Document:

<PAGE>

                                                                     Exhibit 4.8

                         Debt Service Reserve Guaranty

     This DEBT SERVICE RESERVE GUARANTY (this "Guaranty"), dated as of October
                                               --------
23, 2001, is issued by Peoples Energy Corporation, an Illinois corporation, as
guarantor (the "Guarantor") in favor of Bank One Trust Company, National
                ---------
Association, in its capacity as Administrative Agent under the Deposit and
Disbursement Agreement referred to below, as beneficiary (the "Beneficiary").
                                                               -----------

                                  WITNESSETH:

     WHEREAS, the Guarantor is the indirect parent of Elwood Energy LLC, a
Delaware limited liability company, (the "Issuer");
                                          ------

     WHEREAS, the Issuer has entered into that certain Indenture, dated as of
October 23, 2001 (the "Indenture"), with Bank One Trust Company, National
                       ---------
Association, as Trustee (in such capacity, the "Trustee");
                                                -------

     WHEREAS, the Issuer has entered into that certain Deposit and Disbursement
Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement
                                              ------------------------
Agreement"), with Bank One Trust Company, National Association, as
---------
Administrative Agent (in such capacity, the "Administrative Agent"), Bank One
                                             --------------------
Trust Company, National Association, as Collateral Agent (in such capacity, the
"Collateral Agent") and Bank One Trust Company, National Association, as
 ----------------
Intercreditor Agent (in such capacity, the "Intercreditor Agent"), pursuant to
                                            -------------------
which the Issuer is required, among other things, to fund the Debt Service
Reserve Account (as defined therein) with a combination of cash, letters of
credit and guaranties (such guaranties to be in substantially the same form as
this Guaranty); and

     WHEREAS, the Guarantor anticipates benefiting directly and indirectly from
the transactions contemplated by the Indenture and the Deposit and Disbursement
Agreement.

     NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to the Guarantor, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor agrees as follows:

SECTION 1.  DEFINITIONS
<PAGE>

               (a) Each capitalized term used herein and not otherwise defined
herein shall have the definition assigned to that term in the Deposit and
Disbursement Agreement.

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

          "Guaranty Cap" shall mean:
           ------------

               (a) for any date of determination occurring on a Six-Month DSR
Date, an amount equal to 50% of the scheduled principal and interest which will
be due or has become due on the Senior Secured Obligations during the period
from and including the day after the Bond Payment Date immediately preceding
such date of determination through and including the Bond Payment Date
succeeding such date of determination; or

               (b) for any date of determination other than a Six-Month DSR
Date, an amount equal to 50% of the scheduled principal and interest which will
be due or has become due on the Senior Secured Obligations during the period
from and including the day after the Bond Payment Date immediately preceding
such date of determination through and including the two Bond Payment Dates
succeeding such date of determination;

provided, however, in the event of payment of any amounts by the Guarantor under
--------  -------
Section 2.1, the Guaranty Cap shall, subject to Section 4 hereof, be reduced by
-----------                                     ---------
the amount of such payment.

          "Notice of Payment" shall mean a notice of payment in substantially
           -----------------
the form attached hereto as Exhibit A.
                            ---------

SECTION 2.  GUARANTEE

     Section 2.1 Subject to the terms hereof, the Guarantor hereby
unconditionally and irrevocably undertakes, as primary obligor and not merely as
a surety, for the benefit of the Beneficiary to pay to the Administrative Agent,
on first demand in the form of a Notice of Payment, the amount specified in such
Notice of Payment, but in no event exceeding the Guaranty Cap. Each demand for
payment

                                       2

<PAGE>

under this Guaranty shall be made in writing to the address set forth in Section
                                                                         -------
7.2 hereof and shall be in the form of the Notice of Payment.
---

     Section 2.2  The Guarantor shall make payment to the Beneficiary hereunder
on first demand in the form of a Notice of Payment and notwithstanding any
objection to such payment by the Issuer or any other Person.  The Guarantor
shall not require the Beneficiary to justify further its demand for payment, nor
shall the Guarantor have any recourse against the Beneficiary in respect of any
payment made hereunder.  The Guarantor shall pay any sum demanded by the
Beneficiary hereunder in immediately available funds on the date set forth in
the Notice of Payment (which date shall be in accordance with the provisions of
Section 3.6(c), (g) or (h), as applicable, of the Deposit and Disbursement
--------------  ---    ---
Agreement).

     Section 2.3  Subject to Section 5 hereof, this Guaranty is a direct,
                             ---------
independent and primary obligation of the Guarantor and is an irrevocable,
absolute, present, unconditional and continuing obligation, and the validity and
enforceability of this Guaranty shall be absolute and is not conditioned in any
way upon (a) the institution of suit or the taking of any other action or any
attempt to enforce performance of or compliance with the obligations, covenants
or undertakings (including any payment obligations) of the Issuer under the
Deposit and Disbursement Agreement or any other Financing Document, (b) the
genuineness, validity, legality or enforceability of any of the Transaction
Documents or the lack of power or authority of the Issuer to enter into any of
the Transaction Documents, or any other circumstance whatsoever (other than
payment or performance) that might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, (c) any right of set-off,
recoupment or counterclaim, (d) any attempt to collect from the Issuer or any
other entity or to perfect or enforce any security or any other condition or
contingency or (e) any other action, occurrence or circumstance whatsoever.

     Section 2.4  Without limiting the generality of the foregoing, and subject
to Section 5 hereof, the Guarantor shall have no right to terminate this
   ---------
Guaranty, or to be released, relieved or discharged from its obligations
hereunder, and such obligations shall be neither affected nor diminished for any
reason whatsoever, including:

          (i)  any amendment or supplement to or modification of any of the
          Transaction Documents, any extension or renewal of the Issuer's

                                       3

<PAGE>

          obligations under any Transaction Document, or any subletting,
          assignment or transfer of the Issuer's or the Beneficiary's interest
          in the Transaction Documents;

          (ii)   any bankruptcy, insolvency, readjustment, composition,
          liquidation or any other change in the legal status of the Issuer or
          any rejection or modification of the obligations of the Issuer or the
          Beneficiary as a result of any bankruptcy, reorganization, insolvency
          or similar proceeding;

          (iii)  any furnishing or acceptance of additional security or any
          exchange, substitution, surrender or release of any security;

          (iv)   any waiver, consent or other action or inaction or any exercise
          or nonexercise of any right, remedy or power with respect to any of
          the Transaction Documents;

          (v)    the unenforceability, lack of genuineness or invalidity of the
          Senior Secured Obligations or any part thereof or the
          unenforceability, lack of genuineness or invalidity of any agreement
          relating thereto;

          (vi)   (A) any merger or consolidation of the Issuer or the Guarantor
          into or with any other Person, (B) any change in the structure of the
          Issuer or the Guarantor, (C) any change in the ownership of the Issuer
          or the Guarantor or (D) any sale, lease or transfer of any or all of
          the assets of the Issuer or the Guarantor to any other Person;

          (vii)  any default, misrepresentation, negligence, misconduct or other
          action or inaction of any kind by the Beneficiary under or in
          connection with any Financing Document or any other agreement relating
          to this Guaranty; or

          (viii) any other circumstance whatsoever (except the complete payment
          and performance of the Senior Secured Obligations), including, without
          limitation, any act or omission of the Issuer or the Beneficiary which
          changes the scope of the Guarantor's risk.

     Section 2.5 The Guarantor hereby unconditionally waives and releases, to
the extent permitted by law any circumstance which might constitute a defense

                                       4
<PAGE>

available to, or a discharge of, the Guarantor.  No failure to exercise and no
delay in exercising, on the part of the Beneficiary, any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof, or the exercise of any other power or right.  The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.

     Section 2.6  The Guarantor agrees to pay any costs and expenses incurred by
the other parties to any Financing Document in connection with the enforcement
of this Guaranty.

SECTION 3.  GUARANTOR'S REPRESENTATIONS AND WARRANTIES

          The Guarantor represents and warrants unto the Beneficiary as set
forth in this Section 3.
              ---------

     Section 3.1  The Guarantor's long-term senior unsecured debt is rated at
least "BBB" by S&P and "Baa2" by Moody's.

     Section 3.2  The Guarantor is duly organized, validly existing and in good
standing under the laws of the state of its organization and has full power,
authority and legal right to execute, deliver and perform this Guaranty.

     Section 3.3  The execution, delivery and performance by the Guarantor of
this Guaranty has been duly authorized by all necessary corporate action. This
Guaranty constitutes a legal, valid and binding obligation of the Guarantor
enforceable against the Guarantor in accordance with its terms, except as such
enforcement may be affected by applicable bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally.

     Section 3.4  The execution, delivery and performance of this Guaranty will
not contravene any provision of law, rule or regulation to which the Guarantor
is subject or any judgment, decree or order applicable to the Guarantor nor
conflict or be inconsistent with or result in any breach of any terms,
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien or other encumbrance upon any of the property or assets of the Guarantor
pursuant to the terms of any agreement or other instrument to which the
Guarantor is a party or by which it or its property is
                                       5
<PAGE>

bound or to which it or its property may be subject, the violation of which
could have a material adverse effect on the financial condition of the
Guarantor, nor violate any provision of the constitutive documents of the
Guarantor.

     Section 3.5  No pending or, to the knowledge of the Guarantor, threatened
action, suit, investigation or proceeding against the Guarantor before any
Governmental Authority exists which, if determined adversely to the Guarantor,
would materially adversely affect the Guarantor's ability to perform its
obligations under this Guaranty.

     Section 3.6  No consent from any Person is required for the execution,
delivery and performance by the Guarantor of this Guaranty except that which has
been obtained.

SECTION 4.  SURVIVAL OF GUARANTY

     Notwithstanding anything to the contrary herein, this Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
any of the amounts paid to the Beneficiary, in whole or in part, is required to
be repaid upon the insolvency, bankruptcy, dissolution, liquidation, or
reorganization of the Guarantor, the Issuer or any other Person, or as a result
of the appointment of a custodian, interviewer, receiver, trustee, or other
officer with similar powers with respect to the Guarantor, the Issuer or any
other Person or with respect to any substantial part of the property of the
Guarantor, the Issuer or such other Person, all as if such payments had not been
made.

SECTION 5.  TERMINATION

     Section 5.1 Subject to Section 5.2 hereof, this Guaranty and the
                            -----------
Guarantor's duties and obligations hereunder shall remain in full force and
effect and be binding in accordance with its terms until the earlier of (i) the
date on which all Senior Secured Obligations shall have been satisfied by
payment and performance in full, (ii) the date on which the obligations of the
Guarantor hereunder shall have been satisfied by payment and performance in full
and (iii) the date on which the Issuer provides to the Beneficiary (w) cash (to
be deposited in the Debt Service Reserve Account), (x) a Debt Service Reserve
L/C, (y) a replacement Debt Service Reserve Guaranty, or (z) any combination of
(w), (x) and (y), such that, on such date, the Debt Service Reserve Account
shall be fully funded without taking into account the

                                       6
<PAGE>

amount that would otherwise be available under this Guaranty. Upon the earliest
to occur of the dates set forth in clause (i), (ii) and (iii) above, this
Guaranty and the Guarantor's duties and obligations hereunder (including its
obligations under Section 2.1 hereof, shall terminate and be of no further force
                  -----------
and effect.

     Section 5.2  Notwithstanding anything to the contrary contained herein, the
Guarantor shall have the right to terminate this Guaranty upon 45 Business Days'
written notice to the Issuer and the Administrative Agent, which notice shall
set forth the date on which this Guaranty will terminate (the "Termination
                                                               -----------
Date").  In the event the Guarantor (a) terminates this Guaranty in accordance
----
with this Section 5.2, and (b) receives, not less than 15 Business Days prior to
          -----------
the Termination Date, a Notice of Payment from the Administrative Agent, the
Guarantor shall pay the amount set forth in such Notice of Payment in accordance
with Section 2.1 hereof.
     -----------

SECTION 6.  REMEDIES; SUBROGATION

     Section 6.1  Remedies.  In the event the Guarantor shall fail to pay
immediately any amounts due under this Guaranty, or to comply with any other
term of this Guaranty, the Beneficiary shall be entitled to all rights and
remedies to which it may be entitled hereunder or at law, in equity or by
statute.

     Section 6.2  Subrogation.  The Guarantor will not exercise any rights that
it may acquire by way of subrogation under this Guaranty, by any payment made
hereunder or otherwise, until all of the Senior Secured Obligations shall have
been paid in full. If any amount shall be paid to the Guarantor on account of
such subrogation rights at any time when all of the Senior Secured Obligations
shall not have been paid in full, such amount shall be held in trust for the
benefit of the Beneficiary to be credited and applied to by the Guarantor
hereunder.

     Section 6.3  Survival of Remedies and Subrogation Rights.  The provisions
of this Section 6 shall survive the termination of this Guaranty and the payment
        ---------
in full of the Obligations and the termination of the Operative Documents.

SECTION 7.  MISCELLANEOUS

     Section 7.1  Amendments and Waivers.  No term, covenant, agreement or
condition of this Guaranty may be terminated, amended or compliance therewith
waived (either generally or in a particular instance, retroactively or
prospectively)

                                       7
<PAGE>

except by an instrument or instruments in writing executed by the Guarantor and
consented to by the Beneficiary.

     Section 7.2  Notices.  Unless otherwise expressly specified or permitted by
the terms hereof, all communications and notices provided for herein shall be in
writing or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including by overnight mail or courier service, (b) in the case of notice by
United States mail, certified or registered, postage prepaid, return receipt
requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof, provided such transmission
is promptly confirmed by either of the methods set forth in clauses (a) or (b)
above, in each case addressed to the Guarantor hereto at its address set forth
below or at such other address as such party may from time to time designate by
written notice.

If to the Guarantor:

     Peoples Energy Corporation
     130 East Randolph Drive
     Chicago, IL 60601
     Telephone No.: (312) 240-4063
     Facsimile No.: (312) 240-4972
     Attention: Treasurer

     Section 7.3  Survival.  Except as expressly set forth herein, the
warranties and covenants made by the Guarantor shall not survive the expiration
or termination of this Guaranty.

     Section 7.4  Assignment and Assumption.  This Guaranty may not be assigned
by the Guarantor to, or assumed by, any successor to, or assignee of, the
Guarantor without the prior written consent of the Beneficiary.

     Section 7.5  Governing Law.  This Guaranty shall be in all respects
governed by and construed in accordance with the laws of the State of New York,
including all matters of construction, validity and performance (without giving
effect to the conflicts of laws provisions thereof, other than Section 5-1401 of
the New York General Obligations Law).

                                       8
<PAGE>

     Section 7.6  Severability.  Any provision of this Guaranty that 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.

     Section 7.7  Merger.   This Guaranty constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral
between or among the Guarantor, the Issuer, and the Beneficiary with respect to
the subject matter hereof.

     Section 7.8  Headings.  The headings of the sections of this Guaranty are
inserted for purposes of convenience only and shall not be construed to affect
the meaning or construction of any of the provisions hereof.

     Section 7.9  Further Assurances.  The Guarantor will promptly and duly
execute and deliver such further documents to make such further assurances for
and take such further action reasonably requested by the Beneficiary, all as may
be reasonably necessary to carry out more effectively the intent and purpose of
this Guaranty.

     Section 7.10 Effectiveness of Guaranty. This Guaranty shall be effective on
the date of its execution and delivery by the Guarantor.

     Section 7.11 Ratings Events.  The Guarantor hereby agrees to provide
written notice to the Issuer and the Beneficiary within 10 days of becoming
aware that its long-term senior unsecured debt is rated less than "Baa3" by
Moody's or "BBB-" by S&P (a "Ratings Event").
                             -------------

                                       9
<PAGE>

     IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized.

                                        Peoples Energy Corporation,
                                        as Guarantor

                                        By: /s/ Thomas A. Nardi
                                           --------------------------------
                                        Name:   Thomas A. Nardi
                                        Title:  Senior Vice President and
                                                 Chief Financial Officer
<PAGE>

                                                                    Exhibit A to
                                                   Debt Service Reserve Guaranty
                                                   -----------------------------

                           Form of Notice of Payment
                           -------------------------

                                                                          [Date]

Peoples Energy Corporation
130 East Randolph Drive
Chicago, IL 60601
Attention: Treasurer

                       Re: Debt Service Reserve Guaranty
                           -----------------------------

          Reference is made herein to (i) that certain Deposit and Disbursement
Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement
                                              ------------------------
Agreement"), among Elwood Energy LLC (the "Issuer"), Bank One Trust Company,
---------                                  ------
National Association, as Administrative Agent (in such capacity, the
"Administrative Agent"), Bank One Trust Company, National Association, as
 --------------------
Collateral Agent (in such capacity, the "Collateral Agent") and Bank One Trust
                                         ----------------
Company, National Association, as Intercreditor Agent (in such capacity, the
"Intercreditor Agent") and (ii) that certain Debt Service Reserve Guaranty,
 -------------------
dated as of October 23, 2001 (the "Guaranty"), issued by Peoples Energy
                                   --------
Corporation, an Illinois corporation (the "Guarantor"), in favor of the
                                           ---------
Administrative Agent, as beneficiary (the "Beneficiary").  All terms used herein
                                           -----------
and not otherwise defined herein shall have the meaning assigned to such term in
the Deposit and Disbursement Agreement.

          The undersigned, an authorized officer of the Beneficiary, does hereby
certify on behalf of the Beneficiary, that:

     1.   This Notice of Payment is delivered pursuant to Section 2.1 of the
                                                          -----------
Guaranty.

     2.   The Beneficiary hereby instructs the Guarantor to pay $_________ to
the Beneficiary in immediately available funds in accordance with the wiring
instructions attached hereto as Schedule I.

                                  Exhibit A-1
<PAGE>

     3.   [The Beneficiary is entitled to draw on the Guaranty pursuant to
Section 3.6(c) of the Deposit and Disbursement Agreement in the amount set forth
--------------
in Section 2 hereof, which represents the Guarantor's ratable share of the DSR
   ---------
Insufficiency Amount.]

                                     - or -

     3.   [The Beneficiary has received notice from the Guarantor that the
Guaranty will be terminated on [________]/1/ in accordance with Section 5.2 of
                                                                -----------
the Guaranty, and (i) the Guaranty has not been replaced with a new Debt Service
Reserve Guaranty or with a Debt Service Reserve L/C and (ii) the amount set
forth in Section 2 hereof is no greater than the amount of the Guaranty Cap (as
defined in the Guaranty).]

                                     - or -

     3.   [The Beneficiary has received notice, in accordance with Section 7.11
of the Guaranty from the Guarantor that a Ratings Event (as defined in the
Guaranty) has occurred, and (i) the Guaranty has not been replaced with a new
Debt Service Reserve Guaranty or with a Debt Service Reserve L/C, (ii) the date
of this Notice of Payment is at least 45 days after the Beneficiary received
notice of the Ratings Event (as defined in the Guaranty), and (iii) the amount
set forth in Section 2 hereof is no greater than the amount of the Guaranty Cap
(as defined in the Guaranty).]

     IN WITNESS WHEREOF, the Beneficiary has executed this Notice of Payment as
of the date first written above.

                                         BANK ONE TRUST COMPANY,
                                         NATIONAL ASSOCIATION,
                                         as Administrative Agent, as Beneficiary

                                         By:_______________________________
                                             Name:
                                             Title:

________________________
     /1/  Insert date that is not less than 15 Business Days prior to the
Termination Date (as defined in the Guaranty).

                                  Exhibit A-2<PAGE>

                                                                    EXHIBIT 10.1

                             AMENDED AND RESTATED

                             POWER SALES AGREEMENT

                           Dated as of April 5, 1999

                                    Between

                            Engage Energy US, L.P.

                                      and

                               Elwood Energy LLC
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                         <C>
1.       Definitions and Interpretation....................................   1
         ------------------------------
         (a)      Definitions..............................................   1
                  -----------
         (b)      Interpretation...........................................   6
                  --------------
         (c)      Legal Representation of Parties..........................   7
                  -------------------------------
         (d)      Titles and Headings......................................   7
                  -------------------
         (e)      Order of Precedence......................................   7

2.       Term..............................................................   8
         ----

3.       Generating Capacity...............................................   8
         -------------------
         (a)      Right to Capacity and Energy.............................   8
                  ----------------------------
         (b)      Testing of Capacity......................................   8
                  -------------------

4.       Electric Energy Supply............................................   9
         ----------------------
         (a)      Supply...................................................   9
                  ------
         (b)      Dispatch.................................................   9
                  --------
         (c)      Operating Notifications..................................   9
                  -----------------------
         (d)      Title and Risk of Loss...................................  10
                  ----------------------
         (e)      Transmission Costs.......................................  10
                  ------------------
         (f)      Imbalances...............................................  10
                  ----------
         (g)      Communications...........................................  11

5.       Metering; Billing; Payment........................................  11
         --------------------------
         (a)      Metering.................................................  11
                  --------
         (b)      Billing..................................................  13
                  -------
         (c)      Billing Disputes.........................................  13
                  ----------------
         (d)      Records..................................................  14
                  -------
         (e)      Auditing Rights..........................................  14
                  ---------------

6.       Operation of Committed Units......................................  14
         ----------------------------
         (a)      Standard of Operation....................................  14
                  ---------------------
         (b)      Excess Capacity..........................................  15
                  ---------------
         (c)      Outages..................................................  15
                  -------
         (d)      Operating Characteristics................................  17
                  -------------------------
         (e)      Fuel Source and Emissions Reports........................  18
                  ---------------------------------

7.       Compensation......................................................  18
         ------------
         (a)      Monthly Charges..........................................  18
                  ---------------
         (b)      Start-up Charge..........................................  19
                  ---------------
         (c)      Profit Sharing...........................................  19
                  --------------
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                         <C>
         (d)      Capacity Adjustment Factor...............................  20
                  --------------------------
         (e)      Energy Imbalance Charges/ Other Charges and Penalties....  21
                  -----------------------------------------------------
         (f) Rates Not subject to Review...................................  21

8.       Early Start; Delayed Start........................................  21
         --------------------------
         (a)      Early Start..............................................  21
                  -----------
         (b)      Delay Liquidated Damages.................................  22
                  ------------------------

9.       Ancillary Services................................................  22
         ------------------

10.      Limitation of Liability...........................................  22
         -----------------------

11.      Disagreements.....................................................  23
         -------------
         (a)      Negotiations.............................................  23
                  -------------
         (b)      Settlement Discussions...................................  23
                  ----------------------
         (c)      Obligations to Pay Charges and Perform...................  24
                  --------------------------------------

12.      Assignment; Transfer of Committed Units...........................  24
         ---------------------------------------
         (a)      Assignment...............................................  24
                  ----------
         (b)      Consent to Assignment to Lender..........................  24
                  -------------------------------

13.      Security..........................................................  25
         --------
         (a)      Buyer Security...........................................  25
                  --------------
         (b)      Seller Security..........................................  25
                  ---------------

14.      Default; Termination and Remedies.................................  25
         ---------------------------------
         (a)      Seller's Default.........................................  25
                  ----------------
         (b)      Buyer Default............................................  26
                  -------------
         (c)      Remedies.................................................  26
                  --------
         (d)      Extended Outage..........................................  26
                  ---------------

15.      Representations and Warranties....................................  27
         ------------------------------
         (a)      Representations and Warranties of Seller.................  27
                  ----------------------------------------
         (b)      Representations and Warranties of Buyer..................  27
                  ---------------------------------------

16.      Indemnification...................................................  28
         ---------------

17.      Notices...........................................................  28
         -------

18.      Confidentiality...................................................  30
         ---------------
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>                                                                         <C>
19.      Governing Law.....................................................  30
         -------------

20.      Force Majeure Event...............................................  30
         -------------------
         (a)      Definition...............................................  30
                  ----------
         (b)      Obligations Under Force Majeure..........................  31
                  -------------------------------
         (c)      Continued Payment Obligation.............................  31
                  ----------------------------

21.      Regulatory Approvals..............................................  32
         --------------------

22.      Taxes.............................................................  32
         -----
         (a)      Applicable Taxes.........................................  32
                  ----------------
         (b)      Tax Indemnity............................................  32
                  -------------
         (c)      Contested Taxes..........................................  32
                  ---------------
         (d)      Other Charges............................................  32
                  -------------

23.      Miscellaneous Provisions..........................................  32
         ------------------------
         (a)      Non-Waiver...............................................  32
                  ----------
         (b)      Third Party Beneficiaries................................  33
                  -------------------------
         (c)      Relationship of Parties..................................  33
                  -----------------------
         (d)      Successors and Assigns...................................  33
                  ----------------------
         (e)      Severability.............................................  33
                  ------------
         (f)      Counterparts.............................................  33
                  ------------
         (g)      UCC......................................................  33
                  ---

24.      Entire Agreement and Amendments...................................  33
         -------------------------------
</TABLE>

APPENDICES

Appendix A          Design Limits
Appendix B          MAIN Guide Number 3
Appendix C          Communications and Guidelines
Appendix D          Reporting Forms
Appendix E          FOAF Calculations
Appendix F          Form of Buyer's Guarantee
Appendix G-1        Form of Seller's Guarantees (Dominion Energy, Inc.)
Appendix G-2        Form of Seller's Guarantees (Peoples Energy Corporation)
Appendix H          Net Dependable Capacity and Output Adjustment Curve

                                      iii
<PAGE>

                   AMENDED AND RESTATED POWER SALES AGREEMENT

         THIS AMENDED AND RESTATED POWER SALES AGREEMENT (including Appendices,
this "Agreement") dated as of April 5, 1999 is entered into between ENGAGE
ENERGY US, L.P., a Delaware limited partnership with its principal place of
business at Five Greenway Plaza, Suite 1200, Houston Texas ("Buyer"), and ELWOOD
ENERGY LLC, a Delaware limited liability company with its principal place of
business at 120 Tredegar Street, Richmond, Virginia ("Seller") to amend and
restate that certain Power Sales Agreement between the Parties previously
executed as of April 5, 1999 (the "Original Agreement"); Buyer and Seller are
sometimes referred to herein individually as a "Party" and collectively as the
"Parties").

                             W I T N E S S E T H:

         WHEREAS, Seller is developing a four-unit electric generating facility
(the "Facility") and will be engaged in the generation and sale of capacity,
Electric Energy, and Ancillary Services (each as defined herein) from the
Facility; and

         WHEREAS, Seller anticipates the Commercial Operations Date (as defined
herein) of the Facility will occur by July 1, 1999; and

         WHEREAS, Buyer desires to receive and purchase, and Seller desires to
deliver and sell a portion of the Electric Energy, Substitute Electric Energy
(as defined herein), capacity, and associated Ancillary Services from two of the
units of the Facility pursuant to this Agreement and

         WHEREAS, the Parties desire that this Agreement supersede the Original
Agreement in its entirety.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Parties hereto agree as follows:

1.       Definitions and Interpretation.
         ------------------------------

                 (a)   Definitions. As used in this Agreement, (i) the terms set
                       -----------
forth below in this Section 1(a) shall have the respective meanings so set
forth, and (ii) the terms defined elsewhere in this Agreement shall have the
meanings therein so specified.

         "Affiliate" (i) when used with respect to any Person, means any Person
controlling, controlled by or under common control with such Person, (ii) when
used with respect to Seller, includes Dominion Energy, Inc., Peoples Energy
Corporation and their respective Affiliates and (iii) when used with respect to
Buyer, includes The Coastal Corporation, Westcoast Energy Inc. and their
respective Affiliates. For the purposes of this definition, the term
"controlling" (and, with correlative meanings, the terms "controlled by" and
"under common control with") shall mean the possession of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or agency or
otherwise.

         "Ancillary Services" has the meaning set forth in Article 9.
<PAGE>

         "Available" means a state in which a Committed Unit is capable of
providing at least 60% of its Net Dependable Capacity, whether or not it is
actually in service.

         "Bankruptcy" means any case, action or proceeding under any bankruptcy,
reorganization, debt arrangement, insolvency or receivership law or any
dissolution or liquidation proceeding commenced by or against a Person
(provided, however, that if such case, action or proceeding is not commenced by
such Person, such case or proceeding shall be consented to or acquiesced in by
such Person or shall result in an order for relief or shall remain undismissed
for ninety (90) days) or a Person has made an assignment of its property for the
benefit of its creditors.

         "Business Day" means any day that is not a Saturday, Sunday or any
Federal Reserve Bank holiday.

         "Buyer Event of Default" has the meaning specified in Section 14(b).

         "Capacity Adjustment Factor" is the adjustment calculation set forth in
Section 7(d).

         "Capacity Charge" means $9/kw/Month fixed for the first Contract Year,
and $5/kw/Month fixed from January 1, 2000 thereafter until the end of the Term,
prorated for any partial month.

         "Capacity Payment" means, with respect to each Committed Unit, for each
Month: the product of (i) the Net Dependable Capacity of such Committed Unit and
(ii) the Capacity Charge.

         "Capacity Test" means a three (3) hour period of generation to test the
Net Dependable Capacity of a Committed Unit conducted as specified in Guide No.
3 of MAIN (attached as Appendix B).

         "ComEd" means Commonwealth Edison Company and its successors.

         "ComEd/Elwood Switchyard" means that switchyard that will be owned by
ComEd that provides interconnection service to Seller's Facility.

         "Commercial Operations Date," with respect to each Committed Unit,
means the date upon which Seller first declares such Committed Unit to be
Available.

         "Committed Unit" means the units of the Facility dedicated to this
Agreement, i.e., numbers 1 and 2.

         "Competitive Information" has the meaning specified in Section 5(d).

         "Confidential Information" has the meaning specified in Section 18.

                                       2
<PAGE>

         "Contract Year" means, in the case of the first Contract Year, the
period beginning on July 1, 1999 and ending on December 31, 1999, and for each
Contract Year thereafter, the calendar year.

         "Control Area of the Interconnected Utility" means the Interconnected
Utility's electrical system bounded by interconnection (tie-line) metering and
telemetering and wherein the Interconnected Utility controls generation to
maintain the system's interchange schedule with other control areas and
contributes to frequency regulation of the interchange.

         "CPT" or "Central Prevailing Time" means the prevailing time (i.e.,
Standard Time or Daylight Savings Time) on any given day in the Central Time
Zone.

         "Day" means a period of twenty-four (24) consecutive hours beginning
and ending at 2400 CPT.

         "Default Rate" means (a) the "Prime Rate" as published from time to
time in the "Money Rates" section of The Wall Street Journal, plus (b) 2.5% (250
basis points) per annum.

         "Delay Liquidated Damages" are calculated in accordance with Section
8(b).

         "Design Limits" means, with respect to a Committed Unit, the items
listed in Appendix A, with respect to such Committed Unit.

         "Dispatch" means Buyer's rights to control the generating level of the
Committed Unit(s) within and subject to the Design Limits as set forth in
Appendix A and consistent with Prudent Utility Practice, or to require the
Committed Unit to be off-line.

         "Effective Date" means the date of this Agreement.

         "Electric Energy" means all electric energy that Seller sells and
delivers to Buyer from the Committed Units at the Point of Delivery pursuant to
this Agreement.

         "Emergency Condition" means a condition or situation which (i) in the
sole judgment of the Interconnected Utility (or the ISO) presents an imminent
physical threat of danger to life, or significant threat to health or property,
(ii) in the sole judgment of the Interconnected Utility (or the ISO) could cause
a significant disruption on or significant damage to the Interconnected
Utility's System (or any material portion thereof) or the transmission system of
a third party (or any material portion thereof), (iii) in the sole judgment of
Seller presents an imminent physical threat of danger to life, or significant
threat to health or property or (iv) in the sole judgment of Seller could cause
significant damage to the ComEd/Elwood Switchyard or a Committed Unit (or any
material portion thereof).

         "Energy Charge" means an amount determined under Section 7(a)(ii) or
(iii) in respect of a Month for Electric Energy or Substitute Electric Energy,
as applicable.

         "Excess Capacity" has the meaning specified in Section 6(b)(ii).

         "FERC" means the Federal Energy Regulatory Commission and its
successors.

                                       3
<PAGE>

         "Force Majeure Event" has the meaning set forth in Section 20(a).

         "Forced Derating" has the meaning set forth in Appendix E.

         "Forced Outage" has the meaning set forth in Appendix E.

         "Forced Outage Adjustment Factor" or "FOAF" has the meaning set forth
in Appendix E.

         "Imbalance Charges" means charges for the oversupply or undersupply of
energy incurred pursuant to Schedule 4 of the ComEd Open Access Transmission
Tariff, or the equivalent provisions of a superseding tariff, or the
Interconnection Agreement.

         "Interconnection Agreement" means the Interconnection Agreement to be
executed between the Interconnected Utility and Seller with respect to the
Facility.

         "Interconnected Utility" means ComEd or its successors and assigns,
including the ISO.

         "Interconnected Utility System" means the electric transmission and
distribution system owned by ComEd and its Affiliates, or their successors and
assigns, including any ISO.

         "ISO" means any Person, other than ComEd, that becomes responsible as
system operator for the transmission system to which the Units are connected.

         "kW" means kilowatt.

         "Lenders" means with respect to any Person (i) any person or entity
that, from time to time, has made loans to such Person, for the financing or
refinancing of the Facility or which are secured by the Facility, (ii) any
holder of indebtedness of such Person, (iii) any person or entity acting on
behalf of such holder(s) to which any holders' rights under financing documents
have been transferred, any trustee or agent on behalf of any such holders, or
(iv) any Person who purchases the Facility in connection with a sale-leaseback
or other lease arrangement in which the Seller is the lessee of the Facility
pursuant to a net lease.

         "MAIN" means the Mid-America Interconnected Network.

         "Maintenance Outage" means the removal of a Committed Unit from service
to perform work on specific components that can be deferred beyond the end of
the next weekend, but requires the Committed Unit be removed from service before
the next Planned Outage. Typically, Maintenance Outages may occur any time
during the year, have flexible start dates, and may or may not have
predetermined durations; provided, however, that any Maintenance Outage may only
be performed during Off-Peak Hours. Further, such Maintenance Outage will be
scheduled to be completed such that the Committed Unit is able to generate at
Net Dependable Capacity for the first hour of the On-Peak Hours following such
Maintenance Outage. If any Maintenance Outage is not completed within such
schedule and if the Committed Unit continues to be in an outage or derating as
of the first hour of the On-Peak Hours, such outage or derating shall be a
Forced Outage or Forced Derating, as applicable.

                                       4
<PAGE>

         "Month" means a calendar month commencing at 0000 CPT on the first day
of such calendar month and ending at 2400 CPT on the last day of such calendar
month.

         "MW" means megawatts.

         "MWh" means megawatt hours.

         "NERC" means the North American Electric Reliability Council.

         "Net Dependable Capacity" for each Committed Unit means the level of MW
of that Committed Unit, based upon demonstrated output (net of station service
and auxiliaries) achieved during a Capacity Test of such Committed Unit pursuant
to Section 3(b), adjusted by reference to the curves in Appendix H (i) to
conditions of 90(degree)F and 60% relative humidity and (ii) for expected
degradation. Net Dependable Capacity shall not exceed 160 MW per Committed Unit.
The Net Dependable Capacity of each Committed Unit as demonstrated by the
Capacity Test will be set forth in Appendix H hereto.

         "Non-Summer Period" means October 1 through May 31.

         "Off-Peak Hours" means all hours that are not On-Peak Hours.

         "On-Peak Hours" means hours beginning at 0600 and ending at 2200 CPT,
Monday through Friday, excluding NERC holidays.

         "Payment Date" means fifteen (15) Business Days after a statement is
rendered by one Party to the other Party hereunder but not earlier than the 25th
Day of a Month and in the event the 25th Day of the Month is not a Business Day,
shall mean the next Business Day.

         "Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint stock company, trust,
unincorporated organization, entity, government or other political subdivision.

         "Planned Outage" means the removal of a Committed Unit from service to
perform work on specific components that is scheduled well in advance and has a
predetermined start date and duration (e.g., annual overhaul, inspections or
testing); provided, however, that any Planned Outage may not be performed during
the Summer Period.

         "Point of Delivery" is the point of interconnection between the
Facility and the Interconnected Utility System at the metering station in the
ComEd/Elwood Switchyard.

         "Prudent Utility Practice" means any of the practices, methods and acts
required or approved by the ISO or engaged in or approved by a significant
portion of the electric utility industry in the geographic region covered by
MAIN during the relevant time period, or any of the practices, methods and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. "Prudent Utility Practice" is not intended
to be limited to the optimum practice,

                                       5
<PAGE>

method or act to the exclusion of all others, but rather to be acceptable
practices, methods or acts generally accepted in the geographic region covered
by MAIN.

         "Requirement of Law" means any federal, state and local laws, statutes,
regulations, rules, codes or ordinances enacted, adopted, issued or promulgated
by any federal, state, local or other governmental authority or regulatory body
(including those pertaining to electrical, building, zoning, environmental and
occupational safety and health requirements) or a tariff filed with any federal,
state, local or other governmental authority or regulatory body.

         "Revenue Meter" means Seller's meter located on the generator leads of
each Committed Unit.

         "Seller Event of Default" has the meaning specified in Section 14(a).

         "Site" means the real property on which the Committed Units are
located.

         "Start Up" means the Start Up of a Committed Unit from zero generation
pursuant to a Dispatch order of Buyer; provided, however, that Start Up shall
not include the return to service of a Committed Unit less than twenty-four
hours following a Forced Outage or Force Majeure Event.

         "Substitute Electric Energy" means electric energy sold and delivered
by Seller to Buyer under this Agreement from a source other than a Committed
Unit.

         "Summer Period" means the period from June 1 through September 30.

         "Target FOAF" means five (5) percent for the On-Peak Hours of the
Summer Period. There is no Target FOAF any other hours during the Term.

         "Term" has the meaning specified in Section 2.

         "Termination Date" means the earlier of (i) December 31, 2004, or (ii)
the date on which this Agreement is terminated by a Party, pursuant to its
terms.

         "Week" means the period commencing 0000CPT on Monday and ending at
2400CPT on Sunday.

                 (b)    Interpretation. In this Agreement, unless a clear
                        --------------
contrary intention appears:

                 (i)    the singular number includes the plural number and vice
versa;

                 (ii)   reference to any Person includes such Person's
         successors and assigns but, in the case of a Party, only if such
         successors and assigns are permitted by this Agreement, and reference
         to a Person in a particular capacity excludes such Person in any other
         capacity or individually;

                  (iii) reference to any gender includes each other gender;

                                       6
<PAGE>

                  (iv)   reference to any agreement (including this Agreement),
         document, instrument or tariff means such agreement, document,
         instrument or tariff as amended or modified and in effect from time to
         time in accordance with the terms thereof and, if applicable, the terms
         hereof;

                  (v)    reference to any Requirement of Law means such
         Requirement of Law as amended, modified, codified or reenacted, in
         whole or in part, and in effect from time to time, including, if
         applicable, rules and regulations promulgated thereunder;

                  (vi)   reference to any Section or Appendix means such Section
         of this Agreement or such Appendix to this Agreement, as the case may
         be, and references in any Section or definition to any clause means
         such clause of such Section or definition;

                  (vii)  "hereunder", "hereof", "hereto" and words of similar
         import shall be deemed references to this Agreement as a whole and not
         to any particular Section or other provision hereof or thereof;

                  (viii) "including" (and with correlative meaning "include")
         means including without limiting the generality of any description
         preceding such term; and

                  (ix)   relative to the determination of any period of time,
         "from" means "from and including", "to" means "to but excluding" and
         "through" means "through and including".

                  (c)    Legal Representation of Parties. This Agreement was
                         -------------------------------
negotiated by the Parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against any Party shall not apply to any construction
or interpretation hereof or thereof.

                  (d)    Titles and Headings. Section and Appendix titles and
                         -------------------
headings in this Agreement are inserted for convenience of reference only and
are not intended to be a part of, or to affect the meaning or interpretation of,
this Agreement.

                  (e)    Order of Precedence. In the event of any conflict
                         -------------------
between any of the provisions of this Agreement, the following order of
interpretation shall prevail:

                         (i)      Appendix A
                         (ii)     Appendix E
                         (iii)    Articles 1 through 23
                         (iv)     Appendix H
                         (v)      Appendix F
                         (vi)     Appendix G-1, Appendix G-2
                         (vii)    Appendix C
                         (viii)   Appendix D
                         (ix)     Appendix B

                                       7
<PAGE>

2.       Term.
         ----

                  This Agreement shall have a term (the "Term") commencing on
the Effective Date and ending on the Termination Date. The provisions of
Sections 6(e) (Fuel Source and Emissions Reports), 5(d) (Records), 5(e)
(Auditing Rights), 10 (Limitation of Liability), 11 (Disagreements), 14
(Default, Termination and Remedies), 16 (Indemnification), 18 (Confidentiality)
and 22 (Taxes) shall survive the termination of this Agreement.

3.       Generating Capacity.
         -------------------

                  (a)  Right to Capacity and Energy. Except as provided in
                       ----------------------------
Section 6(b) (Excess Capacity), Sections 6(d)(ii) and (iii) (Operating
Characteristics), Section 8(a) (Early Start) and Section 14(c)(ii) (Event of
Default), from and after the Commercial Operations Date for each Committed Unit
(i) Buyer shall have the exclusive right to the generating capacity and electric
energy of such Committed Unit (net of station service and auxiliaries), and (ii)
except in connection with station service and auxiliaries, Seller shall have no
right to Dispatch or sell any of the generating capacity or electric energy of
the Committed Units to any other Person. If a Committed Unit is operating,
Seller may consume electric energy from such Committed Unit for station service
and auxiliaries (including start up of other units at the Facility).

                  (b)  Testing of Capacity.
                       -------------------

                  (i)  Prior to the Commercial Operations Date, a Capacity Test
         of each Committed Unit shall be performed to determine the Net
         Dependable Capacity. Following the Commercial Operations Date, Buyer
         shall require Seller to perform a Capacity Test once each year either
         in May, June or July to verify the Net Dependable Capacity of each
         Committed Unit. Within the first three days a Committed Unit is
         Dispatched on-line after such Capacity Test, Seller shall have the
         right to reestablish Net Dependable Capacity pursuant to up to three
         Capacity Tests for each Committed Unit, provided, that the Capacity
         Tests are performed at a time Buyer is Dispatching the tested Committed
         Unit on-line.

                  (ii) All Capacity Tests will be performed on a date mutually
         agreed by the Parties. Buyer shall have the right to have personnel
         present at each Capacity Test. Written test results shall be provided
         by Seller to Buyer within five (5) Business Days after the test is
         performed. The Net Dependable Capacity demonstrated by the Capacity
         Test (or, in the event of reperformance of the Capacity Test as elected
         by Seller pursuant to paragraph (i) above, as demonstrated by the last
         such Capacity Test) will be set forth in an exhibit to be initialed by
         the Parties and appended hereto as Appendix H and shall be effective as
         of the first day following the day on which the Capacity Test was
         conducted. All Capacity Tests shall be performed at Seller's expense.
         No tests will be conducted or continued which, in the opinion of
         Seller, should not be conducted or continued in accordance with Prudent
         Utility Practice. If Seller prevents or discontinues a test in
         accordance with Prudent Utility Practice, Buyer shall have the right to
         retest the affected Committed Unit upon prior notice to Seller

                                       8
<PAGE>

                  (iii) After the Commercial Operations Date, all electric
         energy (net of station service and auxiliaries) generated during a
         Capacity Test will be treated as a sale of Electric Energy to Buyer
         pursuant to this Agreement.

                  (iv)  No electric energy generated prior to the Commercial
         Operations Date (for startup and testing or station service or
         auxiliaries) will be sold to Buyer pursuant to this Agreement.

                  (v)   Testing of the Committed Units during the calendar year
         in which the first Contract Year occurs may require Seller to operate
         the Committed Units up to but not to exceed 100 hours prior to the
         Commercial Operations Date. These operation hours will be included in
         the hours of operation that count towards the 1500 hour per year
         operating limit of each Committed Unit set forth in Appendix A for the
         first Contract Year. Seller shall use all reasonable efforts to limit
         the number of such hours for testing.

                  (vi)  Notwithstanding the provisions of Section 4(b), during
         any Capacity Test, Seller shall designate a maximum level for Buyer's
         Dispatch during such Capacity Test which may be above the then current
         Net Dependable Capacity.

4.       Electric Energy Supply.
         ----------------------

                  (a)   Supply. Subject to the terms and conditions of this
                        ------
Agreement, Seller shall make available at the Point of Delivery to Buyer for
delivery and sale, and Buyer shall receive and purchase from Seller at the Point
of Delivery, Electric Energy as Dispatched by Buyer. Buyer shall not be
obligated to receive or purchase any electric energy from Seller except such
Electric Energy as is Dispatched by Buyer pursuant to Section 4(b).

                  (b)   Dispatch. Beginning on the Commercial Operations Date,
                        --------
Buyer may Dispatch the delivery of Electric Energy from each Committed Unit in
accordance with the provisions set forth in Appendices A and C at a rate up to
the Net Dependable Capacity for such Committed Unit (or such greater or lesser
rate as Seller may from time to time declare to be Available in accordance with
Appendix C). Buyer shall not Dispatch a Committed Unit (1) during any Planned
Outage or Maintenance Outage, (2) during any period that Seller has designated a
Forced Outage or declared a Force Majeure Event (except to the extent of
Seller's ability to deliver Electric Energy during such Force Majeure Event),
(3) above Seller's designated derated capacity level during the period of any
Forced Derating, (4) during any period when the circumstances of Sections
6(d)(ii) or (iii) apply (to the extent such Dispatch will interfere with the
response to such circumstances), or (5) during any other period when Buyer is
expressly prohibited from doing so under the provisions of this Agreement. If
Seller notifies Buyer that Seller will make Substitute Electric Energy
available, Buyer may dispatch such Substitute Electric Energy at levels and in
accordance with Seller's notice. Notwithstanding item (4) of this Section 4(b),
Seller will comply with Buyer's Dispatch orders during any period when
circumstances of Sections 6(d)(ii) or (iii) apply to the extent that, in the
reasonable judgment of Seller, compliance with any Buyer Dispatch order is
consistent with the requirements imposed upon Seller under such circumstances.

                  (c)   Operating Notifications.
                        -----------------------

                                       9
<PAGE>

                  (i)   Week Ahead Notification. Not less than forty-eight (48)
                        -----------------------
         hours before the beginning of each Week, Buyer shall provide to Seller
         an estimate of its requirements, on an hour-by-hour basis, for Electric
         Energy, Start Ups and Ancillary Services during that Week and also,
         provisionally, during the following Week. These estimates shall not be
         binding upon Buyer and Buyer may subsequently alter its requirements.

                  (ii)  Plant Availability Notification. Seller shall, by 1200
                        -------------------------------
         CPT each Day, inform Buyer of the estimated capacity of each Committed
         Unit that Seller will have Available during each hour of that Day
         commencing thirty-six (36) hours later and, provisionally, for the Day
         immediately thereafter. Seller shall advise Buyer as soon as possible
         of any changes in its estimated capacity for such Days. These estimates
         shall not be binding upon Seller and Seller may subsequently revise its
         estimates.

                  (iii) Day Ahead Notification. Not later than 1000 Central
                        ----------------------
         Prevailing Time each Day, Buyer shall provide to Seller an estimate of
         its requirements, on an hour by hour basis, for Electric Energy, Start
         Ups, and Ancillary Services provisionally for the following Day. These
         estimates shall not be binding upon Buyer and Buyer may subsequently
         alter its requirements.

                  (iv)  Minimum Notification Periods. The minimum notification
                        ----------------------------
         periods required for the Dispatch of each Committed Unit and minimum
         on-line and off-line times are set forth in Appendix A. Buyer shall
         have the right to Dispatch the Committed Units in accordance with
         Appendix A.

                  (d)   Title and Risk of Loss. Electric Energy will be
                        ----------------------
delivered at the Point of Delivery. Substitute Electric Energy will be delivered
at a delivery point identified pursuant to Section 6(c)(iii). As between the
Parties, Seller shall be deemed to be in exclusive control (and responsible for
any damages or injury caused thereby) of the Electric Energy or Substitute
Electric Energy prior to delivery and Buyer shall be deemed to be in exclusive
control (and responsible for any damages or injury caused thereby) of the
Electric Energy or Substitute Electric Energy from and after delivery. Electric
Energy and Substitute Electric Energy shall be delivered by Seller free and
clear of all liens, claims and encumbrances arising prior to delivery. Title to
Electric Energy shall transfer from Seller to Buyer upon delivery at the Point
of Delivery. Title to Substitute Electric Energy shall transfer from Seller to
Buyer upon delivery at the delivery point identified pursuant to Section
6(c)(iii).

                  (e)   Transmission Costs. Seller shall be responsible for all
                        ------------------
costs or charges imposed on or associated with the delivery of Electric Energy
(or Substitute Electric Energy), including control area services, inadvertent
energy flows, transmission losses and/or loss charges to the Point of Delivery
(or the delivery point of Substitute Electric Energy) and all costs attributable
thereto. Buyer shall be responsible for arranging for transmission and for all
costs or charges imposed on or associated with the transmission of Electric
Energy (or Substitute Electric Energy), including control area services,
inadvertent energy flows, transmission losses and/or loss charges from the Point
of Delivery (or the delivery point of Substitute Electric Energy) and all costs
attributable thereto.

                  (f)   Imbalances. Each Party shall indemnify and hold the
                        ----------
other Party harmless from any Imbalance Charges that are incurred as a result of
the fault of the indemnifying Party.

                                      10
<PAGE>

                  (g)   Communications. The Parties shall develop mutually
                        --------------
acceptable procedures for communications between Seller, Buyer and the
Interconnected Utility's EO Dispatch center and associated reporting forms for
such communications to be appended to this Agreement as Appendices C -
Communications Guidelines and D - Reporting Forms, respectively.

5.       Metering; Billing; Payment.
         --------------------------

                  (a)   Metering
                        --------

                  (i)   All Electric Energy delivered by Seller to Buyer from
each Committed Units under this Agreement shall be metered by the Revenue Meter.
Readings from the Revenue Meter shall be reduced for transformer and
transmission line losses between the Revenue Meter and the Point of Delivery in
accordance with Prudent Utility Practice. If technically feasible (as determined
by the Parties) Buyer shall be permitted to install its own back-up metering
system at Buyer's sole expense. The amount of megawatt-hours for which Buyer
will be billed also will be adjusted by the amount of electricity that had been
both generated by the applicable Committed Unit and consumed by other units at
the Facility during the billing period to yield the "billable generation" for
the billing period calculated as described below. To establish the kilowatt-
hours of electricity provided by a Committed Unit and consumed by other units
for a billing period, the total for each billing period of electricity consumed
by each unit at the Facility will be determined from the individual unit meter
readings using the revenue meter located at the generator leads which will then
be summed for all four units. From this sum, the total monthly electricity
purchased from the Interconnected Utility (as determined from the Interconnected
Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted,
yielding an aggregate total of the electricity consumed by all the units that
had been generated by one or more other units at the Facility. This amount will
then be multiplied by the ratio of the total operating hours of a given
Committed Unit to the total operating hours of all units. This product will
represent the electricity generated by a given Committed Unit and consumed by
other units. This value will be subtracted from the reading of the Revenue Meter
for a particular Committed Unit for billing purposes for the billing period. The
following example demonstrates the calculation methodology:

Total Electricity generated Unit 1 - 30,000 MWh

Total Electricity generated Unit 2 - 22,500 MWh

Total Electricity generated Unit 3 - 15,000 MWh

Total Electricity generated Unit 4 -      0 MWh

Total electricity consumed Unit 1 -  20,000 kWh

Total electricity consumed Unit 2 -  30,000 kWh

Total electricity consumed Unit 3 -  15,000 kWh

                                      11
<PAGE>

Total electricity consumed Unit 4 -  1,000 kWh

Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 1,000 = 67,000
kWh

Total electricity purchased from the Interconnected Utility- 30,000 kWh

Total electricity consumed at the Facility generated by the Facility = 67,000 -
30,000 = 37,000 kWh

Unit 1 Monthly Operating Hours -  200

Unit 2 Monthly Operating Hours -  150

Unit 3 Monthly Operating Hours -  100

Unit 4 Monthly Operating Hours -    0

Total Operating Hours=200+150+100+0= 450 hours

CALCULATION :

Electricity Furnished by Unit 1 and consumed at the Facility = (200/450)
(37,000) = 16,444 kWh (16.444 MWh)

Electricity Furnished by Unit 2 and consumed at the Facility = (150/450)
(37,000) = 12,333 kWh (12.333 MWh)

Electricity Furnished by Unit 3 and consumed by the Facility = (100/450)
(37,000) = 8,222 kWh (8.222 MWh)

Electricity Furnished by Unit 4 and consumed by the Facility = (0/450) (37,000)
= 0 kWh

Billable Generation Unit 1 = 30,000 - 16.444 = 29,983 MWh

Billable Generation Unit 2 = 22,500 - 12.333 = 22,488 MWh

Billable Generation Unit 3 = 15,000 - 8.222 = 14,992 MWh

Billable

                  (ii)  The Revenue Meter shall be tested by the Parties at
         least once each year at Seller's expense and at any other reasonable
         time upon request by either Party, at the requesting Party's expense.
         Seller shall give Buyer at least fourteen (14) days notice of

                                      12
<PAGE>

         any testing of the Revenue Meters and Buyer shall have the right to be
         present during all testing and shall be furnished all testing results
         on a timely basis.

                  (iii) If testing of the Revenue Meter indicates an inaccuracy
         in measurement of Electric Energy of more than +/- 0.5% has occurred,
         the affected Revenue Meter shall be recalibrated promptly to register
         accurately within the Revenue Meter manufacturer stated tolerances.

                  (iv)  Each Party shall comply with any reasonable request of
         the other concerning the sealing of meters (including both Revenue
         Meters and any Buyer back up meters), the presence of a representative
         of the other Party when the seals are broken (for which the applicable
         Party shall provide 72 hours advance notice to the other Party) and the
         tests are made, and other matters affecting the accuracy of the
         measurement of Electric Energy delivered from the Committed Units. If
         either Party believes that there has been a meter failure or stoppage,
         it shall immediately notify the other Party.

                  (v)   If, for any reason, any Revenue Meter is out of service
         or out of repair so that the amount of Electric Energy delivered cannot
         be ascertained or computed from the readings thereof, the Electric
         Energy delivered during the period of such outage shall be estimated
         and agreed upon by the Parties hereto upon the basis of the best data
         available.

                  (b)   Billing. As soon as practicable after the end of each
                        -------
Month commencing with the first Month of the first Contract Year and after the
Termination Date, Seller shall render a statement to Buyer for the amounts due
in respect of such Month under Section 6(b) and Article 7, which statement shall
contain reasonable detail showing the manner in which the applicable charges
were determined. Billings for Electric Energy shall be based on Revenue Meter
information. The amount due to Seller as shown on any such Monthly statement
rendered by Seller shall be paid by Buyer by electronic wire transfer to an
account specified by Seller by the Payment Date. Any amount not paid by Buyer
when due shall bear interest at the Default Rate from the date that the payment
was due until the date payment by Buyer is made.

                  (c)   Billing Disputes.
                        ----------------

                  (i)   If a Party in good faith disputes an amount claimed to
         be due and payable hereunder by the other Party, it shall make such
         payment under protest and thereafter shall be reimbursed by the other
         Party for any amount in error after resolution for the dispute in
         accordance with Section 5(c)(ii).

                  (ii)  In the event that a Party, by timely notice to the other
         Party, questions or contests the correctness of any charge or payment
         claimed to be due by the notified Party, the notified Party shall
         promptly review the questioned charge or payment and shall respond to
         the contesting Party, within fifteen Business Days following receipt of
         such notice, with a statement of the amount of any error and the amount
         of any reimbursement that the contesting Party is entitled to receive
         in respect of such alleged error. Any disputes not resolved within
         fifteen (15) Business Days after receipt of such responding statement
         shall be resolved in accordance with Section 11. Upon determination of
         the correct amount of any reimbursement, such amount shall be promptly
         paid by the owing Party.

                                      13
<PAGE>

                  (iii) Reimbursements made under this Section 5(c) shall
         include interest from the date the original payment was made until the
         date such reimbursement together with interest is made, which interest
         shall accrue at the Default Rate.

                  (d)   Records. Each Party shall keep and maintain all records
                        -------
as may be necessary or useful in performing or verifying any calculations made
pursuant to this Agreement, or in verifying such Party's performance hereunder.
All such records shall be retained by each Party for at least three (3) calendar
years following the calendar year in which such records were created. Each Party
shall make such records available to the other Party for inspection and copying
at the other Party's expense, upon reasonable notice during such Party's regular
business hours, provided, however, that in the event that a Party, in good
faith, deems any such records to contain proprietary information, the disclosure
of which could result in substantial harm or competitive disadvantage for such
Party ("Competitive Information"), such records shall only be made available to
the auditor appointed pursuant to Section 5(e).

                  (e)   Auditing Rights. On a quarterly basis and at any other
                        ---------------
time there is a good faith dispute with regard to any calculation made pursuant
to this Agreement, each Party shall have the right to request that an audit of
the other Party's books and records relevant to the calculation be performed
(including transactions pursuant to Section 7(c)(ii)). The auditor (who may be
an employee or other representative of the auditing Party or its Affiliates)
will be selected by the auditing Party but shall be subject to the consent of
the other Party, such consent not to be unreasonably withheld. The Party whose
books and records are subject to examination shall have the right to require
that Competitive Information of the Party be kept confidential by the auditor.
The Parties will execute a confidentiality agreement to protect the
confidentiality of Competitive Information, and the examining Party will assume
responsibility for compliance with the Confidentiality Agreement by its
auditor(s). In such case, the auditor shall report the results of its findings
to the disputing Party but shall not reveal the Competitive Information to the
disputing Party.

6.   Operation of Committed Units.
     ----------------------------

                  (a)   Standard of Operation. Consistent with Prudent Utility
                        ---------------------
Practice, Seller shall use reasonable efforts to operate each Committed Unit in
accordance with (i) the practices, methods, acts, guidelines, standards and
criteria of MAIN, NERC, the Interconnected Utility, the ISO and any successors
to the functions thereof; (ii) the requirements of the Interconnection
Agreement; and (iii) all applicable Requirements of Law. Seller will obtain all
certifications, permits, licenses and approvals necessary to operate and
maintain each Committed Unit and to perform its obligations under this Agreement
during the Term.

                              Seller shall notify Buyer promptly in the event of
any changes in the practices, methods, acts, guidelines, standards or criteria
of MAIN, NERC, the Interconnected Utility, the ISO or any successor thereto or
of any changes to the Interconnection Agreement from the draft dated March
9,1999 and shall provide a copy thereof to Buyer. Seller shall not agree to any
change to the Interconnection Agreement from the draft dated March 9, 1999 that
would have a material adverse affect on any of Buyer's rights under this
Agreement, without the prior written consent of Buyer, which shall not be
unreasonably withheld, or delayed.

                                      14
<PAGE>

                  (b)   Excess Capacity. Buyer acknowledges that each Committed
                        ---------------
Unit may have a capability in excess of its Net Dependable Capacity but that
Seller will not operate the Committed Units at such levels under normal
conditions. If Seller, in its sole discretion, desires to operate a Committed
Unit such that it shall have electric generation capacity in excess of its Net
Dependable Capacity ("Excess Capacity"), Seller shall offer to sell such
capacity and associated electric energy (net of station service and auxiliaries)
and Ancillary Services first to Buyer based on a separate cost-based pricing
structure (as further described below), with profits from the sale of such
Excess Capacity, associated electric energy and Ancillary Services shared 85% to
Seller and 15% to Buyer. The pricing structure will be subject to the mutual
agreement of the Parties at the time of the offer. "Cost-based" for the purpose
of this provision shall mean the incremental variable cost to Seller to operate
the Committed Unit at the Excess Capacity level as compared to the Net
Dependable Capacity level. If Buyer declines to purchase such Excess Capacity
(and associated electric energy or Ancillary Services), Seller may offer and
sell Excess Capacity (and associated electric energy or Ancillary Services) to
third parties on the same terms as offered by Seller to Buyer. Such Excess
Capacity (and associated electric energy or Ancillary Services) may only be sold
by Seller to third parties during hours that Buyer has scheduled the Committed
Unit to be generating Electric Energy. It is further understood that, in the
event that any such Excess Capacity sales shall be made and a derating of the
associated Committed Unit occurs, such Excess Capacity (and associated electric
energy or Ancillary Services) sales shall be curtailed in full before any
curtailment of Electric Energy Dispatched by Buyer from such Committed Unit as a
result of such derating. In the case of each sale of Excess Capacity, as soon as
practical thereafter (and after Seller has provided all Seller information
necessary for Buyer to prepare such reports), Buyer shall prepare and provide to
Seller a report (subject to audit pursuant to Section 5(e) of this Agreement)
that summarizes all such sales of Excess Capacity, the revenue derived therefrom
and a calculation of the profits to be split among the Parties as specified in
this Section 6(b).

                  (c)   Outages.
                        -------

                  (i)   Planned Outages. No later than July 1, 1999, Seller
                        ---------------
         shall submit to Buyer a proposal schedule of Planned Outages scheduled
         by Seller for the period October 1 through December 31, 1999. No later
         than September 30, 1999 and each anniversary thereof, Seller shall
         submit to Buyer a proposed schedule of Planned Outages scheduled by
         Seller for the following Contract Year for the Committed Units, which
         schedule shall be supplemented by Seller every six months thereafter to
         extend the period covered by such schedule by six months; provided,
         however, that no Planned Outage may be scheduled to cover any portion
         of the Summer Period. Such schedule, and each supplement thereto, shall
         indicate the planned start and completion dates for each Planned Outage
         during the period covered thereby and the amount of the Net Dependable
         Capacity of a Committed Unit that will be affected. Within thirty (30)
         days of receipt of such schedule or any supplement thereto, Buyer may
         request reasonable modifications in the Planned Outages schedule
         contained therein. If within three (3) months prior to the scheduled
         start of a Planned Outage, Buyer desires to change the scheduled start
         or duration of such Planned Outage, Buyer shall notify Seller of
         Buyer's requested change, Seller shall use reasonable efforts to
         accommodate Buyer's request, but in the event the change would result
         in additional costs to Seller, Seller shall propose compensation from
         Buyer to Seller for such additional costs. Buyer shall then have the
         right to either direct such change and pay Seller such compensation, or
         withdraw the request for such change.

                                      15
<PAGE>

         At least one week prior to any Planned Outage, Seller shall orally
         notify Buyer of the expected start date of such Planned Outage, the
         amount of generating capacity at the Committed Units which will not be
         available to Buyer during such Planned Outage, and the expected
         completion date of such Planned Outage. Seller shall orally notify
         Buyer of any subsequent changes in such generating capacity not
         available or any subsequent changes in the Planned Outage completion
         date. As soon as practicable, all such oral notifications shall be
         confirmed in writing.

                  (ii)  Maintenance Outages. To the extent that during any
                        -------------------
         Contract Year Seller needs to schedule a Maintenance Outage of a
         Committed Unit, Seller shall notify Buyer of such proposed Maintenance
         Outage and the Parties shall plan such outage of generating capacity to
         mutually accommodate the reasonable requirements of Seller and service
         obligations of Buyer. Notice of a proposed Maintenance Outage shall
         include the expected start date of the outage, the amount of Net
         Dependable Capacity of a Committed Unit that will not be Available and
         the expected completion date of the outage, and shall be given to Buyer
         at the time the need for the Maintenance Outage is determined by
         Seller. Buyer shall promptly respond to such notice and may request
         reasonable modifications in the schedule for the outage. Seller shall
         use all reasonable efforts to comply with such a request to reschedule
         a Maintenance Outage, provided that it is able to do so in accordance
         with the Design Limits and Prudent Utility Practice as such practice
         relates solely to Seller's operation of the Facility. Seller shall
         notify Buyer of any subsequent changes in such generating capacity not
         Available to Buyer or any subsequent changes in such Maintenance Outage
         completion date. As soon as practicable, any such notifications given
         orally shall be confirmed in writing.

                  (iii) Forced Outage. Seller shall within one (1) hour of its
                        -------------
         occurrence, provide to Buyer an oral report in accordance with the
         provisions of Appendix C of any unplanned event that affects the
         ability of the Committed Units to be Available, which report shall
         include the amount of the Net Dependable Capacity at the Committed
         Units that will not be Available because of such unplanned event and
         the expected return date of such generating capacity, and shall update
         such report as necessary to advise Buyer of changed circumstances. As
         soon as practicable, all such oral reports shall be confirmed in
         writing. If Seller experiences an unplanned event that, in any such
         instance, continues for a period of three (3) consecutive days or
         longer, Seller may, at no additional cost to Buyer, make Substitute
         Electric Energy and capacity available to Buyer at a delivery point
         acceptable to Buyer inside the Control Area of the Interconnected
         Utility or any other mutually acceptable location. To the extent Seller
         makes Substitute Electric Energy and capacity available to Buyer in
         accordance with and in fulfillment of Buyer's Dispatch, the Committed
         Units shall be considered Available for purposes of calculation of the
         FOAF. Notwithstanding the above, Seller is not obligated to provide
         Substitute Electric Energy to Buyer at any time, and, except as
         provided in Section 10, Buyer's sole remedy and Seller's sole liability
         for failure to deliver Electric Energy as Dispatched by Buyer shall be
         the adjustment to Capacity Payments based upon the Capacity Adjustment
         Factor.

                  (iv)  Non-Summer Period. Notwithstanding that there is no
                        -----------------
         Target FOAF during Non-Summer Periods, Seller shall use commercially
         reasonable efforts to achieve a high level of availability for the
         Committed Units during the Non-Summer Periods.

                                      16
<PAGE>

                  (v)   Information Related to Outages. In addition to the
                        ------------------------------
         foregoing, Seller shall provide to Buyer information relating to
         outages of generating capacity at the Committed Units which could
         affect Seller's ability to deliver Electric Energy from such Units.

                  (d)   Operating Characteristics.
                        -------------------------

                  (i)   The operating characteristics of each Committed Unit
         shall be consistent with the Design Limits for such Committed Unit set
         forth in Appendix A unless otherwise mutually agreed upon by the
         Parties. Any changes to such operating characteristics which may affect
         the delivery of Electric Energy pursuant to this Agreement must be
         agreed by the Parties.

                  (ii)  Buyer understands that Seller may be required to
         increase, reduce, curtail or interrupt electrical generation at the
         Committed Units in accordance with Prudent Utility Practice or take
         other appropriate action in accordance with the applicable provisions
         of the Interconnection Agreement which in the reasonable judgment of
         the Interconnected Utility may be necessary to operate, maintain and
         protect the Interconnected Utility System or the transmission system of
         another utility during an Emergency Condition or in the reasonable
         judgment of Seller may be necessary to operate, maintain and protect
         the Committed Units during an Emergency Condition. For purposes of
         calculating the FOAF, the Committed Units shall not be considered to be
         under a Forced Outage or Forced Derating during any such increase,
         reduction, curtailment, or interruption, required by the Interconnected
         Utility except as provided in paragraph (iv) below.

                  (iii) Buyer acknowledges that other conditions on the
         Interconnected Utility System (for example, transmission outages or
         interruptions) may impact Seller's ability to deliver Electric Energy
         into the Interconnected Utility System at the Point of Delivery. For
         purposes of calculating the FOAF, and except as provided in paragraph
         (iv) below, the Committed Units shall not be considered to be under
         Forced Outage or Forced Derating during any time that the Committed
         Units would have been actually Available but for conditions (including,
         for example, transmission outages or interruptions) on the
         Interconnected Utility System.

                  (iv)  In the event that the Interconnected Utility has
         suspended, terminated or otherwise interrupted transmission of the
         electric energy of a Committed Unit due to a breach of or default under
         the Interconnection Agreement by Seller alleged by the Interconnected
         Utility by written notice of breach or default by Seller pursuant to
         the terms of the Interconnection Agreement to have occurred, the
         Committed Unit will be considered under a Forced Outage or Forced
         Derating for the purpose of calculating the FOAF, whether or not such
         claim by the Interconnected Utility is ultimately resolved in Seller's
         favor.

                  (v)   If the Interconnected Utility requires Seller to alter
         the level of electrical generation (net of station service and
         auxiliaries) at a Committed Unit, pursuant to Section 6(d)(ii) or
         (iii), then Seller shall notify Buyer as soon as practicable. Seller
         will make reasonable efforts to sell to Buyer any energy (net of
         station service and auxiliaries)

                                      17
<PAGE>

         generated during such circumstances to the extent practicable and
         consistent with any such order from the Interconnected Utility
         provided, however, if Seller is unable to sell such energy to Buyer,
         Buyer recognizes and agrees that Seller shall have the right to sell or
         provide such energy to the Interconnected Utility.

                  (e)   Fuel Source and Emissions Reports. Seller shall provide
                        ---------------------------------
Buyer with information concerning Seller's fuel sources and emissions (including
carbon dioxide, nitrous oxides and sulfur dioxide omissions) as reasonably
requested by Buyer in order to allow Buyer to meet its statutory reporting
obligations (including those reporting obligations imposed by Section 16-127 of
the Illinois Public Utilities Act and associated rules of the Illinois Commerce
Commission) in respect of such information to governmental bodies, customers or
other Persons.

7.       Compensation.
         ------------

                  (a)   Monthly Charges. Unless the Commercial Operations Date
                        ---------------
has not occurred and Seller has declared such delay to have resulted from an
Event of Force Majeure in accordance with the terms of this Agreement, Buyer
shall pay to Seller, in respect of each Month commencing with the first Month of
the first Contract Year, the amounts specified in this Section 7(a). To the
extent the Commercial Operations Date has not occurred as a result of a Force
Majeure Event declared by Seller, Buyer shall be relieved of its obligation to
make such payments (prorated daily) until the Commercial Operations Date occurs.

                  (i)   Capacity Payment. A Capacity Payment calculated based
                        ----------------
         upon the applicable Capacity Charge for that Month. In the event that
         the Commercial Operations Date has not occurred by July 1, 1999 (and to
         the extent the delay is not excused by a Force Majeure Event), the
         Capacity Payment shall be based on a Net Dependable Capacity of 150 MW
         per Committed Unit until the Net Dependable Capacity has been
         determined by a Capacity Test.

                  (ii)  Electric Energy Charge. For each hour during that Month,
                        ----------------------
         an amount equal to the product of the Electric Energy (expressed in
         MWh) sold to Buyer under this Agreement during such hour, multiplied by
         $/MWh applicable to the Dispatch level of a Committed Unit set forth
         below:

                        $/MWh                     Dispatch Level
                        -----                     --------------
                        $30.00/MWh                     100%
                        $31.00/MWh                      90%
                        $32.00/MWh                      80%
                        $33.50/MWh                      70%
                        $35.00/MWh                      60%

         For Dispatch levels between the above percentages, the prices will be
         prorated to the proportionate level between the points in the table.
         The Dispatch level will be determined by the Dispatch level requested
         by Buyer for such hour.

                  (iii) Substitute Electric Energy Charge. Buyer shall pay for
                        ---------------------------------
         the Substitute Electric Energy at the lesser of $30.00/MWH or the cost
         to Seller for the Substitute

                                      18
<PAGE>

         Electric Energy, delivered to the substitute delivery point. Seller
         shall provide Buyer with information regarding the cost of Substitute
         Electric Energy as soon as reasonably practical.

                  (iv)  Emergency Condition. If (x) Seller is required by the
                        -------------------
         Interconnected Utility to operate a Committed Unit pursuant to Sections
         6(d)(ii) or (iii) either at a time when Buyer has not Dispatched such
         Committed Unit on-line or at a level above the level Dispatched by
         Buyer, and (y) to the extent Seller does not sell to Buyer any energy
         generated as a result pursuant to Buyer's rights under Section 6(d)(v),
         then Seller shall pay to Buyer the portion of any amounts Seller
         receives from the Interconnected Utility for such energy generated
         during such period that exceeds what Buyer would have paid to Seller
         for such energy pursuant to Section 7(a)(ii).

                  (b)   Start Up Charge. For each Start Up of a Committed Unit
                        ---------------
Seller shall be entitled to a payment of $2500.00 (the "Start Up Charge"). No
Start Up Charge shall be payable unless a Committed Unit reaches at least 90% of
the Dispatch level requested by Buyer.

                  (c)   Profit Sharing.
                        --------------

                  (i)   For any Contract Year in which Buyer has a positive Net
         Margin (as hereinafter defined), Buyer and Seller shall share such
         positive Net Margin based 16.25% Seller / 83.75% Buyer. The Net Margin
         shall be calculated as follows:

                  Net Margin = AGR - RC

                  where:

                  AGR = Buyer's annual gross revenues from the sales of Electric
                  Energy, capacity and Ancillary Services (including gains from
                  the purchase or sale of financial instruments related to such
                  sales) from the Committed Units during such Contract Year.

                  RC = The total of the adjusted Capacity Payments, Energy
                  Charges and Start Up Charges due from Buyer to Seller for such
                  Contract Year, plus the costs incurred by Buyer to make sales
                  of capacity, Electric Energy and Ancillary Services from the
                  Committed Units to third parties during such Contract Year,
                  including (i) all costs of transmission from the Point of
                  Delivery, (ii) charges imposed by regulatory authorities with
                  respect to such sales, (iii) non-income related taxes, (iv)
                  unit availability insurance costs, (v) costs (such as
                  premiums) and losses resulting from the purchase and sale of
                  financial instruments related to such sales (but specifically
                  excluding Buyer costs and losses related to Buyer's breach of
                  the terms of such instruments), (vi) broker's fees associated
                  with the sale of Electric Energy and (vii) all other costs,
                  losses or expenses mutually acceptable to the Parties.

                  (ii)  To allow verification of the components of the Net
         Margin, all transactions based on the Committed Units will be kept in a
         separate book of business by Buyer (the "Elwood Book"), and copies of
         the documents listed below will be made

                                      19
<PAGE>

         available to Seller for inspection, pursuant to Seller's request and
         subject to the Confidentiality Agreement referred to in Section 5(e).
         In addition, Buyer shall maintain and provide reports (including
         information included in (w), (x), (y) and (z) below) to Seller each
         Month using the forms to be developed and included in Appendix D.

                         (w)  Copies of all confirmations of purchases and sales
                  of financial instruments associated with the Electric Energy,
                  capacity and Ancillary Services of the Committed Units.

                         (x)  Copies of all term contracts (with counterparty
                  names redacted) associated with the Electric Energy, capacity
                  and Ancillary Services of the Committed Units.

                         (y)  Copies of all confirmations (with counterparty
                  names redacted) relating to daily transactions from the
                  Committed Units; and

                         (z)  For hourly transactions not covered by (x) or (y)
                  above, the average price of all of Seller's trades in the MAIN
                  region in that hour will be used in the gross revenue
                  calculation for that hour.

                  (iii)  The calculation and payment of any amount due to Seller
         shall be made by Buyer no later than February 28 of each Contract Year
         for the previous Contract Year. Seller shall have auditing rights in
         accordance with the procedures set forth in Section 5(e) to the Elwood
         Book in Buyer's internal electric trading system (EXTRA) or any
         replacement program or system. This system will list counterparties,
         transaction size, sale price and duration. In addition to the entries
         into this system, there will also be an audit trail provided by the
         Dispatch schedule of the Committed Units and the NERC tagging
         procedures related to the Dispatch of the Committed Units. For those
         hours that a Committed Unit was dispatched, Seller shall have auditing
         rights in accordance with the procedures set forth in Section 5(e) to
         EXTRA for all of Buyer's trades in that hour in the MAIN region. The
         information described in this Section 7(c)(iii) shall be treated as
         Competitive Information of Buyer unless otherwise agreed by Buyer.

                  (iv)   For all sales after July 1, 1999, Buyer shall have sole
         discretion in determining the nature, type and quantity of resales to
         third parties of output from the Committed Units of capacity, Electric
         Energy and Ancillary Services, including the identity of the purchaser,
         the term of the contract or other arrangement for the sale, the price
         or any other terms and conditions of the sale. Buyer shall have no
         obligation to market the capacity, Electric Energy or Ancillary
         Services of the Committed Units to any particular customer or market
         and nothing in this Agreement shall affect Buyer's discretion with
         respect to marketing other sources of generating capacity or energy
         available to it.

                  (d)    Capacity Adjustment Factor. No later than January 31 of
                         --------------------------
each Contract Year, Buyer shall calculate an adjustment to the Capacity Payments
as described below (the "Capacity Adjustment Factor") and shall provide a
written statement to Seller setting forth its calculations. For every one
percent (1)% (or portion thereof) that the aggregate FOAF of both Committed
Units during the prior Contract Year exceeds the Target FOAF, Buyer shall be

                                      20
<PAGE>

entitled to a credit in an amount equal to one percent (1%) (or a portion
thereof) of the aggregate Capacity Payments received by Seller for the prior
Contract Year (or in the case of the first Contract Year, since July 1, 1999);
provided, however, that in no event shall Buyer's credit under this Section 7(d)
exceed the annual amount of aggregate Capacity Payments actually received by
Seller for the prior Contract Year. For every one (1)% (or portion thereof) that
the aggregate FOAF of both Committed Units during the prior Contract Year is
less than the Target FOAF, Buyer shall owe Seller a bonus of one percent (1%)
(or portion thereof) of the aggregate Capacity Payments Seller received during
the prior Contract Year (or in the case of the first Contract Year, since July
1, 1999). If a credit is due to Buyer pursuant to this Section 7(d), it shall be
applied by Buyer as an offset against amounts due to Seller hereunder. If a
bonus is due to Seller, it shall be paid within fifteen (15) Business Days
following delivery to Seller of the statement showing the calculation of the
Capacity Adjustment Factor. At the end of the Term, the FOAF shall be calculated
within thirty (30) days after the end of the Term and any payment due from one
Party to the other will be made within fifteen (15) Business Days following such
calculation. If the end of the Term occurs during a Summer Period, the FOAF
calculation shall be adjusted as appropriate for the truncated period. If Net
Dependable Capacity changes during a Summer Period, then for purposes of
calculating the Capacity Adjustment Factor for such Summer Period, Net
Dependable Capacity shall be deemed to be the weighted average Net Dependable
Capacity over such Summer Period.

          (e)  Energy Imbalance Charges/ Other Charges and Penalties. To the
               -----------------------------------------------------
extent a Party incurs Imbalance Charges for which the other Party is liable
pursuant to Section 4(f), such Party will provide a statement to the other Party
of such costs no more frequently than once each Month, together with supporting
documentation, and the amount is shown on such statement will be due on the
Payment Date.

          (f)  Rates Not subject to Review. The rates for service specified
               ---------------------------
herein (i.e., delivery of Electric Energy, Substitute Electric Energy and
capacity) shall remain in effect for the term of this Agreement, and shall not
be subject to change through application to FERC pursuant to provisions of
Section 205 of the Federal Power Act, absent agreement of the Parties.

8.   Early Start; Delayed Start.
     --------------------------

          (a)  Early Start. Seller anticipates that the Commercial Operations
               -----------
Date will occur no later than July 1, 1999. If the Commercial Operations Date
occurs prior to July 1, 1999, then until July 1, 1999, Buyer shall market the
output (net of station service and auxiliaries) of the Committed Units for
Seller, under the arrangements described in this Section 8(a). The Dispatch of
the Committed Units for the purpose of these sales will be subject to the mutual
agreement of Buyer and Seller. Buyer shall be entitled to 15% of the "Net
Profits" (as hereinafter defined) from such sales. "Net Profits" for the
purposes of this Section 8(a) shall mean the profits remaining after each Party
has been reimbursed for its costs and expenses related to such sales, including
(i) Seller's direct operation and maintenance expenses incurred in producing
such Electric Energy, (ii) the cost of fuel used for such generation (including
transportation costs), (iii) transmission costs, (iv) costs (such as premiums),
losses resulting from the purchase and sale of financial instruments related to
such sales (but specifically excluding Buyer costs and losses related to Buyer's
breach of the terms of such instruments), (v) charges imposed by regulatory
authorities with respect to such sales, (vi) non-income related taxes, (vii)
unit availability insurance costs, (viii) broker's fees associated with the sale
of Electric Energy

                                      21
<PAGE>

and (ix) all other costs or expenses mutually acceptable to the Parties.

               (b)   Delay Liquidated Damages.
                     ------------------------

               (i)   If the Commercial Operations Date for a Committed Unit does
         not occur by July 1, 1999, (and to the extent such delay is not excused
         by a Force Majeure Event declared by Seller), Seller shall owe Delay
         Liquidated Damages to Buyer in an amount equal to $870 per day
         multiplied by 150 MW for each day after July 1, 1999 until the earlier
         to occur of (x) August 31, 1999, or (y) the date on which the
         Commercial Operations Date has been achieved for such Committed Unit.
         For the avoidance of doubt, the Commercial Operations Date cannot occur
         for a Committed Unit unless such Committed Unit is capable of
         generating at least 90 MW.

               (ii)  If the Commercial Operations Date for a Committed Unit has
         not been achieved by September 1, 1999 (and to the extent such delay is
         not excused by a Force Majeure Event declared by Seller), no Capacity
         Payment shall be due from Buyer for the first Contract Year and Seller
         shall have no liability for any Delay Liquidated Damages, or any other
         damages whatsoever as a result of such delay other than (x) the Delay
         Liquidated Damages owed pursuant to Section 8(b)(i) above, and (y) for
         circumstances described in Section 10(d), the remedy set forth in such
         Section 10(d).

               (iii) If the Commercial Operation Date for a Committed Unit has
         not occurred by January 1, 2000 (and to the extent such delay is not
         excused by a Force Majeure Event declared by Seller), Seller shall owe
         Delay Liquidated Damages commencing on January 1, 2000 in an amount
         equal to $164 per day multiplied by 150 MW for each day commencing
         January 1, 2000 until the Commercial Operations Date has been achieved
         for such Committed Unit.

               (iv)  The Delay Liquidated Damages due from Seller pursuant to
         this Section 8(b) shall be applied currently as a credit against any
         Capacity Payments due from Buyer for the same time period.

9.       Ancillary Services.
         ------------------

               Buyer shall be entitled (at no extra charge) to all Ancillary
Services with respect to the Net Dependable Capacity at the Delivery Point. Such
services are described in the Interconnecting Utility's Open Access Transmission
Tariff as filed with FERC, and as Seller is permitted to provide (including
reactive supply and voltage control from generation sources, regulation and
frequency response, operating spinning reserve and supplemented operating
reserve) consistent with any requirements of the Interconnection Agreement,
FERC, MAIN, NERC, any ISO and any successors to the functions thereof, provided
that Seller can provide such Ancillary Services without adverse operational
impact on Seller's operations in accordance with Design Limits included in
Appendix A.

10.      Limitation of Liability.
         -----------------------

               (a)   In no event or under any circumstances shall either Party
(including such Party's Affiliates and such Party's and such Affiliates'
respective directors, officers, employees

                                      22
<PAGE>

and agents) be liable to the other Party (including such Party's Affiliates and
such Party's and such Affiliate's respective directors, officers, employees and
agents) for any special, incidental, exemplary, indirect, punitive or
consequential damages or damages in the nature of lost profits, whether such
loss is based on contract, warranty or tort (including intentional acts, errors
or omissions, negligence, indemnity, strict liability or otherwise). A Party's
liability under this Agreement shall be limited to direct, actual damages, and
all other damages at law or in equity are waived.

          (b)   Buyer's sole remedies and Seller's sole liabilities (i) for
Seller's failure to meet Target FOAF, or to deliver Electric Energy as
Dispatched by Buyer shall be the adjustment to Capacity Payments based upon the
Capacity Adjustment Factor subject to the limit on Seller's liability for such
adjustment set forth in Section 7(d), and eventual termination pursuant to
Section 14(d) and (ii) for circumstances described in Sections 10(c) and (d)
below, the remedy set forth in such Sections 10(c) and (d);

          (c)   For late Commercial Operations Date (unless such delay is
excused by a Force Majeure Event), Buyer shall be entitled to Delay Liquidated
Damages set forth in Section 8(b), subject to the limitation on Seller's
liability set forth in such Section 8(b).

          (d)   If Seller sells or provides electric energy from a Committed
Unit (net of station service and auxiliaries) to any Person other than Buyer
(other than pursuant to Seller's rights under Sections 3(a)(ii), 3(b)(iv) and
(v), 6(b), 6(d) (so long as Seller complies with the provisions of Section
7(a)(iv)) or 14(c)(ii)), then, Buyer shall be entitled:

          (i)   to recover from Seller the cost of cover for replacement energy
     purchased by Buyer, and

          (ii)  to seek specific performance of this Agreement by Seller by a
     court of competent jurisdiction. Seller agrees not to defend such action by
     pleading that Buyer has an adequate remedy at law, or that specific
     performance is otherwise not available.

11.  Disagreements.
     -------------

          (a)   Negotiations. The Parties shall attempt in good faith to resolve
                ------------
all disputes promptly by negotiation, as follows. A Party may give the other
Party written notice of any dispute not resolved in the normal course of
business. Executives of both Parties at levels at least one level above the
personnel who have previously been involved in the dispute shall meet at a
mutually acceptable time and place within ten (10) days after delivery of such
notice, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within thirty (30) days from the referral of the dispute to
senior executives, or if no meeting of senior executives has taken place within
fifteen (15) days after such referral, either Party may initiate legal action.
If a Party intends to be accompanied at a meeting by an attorney, the other
Party shall be given at least three (3) Business Days' notice of such intention
and may also be accompanied by an attorney. All negotiations pursuant to this
clause are confidential.

          (b)   Settlement Discussions. The Parties agree that no written
                ----------------------
statements of position or offers of settlement made in the course of the
negotiations described in Section 11(a)

                                      23
<PAGE>

above will be offered into evidence for any purpose in any litigation or
arbitration between the Parties, nor will any such written statements or offers
of settlement be used in any manner against either Party in any such litigation
or arbitration. Further, no such written statements or offers of settlement
shall constitute an admission or waiver of rights by either Party in connection
with any such litigation or arbitration. At the request of either Party, any
such written statements and offers of settlement, and all copies thereof, shall
be promptly returned to the Party providing the same.

          (c)  Obligations to Pay Charges and Perform. If a disagreement should
               --------------------------------------
arise on any matter which is not resolved as provided in Section 11(a), then,
pending the resolution of the disagreement, Seller shall continue to operate the
Committed Units in a manner consistent with the applicable provisions of this
Agreement and Buyer shall continue to pay all charges and perform all other
obligations required in accordance with the applicable provisions of this
Agreement.

12.  Assignment; Transfer of Committed Units.
     ---------------------------------------

          (a)  Assignment. Except as set forth in this Section 12, neither Party
               ----------
may assign its rights or obligations under this Agreement without the prior
written consent of the other Party, which shall not be unreasonably withheld.
Either Party may assign this Agreement, without the consent of the other Party
to an Affiliate, but no such assignment shall release such assignor from any
obligations hereunder whether arising before or after such assignment. For the
purposes of this Section 12(a), any direct transfer or series of direct
transfers (whether voluntary or by operation of law) of a majority of the
outstanding voting equity interests of a Party (or any entity or entities
directly or indirectly holding a majority of the outstanding voting equity
interests of such Party) to any party other than an Affiliate shall be deemed an
assignment of this Agreement.

          (b)  Consent to Assignment to Lender. Notwithstanding the above, Buyer
               -------------------------------
hereby consents to the assignment by Seller of a security interest in this
Agreement to its Lenders. Buyer further agrees to execute documentation to
evidence such consent reasonably required by the Lenders typical for project
finance (including an opinion of its counsel in typical form regarding such
consents and this Agreement). Buyer recognizes that such consent may grant
certain rights to such Lenders, which shall be fully developed and described in
the consent documents, including but not limited to (i) this Agreement shall not
be amended or terminated (except for termination pursuant to the terms of this
Agreement) without the consent of Lenders, (ii) the Lenders shall be given
notice of, and a reasonable time period at least sixty (60) days beyond that
granted to Seller, to cure any Seller breach or default of this Agreement, (iii)
if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies
pursuant to any security documents, that Buyer shall, at Lender's request and
provided that any breach by Seller has been cured (to the extent any such
breaches can be cured by the payment of money) and Seller's security provided
under Section 13(b) remains in place, continue to perform all of its obligations
hereunder, and Lender or its nominee may perform in the place of Seller, and may
assign this Agreement to another party in place of Seller, and enforce all of
Seller's rights hereunder, (iv) that Lender(s) shall have no liability under
this Agreement except during the period of such Lender(s)' ownership and/or
operation of the Facility, (v) that Buyer shall accept performance in accordance
with this Agreement by Lender(s) or its (their) nominee, (vi) that Buyer shall
make all payments to an account designated by Lender(s), and (vii) that Buyer
shall

                                      24
<PAGE>

make representations and warranties to Lender(s) as Lender(s) may reasonably
request with regard to (A) Buyer's corporate existence, (B) Buyer's corporate
authority to execute, deliver, and perform this Agreement, (C) the binding
nature of this Agreement on Buyer, (D) receipt of regulatory approvals (if any)
by Buyer with respect to its performance under this Agreement, and (E) whether
any defaults by Seller are known by Buyer then to exist under this Agreement.

13.  Security.
     --------

          (a)  Buyer Security. No later than thirty (30) days after the
               --------------
Effective Date, Buyer shall post with Seller a letter of credit in a form
reasonably acceptable to Seller in the same amount as the parent guarantee in
Appendix F, or, at Buyer's option, a parent guarantee in the form of Appendix F.
If a letter of credit is posted, Buyer shall replace such letter of credit when
necessary to ensure that such security is continuously in place through the
Term. If Buyer fails to pay any amounts due pursuant to this Agreement, Seller
may draw such amounts from the letter of credit, and within ten (10) days
thereafter, Buyer must restore the letter of credit to the full original value.
In addition, if Buyer has not posted a replacement letter of credit at least ten
(10) days prior to the expiration of the then current letter of credit, Seller
may draw the full amount of the existing letter of credit. Buyer may, at its
option, provide two guarantees (from The Coastal Company and another entity
acceptable to Seller in its sole discretion) which total $109,032,000. If two
guarantees are provided, changes may be made to the form of the guarantees as
appropriate to reflect that each guarantor is liable for 50% of the
indebtedness. Buyer shall remain obligated to provide the guarantee in the form
of Appendix F until such time as Seller finds that the guarantor in addition to
The Coastal Corporation is acceptable to Seller.

          (b)  Seller Security. No later than thirty (30) days after the
               ---------------
Effective Date, Seller shall furnish to Buyer parent guarantees in the form of
Appendix G-1 and Appendix G-2.

14.  Default; Termination and Remedies.
     ---------------------------------

     (a)  Seller Default. The occurrence and continuation of any of the
          --------------
following events or circumstances at any time during the Term, except to the
extent caused by, or resulting from, an act or omission of Buyer in breach of
this Agreement, shall constitute an event of default by Seller ("Seller Event of
Default"):

          (i)   Seller fails to pay any sum due from it hereunder on the due
     date thereof and such failure is not remedied within fifteen (15) days
     after receipt of written notice thereof;

          (ii)  the Bankruptcy of Seller or any guarantor thereof;

          (iii) Seller's failure to furnish the guarantee as required by Article
     13; or

          (iv)  Seller fails in any material respect to perform or comply with
     any other obligation in this Agreement on its part to be observed or
     performed (other than Seller's obligations to meet Target FOAF or to comply
     with Buyer's Dispatch orders for which the exclusive remedies are
     enumerated in Section 10(b)) which failure materially and adversely affects
     Buyer, and if reasonably capable of remedy, is not remedied within sixty
     (60) days after Buyer has given written notice to Seller of such failure
     and requiring

                                      25
<PAGE>

         its remedy; provided, however, that if such failure cannot reasonably
         be cured within such period of sixty (60) days, such failure shall not
         constitute a Seller Event of Default if Seller has promptly commenced
         and is diligently proceeding to cure such default.

         (b)   Buyer Default. The occurrence and continuation of any of the
               -------------
following events or circumstances at any time during the Term, except to the
extent caused by, or resulting from, an act or omission of Seller in breach of
this Agreement, shall constitute an event of default by Buyer ("Buyer Event of
Default"):

               (i)   Buyer fails to pay any sum due from it hereunder on the due
         date thereof and such failure is not remedied within fifteen (15) days
         after receipt of Seller's notice to Buyer of such failure requiring its
         remedy;

               (ii)  the Bankruptcy of Buyer or any guarantor thereof;

               (iii) Buyer's failure to post or replace security as required by
         Article 13; or

               (iv)  Buyer fails in any material respect to perform or comply
         with any other obligation in this Agreement on its part to be observed
         or performed which failure materially and adversely affects Seller, and
         if reasonably capable of remedy, is not remedied within sixty (60) days
         after Seller has given written notice to Buyer of such failure and
         requiring its remedy; provided, however, that if such failure cannot
         reasonably be cured within such period of sixty (60) days, such failure
         shall not constitute a Buyer Event of Default if Buyer has promptly
         commenced and is diligently proceeding to cure such default.

         (c)   Remedies.
               --------

               (i)   Upon the occurrence and during the continuance of a Buyer
         Event of Default or a Seller Event of Default, the non-defaulting Party
         may at its discretion terminate this Agreement upon thirty (30) days
         prior written notice to the Party in default.

               (ii)  Upon the occurrence of a Buyer Event of Default pursuant to
         Section 14(b)(i), (ii) or (iii), and beginning on the 61st day after
         Seller's notice under Section (b)(iv) above, Seller shall use
         reasonable efforts to sell all electric energy (net of station service
         and auxiliaries) and capacity to third parties without liability to
         Buyer whatsoever until such time as the Event of Default or failure
         under section (iv) is cured or this Agreement is terminated. If such
         sales are made, Seller shall make reasonable efforts to sell both
         capacity and electric energy (net of station service and auxiliaries)
         at prices equal to or greater than the prices Buyer would have paid
         hereunder. If the sales prices are less than those Buyer would be
         liable for under this Agreement, Buyer shall be liable to Seller for
         the difference.

         (d)   Extended Outage. Buyer may terminate this Agreement with regard
               ---------------
to a Committed Unit upon thirty (30) days prior written notice to Seller if a
Forced Outage or a Force Majeure Event at such Committed Unit prevents Seller
from performing its obligations hereunder for a consecutive period of 120 days,
provided that if Seller demonstrates that it has taken significant steps toward
remediating the circumstances which led to such Forced Outage or

                                      26
<PAGE>

Force Majeure Event and certifies in writing to Buyer that such outage will end
within 240 days of its commencement (and such outage in fact ends within such
240 days), then Buyer may not so terminate this Agreement.

15.  Representations and Warranties.
     ------------------------------

          (a)    Representations and Warranties of Seller. Seller hereby makes
                 ----------------------------------------
the following representations and warranties to Buyer:

          (i)    Seller is a Delaware limited liability company duly organized,
     validly existing and in good standing under the laws of the State of
     Delaware, is qualified to do business in the State of Illinois and has the
     legal power and authority to own its properties, to carry on its business
     as now being conducted and to enter into this Agreement and, subject to the
     receipt of the regulatory approvals set forth in Article 21, carry out the
     transactions contemplated hereby and perform and carry out all covenants
     and obligations on its part to be performed under and pursuant to this
     Agreement.

          (ii)   The execution, delivery and performance by Seller of this
     Agreement have been duly authorized by all necessary corporate action, and
     do not and will not require any consent or approval of Seller's Management
     Committee or equity holders or any other Person other than that which has
     been obtained.

          (iii)  The execution and delivery of this Agreement, the consummation
     of the transactions contemplated hereby and the fulfillment of and
     compliance with the provisions of this Agreement, do not and will not
     conflict with or constitute a breach of or a default under, any of the
     terms, conditions or provisions of any legal requirements, or any
     organizational documents, agreement, deed of trust, mortgage, loan
     agreement, other evidence of indebtedness or any other agreement or
     instrument to which Seller is a party or by which it or any of its property
     is bound, or result in a breach of or a default under any of the foregoing,
     and Seller has obtained all permits, licenses, approvals and consents of
     governmental authorities required for the lawful performance of its
     obligations hereunder.

          (iv)   This Agreement constitutes the legal, valid and binding
     obligation of Seller enforceable in accordance with its terms, except as
     such enforceability may be limited by bankruptcy, insolvency,
     reorganization or similar laws relating to or affecting the enforcement of
     creditors' rights generally or by general equitable principles, regardless
     of whether such enforceability is considered in a proceeding in equity or
     at law.

          (v)    There is no pending, or to the knowledge of Seller, threatened
     action or proceeding affecting Seller before any governmental authority
     which purports to affect the legality, validity or enforceability of this
     Agreement.

          (b)    Representations and Warranties of Buyer. Buyer hereby makes the
                 ---------------------------------------
following representations and warranties to Seller:

                                      27
<PAGE>

          (i)    Buyer is a limited partnership duly organized, validly existing
     and in good standing under the laws of the State of Delaware and has the
     legal power and authority to own its properties, to carry on its business
     as now being conducted and to enter into this Agreement and carry out the
     transactions contemplated hereby and perform and carry out all covenants
     and obligations on its part to be performed under and pursuant to this
     Agreement.

          (ii)   The execution, delivery and performance by Buyer of this
     Agreement have been duly authorized by all necessary partnership action,
     and do not and will not require any consent or approval of any Person other
     than that which has been obtained.

          (iii)  The execution and delivery of this Agreement, the consummation
     of the transactions contemplated hereby and the fulfillment of and
     compliance with the provisions of this Agreement do not and will not
     conflict with or constitute a breach of or a default under, any of the
     terms, conditions or provisions of any legal requirements, or its articles
     of incorporation or bylaws, or any deed of trust, mortgage, loan agreement,
     other evidence of indebtedness or any other agreement or instrument to
     which Buyer is a party or by which it or any of its property is bound, or
     result in a breach of or a default under any of the foregoing.

          (iv)   This Agreement constitutes the legal, valid and binding
     obligation of Buyer enforceable in accordance with its terms, except as
     such enforceability may be limited by bankruptcy, insolvency,
     reorganization or similar laws relating to or affecting the enforcement of
     creditors' rights generally or by general equitable principles, regardless
     of whether such enforceability is considered in a proceeding in equity or
     at law.

          (v)    There is no pending, or to the knowledge of Buyer, threatened
     action or proceeding affecting Buyer before any governmental authority
     which purports to affect the legality, validity or enforceability of this
     Agreement.

16.  Indemnification.
     ---------------

Each Party shall indemnify and hold harmless the other Party, and its officers,
directors, agents and employees from and against any and all claims, demands,
actions, losses, liabilities, expenses (including reasonable legal fees and
expenses), suits and proceedings of any nature whatsoever for personal injury,
death or property damage to each other's property or facilities or personal
injury, death or property damage to third parties (collectively "Liabilities")
caused by the gross negligence or willful misconduct of the indemnifying Party
that arise out of or are in any manner connected with the performance of this
Agreement except to the extent such Liabilities are attributable to the gross
negligence or willful misconduct of, or breach of this Agreement by, the Party
seeking indemnification hereunder. Each Party also shall indemnify and hold
harmless the other Party from and against all suits, actions, debts, accounts,
damages, costs, losses and expenses arising out of the indemnifying Party's
ownership, possession or control of the Electric Energy (or Substitute Electric
Energy) up to or from the Point of Delivery (or the delivery point for
Substitute Electric Energy), as the case may be.

17.  Notices.
     -------

                                      28
<PAGE>

          Unless otherwise provided in this Agreement, any notice, consent or
other communication required to be made under this Agreement shall be in writing
and shall be delivered to the address set forth below or such other address or
persons as the receiving Party may from time to time designate by written
notice:

          If to Buyer, to:

          Engage Energy US, L.P.
          Five Greenway Plaza, Suite 1200
          Houston, Texas 77046
          Telecopy No.  (713) 877-3583
          Attention: Director, Contract Administration

          with a copy to:

          Engage Energy US, L.P.
          3000 Town Center
          Suite 2800
          Southfield, Michigan  48075
          Telecopy No.: (248) 304-3243
          Attention: Vice President, Structured Power

          Engage Energy US, L.P.
          Five Greenway Plaza, 13/th/ Floor
          Houston, Texas 77046
          Telecopy No.: (713) 297-1026
          Attention: Manager, 24 Hour Electric Desk

          If to Seller, to:

          Elwood Energy LLC
          c/o Dominion Energy, Inc.
          120 Tredegar Street
          Richmond, Virginia 23219
          Telecopy No.: (804) 819-2202
          Attention: Diane Leopold/Christine M. Schwab, Esq.

          with a copy to:
          Elwood Energy LLC
          c/o McGuire, Woods, Battle & Boothe LLP
          901 East Cary Street
          Richmond, Virginia 23219
          Attention: Mark J. La Fratta
          Telephone: (804) 775-1106
          Telecopy No: (804) 698-2096

Verbal notices may not be made to a Party's voice mail or other messaging
system.

                                      29
<PAGE>

     All notices shall be effective when received. Notice by overnight mail or
     courier shall be deemed to have been received on the next Business Day
     after it was sent or such earlier time as is confirmed by the receiving
     Party. Notice delivered by hand shall be deemed to be received at the time
     it is delivered to an officer or responsible employee of the receiving
     Party. Notice via first class or certified mail shall be considered
     delivered two (2) Business Days after the day it is posted. Notice via
     telecopy shall be deemed to be received upon the sending Party's receipt of
     its telecopier's confirmation of receipt of such telecopy by the receiving
     Party.

18.  Confidentiality.
     ---------------

          Each Party agrees that the terms of this Agreement are confidential
and that it will treat in confidence all documents, materials and other
information marked "Confidential" or "Proprietary" by the disclosing Party
("Confidential Information") which it shall have obtained during the course of
the negotiations leading to, and its performance of, this Agreement (whether
obtained before or after the date of this Agreement). Confidential Information
shall not be communicated to any third party (other than, in the case of Seller,
to its Affiliates who have a need to know such information, to its counsel,
accountants, financial or tax advisors, or insurance consultants, to prospective
partners and other investors in Seller and their counsel, accountants, or
financial or tax advisors, or in connection with its financing or refinancing;
and in the case of Buyer, to its Affiliates who have a need to know such
information, or to its counsel, accountants, financial advisors, tax advisors or
insurance consultants (in each case such parties hereafter referred to as
"Representatives"). Each Party hereby agrees to be responsible for a breach of
this provision by its Representatives. As used herein, the term "Confidential
Information" shall not include any information which (i) is or becomes available
to a Party from a source other than the other Party, (ii) is or becomes
available to the public other than as a result of disclosure by the receiving
Party or its agents, (iii) is required to be disclosed under applicable law or
judicial, administrative or regulatory process, but only to the extent it must
be disclosed or (iv) was previously known to the receiving Party.

19.  Governing Law.
     -------------

          This Agreement shall be construed in accordance with and governed by
the laws of the State of Illinois without regard to its conflicts of laws
provisions.

20.  Force Majeure Event.
     -------------------

          (a)   Definition. For the purposes of this Agreement, "Force Majeure
                ----------
Event" means an event, condition or circumstance beyond the reasonable control
of the Party affected (the "Affected Party") which, despite all reasonable
efforts of the Affected Party to prevent it or mitigate its effects, prevents
the performance by such Affected Party of its obligations hereunder. Subject to
the foregoing, "Force Majeure Event" shall include:

          (i)   explosion and fire (in either case to the extent not
     attributable to the negligence of the Affected Party);

          (ii)  flood, earthquake, storm, or other natural calamity or act of
     God;

                                      30
<PAGE>

          (iii)  strike or other labor dispute (other than as a result of
Seller's violation of its labor agreements);

          (iv)   war, insurrection or riot;

          (v)    actions or failure to act by governmental entities or
     officials, failure to obtain governmental permits or approvals despite
     timely application therefore and due diligence on the part of Seller;

          (vi)   changes in Requirements of Law affecting operation of a
     Committed Unit; and

          (vii)  lack of fuel caused by a Force Majeure Event (as defined in
     this Agreement) experienced by a Committed Unit's fuel supplier or
     transporter (as if for purposes of this Section 20(a)(vii) such fuel
     supplier or transporter is the Affected Party), provided, however,
     acquisition of fuel at an economically disadvantageous price shall not be
     considered to be a Force Majeure Event.

          (viii) mechanical breakdown of equipment if the cause of the breakdown
     is itself a Force Majeure Event pursuant to Section 20(a)(ii) above.

          (b)    Obligations Under Force Majeure.
                 -------------------------------

          (i)    If either Party is rendered unable, wholly or in part, by a
     Force Majeure Event, to carry out some or all of its obligations under this
     Agreement (other than obligations to pay money) despite all reasonable
     efforts of such Party to prevent or mitigate its effects, then, during the
     continuance of such inability, the obligation of such Party to perform the
     obligations so affected shall be suspended.

          (ii)   A Party relying on a Force Majeure Event shall give written
     notice of such Force Majeure Event to the other Party as soon as
     practicable after such event occurs, which notice shall include information
     with respect to the nature, cause and date of commencement of the
     occurrence(s), and the anticipated scope and duration of the delay. Upon
     the conclusion of the Force Majeure Event, the Party heretofore relying on
     such Force Majeure Event shall, with all reasonable dispatch, take all
     steps reasonably necessary to resume the obligation(s) previously
     suspended.

          (iii)  Notwithstanding the foregoing, a Party shall not be excused
     under this Section 20, (x) for any non-performance of its obligations under
     this Agreement having a greater scope or longer period than is justified by
     the Force Majeure Event, or (y) for the performance of obligations that
     arose prior to the Force Majeure Event.

          (c)    Continued Payment Obligation. A Party's obligation to make
                 ----------------------------
payments (including Monthly Capacity Payments) shall not be suspended by the
occurrence or continuance of a Force Majeure Event, except in the event of a
Force Majeure Event that delays the Commercial Operations Date.

                                      31
<PAGE>

21.  Regulatory Approvals.
     --------------------

          The obligations of the Parties under this Agreement are conditioned
upon the acceptance of the Seller's market-based rate schedule for filing by the
FERC pursuant to Section 205 of the Federal Power Act.

22.  Taxes.
     -----

          (a)  Applicable Taxes. Each Party shall be responsible for the payment
               ----------------
of all taxes imposed on its income or net worth. Except as provided in this
Article 22, Seller shall be responsible for the payment of all present or future
federal, state, municipal or other lawful taxes applicable by reason of the
operation of the Facility or assessable on Seller's property or operations.
Buyer shall pay all existing and any new sales, use, excise, ad valorem, and any
other similar taxes, if any, imposed or levied by a governmental agency on the
Electric Energy, Substitute Electric Energy and Net Dependable Capacity sold and
delivered under this Agreement arising at or after the Point of Delivery.

          (b)  Tax Indemnity. Buyer shall indemnify, defend, and hold Seller
               -------------
harmless from any liability for all such taxes for which Buyer is responsible.
Seller shall indemnify, defend, and hold Buyer harmless from any liability from
all such taxes for which Seller is responsible. Buyer shall reimburse Seller
promptly on demand for the amount of any such tax that is Buyer's responsibility
hereunder that Seller remits, plus any penalties and interest incurred and
remitted, except such penalties as result from Seller's conduct. Likewise,
Seller shall reimburse Buyer promptly on demand for the amount of any such tax
that is Seller's responsibility hereunder that Buyer remits, plus any penalties,
interest incurred and remitted, except penalties as a result from Buyer's
conduct.

          (c)  Contested Taxes. Neither Party shall be required to pay any such
               ---------------
tax, assessment, charge, levy, account payable or claim if the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
utilized under this Agreement or any material interference with the use thereof.

          (d)  Other Charges. Seller will pay and discharge all lawful
               -------------
assessments and governmental charges or levies imposed upon it or in respect to
all or any part of its property or business, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor, or materials which, if unpaid might become a lien or charge upon the
Facility.

23.  Miscellaneous Provisions.
     ------------------------

          (a)  Non-Waiver. The failure of either Party to insist in any one or
               ----------
more instances upon strict performance of any provisions of this Agreement, or
to take advantage of any of its rights hereunder, shall not be construed as a
waiver of any such provisions or the relinquishment of any such right or any
other right hereunder, which shall remain in full force and effect.

                                      32
<PAGE>

          (b)  Third Party Beneficiaries. This Agreement is intended solely for
               -------------------------
the benefit of the Parties hereto. Nothing in this Agreement shall be construed
to create any duty to, or standard of care with reference to, or any liability
to, any person not a Party to this Agreement.

          (c)  Relationship of Parties. This Agreement shall not be interpreted
               -----------------------
or construed to create an association, joint venture, or partnership between the
Parties or to impose any partnership obligation or liability upon either Party.
Seller is an independent contractor and neither Party shall have any right,
power or authority to enter into any agreement or undertaking for, or to act on
behalf of, or to act as or be an agent or representative of, or to otherwise
bind, the other Party.

          (d)  Successors and Assigns. This Agreement shall inure to the benefit
               ----------------------
of and be binding upon the successors and permitted assigns of the Parties.

          (e)  Severability. If any provision of this Agreement is determined to
               ------------
be invalid, void or unenforceable by any court having competent jurisdiction,
such determination shall not invalidate, void or make unenforceable any other
provision, agreement or covenant of this Agreement, which shall remain in full
force and effect.

          (f)  Counterparts. This Agreement may be executed in one or more
               ------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

          (g)  UCC. Except as other provided for herein, the provisions of the
               ---
Uniform Commercial Code ("UCC") of the state the law of which shall govern this
Agreement shall be deemed to apply to all sales of Energy pursuant to this
Agreement and the Energy so sold shall be deemed to be a "good" for purposes of
the UCC. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY DISCLAIMS ANY,
AND MAKES NO OTHER, REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH
RESPECT TO CONFORMITY TO MODELS OR SAMPLES, MERCHANTABILITY, OR FITNESS FOR ANY
PARTICULAR PURPOSE.

24.  Entire Agreement and Amendments.
     -------------------------------

          This Agreement supersedes all previous representations,
understandings, negotiations and agreements either written or oral between the
Parties hereto or their representatives with respect to the subject matter
hereof (including without limitation, the letter agreement between Buyer and
Seller, dated February 18, 1999) and constitutes the entire agreement of the
Parties with respect to the subject matter hereof. No amendments or changes to
this Agreement shall be binding unless made in writing and duly executed by both
Parties.

          IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date set forth at the beginning of this Agreement.

                                                     Engage Energy US, L.P.

                                      33
<PAGE>

                                           By:  /s/ Clark C. Smith
                                              ------------------------------
                                                Name:  Clark C. Smith
                                                Title: President

                                           Elwood Energy LLC

                                           By:  /s/ Ronald D. Usher
                                              ------------------------------
                                                Name:  Ronald D. Usher
                                                Title: General Manager

                                      34
<PAGE>

                                  APPENDIX A
                       DESIGN LIMITS PER COMMITTED UNIT

Buyer shall have the right to Dispatch a Committed Unit up to its Net Dependable
Capacity with the following restrictions:

          (a)  Maximum takes. 1500 hours per unit per Committed Unit per
               -------------
Contract Year maximum (or 3000 hours cumulative for 2 Committed Units). As set
forth in Section 6(b)(iii), during 1999, Seller may take up to 100 hours per
unit during the Start Up and testing phase prior to the Commercial Operations
Date. These hours will count towards the 1500-hour/year limitation per Committed
Unit in calendar year 1999. For purposes of this Agreement, the Committed Units
shall be considered "operating" from the first moment of firing, and all time
during firing shall count towards the 1500 hour limitation.

          (b)  Minimum/maximum loads. Buyer may Dispatch each Committed Unit
               ---------------------
from 60% of Net Dependable Capacity up to its Net Dependable Capacity. Each hour
that a Committed Unit is operating, regardless of the output, will count towards
the 1500-hour/year limitation per Committed Unit.

          (c)  Start Up Notification times. During On-Peak Hours in the Summer
               ---------------------------
Period, Seller will start a Committed Unit within one-hour after being notified
of Buyer's Dispatch order. If Buyer's dispatch order requests start up of both
Committed Units at the same time, Seller will start one Committed Unit within
the one-hour notification time and the second Committed Unit within the ten
minutes of starting the first unit. During all other times, Buyer shall provide
at least one Day's notice for start ups.

          (d)  Load Range and Ramp Times. Once a Committed Unit starts, the
               -------------------------
Committed Unit will ramp to base load of 60% of Net Dependable Capacity within
20 minutes. From base load, Buyer can choose to ramp between base load and Net
Dependable Capacity. The Committed Units can ramp from base load to Net
Dependable Capacity within 10 minutes. The units can be loaded approximately
twice as fast due to a feature purchased from GE by Elwood, but this operation
is at the expense of the machine's life. If Buyer requests this fast load ramp
option, and Elwood agrees to such operation, this will be priced at $500 per
start up.

          (e)  Minimum on-line and off-line times. 4-hour minimum run-time per
               ----------------------------------
start and 2 hour minimum off-time between start ups.

          (f)  Estimated Reactive Capability Curves. The provision of Ancillary
               ------------------------------------
Services pursuant to this Agreement (including terms of Article 9 hereof) shall
be consistent with the curve attached hereto as Schedule A-1.

                                      A-1
<PAGE>

                                  APPENDIX B

                               MAIN GUIDE NO. 3

                               MAIN Guide No. 3A
                            (Formerly Guide No. 3)
                               (Revision No. 3)
                                  June 8, 1995
                           Approved November 9, 1995

                       PROCEDURE FOR THE UNIFORM RATING
                            OF GENERATING EQUIPMENT
                            -----------------------

          The Mid-America Interconnected Network, Inc. bylaws provide for the
coordination of planning, construction and utilization of generation and
transmission facilities on a regional basis for reliability of electric bulk
power supply. This MAIN Guide presents the criteria for uniform rating of
generating equipment on the systems of MAIN members.

I.   General

          Generating capability to meet the system load and provide the required
amount of reserves is necessary to assure the maximum degree of service
reliability. This generating capability must be accounted for in a uniform
manner which assures the use of consistently attainable values for planning and
operating the system.

          Procedures are herein established for rating generating units in
service or which will be brought into service in the future. These procedures
define the framework under which the ratings are to be established while
recognizing the necessity of exercising judgement in their determination. The
tests required are functional and do not require special instrumentation. They
are designed to demonstrate that the ratings can be obtained for the time
periods required under normal operating conditions for the equipment being
tested.

          It is intended that the terms defined and the ratings established
pursuant to this MAIN Guide shall be used for all MAIN purposes, including
determining generation reserves for both planning and operating purposes,
scheduling maintenance, and preparation of reports or other information for
industry organizations, news media, and governmental agencies.

II.  Uniform Ratings

          Each MAIN member shall establish Monthly Net Capability ratings for
each generating unit and station on the member's system. The Monthly Net
Capability is the net power output which can be obtained for the period
specified on a monthly adjusted basis with all equipment in service under
average conditions of operation and with equipment in an average state of
maintenance. The Monthly Net Capability should include generating capability
which is temporarily out of service for maintenance or repair.

          The monthly adjustments required to develop Monthly Net
Capability are intended to include such seasonal variations as ambient
temperature, condensing water

                                      B-1
<PAGE>

temperature and availability, fuels, steam heating loads, reservoir levels, and
scheduled reservoir discharge.

          Generating capability shall be tested annually to demonstrate and
verify that the Monthly Net Capability can be achieved in the month of the test.
It is intended that frequent changes in Monthly Net Capability be avoided. The
reported capability is, therefore, a figure which should not be altered until
the accumulated evidence of tests and analyses or operating experience indicate
that a long-term change has taken place. The Monthly Net Capability shall be
confirmed annually and revised at other times when necessary. Confirmations and
revisions will be submitted to the MAIN Coordination Center.

III.      General Guides for Establishing Capability Ratings

               The following general guides shall be applied in establishing
Monthly Net Capability:

               A.   The total Monthly Net Capability rating shall be that
         available regularly to satisfy the daily load patterns of the member
         and shall be available for four continuous hours or more. The rating
         established must not require a period of operation at a reduced level
         during a system's remainder of the peak period to recover the Monthly
         Net Capability.

               B.   The Monthly Net Capability will be determined separately for
         each generating unit in a power plant where the input to the prime
         mover of the unit is independent of the others. The Monthly Net
         Capability will be determined as a group for commonheader steam plants
         or multiple-unit hydro plants and each unit assigned a rating by
         apportioning the combined capability among the units.

               C.   Monthly Net Capability, as reported, will not be reduced to
         provide regulating margin or spinning reserve. It will reflect
         operation at the power factor level at which the generating equipment
         is normally expected to be operated over the daily peak load period. It
         will exclude the temporary higher output attainable immediately after a
         new unit goes into service or immediately after an overhaul.

               D.   Extended capability of a unit or plant obtained through
         bypassing of feedwater heaters, by utilizing other than normal steam
         conditions, or by abnormal operation of auxiliaries in steam plants; or
         by abnormal utilization of reservoir storage in hydro plants; or by
         abnormal operation of combustion turbines or diesel units; may be
         included in the Monthly Net Capability if the following conditions are
         met:

                    1.   The extended capability based on such conditions will
               be available for a period of not less than four continuous hours
               when needed and meets the restrictions of Section III-A.

                    2.   Normal procedures have been established so that this
               capability will be made available promptly when requested by the
               dispatcher.

               E.   The Monthly Net Capability established for nuclear units
         will be

                                      B-2
<PAGE>

     determined taking into consideration the fuel management program and any
     restrictions imposed by governmental agencies.

          F.   The Monthly Net Capability established for hydro-electric plants,
     including pumped-hydro, will be determined taking into consideration the
     reservoir storage program and any restrictions imposed by governmental
     agencies and will be based on median hydro conditions.

IV.  Testing Procedures to Demonstrate Capability

          A.   General Procedure for Testing

               1.   Ratings will be confirmed annually or more frequently if
          appropriate to demonstrate the Monthly Net Capability. If adequate
                                                                 -----------
          data are available to demonstrate the capability during normal peak
          -------------------------------------------------------------------
          load period operation, no special test is required. Peaking units and
          --------------------------------------------------
          cold reserve units which are not operated frequently shall be tested
          at such intervals as necessary to assure that capability is available
          to meet operating reserve requirements.

               2.   If the total capability of a plant is materially affected by
          the interaction of its parts, a test of the entire plant will be
          performed to demonstrate Monthly Net Capability.

               3.   All equipment when tested will be in normal operating
          condition with all auxiliary equipment needed for normal operation in
          service and with provision for extended capability if this capability
          is to be included in Monthly Net Capability. Energy consumption by
          auxiliary facilities common to the entire plant (for example, coal-
          handling or lighting) will be distributed over the appropriate units
          in the plant, and will represent the consumption normally experienced
          during the high-load period of the day.

               4.   It is intended that the test loadings should be maintained
          at a constant level. The reported test results will be no greater than
          the MWh/hr integrated output for the test period.

     B.   Steam Turbo-Generation Unit Tests, Excluding Steam Turbines with Gas
          or Oil Fired Boilers

               1.   The test period for steam turbo-generator units, including
          both fossil fuel and nuclear reactor steam generators, will be not
          less than four continuous hours.

               2.   Generating unit net capability as affected by the turbine
          exhaust pressure will be corrected to the average for the past five
          years of the monthly averages of the daily maximum circulating water
          temperatures for the month of the test. Steam conditions will
          correspond to the operating standard established by the member for the
          unit or plant. The steam generator will be operated with

                                      B-3
<PAGE>

          the regularly available type and quality of fuel.

     C.   Tests of Combustion Turbine and Diesel Units and Steam Turbines with
          Gas or Oil Fired Boilers

               1.   The test period for combustion turbine and diesel units and
          steam turbines with gas or oil fired boilers will be of sufficient
          duration to permit stabilized operating conditions to be attained.

               2.   Ambient temperature conditions will be corrected to the
          average for the past five years of the monthly maximum temperatures
          for the month of the test. Where evaporative coolers are used, the
          temperature at the discharge of the evaporative coolers shall be the
          basis for ambient temperature corrections.

               3.   Generating unit net capability as affected by the turbine
          exhaust pressure will be corrected to the average for the past five
          years of the monthly averages of the daily maximum circulating water
          temperatures for the month of the test. Steam conditions will
          correspond to the operating standard established by the member for the
          unit or plant. The steam generator will be operated with the regularly
          available type and quality of fuel.

     D.   Hydro-Electric Unit Tests

               1.   The test period for hydro-electric units, including pumped-
          hydro units, will be not less than one hour.

               2.   Water conditions will be corrected to the median conditions
          for the month of the test.

     E.   Reactivated Unit Tests

          Deactivated generating equipment which is not being reported and is
being returned to active status shall be tested within thirty days to
demonstrate its Monthly Net Capability.

V.   Reporting Procedures

          Each member shall submit the required data on the included Uniform
Rating Forms to the MAIN Coordination Center annually on or before November 1
for the following calendar year. Each annual report shall cover all existing
units, planned start-up of new units, and planned retirements of units and shall
consist of the following:

               1.   A letter identifying those units whose rating has not
          changed, showing the dates of latest tests confirming capabilities.

               2.   Completely revised forms (Form A and B-1, B-2, or B-3) for
          units on which a change has occurred.

                                      B-4
<PAGE>

               3.   Completely revised form (Form A) showing planned additions
          or retirements beginning with the month of commercial operation or
          month of retirement.

Between annual reporting, revised forms shall be submitted as necessary for new
units placed in commercial operation, units retired, and for units where tests
show the rating has changed. Any change in additions, retirements, or ratings
shall be submitted within 30 days of the addition, retirement, or test. In this
manner, by each November 1, all test data should be current. However, the letter
should be submitted confirming the dates of tests.

          The MAIN Coordination Center will analyze and review the annual
reporting for completeness and correctness and report the need for clarification
to the member concerned. The MAIN Coordination Center will maintain the updated
set of reports, including current changes as they occur, from the MAIN members,
and will provide complete reports and/or revisions to the members requesting
them.

     A.   Uniform Rating Form A

          This form is used to report the Monthly Net Capability of each unit in
each station. Where required by the number of units in a station, additional
sheets should be used.

     B.   Uniform Rating Forms B-1, B-2, and B-3

          These forms are used to report test results, certain actual and five
year average variables where pertinent, and to show relationship of actual net
generation to stated capability during the month of the test. It is the intent
that test data equal or exceed stated Monthly Net Capability to demonstrate that
this level of generation can be achieved. Where simultaneous tests of several
units are conducted, as in common steam header plants, data should be reported
for each unit and total of the group.

          Test results should be reported as follows:

          Form B-1 --steam turbo-generator units
          Form B-2 --hydro electric units
          Form B-3 --Combustion turbine units and diesel units

Note: In submitting revised forms, each form shall be submitted in such a manner
that it completely replaces the sheet on which data are being revised.

                                      B-5
<PAGE>

                                  APPENDIX C

                                COMMUNICATIONS
                       [To be developed by the parties]

                                      C-1
<PAGE>

                                  APPENDIX D

                                REPORTING FORMS

[To be developed by the Parties]

                                      D-1
<PAGE>

                                  APPENDIX E

                               FOAF CALCULATIONS

I.   Formula
     --------

          FOAF = FOH + EFDH
                 ----------
                     PH

Where:

"FOAF" is "Forced Outage Adjustment Factor"

"FOH" is "Forced Outage Hours" in the Summer Period

"EFDH" is "Equivalent Forced Derated Hours" in the Summer Period

"PH" is "Period Hours" in the Summer Period

II.  Definitions

     A.   Operation and Outage States

Forced Derating

An unplanned component failure (immediate, delayed, postponed) or other
condition (including a Force Majeure Event after the Commercial Operations Date)
that requires the load on a Committed Unit be reduced immediately, within six
hours, or before the end of the next weekend, other than during time periods
when (a) Seller delivers Substitute Electric Energy (and to the extent of such
delivery) or (b) a Committed Unit is curtailed, interrupted, reduced or
increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii).
The existence of a Forced Derating is not in any way dependent on the applicable
Committed Unit being under a Buyer Dispatch order at the time or during the
Forced Derating.

Forced Outage

An unplanned component failure (immediate, delayed, postponed, startup failure)
or other condition (including a Force Majeure Event after the Commercial
Operations Date) that requires a Committed Unit be removed from service
immediately, within six hours, or before the end of the next weekend, other than
during time periods when (a) Seller delivers Substitute Electric Energy (and to
the extent of such delivery) or (b) a Committed Unit is curtailed, interrupted,
reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii)
or (iii). The existence of a Forced Outage is not in any way dependent on the
applicable Committed Unit being under a Buyer Dispatch order at the time of the
Forced Outage.

For the avoidance of doubt, in the event that the Interconnecting Utility has
suspended, terminated or otherwise interrupted transmission of the Electric
Energy of a Committed Unit due to a breach of or default under the
Interconnection Agreement by Seller alleged by the

                                      E-1
<PAGE>

Interconnected Utility by written notice of breach or default by Seller pursuant
to the terms of the Interconnection Agreement to have occurred, the Committed
Unit will be considered under a Forced Outage or Forced Derating for the purpose
of calculating the FOAF, whether or not such claim by the Interconnecting
Utility is ultimately resolved in Seller's favor.

B. Time (Calculated during Summer Period On Peak Hours Only)

Equivalent Forced Derated Hours
(EFDH) *

The product of Forced Derated Hours (FDH) and Size of Reduction during Summer
Period On Peak Hours, divided by Net Dependable Capacity (NDC).

Forced Derated Hours (FDH)
Sum of all On Peak Hours during which there is a Forced Derating in the Summer
Period.

Forced Outage Hours (FOH)
Sum of all On Peak Hours during which there is a Forced Outage in the Summer
Period.

Period Hours (PH)
The sum of all On Peak Hours during the Summer Period.

*Equivalent hours are computed for each derating and then summed.
Size of Reduction is determined by subtracting the Net Available Capacity (NAC)
from the Net Dependable Capacity (NDC). In cases of multiple deratings, the Size
of Reduction of each derating is the difference in the Net Available Capacity of
the unit prior to the initiation of the derating and the reported Net Available
Capacity as a result of the derating.

C. Capacity and Energy

Gross Available Capacity (GAC)
Greatest capacity (MW) at which a unit can operate with a reduction imposed by a
derating.

Net Available Capacity (NAC)
GAC less the unit capacity (MW) utilized for that unit's station service or
auxiliaries.

D. FOAF SAMPLE CALCULATIONS

1. First Incident is a Forced Derating at Committed Unit 1:
   -------------------------------------------------------

     Assume for a period of 48 hours between 6:00 a.m. on a Tuesday and 6:00
a.m. on the following Thursday in July, Committed Unit 1 can only operate at 100
MW (as adjusted for temperature and relative humidity). Net Dependable Capacity
(as adjusted for temperature and relative humidity) is 150 MW.

     The Committed Unit Forced Derating occurred for 32 On Peak hours, (16 Hours
Tuesday and 16 hours Wednesday). As such

                       EFDH = FDH x Size of Reduction, or
                              ---------------------------

                                      E-2
<PAGE>

                                      NDC

               EFDH = 32 hours x 50 MW = 1600 MWH = 10.67 hours
                      ----------------   --------
                       150 MW          150 MW

2. Second Incident is a Forced Outage at Committed Unit 1:
   -------------------------------------------------------

     Assume Committed Unit 1 is totally unavailable for a period from 6:00 a.m.
Friday through 2:00 a.m. the following Tuesday in August.

     The Forced Outage occurred for 32 On Peak hours (i.e., 16 Friday, zero
Saturday and Sunday, 16 Monday and zero Tuesday)

3. Third Incident is a Forced Outage at Committed Unit 2:
   ------------------------------------------------------

     Assume Committed Unit 2 has a 7 hour Forced Outage from 8:00 p.m. until
3:00 a.m. on a Thursday in August. The Forced Outage then lasted for 2 On Peak
Hours.

4. Fourth Incident is a Forced Outage on Committed Unit 2:
   ------------------------------------------------------

     Assume Committed Unit 2 has a 36 hour Forced Outage from 8:00 a.m. on a
Thursday in November until 8:00 p.m. the following Friday. The Forced Outage was
not in the Summer Period and as such is not part of FOAF calculation.

5. FOAF for the Year
   -----------------

     If these are the only four incidents in a contract year (assuming the
number of weekdays in Summer Period is the same as in 1999 and assuming two NERC
holidays), then,
Incident 1 is 10.67 hours.
Incident 2 is 32 hours.
Incident 3 is 2 hours.
Incident 4 is zero hours.

              FOAF = 10.67 hours + 32 hours + 2 hours = .0324636
                     --------------------------------
                      1376 On Peak Hours

or, 3.25%

5% - 3.25% = 1.75%, and

Seller gets a bonus of 1.75% times the applicable Contract Year's Capacity
Payment.

                                      E-3
<PAGE>

                                  APPENDIX F

                                   GUARANTY

     THIS GUARANTY dated as of ___________, is made by The Coastal Corporation,
a Delaware corporation ("Guarantor"), in favor of Elwood Energy LLC, a Delaware
limited liability company ("Creditor").

     WHEREAS, Creditor and Engage Energy US, L.P., a Delaware limited
partnership ("Debtor"), have entered into that certain Power Sales Agreement
dated ___________, 1999 (the "Contract"); and

     WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the
Contract, Guarantor has agreed to provide to Creditor this Guaranty;

     NOW, THEREFORE, in consideration of the premises, Creditor's execution of
the Contract and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby agrees as
follows:

     1.   Guaranty. Subject to the provisions hereof, Guarantor hereby
          --------
irrevocably, absolutely and unconditionally guarantees the timely payment of all
financial obligations which become due and payable by Debtor to Creditor under
or in connection with the Contract (collectively, "Obligations" and
individually, an "Obligation") such that, if Debtor fails, neglects or refuses
to perform any Obligation, Guarantor shall make such payment within ten business
days after Guarantor receives written notice thereof. Notwithstanding the
foregoing, (i) the maximum aggregate liability of Guarantor under this Guaranty
for all Obligations shall not exceed the Guaranty Cap Amount (as hereinafter
defined) plus any amounts owed pursuant to the next sentence hereof, and (ii) as
to any Obligation which Guarantor is called upon to pay or cause payment to be
made, Guarantor reserves to itself the right to assert any and all defenses
under the Contract which Debtor could assert against Creditor with respect to
such Obligation; provided, however, that such reservation shall not include any
legal or equitable discharge or defense of a guarantor or surety arising out of
any of the events described in Section 2 or Section 3 hereof. In addition to
Guarantor's liability for the Obligations set forth herein, Guarantor agrees to
pay to Creditor such further amounts as shall be sufficient to cover the costs
of collecting or enforcing this Guaranty (including reasonable fees, expenses
and disbursements of counsel). This Guaranty is a guaranty of payment and not of
collection. As used herein, the term "Guaranty Cap Amount" means, at any given
time, $109,032,000 minus the sum as of such time of (a) any amounts indefeasibly
paid in full to Creditor by the Debtor in respect of "Capacity Payments" as
defined in the Contract, plus (b) any amounts indefeasibly paid in full under
this Guaranty to Creditor by the Guarantor.

     2.   Guaranty Absolute. Except as otherwise expressly provided in 3(b)
          -----------------
hereof, Creditor may, at any time and from time to time, without the consent of
or notice to Guarantor, and without impairing or releasing the obligations of
Guarantor hereunder:

          (a)  change the manner, place or terms of payment of, or (if
applicable) interest

                                      F-1
<PAGE>

rate on, or renew, extend or alter, any or all of the Obligations;

          (b)  amend, waive, terminate or otherwise modify the Contract or any
other document, instrument or agreement relating to any Obligation;

          (c)  release (in whole or in part) or compromise or settle with Debtor
or any other person liable in any manner for payment of any or all of the
Obligations;

          (d)  exercise or refrain from exercising any rights against Debtor or
any other person or otherwise act or refrain from acting or otherwise fail to be
diligent; and

          (e)  take, substitute, surrender, exchange or release any collateral
or other security for any or all of the Obligations.

     3.   Effect of Certain Events. Guarantor agrees that, except as otherwise
          ------------------------
expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will
not be released, reduced or impaired by the occurrence of any of the following
events:

          (a)  the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment or other similar proceeding affecting
the status, composition, identity, existence, assets or obligations of Debtor,
or the disaffirmance or termination of any of the Obligations or the Contract in
or as a result of any such proceeding;

          (b)  the renewal, consolidation, extension, modification or amendment
from time to time of the Contract or any document, instrument or agreement
relating to any Obligation, provided, however, that notwithstanding anything
contained in this Guaranty or the Contract to the contrary, Creditor and Debtor
may not, without the prior written consent of Guarantor, (i) extend or lengthen
the Term of the Contract (as defined in the Contract as of the date hereof)
beyond December 31, 2004, or (ii) change, modify or amend the definition of the
term "Capacity Payments" in any manner that would increase Guarantor's liability
under this Guaranty;

          (c)  the failure, delay, waiver or refusal by Creditor to exercise, in
whole or in part, any right or remedy held by Creditor with respect to the
Contract or the Obligations thereunder; or

          (d)  the sale, encumbrance, transfer or other modification of the
ownership of Debtor or Creditor or any change in the name, identity, business,
structure, composition, financial condition or management (including, without
limitation, by reason of a merger, dissolution, consolidation or reorganization)
of Debtor or Creditor;

          (e)  future changes in conditions, including change of law, or any
invalidity, unenforceability or irregularity with respect to the execution and
delivery of the Contract or this Guaranty; and

          (f)  any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of a guarantor or surety, subject to clause
(ii) of Section 1 hereof.

                                      F-2
<PAGE>

     4.   Waivers. Except as expressly provided in Section 1 hereof, Guarantor
          -------
waives:

          (a)  notice of acceptance of this Guaranty, of the creation or
existence of the Contract or any Obligation thereunder, and of any action by
Creditor in reliance hereon or in connection herewith;

          (b)  promptness, diligence, presentment, demand for payment, notice of
dishonor or nonpayment, protest and notice of protest with respect to any
Obligation;

          (c)  any requirement that suit be brought against, or any other action
by Creditor be taken against, Debtor or any other person as a condition to
Guarantor's obligations under this Guaranty or as a condition to enforcement of
this Guaranty against Guarantor.

          (d)  notice of adverse change in the financial condition of Debtor or
any other fact which might increase Creditor's risk; and

          (e)  any other notices or demands to which guarantors or sureties may
be entitled.

     5.   Continuing Guaranty. This Guaranty is an absolute and continuing
          -------------------
guaranty. This Guaranty shall terminate when all of the Obligation have been
indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty
to the contrary, this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time, either before or after the
termination hereof, payment of the Obligations guaranteed pursuant to this
Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon
the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as
though such payment had not been made.

     6.   Representations and Warranties. Guarantor represents and warrants to
          ------------------------------
Creditor as follows:

          (a)  Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of Delaware and has full corporate power and
authority to execute, deliver and perform this Guaranty.

          (b)  The execution, delivery and performance of this Guaranty by
Guarantor have been and remain duly authorized by all necessary corporate action
on the part of by Guarantor and do not contravene any provision of law or of
Guarantor's certificate of incorporation or bylaws or any contractual
restriction binding on Guarantor or any of its assets.

          (c)  All consents, authorizations and approvals of, and registrations
and declarations with, any governmental authority necessary for the due
execution, delivery and performance of this Guaranty by Guarantor have been
obtained and remain in full force and effect and all conditions thereof have
been duly complied with, and no other action by, and no notice to or filing
with, any governmental authority is required in connection with the execution,
delivery or performance by Guarantor of this Guaranty.

          (d)  This Guaranty constitutes the legal, valid and binding obligation
of Guarantor enforceable against Guarantor in accordance with its terms,
subject, as to enforcement, to

                                      F-3
<PAGE>

bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.

          (e)  Debtor is indirectly partially owned by Guarantor, and this
Guaranty reasonably may be expected to benefit, directly or indirectly,
Guarantor.

     7.   Covenants. Guarantor agrees that, so long as this Guaranty remains in
          ---------
effect, Guarantor will promptly furnish to Creditor, upon request at any time
and from time to time, a copy of Guarantor's most recent annual report on Form
10-K or quarterly report on Form 10-Q, in each case as filed with the Securities
and Exchange Commission (the "SEC"); provided however, if Guarantor is not
required to file such reports with the SEC, Guarantor agrees to furnish to
Creditor such comparable financial information respecting Guarantor as Creditor
may from time to time reasonably request.

     8.   Miscellaneous.
          -------------

          (a)  Notice. Any notice or other communication given hereunder by
               ------
either Guarantor or Creditor to the other party ("Notice") shall be in writing
and delivered personally, mailed by registered or certified mail, postage
prepaid and return receipt requested, by telecopier, or by courier guaranteeing
overnight delivery, as follows:

               (i)    if to Guarantor:

                      The Coastal Corporation
                      Nine Greenway Plaza
                      Houston, Texas 77046
                      Attention: Corporate Secretary
                      Telecopy No.:    (713) 877-7071

               (ii)   if to Creditor:

                      Elwood Energy LLC
                      c/o Dominion Energy, Inc.
                      120 Tredegar Street
                      Richmond, Virginia 23219
                      Attention:  Diane Leopold/Christine M. Schwab, Esq.
                      Telecopy No.:    (804) 819-2202

                      with a copy to:

                      Peoples Energy
                      130 East Randolph Drive
                      Chicago, Illinois 60601
                      Attention:  William W. Reynolds, Treasurer
                      Telecopy No.:  (312) 240-4348

Notice given by personal delivery or mail shall be effective upon actual receipt
or refusal of receipt.

                                      F-4
<PAGE>

Notice given by personal delivery or mail shall be effective upon actual receipt
or refusal of receipt. Notice given by telecopier shall be deemed effective upon
transmission and electronic confirmation by the transmitting telecopier. All
Notices by telecopier shall be confirmed promptly after transmission in writing
by certified mail or personal delivery. Any party may change any address to
which Notice is to be given to it by giving Notice as provided above of such
change of address. All amounts becoming payable by Guarantor to Creditor under
this Guaranty shall be payable at Creditor's offices located at its address for
purposes of Notice, or such other place as Creditor may from time to time
designate (including wire transfer instructions).

          (b)  Amendments; Waivers; Remedies. All amendments, waivers, consents
               -----------------------------
or approvals arising pursuant to this Guaranty must be in writing signed by
Guarantor and Creditor. No failure on the part of Creditor to exercise, and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise thereof or the exercise of any other right, power or
privilege operate as such a waiver. No right, power or remedy of Creditor under
this Guaranty or the Contract shall be exclusive of any other right, power or
remedy, but shall be cumulative and in addition to any other right, power or
remedy thereunder or now or hereafter existing by law or in equity.

          (c)  Severability. If any provision of this Guaranty or the
               ------------
application thereof to any party or circumstance shall be invalid or
unenforceable, then the remaining provisions or the application of such
provision to parties or circumstances other than those as to which it is invalid
or unenforceable, shall continue to be valid and enforceable.

          (d)  Assignment. Neither Guarantor nor Creditor may assign its rights
               ----------
or obligations under this Guaranty without the other party's prior written
consent, which consent may not be unreasonably withheld; provided, however,
Creditor may assign its rights hereunder without consent of Guarantor (but with
prior notice thereof to Guarantor) to any party to whom the Contract has been
properly assigned in accordance with the terms thereof. Subject to the
foregoing, this Guaranty shall be binding on, and shall inure to the benefit of,
Guarantor and Creditor and their respective successors and assigns.

          (e)  GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND
               -------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY
IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH
REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION,
DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH
SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS
AND NOWHERE ELSE.

          (f)  Headings.  The headings of the sections and subsections of this
               --------
Guaranty are for convenience only, and shall not limit or otherwise affect the
meaning hereof.

                                      F-5
<PAGE>

          (g)  Counterparts. Guarantor may sign this Guaranty in any number of
               ------------
counterparts, each of which shall be an original but all of which when taken
together shall constitute one and the same instrument.

          (h)  Construction of Agreement. Unless the context of this
               -------------------------
Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of
whatever gender, shall include natural persons, corporations, and associations
of every kind and character, (ii) the gender of all words used in this Guaranty
shall include the masculine, feminine and neuter, (iii) the words "includes" or
"including" shall mean "including without limitation", and (iv) the words
"hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer
to this Guaranty as a whole and not any particular section or subsection in
which such words appear.

          (i)  Interpretation  and Reliance.  No presumption will apply in favor
               ----------------------------
of any party hereto in the interpretation of this Guaranty or in the resolution
of any ambiguity of any provision hereof.

          (j)  Time.  TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE TERMS
               ----
HEREIN SHALL BE SO CONSTRUED.

     IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
effective as of the date first above written.

                                          THE COASTAL CORPORATION

                                          By:    _______________________________

                                          Name:  _______________________________

                                          Title: _______________________________

                                      F-6
<PAGE>

                                 APPENDIX G-1

                                   GUARANTY

         THIS GUARANTY dated as of ___________, is made by Dominion Energy,
Inc., a Virginia corporation ("Guarantor"), in favor of Engage Energy US, L.P.,
a Delaware limited partnership ("Creditor").

         WHEREAS, Creditor and Elwood Energy LLC, a Delaware limited liability
company ("Debtor"), have entered into that certain Power Sales Agreement dated
___________, 1999 (the "Contract");

         WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent
membership interest in Debtor and the remaining 50 percent membership interest
is indirectly owned by Peoples Energy Corporation ("Peoples"); and

         WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the
Contract, Guarantor has agreed to provide to Creditor this Guaranty;

         NOW, THEREFORE, in consideration of the premises, Creditor's execution
of the Contract and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby agrees as
follows:

         1.    Guaranty. Subject to the provisions hereof, Guarantor hereby
               --------
irrevocably, absolutely and unconditionally guarantees the timely payment of all
financial obligations which become due and payable by Debtor to Creditor under
or in connection with the Contract (collectively, "Obligations" and
individually, an "Obligation") such that, if Debtor fails, neglects or refuses
to perform any Obligation, Guarantor shall make such payment within ten business
days after Guarantor receives written notice thereof. Notwithstanding the
foregoing, as to any Obligation which Guarantor is called upon to pay or cause
payment to be made, Guarantor reserves to itself the right to assert any and all
defenses under the Contract which Debtor could assert against Creditor with
respect to such Obligation; provided, however, that such reservation shall not
include any legal or equitable discharge or defense of a guarantor or surety
arising out of any of the events described in Section 2 or Section 3 hereof. The
guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of
the Obligations ; provided, however, that in no event shall the maximum
aggregate liability of Guarantor under this Guaranty exceed $12,500,000 (the
"Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this
Guaranty pursuant to the next sentence hereof; provided further, that
Guarantor's obligations hereunder are separate and independent obligations from
those of Peoples under Peoples' Guaranty of even date herewith and neither
Guarantor nor Peoples shall be liable for the obligations of the other under
their respective guaranties by reason of joint and several liability or
otherwise. In addition to Guarantor's liability for the Obligations set forth
herein, Guarantor agrees to pay to Creditor such further amounts as shall be
sufficient to cover the costs of collecting or enforcing this Guaranty
(including reasonable fees, expenses and disbursements of counsel). This
Guaranty is a guaranty of payment and not of collection.

         2.    Guaranty Absolute. Except as otherwise expressly provided in
               ------------------
Section 3(b) hereof,

                                      G-1
<PAGE>

Creditor may, at any time and from time to time, without the consent of or
notice to Guarantor, and without impairing or releasing the obligations of
Guarantor hereunder:

               (a)  change the manner, place or terms of payment of, or (if
applicable) interest rate on, or renew, extend or alter, any or all of the
Obligations;

               (b)  amend, waive, terminate or otherwise modify the Contract or
any other document, instrument or agreement relating to any Obligation;

               (c)  release (in whole or in part) or compromise or settle with
Debtor or any other person liable in any manner for payment of any or all of the
Obligations;

               (d)  exercise or refrain from exercising any rights against
Debtor or any other person or otherwise act or refrain from acting or otherwise
fail to be diligent; and

               (e)  take, substitute, surrender, exchange or release any
collateral or other security for any or all of the Obligations.

         3.    Effect of Certain Events. Guarantor agrees that, except as
               -------------------------
otherwise expressly provided in Section 3(b) hereof, Guarantor's liability
hereunder will not be released, reduced or impaired by the occurrence of any of
the following events:

               (a)  the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment or other similar proceeding affecting
the status, composition, identity, existence, assets or obligations of Debtor,
or the disaffirmance or termination of any of the Obligations or the Contract in
or as a result of any such proceeding;

               (b)  the renewal, consolidation, extension, modification or
amendment from time to time of the Contract or any document, instrument or
agreement relating to any Obligation, provided, however, that notwithstanding
anything contained in this Guaranty or the Contract to the contrary, Creditor
and Debtor may not, without the prior written consent of Guarantor, (i) extend
or lengthen the Term of the Contract (as defined in the Contract as of the date
hereof) beyond December 31, 2004, or (ii) change, modify or amend the definition
of the term "Capacity Payments" (as defined in the Contract as of the date
hereof) in any manner that would increase Guarantor's liability under this
Guaranty;

               (c)  the failure, delay, waiver or refusal by Creditor to
exercise, in whole or in part, any right or remedy held by Creditor with respect
to the Contract or the Obligations thereunder; or

               (d)  the sale, encumbrance, transfer or other modification of the
ownership of Debtor or Creditor or any change in the name, identity, business,
structure, composition, financial condition or management (including, without
limitation, by reason of a merger, dissolution, consolidation or reorganization)
of Debtor or Creditor;

               (e)  future changes in conditions, including change of law, or
any invalidity,

                                      G-2
<PAGE>

unenforceability or irregularity with respect to the execution and delivery of
the Contract or this Guaranty; and

               (f)  any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor or surety, subject to
clause (ii) of Section 1 hereof.

          4.   Waivers. Except as expressly provided in Section 1 hereof,
               -------
Guarantor waives:

               (a)  notice of acceptance of this Guaranty, of the creation or
existence of the Contract or any Obligation thereunder, and of any action by
Creditor in reliance hereon or in connection herewith;

               (b)  promptness, diligence, presentment, demand for payment,
notice of dishonor or nonpayment, protest and notice of protest with respect to
any Obligation;

               (c)  any requirement that suit be brought against, or any other
action by Creditor be taken against, Debtor or any other person as a condition
to Guarantor's obligations under this Guaranty or as a condition to enforcement
of this Guaranty against Guarantor.

               (d)  notice of adverse change in the financial condition of
Debtor or any other fact which might increase Creditor's risk; and

               (e)  any other notices or demands to which guarantors or sureties
may be entitled.

          5.   Continuing Guaranty. This Guaranty is an absolute and continuing
               -------------------
guaranty. This Guaranty shall terminate when all of the Obligations have been
indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty
to the contrary, this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time, either before or after the
termination hereof, payment of the Obligations guaranteed pursuant to this
Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon
the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as
though such payment had not been made.

          6.   Representations and Warranties. Guarantor represents and warrants
               ------------------------------
to Creditor as follows:

               (a)  Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of Virginia and has full corporate power and
authority to execute, deliver and perform this Guaranty.

               (b)  The execution, delivery and performance of this Guaranty
by Guarantor have been and remain duly authorized by all necessary corporate
action on the part of by Guarantor and do not contravene any provision of law or
of Guarantor's certificate of incorporation or bylaws or any contractual
restriction binding on Guarantor or any of its assets.

               (c)  All consents, authorizations and approvals of, and
registrations and declarations with, any governmental authority necessary for
the due execution, delivery and

                                      G-3
<PAGE>

performance of this Guaranty by Guarantor have been obtained and remain in full
force and effect and all conditions thereof have been duly complied with, and no
other action by, and no notice to or filing with, any governmental authority is
required in connection with the execution, delivery or performance by Guarantor
of this Guaranty.

               (d)  This Guaranty constitutes the legal, valid and binding
obligation of Guarantor enforceable against Guarantor in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.

               (e)  Debtor is indirectly partially owned by Guarantor, and this
Guaranty reasonably may be expected to benefit, directly or indirectly,
Guarantor.

          7.   Covenants. Guarantor agrees that, so long as this Guaranty
               ---------
remains in effect, Guarantor will promptly furnish to Creditor, upon request at
any time and from time to time, a copy of Guarantor's most recent annual report
on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the
Securities and Exchange Commission (the "SEC"); provided however, if Guarantor
is not required to file such reports with the SEC, Guarantor agrees to furnish
to Creditor such comparable financial information respecting Guarantor as
Creditor may from time to time reasonably request.

          8.   Miscellaneous.
               -------------

               (a)  Notice. Any notice or other communication given hereunder
                    ------
by either Guarantor or Creditor to the other party ("Notice") shall be in
writing and delivered personally, mailed by registered or certified mail,
postage prepaid and return receipt requested, by telecopier, or by courier
guaranteeing overnight delivery, as follows:

                    (i)    if to Guarantor:

                           Dominion Energy, Inc.
                           120 Tredegar Street
                           Richmond, Virginia 23219
                           Attention: Diane Leopold / Christine M. Schwab, Esq.
                           Telecopy No.: (804) 819-2202

                    (ii)   if to Creditor:

                           Engage Energy US, L.P.
                           Five Greenway Plaza, Suite 1200
                           Houston, Texas 77046
                           Attention: Vice President - Credit
                           Telecopy No.:  (713) 297-1605

Notice given by personal delivery or mail shall be effective upon actual receipt
or refusal of receipt. Notice given by telecopier shall be deemed effective upon
transmission and electronic confirmation

                                      G-4
<PAGE>

by the transmitting telecopier. All Notices by telecopier shall be confirmed
promptly after transmission in writing by certified mail or personal delivery.
Any party may change any address to which Notice is to be given to it by giving
Notice as provided above of such change of address. All amounts becoming payable
by Guarantor to Creditor under this Guaranty shall be payable at Creditor's
offices located at its address for purposes of Notice, or such other place as
Creditor may from time to time designate (including wire transfer instructions).

               (b)  Amendments; Waivers; Remedies. All amendments, waivers,
                    -----------------------------
consents or approvals arising pursuant to this Guaranty must be in writing
signed by Guarantor and Creditor. No failure on the part of Creditor to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise thereof or the exercise of any other right,
power or privilege operate as such a waiver. No right, power or remedy of
Creditor under this Guaranty or the Contract shall be exclusive of any other
right, power or remedy, but shall be cumulative and in addition to any other
right, power or remedy thereunder or now or hereafter existing by law or in
equity.

               (c)  Severability. If any provision of this Guaranty or the
                    ------------
application thereof to any party or circumstance shall be invalid or
unenforceable, then the remaining provisions or the application of such
provision to parties or circumstances other than those as to which it is invalid
or unenforceable, shall continue to be valid and enforceable.

               (d)  Assignment. Neither Guarantor nor Creditor may assign its
                    ----------
rights or obligations under this Guaranty without the other party's prior
written consent, which consent may not be unreasonably withheld; provided,
however, Creditor may assign its rights hereunder without consent of Guarantor
(but with prior notice thereof to Guarantor) to any party to whom the Contract
has been properly assigned in accordance with the terms thereof. Subject to the
foregoing, this Guaranty shall be binding on, and shall inure to the benefit of,
Guarantor and Creditor and their respective successors and assigns.

               (e)  GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND
                    -------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY
IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH
REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION,
DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH
SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS
AND NOWHERE ELSE.

               (f)  Headings. The headings of the sections and subsections of
                    --------
this Guaranty are for convenience only, and shall not limit or otherwise affect
the meaning hereof.

                                      G-5
<PAGE>

               (g)  Counterparts. Guarantor may sign this Guaranty in any
                    ------------
number of counterparts, each of which shall be an original but all of which when
taken together shall constitute one and the same instrument.

               (h)  Construction of Agreement. Unless the context of this
                    -------------------------
Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of
whatever gender, shall include natural persons, corporations, and associations
of every kind and character, (ii) the gender of all words used in this Guaranty
shall include the masculine, feminine and neuter, (iii) the words "includes" or
"including" shall mean "including without limitation", and (iv) the words
"hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer
to this Guaranty as a whole and not any particular section or subsection in
which such words appear.

               (i)  Interpretation and Reliance. No presumption will apply in
                    ----------------------------
favor of any party hereto in the interpretation of this Guaranty or in the
resolution of any ambiguity of any provision hereof.

               (j)  Time. TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE TERMS
                    ----
HEREIN SHALL BE SO CONSTRUED.

          IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
effective as of the date first above written.

                                                DOMINION ENERGY, INC.

                                                By:    _________________________

                                                Name:  _________________________

                                                Title: _________________________

                                      G-6
<PAGE>

                                  APPENDIX G-2

                                    GUARANTY

         THIS GUARANTY dated as of ___________, is made by Peoples Energy
Corporation, an Illinois corporation ("Guarantor"), in favor of Engage Energy
US, L.P., a Delaware limited partnership ("Creditor").

         WHEREAS, Creditor and Elwood Energy LLC, a Delaware limited liability
company ("Debtor"), have entered into that certain Power Sales Agreement dated
___________, 1999 (the "Contract");

         WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent
membership interest in Debtor and the remaining 50 percent membership interest
is indirectly owned by Dominion Energy, Inc. ("Dominion"); and

         WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the
Contract, Guarantor has agreed to provide to Creditor this Guaranty;

         NOW, THEREFORE, in consideration of the premises, Creditor's execution
of the Contract and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby agrees as
follows:

         1.    Guaranty. Subject to the provisions hereof, Guarantor hereby
               --------
irrevocably, absolutely and unconditionally guarantees the timely payment of all
financial obligations which become due and payable by Debtor to Creditor under
or in connection with the Contract (collectively, "Obligations" and
individually, an "Obligation") such that, if Debtor fails, neglects or refuses
to perform any Obligation, Guarantor shall make such payment within ten business
days after Guarantor receives written notice thereof. Notwithstanding the
foregoing, as to any Obligation which Guarantor is called upon to pay or cause
payment to be made, Guarantor reserves to itself the right to assert any and all
defenses under the Contract which Debtor could assert against Creditor with
respect to such Obligation; provided, however, that such reservation shall not
include any legal or equitable discharge or defense of a guarantor or surety
arising out of any of the events described in Section 2 or Section 3 hereof. The
guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of
the Obligations ; provided, however, that in no event shall the maximum
aggregate liability of Guarantor under this Guaranty exceed $12,500,000 (the
"Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this
Guaranty pursuant to the next sentence hereof; provided further, that
Guarantor's obligations hereunder are separate and independent obligations from
those of Dominion under Dominion's Guaranty of even date herewith and neither
Guarantor nor Dominion shall be liable for the obligations of the other under
their respective guaranties by reason of joint and several liability or
otherwise. In addition to Guarantor's liability for the Obligations set forth
herein, Guarantor agrees to pay to Creditor such further amounts as shall be
sufficient to cover the costs of collecting or enforcing this Guaranty
(including reasonable fees, expenses and disbursements of counsel). This
Guaranty is a guaranty of payment and not of collection.

                                      G-7
<PAGE>

         2.    Guaranty Absolute. Except as otherwise expressly provided in
               ------------------
Section 3(b) hereof, Creditor may, at any time and from time to time, without
the consent of or notice to Guarantor, and without impairing or releasing the
obligations of Guarantor hereunder:

               (a)  change the manner, place or terms of payment of, or (if
applicable) interest rate on, or renew, extend or alter, any or all of the
Obligations;

               (b)  amend, waive, terminate or otherwise modify the Contract or
any other document, instrument or agreement relating to any Obligation;

               (c)  release (in whole or in part) or compromise or settle with
Debtor or any other person liable in any manner for payment of any or all of the
Obligations;

               (d)  exercise or refrain from exercising any rights against
Debtor or any other person or otherwise act or refrain from acting or otherwise
fail to be diligent; and

               (e)  take, substitute, surrender, exchange or release any
collateral or other security for any or all of the Obligations.

         3.    Effect of Certain Events. Guarantor agrees that, except as
               -------------------------
otherwise expressly provided in Section 3(b) hereof, Guarantor's liability
hereunder will not be released, reduced or impaired by the occurrence of any of
the following events:

               (a)  the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment or other similar proceeding affecting
the status, composition, identity, existence, assets or obligations of Debtor,
or the disaffirmance or termination of any of the Obligations or the Contract in
or as a result of any such proceeding;

               (b)  the renewal, consolidation, extension, modification or
amendment from time to time of the Contract or any document, instrument or
agreement relating to any Obligation, provided, however, that notwithstanding
anything contained in this Guaranty or the Contract to the contrary, Creditor
and Debtor may not, without the prior written consent of Guarantor, (i) extend
or lengthen the Term of the Contract (as defined in the Contract as of the date
hereof) beyond December 31, 2004, or (ii) change, modify or amend the definition
of the term "Capacity Payments" (as defined in the Contract as of the date
hereof) in any manner that would increase Guarantor's liability under this
Guaranty;

               (c)  the failure, delay, waiver or refusal by Creditor to
exercise, in whole or in part, any right or remedy held by Creditor with respect
to the Contract or the Obligations thereunder; or

               (d)  the sale, encumbrance, transfer or other modification of
the ownership of Debtor or Creditor or any change in the name, identity,
business, structure, composition, financial condition or management (including,
without limitation, by reason of a merger, dissolution, consolidation or
reorganization) of Debtor or Creditor;

                                      G-8
<PAGE>

               (e)  future changes in conditions, including change of law, or
any invalidity, unenforceability or irregularity with respect to the execution
and delivery of the Contract or this Guaranty; and

               (f)  any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor or surety, subject to
clause (ii) of Section 1 hereof.

         4.    Waivers. Except as expressly provided in Section 1 hereof,
               -------
Guarantor waives:

               (a)  notice of acceptance of this Guaranty, of the creation or
existence of the Contract or any Obligation thereunder, and of any action by
Creditor in reliance hereon or in connection herewith;

               (b)  promptness, diligence, presentment, demand for payment,
notice of dishonor or nonpayment, protest and notice of protest with respect to
any Obligation;

               (c)  any requirement that suit be brought against, or any other
action by Creditor be taken against, Debtor or any other person as a condition
to Guarantor's obligations under this Guaranty or as a condition to enforcement
of this Guaranty against Guarantor.

               (d)  notice of adverse change in the financial condition of
Debtor or any other fact which might increase Creditor's risk; and

               (e)  any other notices or demands to which guarantors or sureties
may be entitled.

         5.    Continuing Guaranty. This Guaranty is an absolute and continuing
               -------------------
guaranty. This Guaranty shall terminate when all of the Obligations have been
indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty
to the contrary, this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time, either before or after the
termination hereof, payment of the Obligations guaranteed pursuant to this
Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon
the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as
though such payment had not been made.

         6.    Representations and Warranties. Guarantor represents and warrants
               ------------------------------
to Creditor as follows:

               (a)  Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of Illinois and has full corporate power and
authority to execute, deliver and perform this Guaranty.

               (b)  The execution, delivery and performance of this Guaranty by
Guarantor have been and remain duly authorized by all necessary corporate action
on the part of by Guarantor and do not contravene any provision of law or of
Guarantor's certificate of incorporation or bylaws or any contractual
restriction binding on Guarantor or any of its assets.

               (c)  All consents, authorizations and approvals of, and
registrations and

                                      G-9
<PAGE>

declarations with, any governmental authority necessary for the due execution,
delivery and performance of this Guaranty by Guarantor have been obtained and
remain in full force and effect and all conditions thereof have been duly
complied with, and no other action by, and no notice to or filing with, any
governmental authority is required in connection with the execution, delivery or
performance by Guarantor of this Guaranty.

               (d)  This Guaranty constitutes the legal, valid and binding
obligation of Guarantor enforceable against Guarantor in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.

               (e)  Debtor is indirectly partially owned by Guarantor, and this
Guaranty reasonably may be expected to benefit, directly or indirectly,
Guarantor.

         7.    Covenants. Guarantor agrees that, so long as this Guaranty
               ---------
remains in effect, Guarantor will promptly furnish to Creditor, upon request at
any time and from time to time, a copy of Guarantor's most recent annual report
on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the
Securities and Exchange Commission (the "SEC"); provided however, if Guarantor
is not required to file such reports with the SEC, Guarantor agrees to furnish
to Creditor such comparable financial information respecting Guarantor as
Creditor may from time to time reasonably request.

         8.    Miscellaneous.
               -------------

               (a)  Notice. Any notice or other communication given hereunder by
                    ------
either Guarantor or Creditor to the other party ("Notice") shall be in writing
and delivered personally, mailed by registered or certified mail, postage
prepaid and return receipt requested, by telecopier, or by courier guaranteeing
overnight delivery, as follows:

                    (i)   if to Guarantor:

                          Peoples Energy Corporation
                          130 East Randolph Drive
                          Chicago, Illinois
                          Attention: William W. Reynolds, Treasurer
                          Telecopy No.: (312) 240-4348

                    (ii)  if to Creditor:

                          Engage Energy US, L.P.
                          Five Greenway Plaza, Suite 1200
                          Houston, Texas 77046
                          Attention: Vice President - Credit
                          Telecopy No.: (713) 297-1605

Notice given by personal delivery or mail shall be effective upon actual receipt
or refusal of receipt.

                                     G-10
<PAGE>

Notice given by telecopier shall be deemed effective upon transmission and
electronic confirmation by the transmitting telecopier. All Notices by
telecopier shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
Notice is to be given to it by giving Notice as provided above of such change of
address. All amounts becoming payable by Guarantor to Creditor under this
Guaranty shall be payable at Creditor's offices located at its address for
purposes of Notice, or such other place as Creditor may from time to time
designate (including wire transfer instructions).

               (b)  Amendments; Waivers; Remedies. All amendments, waivers,
                    -----------------------------
consents or approvals arising pursuant to this Guaranty must be in writing
signed by Guarantor and Creditor. No failure on the part of Creditor to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise thereof or the exercise of any other right,
power or privilege operate as such a waiver. No right, power or remedy of
Creditor under this Guaranty or the Contract shall be exclusive of any other
right, power or remedy, but shall be cumulative and in addition to any other
right, power or remedy thereunder or now or hereafter existing by law or in
equity.

               (c)  Severability. If any provision of this Guaranty or the
                    ------------
application thereof to any party or circumstance shall be invalid or
unenforceable, then the remaining provisions or the application of such
provision to parties or circumstances other than those as to which it is invalid
or unenforceable, shall continue to be valid and enforceable.

               (d)  Assignment. Neither Guarantor nor Creditor may assign its
                    ----------
rights or obligations under this Guaranty without the other party's prior
written consent, which consent may not be unreasonably withheld; provided,
however, Creditor may assign its rights hereunder without consent of Guarantor
(but with prior notice thereof to Guarantor) to any party to whom the Contract
has been properly assigned in accordance with the terms thereof. Subject to the
foregoing, this Guaranty shall be binding on, and shall inure to the benefit of,
Guarantor and Creditor and their respective successors and assigns.

               (e)  GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND
                    -------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY
IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH
REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION,
DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH
SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS
AND NOWHERE ELSE.

               (f)  Headings. The headings of the sections and subsections of
                    --------
this Guaranty are for convenience only, and shall not limit or otherwise affect
the meaning hereof.

                                     G-11
<PAGE>

               (g)  Counterparts. Guarantor may sign this Guaranty in any number
                    ------------
of counterparts, each of which shall be an original but all of which when taken
together shall constitute one and the same instrument.

               (h)  Construction of Agreement. Unless the context of this
                    -------------------------
Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of
whatever gender, shall include natural persons, corporations, and associations
of every kind and character, (ii) the gender of all words used in this Guaranty
shall include the masculine, feminine and neuter, (iii) the words "includes" or
"including" shall mean "including without limitation", and (iv) the words
"hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer
to this Guaranty as a whole and not any particular section or subsection in
which such words appear.

               (i)  Interpretation and Reliance. No presumption will apply in
                    ----------------------------
favor of any party hereto in the interpretation of this Guaranty or in the
resolution of any ambiguity of any provision hereof.

               (j)  Time.  TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE
                    ----
TERMS HEREIN SHALL BE SO CONSTRUED.

         IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
effective as of the date first above written.

                                             PEOPLES ENERGY CORPORATION

                                             By:    ____________________________

                                             Name:  ____________________________

                                             Title: ____________________________

                                     G-12

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