enforcement of their respective rights, the
Secured Parties (as defined below) have appointed the Collateral Agent to serve
as their common representative, to be the beneficiary under any security
interest intended to benefit the Secured Parties, and to hold the liens created,
or to be created, under the Operative Documents.

                  E.       The parties hereto desire by this Agreement (as
defined below) to provide for the receipt of Revenues (as defined below) and the
application thereof

<Page>

to the payment of Operating Expenses (as defined below), Leveraged Lease
Obligations and other purposes as described herein.

                  F.       Pursuant to the Ownership and Operation Agreement,
dated as of December ___, 2001 (as amended, supplemented or otherwise modified
from time to time, the "Ownership and Operation Agreement"), among the
Collateral Agent and the Secured Parties, the Collateral Agent has agreed to
serve as a common collateral agent for all Secured Parties.

                  G.       It is a condition precedent to the approval by the
Secured Parties of the transactions contemplated by the Operative Documents that
the Facility Lessee shall have executed and delivered this Agreement to the
Collateral Agent for the benefit of the Secured Parties.

                  NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, each of the parties hereto hereby agrees as follows:

                                   ARTICLE I

                                   DEFINITIONS

                  Section 1.1 DEFINED TERMS. The following terms shall have the
meanings indicated:

                  "ACCOUNTS" means all accounts established pursuant to SECTION
2.2 of this Agreement.

                  "AMENDMENT DATE" means the date the Operative Documents are
executed.

                  "AUTHORIZED REPRESENTATIVE" means those officers and
employees of the Facility Lessee whose signatures and incumbency shall have been
certified by the Facility Lessee to the Collateral Agent and each Owner Lessor's
Representative.

                  "COLLATERAL AGENT" has the meaning specified in the PREAMBLE.

                  "DEFAULT PERIOD" means the period commencing on the date
the Collateral Agent receives a written notice from the Facility Lessee or
any of the Secured Parties stating that a Lease Default or a Lease Event of
Default has occurred and is continuing under any of the Facility Leases. Such
notice shall be deemed to have been delivered if a voluntary petition of
Bankruptcy has been filed under Title 11 of the United States Code (or any
similar action has been taken under the laws of any other jurisdiction) with
respect to the Facility Lessee.

                  "DEPOSITARY" means Bank of America NT&SA.

                  "EME HOMER CITY" has the meaning specified in the PREAMBLE.

                   "EQUITY ACCOUNT" has the meaning specified in SECTION 2.2.

                                       2
<Page>

                  "EQUITY LETTER OF CREDIT" means, a letter of credit that
may be delivered to the Collateral Agent at the election of a Owner Lessor in
total or partial satisfaction of the amount on deposit in the applicable
subaccount of Equity Account in accordance with Section hereof.

                  "FINANCING DOCUMENTS" means the Operative Documents and each
indenture, loan agreement, underwriting agreement, security purchase agreement
or other document entered into in connection with any Permitted Indebtedness.

                  "MONTHLY TRANSFER DATE" means the last Business Day of each
month.

                  "MOODY'S" means Moody's Investors Service, Inc.

                  "NEW YORK UCC" means the Uniform Commercial Code as from time
to time in effect in the State of New York.

                  "NOTICE OF ACTION" has the meaning specified in the Lease
Indenture.

                  "OBLIGATIONS" means all obligations and liabilities of the
Facility Lessee which may arise under or in connection with the Operative
Documents or any other Financing Document whether on account of Rent payment
obligations, reimbursement obligations, the unpaid principal of and interest on
Permitted Indebtedness, fees, indemnities, costs, expenses or otherwise
(including all fees and disbursements of counsel to the Collateral Agent and to
the Secured Parties that are

                                       3
<Page>

required to be paid by the Facility Lessee pursuant to the terms of any
Financing Document).

                  "OPERATING ACCOUNT" has the meaning specified in SECTION 2.2.

                  "OPERATING EXPENSES" means, in respect of any period, all cash
amounts paid by the Facility Lessee in the conduct of its business during such
period, including premiums for insurance policies, fuel supply and
transportation costs, utilities, costs of maintaining, renewing and amending
Governmental Approvals, franchise, licensing, property, real estate and income
taxes, sales and excise taxes, general and administrative expenses, employee
salaries, wages and other employment-related costs, business management and
administrative services fees and other fees and expenses necessary for the
continued operation and maintenance of the Facility and the conduct of business
of EME Homer City.

                  "OPERATIVE DOCUMENTS" has the meaning specified in each of the
Participation Agreements.

                  "ORGANIC DOCUMENT" means, with respect to any Person that is a
corporation, its certificate of incorporation, its by-laws and all shareholder
agreements, voting trusts and similar arrangements applicable to any of its
authorized shares of capital stock, and, with respect to any Person that is a
limited partnership, its certificate of limited partnership and partnership
agreement.

                  "OWNER LESSOR'S REPRESENTATIVE" means each Person designated
as serving as indenture trustee, collateral agent, lenders' representative or
in any similar capacity for an Owner Lessor, provided however, that for as
long as the Lessor Notes of such Owner Lessor are outstanding, this term
shall refer to the Security Agent.

                  "PAYMENT DATES" means Rent Payment Dates and Permitted
Indebtedness Payment Dates.

                  "PERMITTED INDEBTEDNESS ACCOUNT" has the meaning set forth in
Section 2.2. hereof.

                  "PERMITTED INDEBTEDNESS PAYMENT DATE" means, with respect
to any Permitted Indebtedness, any date on which amounts are payable on such
Permitted Indebtedness.

                  "PLEDGED ACCOUNTS" means, collectively, the Revenue Account,
the Senior Rent Payment Account, the Recovery Event Proceeds Account and the
Equity Account.

                   "PROCEEDS" has the meaning specified in the New York UCC.

                                       4
<Page>

                  "RECOVERY EVENT" means any settlement of or payment of
$5,000,000 or more in respect of (a) any property or casualty insurance claim
relating to the Facility or any part thereof or (b) any seizure, condemnation,
confiscation or taking of, or requisition of title or use of, the Facility or
any part thereof by any Governmental Authority.

                  "RECOVERY EVENT PROCEEDS" means proceeds received in respect
of a Recovery Event (regardless of whether the amount thereof is less than
$5,000,000).

                  "RECOVERY EVENT PROCEEDS ACCOUNT" has the meaning specified in
SECTION 2.2.

                  "REQUEST LETTER" means each letter from time to time delivered
by an Authorized Representative of the Facility Lessee or by the Facility Lessee
to the Collateral Agent requesting the transfer and/or release of funds from one
or more Accounts (or subaccounts) to or on behalf of the Facility Lessee in
accordance with the terms of this Security Deposit Agreement, each such letter
to be in such form acceptable to the Collateral Agent.

                  "REQUIRED SECURED PARTIES" has the meaning specified in the
Ownership and Operation Agreement.

                  "RESTORATION" means the replacement or restoration of the
Facility or any part thereof in respect of which the Facility Lessee or any
of the Owner Lessors have received Recovery Event Proceeds.

                  "RESTRICTED PAYMENTS" has the meaning specified in each of the
Participation Agreements.

                  "REVENUE ACCOUNT" has the meaning specified in SECTION 2.2.

                  "S&P" means Standard & Poor's Rating Group.

                  "SECURED PARTIES" means the Collateral Agent and the Owner
Lessors.

                                       5
<Page>

                  "SECURITIES INTERMEDIARY" has the meaning specified in SECTION
2.5.

                  Section 1.2           OTHER DEFINITIONAL PROVISIONS.

                           (a)      Unless otherwise defined in SECTION 1.1
hereof, each capitalized term used in this Agreement and not otherwise defined
herein shall have the respective meaning set forth in Appendix A to the
Participation Agreements unless the context hereof shall otherwise require.
The general provisions of Appendix A to the Participation Agreements shall
apply to terms used in this Agreement and specifically defined herein.
References to applicable Operative Documents (or other agreements) shall mean
Operative Documents (or other agreements) as such term is defined in the
Participation Agreement to which the relevant Owner Lessor is a party.

                                   ARTICLE II

                         AGREEMENT OF COLLATERAL AGENT;
                CREATION OF ACCOUNTS; GRANT OF SECURITY INTERESTS

                  Section 2.1 AGREEMENT OF COLLATERAL AGENT. The Collateral
Agent agrees to accept all cash, cash equivalents, instruments, investments and
other securities to be delivered to or held by the Collateral Agent pursuant to
the terms of this Agreement, and, from such cash, cash equivalents, instruments,
investments and other securities, to make the releases and transfers
contemplated by this Agreement as and when required in accordance with the terms
hereof. The Collateral Agent shall hold and safeguard the Accounts (other than
the Operating Account and the cash, cash equivalents, instruments, investments
and other securities on deposit therein) during the term of this Agreement in
accordance with the provisions hereof. The Collateral Agent shall treat the
cash, cash equivalents, instruments, investments and other securities in each
Pledged Account as pledged by the Facility Lessee to the Secured Parties, to be
held by the Collateral Agent, as agent of the Secured Parties, in trust in
accordance with the provisions hereof.

                                       6
<Page>

                  Section 2.2 CREATION OF ACCOUNTS AND SUBACCOUNTS.

                           (a)      On or prior to the Amendment Date, (i) the
Collateral Agent shall establish in its corporate trust department a special,
segregated and irrevocable trust account designated the "Homer City Revenue
Account" (the "REVENUE ACCOUNT") and (ii) the Collateral Agent shall establish
with the Depositary a special and segregated account designated the "Homer City
Operating Account" (the "OPERATING ACCOUNT").

                           (b)      On or prior to the Amendment Date, the
Collateral Agent shall establish in its corporate trust department special,
segregated and irrevocable trust accounts as follows:

                                    (i)      one designated the "Homer City
         Recovery Event Proceeds Account" (the "RECOVERY EVENT PROCEEDS
         ACCOUNT");

                                    (ii)     one designated the "Homer City
         Senior Rent Payment Account" (the "SENIOR RENT PAYMENT ACCOUNT");

                                    (iii)    one designated the "Homer City
         Subordinated Rent Payment Account" (the "SUBORDINATED RENT PAYMENT
         ACCOUNT");

                                    (iv)     one designated the "Homer City
         Reserve Account" (the "RESERVE ACCOUNT");

                                    (v)      one designated the "Homer City
         Equity Account" (the "EQUITY ACCOUNT");

                                    (vi)     one designated the "Homer City
         Supplemental Equity Account" (the "SUPPLEMENTAL EQUITY ACCOUNT");

                                    (vii)    one designated the "Homer City
         Suspended Distributions Account" (the "SUSPENDED DISTRIBUTIONS
         ACCOUNT");

                                    (viii)   one designated the "Homer City
         Subordinated Reserve Account" (the "SUBORDINATED RESERVE ACCOUNT");

                                    (ix)     one designated the "Homer City
         Distributions Account" (the "DISTRIBUTIONS ACCOUNT"); and

                                       7
<Page>

                                    (x)      one designated the "Homer City
         Permitted Indebtedness Account" (the "PERMITTED INDEBTEDNESS ACCOUNT").

                           (c)      Each of the Accounts (other than the Revenue
Account, the Operating Account and the Permitted Indebtedness Account) shall be
subdivided into eight subaccounts, one subaccount for each Facility Lease. The
Collateral Agent shall maintain separate records for each subaccount. Amounts
deposited into or debited from such Accounts shall be deposited or debited from
the applicable subaccount as provided herein.

                  Section 2.3 DELIVERY OF REVENUES, ETC. TO COLLATERAL AGENT.
The Facility Lessee shall cause all Revenues and Recovery Event Proceeds and all
cash, cash equivalents, instruments, investments and other securities in its
possession (excluding amounts received by the Facility Lessee as transfers from
the Operating Account or the Distributions Account in accordance with this
Agreement) to be delivered immediately to the Collateral Agent for deposit into
the Accounts pursuant to Article III. All such Revenues, cash, cash equivalents,
instruments, investments and other securities at any time on deposit in the
Accounts shall be held in the exclusive custody of the Collateral Agent for the
purposes and on the terms set forth in this Agreement.

                  Section 2.4 SECURITY INTERESTS IN THE LESSEE ACCOUNTS. In
order to secure the payment of the Obligations, and the performance and
observance by the Facility Lessee of all of its covenants, agreements and
obligations to the Secured Parties under the Financing Documents, the Facility
Lessee hereby pledges and assigns to the Collateral Agent, and creates in favor
of the Collateral Agent for the ratable benefit of the Secured Parties, a
security interest in all of the Facility Lessee's right, title and interest,
whether now owned or hereafter acquired and whether now existing or hereafter
coming into existence, in, to and under this Agreement and in and to all
Revenues and the Revenue Account, the Senior Rent Payment Account, the Recovery
Event Proceeds Account, the Equity Account and all cash, cash equivalents,
instruments, investments and other securities on deposit therein and all
Proceeds of the foregoing. All Accounts (other than the Operating Account) and
all cash, cash equivalents, instruments, investments and other securities on
deposit therein shall, subject to the provisions of this Agreement, be subject
to the exclusive dominion and control of the Collateral Agent, and the
Collateral Agent shall have the sole and exclusive right to withdraw or order a
transfer of funds from such Accounts, and the Facility Lessee hereby irrevocably
appoints the Collateral Agent as its true and lawful attorney, with full power
of substitution, for the purpose of making any such withdrawal or ordering any
such transfer of funds from any such Account, which appointment is coupled with
an interest and is irrevocable. The Facility Lessee shall not have any rights or
powers with respect to any amounts in any of the

                                       8
<Page>

Accounts (other than the Operating Account) or any part thereof except (i) as
provided in the Investments section of this Security Deposit Agreement and (ii)
the right to have such amounts applied in accordance with the provisions of this
Security Deposit Agreement.

                  Section 2.5 SECURITIES ACCOUNTS. The parties hereto hereby
agree that:

                           (a)      the Accounts (other than the Operating
Account) shall be treated as "securities accounts" as such term is defined in
Section 8-501 of the New York UCC;

                           (b)      The Bank of New York, in its capacity as
"securities intermediary" as such term is defined in Section 8-102(a)(14) of the
New York UCC (the "SECURITIES INTERMEDIARY"), shall, subject to the terms of
this Agreement, treat the Facility Lessee as the person entitled to exercise the
rights that comprise any financial assets credited to the Accounts;

                           (c)      all property delivered to the Securities
Intermediary, pursuant to the terms of this Agreement, will be promptly credited
to the appropriate Account;

                           (d)      all securities or other property underlying
any financial assets credited to such Accounts shall be registered in the name
of the Securities Intermediary, indorsed to the Securities Intermediary or in
blank and in no case will any financial asset credited to any Account be
registered in the name of the Facility Lessee, payable to the order of the
Facility Lessee or specially indorsed to the Facility Lessee except to the
extent the forgoing have been specially indorsed to the Securities Intermediary
or in blank;

                           (e)      each item of property (whether investment
property, financial asset, security, instrument or cash) credited to such
Accounts shall be treated as a "financial asset" within the meaning of Section
8-102(a)(9) of the New York UCC; and

                           (f)      at any time the Securities Intermediary
shall receive an "entitlement order" (within the meaning of Section 8-102(a)(8)
of the New York UCC) issued by the Collateral Agent and relating to the Pledged
Accounts, the Securities Intermediary shall comply with such entitlement order
without further consent by the Facility Lessee or any other person.

                                       9
<Page>

                                  ARTICLE III

                             DEPOSITS INTO ACCOUNTS

                  Section 3.1 REVENUE ACCOUNT. The Facility Lessee agrees that
there shall be deposited into the Revenue Account all Revenues received by or on
behalf of itself. If, notwithstanding the foregoing, the Facility Lessee
receives any Revenues, it shall immediately deliver such Revenues in the exact
form received (duly indorsed, if appropriate, in a manner satisfactory to the
Collateral Agent) to the Collateral Agent for deposit into the Revenue Account.
The Collateral Agent shall have the right to receive all Revenues directly from
the Persons owing the same. All Revenues received by the Collateral Agent shall
be deposited into the Revenue Account.

                  Section 3.2 RECOVERY EVENT PROCEEDS ACCOUNT. The Facility
Lessee agrees that there shall be deposited into the Recovery Event Proceeds
Account all Recovery Event Proceeds, provided, that if the aggregate amount of
Recovery Event Proceeds with respect to a Recovery Event is less than $5
million, such proceeds shall be transferred to the Revenue Account if requested
pursuant to a Request Letter. If, notwithstanding the foregoing, the Facility
Lessee shall receive any such proceeds, it shall immediately deliver such
proceeds in the exact form received (duly endorsed, if appropriate, in a manner
satisfactory to the Collateral Agent) to the Collateral Agent for deposit into
the Recovery Event Proceeds Account. The Collateral Agent shall have the right
to receive all such proceeds directly from the Persons owing the same. All such
proceeds received by or on behalf of the Collateral Agent shall be deposited
into the Recovery Event Proceeds Account. Amounts deposited into the Recovery
Event Proceeds Account shall be credited to each subaccount thereof based upon
each Owner Lessor's Percentage of such deposited amounts.

                  Section 3.3 RESERVE ACCOUNT. The Facility Lessee agrees that
on the Amendment Date there shall be deposited into the Reserve Account the
proceeds from the sale of the Facility received pursuant to the Facility Deeds
and the Bills of Sale, in a total amount of up to $[134] million. Such amount
shall be credited to each subaccount of the Reserve Account based upon each
Owner Lessor's Percentage of such deposited amount. The Collateral Agent shall
use the amount on deposit in each such subaccount of the Reserve Account to make
payments of the Equity Portion of Rent due in connection with the applicable
Facility Lease in case the amounts transferred pursuant to clause FIRST(i) OF
SECTION 4.6 are insufficient to make a payment of the Equity Portion of Basic
Lease Rent of such Facility Lease then due in full. No additional amounts shall
be deposited into the Reserve Account.

                                       10
<Page>

                  Section 3.4 EQUITY ACCOUNT. The Facility Lessee agrees that
any Equity Letter of Credit delivered to the Collateral Agent in accordance with
the terms of Section 4.6(b) hereof and all proceeds thereof shall be deposited
in the applicable subaccount of the Equity Account.

                  Section 3.5 DEPOSITS IRREVOCABLE. Any deposit made into the
Accounts hereunder shall be irrevocable and all cash, cash equivalents,
instruments, investments and other securities on deposit shall be held in trust
by the Collateral Agent, and applied solely as provided herein.

                                   ARTICLE IV

                             TRANSFERS FROM ACCOUNTS

                  Section 4.1 REVENUE ACCOUNT.

                           (a)      Subject to Section 4.13, on each Monthly
Transfer Date the Collateral Agent shall transfer each Owner Lessor's Percentage
of the funds on deposit in the Revenue Account in the following amounts in the
following order of priority:

                  FIRST, to the Operating Account, the amount certified in such
         Request Letter to be such Owner Lessor's Percentage of the excess, if
         any, of the aggregate amount of Operating Expenses then due and payable
         or projected to become due and payable in the next succeeding month
         over the balance then on deposit in the Operating Account; provided
         that if the Annual Budget in effect for such Fiscal Year of the
         Facility Lessee was determined in accordance with Section 5.14(b) or
         5.14(c) of any Participation Agreement, then the amount withdrawn from
         the Operating Account on any Monthly Transfer Date during such Fiscal
         Year shall not exceed the amount set forth in such Annual Budget for
         the immediately succeeding calendar month unless agreed to by the
         Majority in Interest of the Owner Lessors;

                  SECOND, to the Collateral Agent, such Owner Lessor's Owner
         Manager, Lease Indenture Trustee, the Security Agent and the Bondholder
         Trustee, the amount certified in the Request Letter delivered in
         connection with such Monthly Transfer Date to be the sum of the unpaid
         fees, indemnities, costs and expenses then due and payable to such
         Persons in respect of their respective services in such capacities;
         provided that in the case of the Collateral Agent and the Bondholder
         Trustee, such amount shall be such Owner Lessor's Percentage of the sum
         of the unpaid fees,

                                       11
<Page>

         indemnities, costs and expenses of the Collateral Agent and the
         Bondholder Trustee;

                  THIRD, into the applicable subaccount of the Senior Rent
         Payment Account, an amount equal to (a) 1/6th of the aggregate
         amount which is payable on or within six months following such
         Monthly Transfer Date on account of Senior Rent (other than of the
         type specified in clause (b) of the definition thereof) under such
         Owner Lessor's Facility Lease and (b) the aggregate amount of all
         Senior Rent of the type specified in clause (b) of the definition
         thereof, then due and payable under such Owner Lessor's Facility
         Lease together with the amount of all deficiencies, if any, with
         respect to deposits required to be made in the applicable subaccount
         of the Senior Rent Payment Account in all prior months, as certified
         in the Request Letter;

                  FOURTH, subject to Section 4.13 and the applicable Operative
         Documents, to the Persons entitled thereto, an amount equal to all
         other Supplemental Rent (other than Excepted Payments) under the
         applicable Facility Lease then due and payable to such Persons as
         certified in the Request Letter;

                  FIFTH, into the Permitted Indebtedness Account, such Owner
         Lessor's Percentage of an amount sufficient to repay in full the
         Permitted Indebtedness then outstanding, as certified in such Request
         Letter;

                  SIXTH, into the applicable subaccount of the Equity
         Account, such Owner Lessor's Percentage of the balance remaining in
         the Revenue Account.

                           (b)      If, on any Monthly Transfer Date, such
Owner Lessor's Percentage of the funds on deposit in the Revenue Account are
insufficient to make in full any transfer required pursuant to clause FIRST,
SECOND, THIRD, or FOURTH of Section 4.1(a), the Collateral Agent shall make
such transfer with funds then on deposit (in the following order of priority)
(i) in the applicable subaccount of each of the Supplemental Equity Account,
the Subordinated Reserve Account, the Subordinated Rent Payment Account or
the Suspended Distributions Account, as available, and (ii) if an
insufficiency thereupon remains, in the applicable subaccount of the Equity
Account.

                  Section 4.2 RECOVERY EVENT PROCEEDS ACCOUNT.

                           (a)      Except as otherwise provided in Section
4.2(b) and subject to Section 4.13, on each Monthly Transfer Date occurring
after a Recovery Event and until Restoration with respect thereto is completed,
the Collateral Agent shall transfer to the Facility Lessee, from the funds on
deposit in each subaccount of the Recovery Event Proceeds Account, such Owner
Lessor's Percentage of the amount certified in the Request Letter delivered in
connection with such Monthly

                                       12
<Page>

Transfer Date to be the aggregate amount then due and payable in respect of such
Restoration.

                           (b)      Subject to Section 4.13, on any Rent Payment
Date or Termination Value Payment Date on which Rent under a Facility Lease is
required to be paid with any Recovery Event Proceeds, the Collateral Agent shall
transfer, from the funds on deposit in the applicable subaccount of the Recovery
Event Proceeds Account, the following amounts in the following order of
priority:

                  FIRST, to the applicable Owner Lessor under such Facility
         Lease, the amount certified in the Request Letter delivered in
         connection with such Rent Payment Date to be the aggregate amount then
         due and payable in respect of such Senior Rent (including premium and
         interest, if any); and

                  SECOND, to the applicable Owner Lessor, the amount certified
         in such Request Letter to be the aggregate amount of the Equity Portion
         of the Basic Lease Rent then due and payable under such Facility Lease.

                  Section 4.3 SENIOR RENT PAYMENT ACCOUNT.

                  Subject to Section 4.13 hereof, on any Rent Payment Date for a
Facility Lease, the Collateral Agent shall transfer from funds on deposit in the
applicable subaccount of the Senior Rent Payment Account to the applicable Owner
Lessor, the amount certified by the Facility Lessee in the Request Letter
delivered in connection with such Rent Payment Date to be payable with respect
to the Senior Rent and all Supplemental Rent (other than Excepted Payments)
under such Facility Lease on such date.

                  Section 4.4 RESERVE ACCOUNT.

                  Subject to Section 4.13 hereof, on any Rent Payment Date for a
Facility Lease, the Collateral Agent shall transfer from funds on deposit in the
applicable subaccount of the Reserve Account the amount certified by the
Facility Lessee to be equal to the difference, if positive, between the amounts
payable with respect to the Equity Portion of the Basic Lease Rent under such
Facility Lease on such Rent Payment Date and the amounts that would be available
after giving effect to any transfers (with respect to such subaccount) to be
made on such date pursuant to Section 4.1 hereof for use in making payments with
respect to the Equity Portion of Basic Lease Rent in accordance with the
applicable Operative Documents.

                  Section 4.5 PERMITTED INDEBTEDNESS ACCOUNT.

                 Subject to Section 4.13 hereof, on any date on which any amount
of

                                       13
<Page>

principal or premium of Permitted Indebtedness is due and payable, after giving
effect to all transfers to be made on such date pursuant to Section 4.1, the
Collateral Agent shall transfer to the Persons that provide each class of
Permitted Indebtedness, from the funds on deposit in the Permitted Indebtedness
Account, the aggregate amount of principal and premium then due and payable to
the Persons that provide each such class of Permitted Indebtedness, as certified
in the Request Letter delivered in connection with such Monthly Transfer Date.

                  Section 4.6 EQUITY ACCOUNT.

                           (a)      On each Restricted Payment Date, subject
to Section 4.13, the Collateral Agent shall transfer, from the funds on
deposit in each subaccount of the Equity Account, the amount certified by the
Facility Lessee in the Request Letter delivered in connection with such
Restricted Payment Date the following amounts in the following order of
priority:

                  FIRST, either:

                                    (i)      into the applicable subaccount
         of the Subordinated Rent Payment Account, if the conditions to the
         payments of the Equity Portion of Basic Lease Rent are satisfied
         pursuant to Section 6.9 of the applicable Participation Agreement,
         an amount payable with respect to the Equity Portion of Basic Lease
         Rent plus all Excepted Payments, if any, due and payable under the
         applicable Facility Lease on the Restricted Payment Date, together
         with the amount of all deficiencies, if any, with respect to all
         payments required in all prior months, as certified in the Request
         Letter; or

                                    (ii)     into the applicable subaccount
         of the Supplemental Equity Account, if the conditions to the
         payments of the Equity Portion of Basic Lease Rent set forth in
         Section 6.9 of the applicable Participation Agreement are not
         satisfied, in the amount by which the sum of the balances in the
         applicable subaccount in each of the Revenue Account, the Senior
         Rent Payment Account, the Recovery Event Proceeds Account and the
         Equity Account exceeds the sum of all Basic Lease Rent and
         Supplemental Lease Rent due and unpaid on that date and the average
         of the next two aggregate payments of the Basic Lease Rent under the
         applicable Facility Lease minus the Owner Lessor Percentage of $1
         million, as certified the Request Letter;

                  SECOND, into the applicable subaccount of the Subordinated
         Reserve Account, an amount equal to the difference, if positive,
         between the Reserve

                                       14
<Page>

         Requirement under the applicable Facility Lease and any amount on
         deposit in the applicable subaccount of the Reserve Account; and

                  THIRD, the balance remaining in the applicable subaccount
         of the Equity Account, either into the Distributions Account for the
         making of Restricted Payments if the conditions to making these
         payments as set forth in Section 6.10 of the applicable
         Participation Agreement are satisfied or into the applicable
         subaccount of the Suspended Distributions Account if such conditions
         in Section 6.10 of the Participation Agreement are not satisfied.

                           (b)      Upon the occurrence and during the
continuance of a Rent Default Event under a Facility Lease, the applicable
Owner Lessor may from time to time request and the Collateral Agent shall
transfer from the applicable subaccount of the Equity Account to such Owner
Lessor, to the extent then on deposit in such subaccount, an amount equal to
the Equity Portion of Rent under such Facility Lease then past due (the
"OVERDUE RENT"); PROVIDED, that (i) as a condition to such transfer, such
Owner Lessor shall cause to be delivered to the Collateral Agent a standby
letter of credit (the "EQUITY LETTER OF CREDIT") issued in favor of the
Collateral Agent by an Acceptable Credit Provider for the account of a party
other than Homer City or any of the Owner Lessors in the face amount equal
the amount requested to be withdrawn, provided, further, that any transfer of
funds from the Equity Account pursuant to this Section 4.6(a) shall not be
deemed to constitute any payment of Rent. If at any time after the delivery
of an Equity Letter of Credit the amount the Collateral Agent is then
directed to transfer from such subaccount of the Equity Account pursuant to
the terms of this Agreement exceeds cash then on deposit in such subaccount
of the Equity Account (such excess amount, the "SHORTFALL AMOUNT"), then the
Collateral Agent shall draw on the Equity Letter of Credit in an amount equal
to the lesser of the Shortfall Amount and the undrawn face amount of the
Equity Letter of Credit and shall deposit proceeds of such drawing into such
subaccount of the Equity Account (for application in accordance with the
terms of this Security Deposit Agreement). If pursuant to the terms thereof
the Equity Letter of Credit becomes drawable as a result of the failure of
such Equity Letter of Credit to be extended or failure to provide a
replacement letter of credit within 30 days of a downgrade of the applicable
Acceptable Credit Provider, the Collateral Agent shall draw on the Equity
Letter of Credit in an amount equal to the undrawn face amount of the Equity
Letter of Credit and shall deposit proceeds of such drawing into such
subaccount of the Equity Account (for application in accordance with the
terms of this Security Deposit Agreement).

                           (c)      In addition, the Collateral Agent shall make
transfers from the funds on deposit in the Equity Account in accordance with
Sections 4.1(b) and 4.13(b).

                                       15
<Page>

                  Section 4.7 SUPPLEMENTAL EQUITY ACCOUNT. Subject to Section
4.13 hereof, on each Monthly Transfer Date, the Collateral Agent shall make
transfers from the funds on deposit in the applicable subaccount of the
Supplemental Equity Account in accordance with Sections 4.1(b) and 4.13(b).

                  Section 4.8 SUBORDINATED RENT PAYMENT ACCOUNT. Subject to
Section 4.13 hereof, if the conditions to the payments of the Equity Portion
of the Basic Lease Rent are satisfied pursuant to Section 6.9 of the
applicable Participation Agreement, on each Restricted Payment Date under a
Participation Agreement, after giving effect to all transfers to be made on
such date pursuant hereto, the Collateral Agent shall transfer to the
applicable Owner Lessor, from funds on deposit in the applicable subaccount
of the Subordinated Rent Payment Account, the amount certified by the
Facility Lessee in the Request Letter delivered in connection with such
payment to be (i) payable with respect to the Equity Portion of the Basic
Lease Rent and all Excepted Payments under the applicable Facility Lease and
(ii) available for use in making such payments on account of the Equity
Portion of Basic Lease Rent and Excepted Payments in accordance with the
terms of the applicable Operative Documents.

                  Section 4.9 SUBORDINATED RESERVE ACCOUNT. Subject to Section
4.13 hereof, if the conditions to the payments of the Equity Portion of the
Basic Lease Rent are satisfied pursuant to Section 6.9 of the applicable
Participation Agreement, on each Restricted Payment Date under a Participation
Agreement, following a distribution in accordance with the terms of Section 4.8
hereof, the Collateral Agent shall transfer to the applicable Owner Lessor, from
funds on deposit in the applicable subaccount of the Subordinated Reserve
Account, the amount certified by the Facility Lessee in the Request Letter
delivered in connection with such Restricted Payment Date to be equal to the
difference, if positive, between the aggregate amount of the Equity Portion of
Basic Lease Rent and Excepted Payments under the applicable Facility Lease due
and the aggregate amount of payments made on such Restricted Payment Date
pursuant to Section 4.8 hereof.

                  Section 4.10 SUSPENDED DISTRIBUTIONS ACCOUNT. Following the
end of the Lease Term of a Facility Lease, the Collateral Agent shall transfer,
all the funds on deposit in the applicable subaccount of the Suspended
Distributions Account to the Facility Lessee.

                  Section 4.11 DELIVERY OF REQUEST LETTERS. Each Request Letter
to be delivered by the Facility Lessee pursuant to this Article IV shall be
delivered to the Collateral Agent not later than one day prior to the date that
the Collateral Agent is required to make any transfer specified therein. At the
time the Facility Lessee delivers to the Collateral Agent any Request Letter or
other written communication relating to the Accounts, the Facility Lessee shall
deliver a copy thereof to each

                                       16
<Page>

Owner Lessor and its applicable Lease Indenture Trustee, Owner Participant and
the Owner Lessor's Representative.

                  Section 4.12 SHORTFALL NOTICES. Not later than the Business
Day preceding each date on which any transfer is to be made pursuant to this
Article IV, the Collateral Agent shall notify each Owner Lessor and its Owner
Participant if the amounts requested to be transferred on such date in the
Request Letter delivered in connection therewith exceed the funds available in
the applicable subaccount of the relevant Accounts.

                  Section 4.13 TRANSFERS FROM ACCOUNTS DURING A DEFAULT PERIOD.

                           (a)      During a Default Period under a Facility
Lease, the Facility Lessee shall be entitled to issue Request Letters and
otherwise direct the transfer of funds from the Accounts until the Collateral
Agent receives a Notice of Action directing that action be taken pursuant to
Section 4.13(b).

                           (b)      At any time after the Collateral Agent
receives a Notice of Action specifying that action be taken pursuant to this
Section 4.13(b), the Collateral Agent shall transfer (from the Accounts or
subaccounts in the order set forth in Section 4.13(c)) the following amounts in
the following order of priority:

                  FIRST, to the Collateral Agent, the amount certified by the
         Collateral Agent to be the sum of the unpaid fees, indemnities, costs
         and expenses then due and payable for its services in such capacity;

                  SECOND, pro rata to (i) the applicable Owner Lessors, the
         amount certified by such Owner Lessor to be the aggregate amount
         (including premium and interest, if any) then due and payable in
         respect of Senior Rent and Supplemental Lease Rent (other than Excepted
         Payments) under the applicable Operative Documents and (ii) to extent
         that the applicable Owner Lessor's Percentage of amounts then on
         deposit in the Permitted Indebtedness Account are insufficient to pay
         such amounts, to any Person who has provided Permitted Indebtedness in
         the aggregate amount of the applicable Owner Lessor's Percentage of
         such Permitted Indebtedness (including premium and interest, if any)
         then due and payable;

                  THIRD, pro rata to such Owner Lessor, the amount certified by
         such Owner Lessor to be the aggregate amount of the Equity Portion of
         Basic Lease Rent and all other fees and indemnities in respect thereof
         then due and payable in respect of such Equity Portion of Basic Lease
         Rent under the applicable Facility Lease;

                                       17
<Page>

                  FOURTH, pro rata, to the Persons entitled thereto, an amount
         equal to all other Supplemental Rent under the applicable Facility
         Lease then due and payable to such Persons and all other sums due and
         owing by the Facility Lessee to such Persons under any of the
         applicable Operative Documents (as certified in writing by such
         Persons); and

                  FIFTH, any surplus then remaining shall be paid to the
         Facility Lessee or its successors or assigns or to whomsoever may be
         lawfully entitled to receive the same or as a court of competent
         jurisdiction may direct.

                           (c)      The amounts to be distributed pursuant to
Section 4.13(b) with respect to any Facility Lease shall be debited from the
Accounts and subaccounts in the following order of priority:

                  FIRST, from the applicable subaccount of the Suspended
         Distributions Account;

                  SECOND, from the applicable subaccount of the Subordinated
         Reserve Account;

                  THIRD, from the applicable subaccount of the Supplemental
         Equity Account;

                  FOURTH, from the applicable subaccount of the Subordinated
         Rent Payment Account;

                  FIFTH; from the applicable subaccount of the Reserve Account;

                  SIXTH, from the applicable subaccount of the Senior Rent
         Payment Account;

                  SEVENTH, solely with respect to amounts distributed pursuant
         to clauses FIRST through FOURTH of Section 4.13(b) above, up to an
         amount equal to such Owner Lessor's Percentage of the amount then on
         deposit therein, from the Recovery Event Proceeds Account; and

                  EIGHTH, solely with respect to amounts distributed pursuant to
         clauses FIRST through FOURTH of Section 4.13(b) above, up to an amount
         equal to such Owner Lessor's Percentage of the amount then on deposit
         therein, from the Revenue Account.

                                       18
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It is understood and agreed that no amount on deposit in any other subaccount of
any of the Accounts (nor, except as provided in clauses seventh and eighth
above, amounts on deposit in the Revenue Account or Recovery Event Proceeds
Account) shall be available for distributions to be made pursuant to Section
4.13(b) with respect to such Facility Lease and applicable Operative Documents.

                  Section 4.14 COLLATERAL AGENT'S CALCULATIONS. In making the
determinations and allocations required by Section 4.13, the Collateral Agent
may rely upon information specified in any Request Letter and any certificate of
the applicable Owner Lessor delivered to it, as applicable, and the Collateral
Agent shall have no liability to any of the Secured Parties for actions taken in
reliance on such information. All transfers and releases made by the Collateral
Agent pursuant to Section 4.13 shall be (subject to any decree of any court of
competent jurisdiction) final, and the Collateral Agent shall have no duty to
inquire as to the application by any Secured Party of any amounts distributed to
them.

                  Section 4.15 INSUFFICIENT AMOUNTS. Except as provided in
Section 4.1(b) hereof, to the extent the amounts on deposit in any Account (or
applicable subaccount) are insufficient to fully satisfy any transfer
requirement from such Account (or applicable subaccount) under this Article IV,
such transfer shall be made to the extent of the amounts on deposit in such
Account (or applicable subaccount). In addition, if (i) any transfer
requirements from any Account (or applicable subaccount) in this Article IV
share the same level of priority and (ii) there are insufficient funds in such
Account (or applicable subaccount) to satisfy in full all such transfer
requirements which share such level of priority, such transfers shall be made on
a pro rata basis to the extent of the amounts on deposit in such Account (or
applicable subaccount).

                                   ARTICLE V

                                   INVESTMENT

                  Cash held by the Collateral Agent in the Accounts shall not be
invested or reinvested except as provided below:

                           (a)      cash held in the Accounts shall be invested
and reinvested in Permitted Investments by the Collateral Agent who shall make
such Permitted Investments (i) except during a Default Period, at the written
direction of the Facility Lessee and (ii) during a Lease Default or Lease Event
of Default under a Facility Lease, in Permitted Investments selected by the
Collateral Agent unless specific investment instructions are given to the
Collateral Agent by the Majority in Interest of Owner Lessors;

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                           (b)      the Collateral Agent shall sell or liquidate
all or any designated part of the Permitted Investments held in any Account at
any time the proceeds thereof are required to make a release from any Account
(or applicable subaccount) or any transfer between Accounts pursuant to Article
IV hereof; and

                           (c)      all such Permitted Investments, the interest
thereon, and the net proceeds of the sale, liquidation or payment thereof, shall
be held in the appropriate Account for the same purposes as the cash used to
purchase such Permitted Investments (and credited pro rata among subaccounts, if
applicable).

                  The Collateral Agent shall take such action as may be
necessary to perfect the security interest created by this Agreement in all
Permitted Investments in any Pledged Account.

                                   ARTICLE VI

                                COLLATERAL AGENT

                  Section 6.1 RIGHTS, DUTIES, ETC. The acceptance by the
Collateral Agent of its respective duties hereunder is subject to the following
terms and conditions which the parties to this Agreement hereby agree shall
govern and control with respect to the rights, duties, liabilities and
immunities of the Collateral Agent:

                           (a)      it shall not be responsible or liable in any
manner whatever for soliciting any funds or for the sufficiency, correctness,
genuineness or validity of any funds or securities deposited with or held by it;

                           (b)      it shall be protected in acting or
refraining from acting upon any written notice, certificate, instruction,
request or other paper or document, as to the due execution thereof and the
validity and effectiveness of the provisions thereof and as to the truth of any
information therein contained, which it in good faith believes to be genuine;

                           (c)      it shall not be liable for any error of
judgment or for any act done or step taken or omitted except in the case of its
gross negligence, willful misconduct or bad faith;

                           (d)      it may consult with and obtain advice from
counsel of its own choice in the event of any dispute or question as to the
construction of any provision hereof;

                           (e)      it shall have no duties hereunder, except
those which are expressly set forth herein and in any modification or amendment
hereof; provided,

                                       20
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however, that no such modification or amendment hereof shall affect its duties
unless it shall have given its prior written consent thereto;

                           (f)      it may execute or perform any duties
hereunder either directly or through administrative agents or attorneys selected
with reasonable care;

                           (g)      it may engage or be interested in any
financial or other transactions with any party hereto and may act on, or as
depositary, collateral agent or administrative agent for, any committee or body
of holders of obligations of such Persons as freely as if it were not Collateral
Agent hereunder; and

                           (h)      it shall not be obligated to take any action
which in its reasonable judgment would involve it in expense or liability unless
it has been furnished with reasonable indemnity.

                  Section 6.2 RESIGNATION OR REMOVAL. The Collateral Agent may
resign or be removed as set forth in Section [ ] of the Amended and Restated
Guarantee and Collateral Agreement.

                                  ARTICLE VII

                                 DETERMINATIONS

                  In the event of any dispute as to any amount to be distributed
or paid by the Collateral Agent from the Accounts (or subaccounts), the
Collateral Agent is authorized and directed to retain in its possession without
liability to anyone all or any part of the amounts then on deposit in the
Accounts, until such dispute shall have been settled by mutual agreement of the
Facility Lessee and the Secured Parties or by a final order, decree or judgment
of a Federal or State court of competent jurisdiction located in the State of
New York (with respect to disputes in connection with amounts on deposit in the
Accounts), and time for an appeal has expired and no appeal has been perfected,
but the Collateral Agent shall be under no duty whatsoever to institute or
defend any such proceedings.

                                  ARTICLE VIII

                                  MISCELLANEOUS

                  Section 8.1 INDEMNIFICATION OF COLLATERAL AGENT. The
Facility Lessee assumes liability for, and agrees to indemnify, protect, save
and keep harmless each Owner Lessor, each Owner Lessor's Representative, the
Security Agent and the Collateral Agent and their respective successors,
assigns, agents and servants from and against, any and all claims,
liabilities, obligations, losses, damages, penalties, costs and expenses
(including reasonable

                                       21
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attorneys' fees) that may be imposed on, incurred by, or asserted against, at
any time, such Owner Lessor, such Owner Lessor's Representative, the Security
Agent or the Collateral Agent and in any way relating to or arising out of
the execution and delivery of this Agreement, the establishment of the
Accounts, the acceptance of deposits, the purchase or sale of Permitted
Investments, the retention of cash and Permitted Investments or the proceeds
thereof and any payment, transfer or other application of cash or Permitted
Investments in accordance with the provisions of this Agreement, or as may
arise by reason of any act, omission or error of the Collateral Agent made in
good faith in the conduct of its duties; except that the Facility Lessee
shall not be required to indemnify, protect, save and keep harmless the
Collateral Agent or any Owner Lessor, against its own gross negligence or
willful misconduct. The indemnities contained in this Section 8.1 shall
survive the termination of this Agreement.

                  Section 8.2 WAIVER OF RIGHT OF SET-OFF. The Collateral Agent
waives, with respect to all of its existing and future claims against the
Facility Lessee, all existing and future rights of set-off and banker's liens
against the Accounts and all items (and proceeds thereof) that come into its
possession in connection with the Accounts.

                  Section 8.3 TERMINATION. The provisions of Articles III and IV
with respect to the Accounts shall terminate on the date on which the
Obligations under Financing Documents shall have been paid in full. Promptly
after such termination, the Owner Lessor shall notify the Collateral Agent of
such termination and the Collateral Agent hereby agrees that at the time of such
termination (x) any Permitted Investments in the Accounts shall be liquidated as
soon as commercially prudent, (y) a reconciliation shall be made of the
distributions made from the Accounts and any necessary adjustments to the
balances of such Accounts as a result of such reconciliation shall be made and
(z) the moneys in the Accounts (after giving effect to such liquidation and such
adjustments) shall be distributed to the Facility Lessee or as it may direct.

                  Section 8.4 SEVERABILITY. If any one or more of the covenants
or agreements provided in this Agreement on the part of the parties hereto to be
performed should be determined by a court of competent jurisdiction to be
contrary to law, such covenant or agreement shall be deemed and construed to be
severable from the remaining covenants and agreements herein contained and shall
in no way affect the validity of the remaining provisions of this Agreement.

                  Section 8.5 COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument.

                                       22
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                  Section 8.6 AMENDMENTS. The provisions of this Agreement may
be amended, modified or waived if such amendment, modification or waiver is in
writing and is entered into in accordance with the provisions of the
[Participation Agreement].

                  Section 8.7 APPLICABLE LAW. THIS AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK REGARDLESS OF ANY OTHER PROVISION IN ANY OTHER AGREEMENT, FOR
PURPOSES OF THE NEW YORK UCC, NEW YORK SHALL BE DEEMED TO BE THE SECURITIES
INTERMEDIARY'S JURISDICTION AND THE ACCOUNTS (AS WELL AS THE SECURITIES
ENTITLEMENTS RELATED THERETO) SHALL BE GOVERNED BY THE LAWS OF TILE STATE OF NEW
YORK.

                  Section 8.8 NOTICES. Except as otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests and
other communications required or permitted by the terms hereof to be given to
any Person shall be in writing and shall be deemed to have been duly given or
made when delivered if delivered by hand or courier or when received if sent by
mail or telecopy, in each case addressed to the party to which such notice is
required or permitted to be given or made hereunder set forth below its
signature hereto, or such other address as may be specified from time to time by
such party in a notice to the other parties hereto.

                  Section 8.9 BENEFIT OF SECURITY DEPOSIT AGREEMENT. (a) This
Security Deposit Agreement shall inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and permitted assigns, and no
other Person shall be entitled to any of the benefits of this Security Deposit
Agreement.

                           (b)      Notwithstanding the foregoing, in order to
secure the Lessor Notes of each Owner Lessor, such Owner Lessor will assign and
grant a first priority security interest in favor of its applicable Lease
Indenture Trustee in and to all of such Owner Lessor's right, title and interest
in, to and under this Security Deposit Agreement (other than to the extent
relating to Excepted Payments and the rights to enforce and collect the same).
The Facility Lessee hereby consents to such assignment and to the creation of
such Lien and security interest and acknowledges receipt of copies of the Lease
Indenture, it being understood that such consent shall not affect any
requirement or the absence of any requirement for any consent of the Facility
Lessee under any other circumstances. Unless and until the Collateral Agent
shall have received written notice from the Lease Indenture Trustee that the
Lien of the applicable Lease Indenture has been fully discharged, the
applicable Security Agent shall have the right (i) to directly receive for
application in accordance with the terms of the applicable Lease Indenture
all amounts payable or otherwise distributable under this Agreement to the
applicable Owner Lessor (other than in respect of the Excepted Payments) and
(ii) to exercise the rights of such Owner Lessor under this Security Deposit
Agreement (other than with respect to Excepted

                                       23
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Payments and the rights to enforce and collect the same) to the extent set forth
in and subject to the exceptions set forth in the applicable Lease Indenture.

                                       24
<Page>

                  IN WITNESS WHEREOF, the parties hereto have each caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.

                               EME HOMER CITY GENERATION L.P.

                               By:

                               By:
                                  ---------------------------------------------
                                     Name:
                                     Title:

                               Address for Notices:

                               18101 Von Karman Avenue
                               Suite 1700
                               Irvine, California 92612-1046

                               THE BANK OF NEW YORK, as Collateral Agent

                               By:
                                  ---------------------------------------------
                                     Name:
                                     Title:

                               Address for Notices:

                               114 West 47th Street
                               25th Floor
                               New York, New York 10036

                                       25

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