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COMMON FACILITIES 

OPERATING AND MAINTENANCE AGREEMENT

by and among

WISCONSIN ELECTRIC POWER COMPANY,

MADISON GAS AND ELECTRIC COMPANY, 

AND WISCONSIN PUBLIC POWER INC., 

AS LESSEE/OWNER PARTIES

AND

WISCONSIN ELECTRIC POWER COMPANY, AS OPERATING AGENT

FOR THE

ELM ROAD GENERATING STATION COMMON FACILITIES

Dated as of December 17, 2004

TABLE OF CONTENTS

ARTICLE I RULES OF INTERPRETATIONS; DEFINITIONS

2

SECTION 1.1

RULES OF INTERPRETATION.

2

SECTION 1.2

DEFINITIONS.

4

ARTICLE II OPERATING AGENT

12

SECTION 2.1

APPOINTMENT OF OPERATING AGENT.

12

SECTION 2.2

OPERATING AGENT’S DUTIES AND RESPONSIBILITIES.

12

SECTION 2.3

EMERGENCIES.

15

SECTION 2.4

CONTRACTS.

15

SECTION 2.5

STANDARDS OF CONDUCT GOVERNING OPERATING AGENT’S ACTIONS.

16

SECTION 2.6

COOPERATION WITH OPERATING AGENT.

17

SECTION 2.7

CHANGE OF OPERATING AGENT.

17

SECTION 2.8

OWNERSHIP OF TRANSMISSION INTERCONNECTION EQUIPMENT.

19

ARTICLE III OPERATING COMMITTEE

19

SECTION 3.1

ESTABLISHMENT AND NATURE OF OPERATING COMMITTEE.

19

SECTION 3.2

SCOPE OF OPERATING COMMITTEE’S REVIEW AND ADVICE.

22

SECTION 3.3

OPERATING COMMITTEE’S AUTHORITY FOR CERTAIN DECISIONS.

23

SECTION 3.4

SINGLE OPERATING COMMITTEE FOR UNIT 1, UNIT 2 AND COMMON FACILITIES

26

ARTICLE IV PROVISION AND USE OF INFORMATION

26

SECTION 4.1

OPERATING AGENT TO PROVIDE RELEVANT INFORMATION.

26

SECTION 4.2

SPECIFIC INFORMATION REQUIREMENTS.

26

SECTION 4.3

PARTIES’ RIGHTS OF ACCESS.

28

SECTION 4.4

AUDITS.

28

ARTICLE V TRANSITION

30

SECTION 5.1

CONTROL DURING AND AFTER TRANSITION PERIOD.

30

SECTION 5.2

DOCUMENTS AND AGREEMENTS.

30

SECTION 5.3

COOPERATION.

30

SECTION 5.4

COSTS INCURRED BY OPERATING AGENT DURING TRANSITION PERIOD.

30

SECTION 5.5

TESTING AND INITIAL START-UP.

31

ARTICLE VI OPERATIONS AND SCHEDULING

31

SECTION 6.1

COMMERCIAL OPERATION.

31

SECTION 6.2

AUXILIARY SERVICES.

31

SECTION 6.3

PRUDENT OPERATION.

31

SECTION 6.4

[INTENTIONALLY OMITTED]

31

SECTION 6.5

[INTENTIONALLY OMITTED]

32

SECTION 6.6

[INTENTIONALLY OMITTED]

32

SECTION 6.7

[INTENTIONALLY OMITTED]

32

SECTION 6.8

COORDINATION OF MAINTENANCE.

32

ARTICLE VII [Intentionally Omitted]

33

ARTICLE VIII [Intentionally Omitted]

33

ARTICLE IX ALLOCATION OF CAPITAL COSTS AND OPERATING COSTS

33

SECTION 9.1

GENERAL PRINCIPLES.

33

SECTION 9.2

COMPUTATION OF THE OPERATING AGENT’S LABOR COSTS.

35

SECTION 9.3

[INTENTIONALLY OMITTED]

36

SECTION 9.4

COSTS OF COMMON FACILITIES.

36

SECTION 9.5

[INTENTIONALLY OMITTED]

36

SECTION 9.6

[INTENTIONALLY OMITTED]

36

TABLE OF CONTENTS

SECTION 9.7

[INTENTIONALLY OMITTED]

37

SECTION 9.8

MISCELLANEOUS.

37

SECTION 9.9

REIMBURSEMENT RESPONSIBILITY.

38

ARTICLE X [Intentionally Omitted]

39

ARTICLE XI TAXES

39

ARTICLE XII [INTENTIONALLY OMITTED]

39

ARTICLE XIII INSURANCE

39

SECTION 13.1

OPERATING AGENT’S DUTY TO PROVIDE INSURANCE COVERAGE.

39

SECTION 13.2

INSPECTIONS.

40

SECTION 13.3

CONTRACTORS’ INSURANCE.

40

ARTICLE XIV [INTENTIONALLY OMITTED]

40

ARTICLE XV DAMAGE TO FACILITY

40

SECTION 15.1

ALLOCATION OF LOSS PROCEEDS.

40

SECTION 15.2

EVENT OF TOTAL LOSS.

41

SECTION 15.3

EVENT OF LOSS.

41

ARTICLE XVI INDEMNIFICATION AND LIABILITY

41

SECTION 16.1

GENERAL INDEMNITY.

42

SECTION 16.2

INDEMNIFICATION FOR REGULATORY PENALTIES.

42

SECTION 16.3

LIABILITY AMONG THE PARTIES.

42

SECTION 16.4

COOPERATION REGARDING CLAIMS.

43

SECTION 16.5

SURVIVAL OF PROVISIONS.

43

ARTICLE XVII ASSIGNMENTS AND DELEGATIONS

44

SECTION 17.1

SUCCESSORS AND ASSIGNS.

44

SECTION 17.2

ASSIGNMENT BY OPERATING AGENT.

44

SECTION 17.3

ASSIGNMENT BY LESSEE/OWNER PARTIES.

44

ARTICLE XVIII DEFAULT AND REMEDIES

45

SECTION 18.1

EVENTS OF DEFAULT.

45

SECTION 18.2

EFFECT OF DEFAULT.

45

ARTICLE XIX FORCE MAJEURE

45

SECTION 19.1

EFFECT OF FORCE MAJEURE.

45

SECTION 19.2

DEFINITION OF FORCE MAJEURE.

45

SECTION 19.3

NOTICE OF FORCE MAJEURE.

46

ARTICLE XX DISPUTE RESOLUTION

46

SECTION 20.1

EXCLUSIVE PROCEDURE.

46

SECTION 20.2

SURVIVAL.

46

ARTICLE XXI REPRESENTATIONS AND WARRANTIES

46

ARTICLE XXII CONFIDENTIALITY

48

SECTION 22.1

NON-DISCLOSURE OBLIGATIONS.

48

SECTION 22.2

LAW.

49

TABLE OF CONTENTS

ARTICLE XXIII TERM

49

ARTICLE XXIV MISCELLANEOUS

50

SECTION 24.1

APPLICABLE LAW.

50

SECTION 24.2

JURY TRIAL.

50

SECTION 24.3

NOTICES.

50

SECTION 24.4

COUNTERPARTS.

51

SECTION 24.5

SEVERABILITY.

51

SECTION 24.6

THIRD-PARTY BENEFICIARIES.

51

SECTION 24.7

ENTIRE AGREEMENT.

51

SECTION 24.8

SCHEDULES.

51

SECTION 24.9

NO JOINT VENTURE.

52

SECTION 24.10

AMENDMENTS AND WAIVERS.

52

SECTION 24.11

SURVIVAL.

52

SECTION 24.12

FURTHER ASSURANCES.

52

SECTION 24.13

INTERPRETATION NECESSITATED BY CERTAIN FUTURE MGE OR WPPI ELECTIONS.

52

SECTION 24.14

CERTIFICATIONS AND OPINIONS OF COUNSEL.

52

TABLE OF CONTENTS

SCHEDULES

Schedule 9.1

FERC Accounts

Schedule 9.2

Productive Labor Rate

Schedule 9.3

Costs Unique to Elm Road Unit 1

Schedule 9.4

Costs Allocated from the Common Facilities O&M Agreement

Schedule 9.5

Costs Unique to WEPCO’s Fossil Fuel Generating Facilities

Schedule 9.6

Costs Unique to WEPCO’s Utility Operations

Schedule 9.7

Other Support Costs

Schedule 24.14

Legal Opinion Matters

EXHIBITS

Exhibit A

Breakdown of Components into Unit Common Facilities and Site Common Facilities

TABLE OF CONTENTS

ELM ROAD GENERATING STATION COMMON FACILITIES

OPERATING AND MAINTENANCE AGREEMENT

This ELM ROAD GENERATING STATION COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT (this “Agreement”), dated as of December 17, 2004, is by and among WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation, in its capacity as a Lessee/Owner Party (“WEPCO”), MADISON GAS AND ELECTRIC COMPANY, a Wisconsin corporation (“MGE”), WISCONSIN PUBLIC POWER INCORPORATED, a municipal electric company organized under the laws of Wisconsin (“WPPI”), and WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation, in its capacity as Operating Agent (the “Operating Agent”).  Each of WEPCO (in either of its capacities), MGE and WPPI may be hereinafter referred to as a “Party” and collectively two or more of them may be referred to as “Parties.”

WITNESSETH

WHEREAS, WEPCO owns the Oak Creek/Elm Road Site in the Counties of Milwaukee and Racine, Wisconsin, on which WEPCO currently owns and operates four coal-based electric generating units and one gas-based electric generating unit and related facilities and on which ERGS, a subsidiary of WEC, currently plans to develop a two-unit coal-based generating station pursuant to or consistent with the order of the PSCW; and

WHEREAS, WEPCO has agreed to lease a portion of the Land to ERGS, pursuant to a Ground Lease, dated as of November 9, 2004 and WEPCO has entered into Easement and Indemnification Agreements with MGE Power and WPPI each dated as of the date hereof, granting to MGE Power and WPPI certain property rights related to the ownership and siting of Unit 1, Unit 2 and the New Common Facilities at the Elm Road Site;

WHEREAS, ERGS, MGE Power and WPPI have entered or are, simultaneously with this Agreement, entering into the Elm Road I Ownership Agreement and the Elm Road II Ownership Agreement, pursuant to which MGE Power and WPPI may elect to become co-owners of Unit 1 and/or Unit 2 and the New Common Facilities of the Elm Road Generating Station;

WHEREAS, upon completion of construction of each unit of the Elm Road Generating Station and satisfaction of certain other conditions, ERGS will lease its interest in that unit to WEPCO, and MGE Power will, if it elects to become a co-owner of the unit, lease its interest to MGE, each under a long-term facility lease;

WHEREAS, WEPCO, MGE and WPPI have entered or are, simultaneously with this Agreement, entering into the Unit 1 O&M Agreement and the Unit 2 O&M Agreement, pursuant to which WEPCO will be designated Operating Agent for Unit 1 and Unit 2.

WHEREAS, if ERGS elects to proceed with the development of the Elm Road Generating Station, then ERGS will develop, either by itself or together with MGE Power and/or WPPI, the New Common Facilities for common use among Unit 1, Unit 2 and (in some cases) the Oak Creek Power Plant;

WHEREAS, certain of the New Common Facilities, as specified in Exhibit A hereto, are common only to Unit 1 and Unit 2 (the "Unit Common Facilities") and certain of the New Common Facilities, as specified in Exhibit A hereto, are common to Unit 1, Unit 2 and the Oak Creek Power Plant (the "Site Common Facilities"); 

WHEREAS, the owners of Unit 1 and Unit 2 have entered or are, simultaneously with this Agreement, entering into the New Common Facilities Ownership Agreement which will govern the ownership of the New Common Facilities after the Lease Effective Date;

WHEREAS, WEPCO, as owner of the Existing Common Facilities, shall permit the Unit 1 and Unit 2 Lessee/Owner Parties to share in the use of such Existing Common Facilities, in exchange for sharing the costs and expenses related thereto in accordance with the provisions of this Agreement;

WHEREAS, the Parties desire to set forth their agreements and understandings regarding the operation and maintenance of the Common Facilities; and

WHEREAS, the Parties desire to appoint WEPCO as Operating Agent for the Common Facilities and to set forth the terms upon which the Operating Agent will, among other things, operate and maintain the Common Facilities and perform related activities.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

RULES OF INTERPRETATIONS; DEFINITIONS

SECTION 1.1

Rules of Interpretation.

(a)

In this Agreement, unless a clear contrary intention is apparent from the context:

(i)

the singular includes the plural and vice versa;

(ii)

references to a person shall include such person’s successors and assigns; provided, however, that with respect to a Party and its rights and obligations under this Agreement, references to a Party shall only include such Party’s successors and assigns if such successors and assigns are permitted by this Agreement; provided, further, references to a person in a particular capacity excludes such person in any other capacity or individually;

(iii)

references to any gender include the other genders;

(iv)

references to any agreement (including this Agreement), document or instrument mean such agreement, document or instrument as amended or modified from time to time in accordance with the terms, conditions and provisions thereof;

(v)

references to any Law mean such Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Law means that provision of such Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or re-enactment of such section or other provision;

(vi)

references to the Preamble or to any Article, Section, Appendix, or Schedule mean the Preamble hereto or such Article or Section hereof or Appendix, or Schedule hereto;

(vii)

“hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision hereof;

(viii)

“including” (and other correlative meanings such as “include”) means including any listed examples but without limiting the generality of any description preceding such term; and

(ix)

with respect to any rights and obligations of the Parties, all such rights and obligations shall be construed to the extent permitted by applicable Law.

(b)

Computation of Time Periods.  For purposes of computation of periods of time under this Agreement, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

(c)

Accounting Terms and Determinations.  Unless otherwise specified in this Agreement, all terms of an accounting character used herein shall be interpreted, all accounting determinations required to be made hereunder shall be made, and any financial statements required to be delivered hereunder shall be prepared, in accordance with Accounting Practices.

(d)

Legal Representation of the 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 a person drafting the contract provisions shall not apply to any construction or interpretation thereof.

(e)

Headings.  Section headings and the table of contents used in this Agreement (including the Schedules hereto) are for convenience of reference only and shall not affect the construction of this Agreement.

(f)

Coordination With Other Agreements.  If there is any conflict between this Agreement and any of the other Elm Road Documents, this Agreement and the Elm Road Document(s) shall be interpreted and construed, if possible, so as to avoid or minimize such conflict.  Notwithstanding anything else to the contrary in this Agreement, the Operating Agent shall not be required to administer the provisions of any Project Agreement to the extent that doing so would cause it to violate an express provision of the WEPCO Facility Lease.  

SECTION 1.2

Definitions.

Capitalized terms used herein and in the Schedules hereto shall have the meanings ascribed to such terms below.

“Acceptable Credit” shall mean, with respect to any person, except as provided in the next sentence, a rating of its senior long-term unsecured debt of BBB or better by Standard & Poor’s Ratings Group or Baa2 or better by Moody’s Investor Service.  In the case of a municipal electric company or other political subdivision, “Acceptable Credit” shall mean a rating of its senior long-term debt, which debt is not secured by any tangible assets, of BBB or better by Standard & Poor’s Ratings Group or Baa2 or better by Moody’s Investor Service.  A person shall be deemed to have Acceptable Credit if its obligations are guaranteed by a person with Acceptable Credit. 

“Accounting Practices” shall mean requirements, practices, procedures, methodologies and principles as set forth in the “Uniform System of Accounts Prescribed for Public Utilities and Licensees subject to the provisions of the Federal Power Act” (18 C.F.R. Part 101), applicable to “major” utilities as therein defined, in effect on the date hereof, as amended from time to time, and consistent with Generally Accepted Accounting Principles.

“Affiliate” shall mean, with respect to any person, (a) each entity that such person Controls, (b) each person that Controls such person, and (c) each entity that is under common Control with such person.

“Agreement” shall mean this Common Facilities Operating and Maintenance Agreement, together with all of the Schedules hereto.

“Applicable Electric Reliability Organization” shall mean the North American Electric Reliability Council, and any successor national organization with responsibility to establish reliability standards, and any regional electric reliability organization with responsibility, for reliability purposes, over the area that encompasses Eastern Wisconsin (currently Mid-America Interconnected Network, Inc.).

“Applicable Transmission System Operator” shall mean one or more entities authorized by the FERC to operate the transmission facilities (i) with which an applicable Unit and the New Common Facilities are interconnected; and/or (ii) required to deliver the output of the Unit as directed by the Lessee/Owner Parties.  The Applicable Transmission System Operator currently is the Midwest Independent System Operator, Inc.

“Business Day” shall mean any day on which commercial banks are not authorized or required to close in Milwaukee, Wisconsin.  For the avoidance of doubt, Saturday and Sunday shall not be Business Days.

“Capital Costs” shall mean those costs required to be capitalized under Accounting Practices, without carrying charges (unless otherwise agreed) or markup, incurred by or on behalf of the Operating Agent at the Elm Road Site in connection with its performance under this Agreement in accordance with Prudent Utility Practice and this Agreement.

“Common Facilities” shall mean the Existing Common Facilities and the New Common Facilities.

“Component” has the meaning given to such term in Exhibit A to the New Common Facilities Ownership Agreement. 

“Component Share” shall mean each Lessee/Owner Party’s owned or leased share of the applicable Component of New Common Facilities, as in effect from time to time, as determined under (i) the Unit I Ownership Agreement prior to the Lease Effective Date and (ii) the New Common Facilities Ownership Agreement after the Lease Effective Date.  WPPI’s Component Share shall equal its "Component Ownership Interest" under the New Common Facilities Ownership Agreement.  WEPCO’s Component Share shall equal ERGS’s "Component Ownership Interest" under the New Common Facilities Ownership Agreement, as leased to WEPCO pursuant to the WEPCO Facility Leases.  MGE’s Component Share shall equal MGE Power’s "Component Ownership Interest" under the New Common Facilities Ownership Agreement, as leased to MGE pursuant to the MGE Facility Leases.

“Compounded Monthly” shall mean the addition to principal of each month’s interest at the end of such calendar month.

“Confidential Information” shall mean, with respect to a Party, all proprietary and confidential business information and data of such Party, including Trade Secrets, that is not generally known by or readily ascertainable by or available to, on a legal or authorized basis, the general public; and which (1) has been expressly and clearly designated as confidential by the Party providing the information, (2) is within a category of information that the Operating Committee has designated as confidential, or (3) the receiving Party would normally consider and treat as confidential if the information were its own.  For the avoidance of doubt, “Confidential Information” shall not include any information: (a) which is already known to the receiving Party; or (b) which (i) has become generally known to the public through no wrongful act of the receiving Party or its representatives, (ii) has been received by the receiving Party from a third party without (to the receiving Party’s knowledge) restriction on disclosure and without (to the receiving Party’s knowledge) a breach by the third party of an obligation of confidentiality, (iii) is independently developed by the receiving Party without use of the Confidential Information received from a disclosing Party; or (iv) when received by the receiving Party constituted Confidential Information but, due to the passage of time, the factual predicate justifying treatment as Confidential Information no longer applies.

“Control” shall mean the possession, directly or indirectly, through one or more intermediaries, of the following:

(a) (i)  in the case of a corporation, 50% or more of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to 50% or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, 50% or more of the beneficial interest therein; and (iv) in the case of any other entity, 50% or more of the economic or beneficial interest therein; and

(b)

in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

“Dispute” shall have the meaning given to such term in Section 20.1.

“Elm Road Documents” shall mean this Agreement, the Unit 1 Ownership Agreement, the Unit 2 Ownership Agreement, the New Common Facilities Ownership Agreement, the Unit 1 O&M Agreement, the Unit 2 O&M Agreement, the Interim Use and Operating Agreement and the Property Rights Agreement.

“Elm Road Generating Station” shall mean the coal-based generating station consisting of Unit 1 and Unit 2 and New Common Facilities to be developed by ERGS on the Land.

“Elm Road I Ground Lease” shall mean the Elm Road I Ground Lease and Easement Agreement between WEPCO and ERGS. 

“Elm Road II Ground Lease” shall mean the Elm Road II Ground Lease and Easement Agreement between WEPCO and ERGS. 

“Elm Road Site” shall mean (i) those portions of Parcel 1 and Parcel 2, respectively, on which the Elm Road Generating Station is located, (ii) the Land Easement Areas, and (iii) those portions of the Land on which the Site Common Facilities are located. 

“EPC Contract” shall mean the Turnkey Engineering, Procurement and Construction Contract, dated as of April 9, 2004 between the Project Manager and the EPC Contractor, or any successor agreement between the Project Manager and the EPC Contractor for the construction of the Elm Road Generating Station.

“EPC Contractor” shall mean Bechtel Power Corporation, a Nevada corporation, or any replacement contractor under the EPC Contract.

“ERGS” shall mean Elm Road Generating Station Supercritical, LLC.

“Event of Default” shall mean any of the events enumerated in Section 18.1.

“Event of Loss” shall mean any loss of, destruction or damage to, or taking of any part of the Common Facilities or any Component(s) other than an Event of Total Loss.

“Event of Total Loss” shall mean: (a) all or substantially all of the Common Facilities or any Component(s) shall be damaged to the extent of being completely or substantially completely destroyed; (b) any damage to the Common Facilities or any Component(s) that results in an insurance settlement with respect thereto on the basis of a total loss or an agreed constructive or a compromised total loss of the Common Facilities or any Component(s); or (c) all or substantially all of or a material portion of the Common Facilities or any Component(s) has been taken by exercise of eminent domain or a similar right or power by a Governmental Authority or a Governmental Authority shall order the Common Facilities or any Component(s) to cease to operate permanently.

“Existing Common Facilities” shall mean any and all facilities, components, equipment and materials which are (a) utilized in support of the operation and maintenance of the Oak Creek Power Plant and one or both of Elm Road Units 1 or 2, (b) owned or leased by WEPCO and located on the Land and (c) in-place and operational prior to the initiation of construction of Elm Road Unit 1, as such facilities, components, equipment and materials may be repaired from time to time.

“FERC” shall mean the Federal Energy Regulatory Commission, or its successor.

“Force Majeure” shall have the meaning given to such term in Section 19.2.

“Generally Accepted Accounting Principles” shall mean generally accepted accounting principles in the United States of America as in effect from time to time, applied on a consistent basis with WEPCO’s other utility operations.

“Government Approval” shall mean any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, variance, order, judgment, decree, publication, declaration, or registration issued by any Governmental Authority.

“Governmental Authority” shall mean any applicable federal, state, county, municipal or other government, quasi-government or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof.

“Gross Negligence” shall be determined by reference to Wisconsin common law concepts of gross negligence, provided, that no Party shall use the absence of a gross negligence concept under Wisconsin law as a defense to a claim alleging Gross Negligence or as a basis to substitute a standard other than Gross Negligence where it is provided for in this Agreement.

“Ground Leases” shall mean the Elm Road I Ground Lease and the Elm Road II Ground Lease.

“Indemnified Party” shall have the meaning given such term in Section 16.4.

“Indemnifying Party” shall have the meaning given such term in Section 16.4.

“Interim Use and Operating Agreement” shall mean the Interim Use and Operating Agreement dated as of the date hereof between the Operating Agent and the Project Manager.

“Land” shall mean the property owned by WEPCO on which the Oak Creek Power Plant, the Existing Common Facilities, and the Elm Road Generating Station will all be located, as more completely set forth in Exhibit A to the Ground Leases. 

“Land Easement Areas” shall mean collectively "Land Easement Areas" as defined in the Elm Road I Ground Lease and "Land Easement Areas" as defined in the Elm Road II Ground Lease.

“Law” shall mean any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of or determination by, or any 

interpretation or administration of any of the foregoing by, any Governmental Authority or judicial or administrative body, whether now or hereafter in effect.

“Lease Effective Date” shall have the meaning given to it in the WEPCO Unit 1 Facility Lease; provided, however, that if the WEPCO Unit 1 Facility Lease has terminated or expired prior to the Lease Effective Date, Lease Effective Date shall mean the date on which Unit 1 shall have achieved Commercial Operation (as defined in the WEPCO Unit 1 Facility Lease).

“Lessee/Owner Party” shall mean WEPCO, in its role as lessee of Unit 1 under the WEPCO Unit 1 Facility Lease and/or of Unit 2 under the WEPCO Unit 2 Facility Lease and/or as the owner of the Oak Creek Power Plant, as distinct from its role as Operating Agent, or MGE or WPPI, and the plural shall refer to any combination of WEPCO (as lessee), MGE, and WPPI.

“Loss” shall mean any liability, obligation, damage, loss, demand, penalty, interest, fine, claim, action, suit, judgment, settlement, together with reasonable costs, fees, expenses and disbursements (including reasonable legal fees and expenses and costs of investigation), arising out of this Agreement.

“MAIN” shall mean Mid-America Interconnected Network, Inc. or any successor with responsibility for establishing the criteria for monitoring compliance with the rating of generation equipment located at the Land.

“Majority Vote” shall mean the affirmative vote of one or more voting representatives the sum of whose votes exceed 50% of the voting rights in the Component or Components that are the subject of or which will be affected by the vote.

“MGE” shall mean Madison Gas and Electric Company.

“MGE Facility Lease” shall mean the Elm Road Unit 1 Facility Lease Agreement or the Elm Road Unit 2 Facility Lease Agreement between MGE Power and MGE.

“MGE Power” shall mean MGE Power Elm Road, LLC.

“MW capacity” shall have the meaning given to such term in Section 9.1(b)(xi).

“Net Generating Capability” shall mean that amount of kilowatts, less station use (including the applicable unit’s share of power usage by Common Facilities), that Unit 1 or Unit 2, as applicable, can normally supply at the Point of Delivery, taking into account transformer losses between such unit and the Point of Delivery, consistent with Prudent Utility Practice and manufacturers’ recommendations, and determined in accordance with an URGE test conducted pursuant to MAIN standards.

“New Common Facilities” shall mean certain separate facilities, as such facilities may be modified from time to time, that are to be constructed as part of the Elm Road Generating Station and that will be utilized in common in the operation and maintenance of the Elm Road Units 1 and 2 and, where applicable, one or more units of the Oak Creek Power Plant.

“New Common Facilities Ownership Agreement” shall mean the New Common Facilities Ownership Agreement among ERGS, WPPI and MGE Power.

“Oak Creek Power Plant” shall mean the existing coal-based units (Units 5 through 8) and the gas-based unit (Unit 9) currently located on the Land, and any replacement or additional units installed on or adjacent to the site now occupied by Units 5 through 9 other than the Elm Road Generating Station.

“Operating Agent” shall mean the agent, including any Successor Operating Agent, acting on behalf of the Lessee/Owner Parties and appointed pursuant to Article II, to perform the Operating Functions with respect to the Common Facilities during the Term of this Agreement.  Throughout the Term of this Agreement, while WEPCO is the Operating Agent, any reference to the Operating Agent shall mean WEPCO acting solely in its capacity as Operating Agent, and shall not refer to WEPCO acting in any other capacity under this Agreement or any other Project Agreement.

“Operating Committee” shall have the meaning given to such term in Section 3.1. 

“Operating Committee Member” shall have the meaning given to such term in Section 3.1(b).

“Operating Costs” shall mean those costs and expenses, without carrying charges or markup, and excluding Capital Costs, incurred by or on behalf of the Operating Agent in connection with its performance under this Agreement in accordance with Prudent Utility Practice and this Agreement.

“Operating Functions” shall mean the duties and responsibilities assigned to the Operating Agent under this Agreement.

“Parcel 1” shall mean the land described on Exhibit B-1 to the Elm Road I Ground Lease. 

“Parcel 2” shall mean the land described on Exhibit B-1 to the Elm Road II Ground Lease. 

“Project Agreements” shall mean the Elm Road Documents, the WEPCO Facility Leases, the MGE Facility Leases, the EPC Contract, all material agreements that the Operating Agent enters into on behalf of the Parties pursuant to this Agreement, and all material agreements continuing in effect after the Lease Effective Date. 

“Project Manager” shall mean Elm Road Services, LLC.

“Property Rights Agreement” shall mean the Elm Road Generating Station Unit 1 Easement and Indemnification Agreement by and among WEPCO, MGE Power and WPPI or the Elm Road Generating Station Unit 2 Easement and Indemnification Agreement by and among WEPCO, MGE Power and WPPI, in each case dated as of as of the date hereof.

“Prudent Utility Practice” shall mean any of the practices, methods and acts, which, in the exercise of reasonable judgment in the light of the facts known at the time the decision was made (including, but not limited to, the practices, methods and acts engaged in or approved by a 

significant portion of the electric utility industry prior thereto), reasonably could have been expected to accomplish the desired result consistent with reliability, safety, good business practice and expediency.  Prudent Utility Practice is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather is a spectrum of possible practices, methods or acts which reasonably could have been expected to accomplish the desired result at a reasonable cost consistent with reliability, safety, good business practice and expediency.  Prudent Utility Practice includes due regard for manufacturers’ warranties, environmental considerations, and the requirements of governmental agencies that have jurisdiction.  In applying the standard of Prudent Utility Practice to any matter under this Agreement, equitable consideration shall be given to the circumstances, requirements and obligations of each of the Parties.

“PSCW” shall mean the Public Service Commission of Wisconsin or successor regulatory body.

“Representative” shall mean, with respect to any Party, its officers, directors, employees, contractors, agents and representatives; provided, however, that neither the Operating Agent nor the Project Manager shall be a Representative of any Party for purposes of Article XVI of this Agreement. 

“Scheduled Commercial Operation Date” shall have the meaning given to such term in the WEPCO Unit 1 Facility Lease.

“Site Common Facilities” shall have the meaning given to such term in the Recitals to this Agreement.

“Successor Operating Agent” shall mean any successor to the Operating Agent under this Agreement.

“Term” shall have the meaning given to such term in Article XXIII.

“Trade Secrets” shall mean, with respect to a Party, information of such Party, including a formula, pattern, compilation, program, device, technique or process, which (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject of efforts to maintain its secrecy that are reasonable under the circumstances.

“Transition Period” shall mean the period commencing on the day that is 36 months prior to the Scheduled Commercial Operation Date, and ending on the Lease Effective Date.

“Transmission Interconnection Equipment” shall have the meaning given to such term in Section 2.8.

“True-Up Interest Rate” shall mean the daily interest rate to be applied each day during the period for which such interest is to be calculated, to be applied as illustrated in Schedule 1.1.  Such daily rate shall remain the same for each day for which interest is to be calculated in any given calendar month.  Such daily rate shall equal 1/365 of the per annum prime lending rate published in The Wall Street Journal under “Money Rates” on the first Business Day of such month; provided, that the True-Up Interest Rate shall not exceed the maximum rate permitted by applicable Law.

“Unit Common Facilities” shall have the meaning given to such term in the Recitals to this Agreement

“Unit 1” shall mean the approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities described in Exhibit A to the Unit 1 Ownership Agreement, excluding New Common Facilities. 

“Unit 1 O&M Agreement” shall mean the Unit 1 Operating and Maintenance Agreement among WEPCO, MGE and WPPI for the Elm Road Generating Station Unit 1.

“Unit 1 Ownership Agreement” shall mean the Elm Road I Ownership Agreement among ERGS, MGE Power, WPPI, the Project Manager and, for the limited purpose set forth therein, W.E. Power, LLC.

“Unit 2” shall mean the approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities described in Exhibit A to the Unit 2 Ownership Agreement, excluding New Common Facilities.

“Unit 2 O&M Agreement” shall mean the Unit 2 Operating and Maintenance Agreement among WEPCO, MGE and WPPI for the Elm Road Generating Station Unit 2.

“Unit 2 Ownership Agreement” shall mean the Elm Road II Ownership Agreement among ERGS, MGE Power, WPPI, the Project Manager and, for the limited purpose set forth therein, W.E. Power, LLC.

“Units of Property” shall have the same meaning as “retirement units” as that term is used in the “Uniform System of Accounts Prescribed for Public Utilities and Licensees subject to the provisions of the Federal Power Act” (18 C.F.R. Part 101), in effect on the date hereof, as amended from time to time (including any successor term used in any such amendments).

“WEC” shall mean Wisconsin Energy Corporation.

“Weighted Total Component Share” shall mean each Lessee/Owner Party’s aggregate owned or leased share of the New Common Facilities, as in effect from time to time, as determined under (i) the Unit 1 Ownership Agreement prior to the Lease Effective Date and (ii) the New Common Facilities Ownership Agreement after the Lease Effective Date.  WPPI’s Weighted Total Component Share shall equal its “Total New Common Facilities Weighted Ownership Percentage” under the New Common Facilities Ownership Agreement.  WEPCO’s Weighted Total Component Share shall equal ERGS’s “Total New Common Facilities Weighted Ownership Percentage” under the New Common Facilities Ownership Agreement.  MGE’s Weighted Total Component Share shall equal MGE Power’s “Total New Common Facilities Weighted Ownership Percentage” under the New Common Facilities Ownership Agreement.

“WEPCO” shall mean Wisconsin Electric Power Company.

“WEPCO Affiliate Contract” shall mean any transaction entered into by WEPCO, acting as the Operating Agent, for the purchase of any goods or services from, or any sale of any goods or services to, or any other contract, renegotiation or settlement with, any party that would be deemed 

an affiliate of WEPCO under Section 196.52(1) of the Wisconsin Statutes; provided, that the Interim Use and Operating Agreement shall not be deemed a WEPCO Affiliate Contract.

“WEPCO Unit 1 Facility Lease” shall mean the Elm Road I Facility Lease Agreement between ERGS and WEPCO.

“WEPCO Unit 2 Facility Lease” shall mean the Elm Road II Facility Lease Agreement between ERGS and WEPCO.

“WPPI” shall mean Wisconsin Public Power Inc.

ARTICLE II

OPERATING AGENT

SECTION 2.1

Appointment of Operating Agent.

The Lessee/Owner Parties hereby appoint WEPCO, and WEPCO hereby accepts such appointment, as Operating Agent to serve as such until the termination of this Agreement or the resignation or removal of WEPCO as Operating Agent pursuant to Section 2.7(a) or 3.3(d).  Whenever this Agreement references the acts of the Operating Agent, such reference will mean WEPCO, acting in its capacity as Operating Agent pursuant to the authority granted by this Agreement and in accordance with the approval provided by the PSCW, inter alia, of WEPCO as operator, for so long as WEPCO is the Operating Agent.

SECTION 2.2

Operating Agent’s Duties and Responsibilities.

Commencing with the Lease Effective Date, and, to the extent applicable, the first day of the Transition Period, the Operating Agent shall, subject to the standards of conduct and other limitations set forth in this Agreement, and after review and due consideration of the Operating Committee’s actions and recommendations, but without being bound to follow those actions and recommendations except for the written decisions of the Operating Committee as to the matters set forth in Section 3.3(e), take or cause to be taken on behalf of the Lessee/Owner Parties all actions and incur such costs which, in the reasonable judgment of the Operating Agent, are necessary and appropriate to operate and maintain the Common Facilities safely, efficiently and reliably in accordance with Prudent Utility Practice, all applicable warranties and manufacturer specifications, and all applicable Laws, and without adverse distinction as between the Lessee/Owner Parties.  The Operating Agent’s duties shall include the following:

(a)

Furnish and train the personnel necessary for performance of the Operating Functions and be responsible for all personnel matters, including hiring, disciplining, discharging, training and promoting.

(b)

Consistent with Section 2.4, procure, contract for, and furnish the services and materials, including equipment, apparatus, machinery, spare parts, tools and supplies necessary for the performance of the Operating Functions, and administer and comply with all contracts entered into by the Operating Agent with third parties that relate to the performance of this Agreement.

(c)

Use its best efforts to comply with any and all Laws pertaining to the Operating Functions, the Common Facilities, and the Elm Road Site, and with any applicable Government Approvals.

(d)

Operate and maintain the Common Facilities in a manner consistent with the reliability, availability, efficiency, and cost goals established for Unit 1 and Unit 2.

(e)

Establish the maintenance schedule for the Common Facilities, using commercially reasonable efforts to coordinate such maintenance schedule with the operational needs of Unit 1, Unit 2 and the Oak Creek Power Plant; provided, however, that the Operating Agent shall retain the final responsibility for determining the maintenance schedule for the Common Facilities.

(f)

Recommend to the Operating Committee action to be taken in connection with the retirement or replacement of, or additions or improvements to, the Common Facilities.

(g)

Make or cause to be made, on behalf of the Lessee/Owner Parties, each capital renewal, replacement, improvement, enhancement, modification, alteration or addition to the New Common Facilities that is required by applicable Law, is necessary or appropriate for the efficient operation of Unit 1 and Unit 2 and the Oak Creek Power Plant or is consistent with Prudent Utility Practice.

(h)

Keep records and provide information to the Operating Committee as required by Article IV hereof.

(i)

Not allow any liens arising from the Operating Agent’s actions or inaction (where such actions and/or inaction are not consistent with Prudent Utility Practice), unless otherwise authorized by the Elm Road Documents, to remain in effect undischarged against the New Common Facilities; provided, that the Operating Agent shall not be required to pay or discharge any such lien as long as the collection or enforcement of such lien remains suspended as a result of the Operating Agent’s good-faith challenge to the lawfulness or validity of the lien.

(j)

Assist, as reasonably requested, any Lessee/Owner Party, its insurer or attorneys in the investigation, adjustment, litigation and settlement of any Losses or any claim that may result in Losses arising out of the Operating Functions.

(k)

Maintain and revise, as necessary, a Units of Property list for the New Common Facilities.

(l)

Purchase and maintain adequate insurance, if and to the extent required under Article XIII.

(m)

Execute and file with applicable Governmental Authorities all necessary and appropriate applications, amendments, reports and other documents and filings for or in connection with the Operating Functions, in order to secure Government Approvals and comply with all regulatory requirements with respect to operation and maintenance of the Common Facilities.  Prior to executing and filing any applications for Government Approvals that will or are expected to have a material impact on the operation of the New Common Facilities or the 

costs related thereto, the Operating Agent shall deliver to each of the Lessee/Owner Parties all relevant and significant documents and information and provide each of said Parties a reasonable opportunity to review and comment on such applications, and the Operating Agent shall consider all such comments in good faith.

(n)

Receive on each Lessee/Owner Party’s behalf any notice or other communication from any Governmental Authority relating to a regulatory citation, review or enforcement action with respect to the New Common Facilities.  The Operating Agent shall deliver a copy of each such notice or other communication to each of the Lessee/Owner Parties as soon as reasonably practicable following receipt.

(o)

Bring suit, file or settle any type of legal action, on behalf of any or all of the Parties, to protect the Lessee/Owner Parties’ rights under this Agreement and/or to enforce agreements entered into by the Operating Agent pursuant Section 2.2(b).  Prior to bringing or settling any such action, the Operating Agent shall provide each of the Lessee/Owner Parties with notice and a description of such suit or settlement, provide each of the Parties with a reasonable opportunity to comment on such suit or settlement, and consider all such comments in good faith.  Notwithstanding the foregoing, the Parties agree that the Operating Agent shall not be required to act on behalf of MGE or WPPI under this subsection to the extent that it is being asked to bring suit, file or settle any type of legal action involving WEPCO or an affiliate of WEPCO, it being understood that MGE and WPPI shall retain the right to bring such actions on their own behalf with respect to the provisions of this Agreement for so long as WEPCO is the Operating Agent.

(p)

Investigate, adjust, defend, and settle claims by third parties arising out of or in connection with the Operating Functions, provided, however, that prior to settling any such claim, the Operating Agent shall provide each of the Lessee/Owner Parties with notice and a description of such claim, provide each of the Parties with a reasonable opportunity to comment on such claim, and consider all such comments in good faith.

(q)

Prepare and provide proposed budgets and budget updates to the Operating Committee in accordance with Section 3.3(b), and prepare proposed goals for the review and approval of the Operating Committee, and otherwise create and retain documents and records relating to the Common Facilities, in accordance with the provisions of this Agreement.

(r)

Where WPPI identifies actions necessary to be taken, or not taken, pursuant to this Agreement to avoid an adverse impact on the tax-exempt status of interest on its bonds, cooperate in a commercially reasonable manner with WPPI in structuring the Operating Agent’s actions to avoid such adverse impact, provided, that such actions comply with Prudent Utility Practice and, to the extent such actions are non-routine and cause the Operating Agent or other Lessee/Owner Parties to incur costs that are more than de minimis, WPPI shall bear such costs. 

(s)

Take such other actions as the Operating Agent reasonably determines to be necessary or appropriate, or as may be required under the regulations or directives of Governmental Authorities, to achieve the purposes of this Agreement.

SECTION 2.3

Emergencies.

Notwithstanding any other provisions of this Agreement, in the event of exigent or emergency conditions, the Operating Agent, as operator of the Common Facilities and acting on behalf of the Lessee/Owner Parties, shall take such action as reasonably deemed necessary to ensure personnel safety or the safety of the Common Facilities, Unit 1, Unit 2, or the Oak Creek Power Plant; provided, however, the Operating Agent shall notify the Lessee/Owner Parties’ marketing personnel simultaneously as soon as practicable after taking any such actions to the extent such actions impact the output or materially increase the cost of operation of a Lessee/Owner Party’s generating Unit.

SECTION 2.4

Contracts.

(a)

To the extent reasonably practicable and permitted by Law, the Operating Agent shall purchase on behalf of and for the account of a Lessee/Owner Party that Party’s allocable share of any supplies, equipment, spare parts or other materials required for the Operating Agent to perform its obligations hereunder, in a manner that will enable that Lessee/Owner Party to achieve or retain material benefits such as exemption from sales taxes.

(b)

Prior to entering any material contract with respect to the Common Facilities, other than fuel and fuel-related contracts, under which the Operating Agent, or the Operating Agent on behalf of the Lessee/Owner Parties collectively, will incur obligations expected to amount to $2,500,000 or more (adjusted annually from the Lease Effective Date for changes in the CPI-U consumer price index (all items) for Milwaukee-Racine, Wisconsin):  

(i)

The Operating Agent shall use commercially reasonable efforts to obtain permission from the other parties to such material contract to deliver to each of the Lessee/Owner Parties drafts of such material contract and provide each of said Parties with a reasonable opportunity to review and comment on such draft material contract.  The Operating Agent shall consider all comments received from the Lessee/Owner Parties with respect to such draft material contracts in good faith.  

(ii)

Where such material contract involves Capital Costs that pertain to a renewal, replacement, improvement, modification, alteration or addition to the New Common Facilities, the Operating Agent shall, in such contract, designate each Lessee/Owner Party as an owner or lessee of the New Common Facilities and a third-party beneficiary under such contract, and shall obtain for the Lessee/Owner Parties the right to receive copies of any Confidential Information provided to the Operating Agent thereunder.

(c)

Whether or not a contract is a material contract for purposes of Section 2.4(b), the Operating Agent shall, consistent with Section 2.5, administer each contract related to the performance of the Operating Functions so as to provide each Lessee/Owner Party the benefit of each contract (including all warranties) and use commercially reasonable efforts to obtain for the Lessee/Owner Parties access to Confidential Information provided thereunder as if each Lessee/Owner Party’s Component Share or Weighted Total Component Share interest in the contract (as applicable) were assigned to the applicable Party.

SECTION 2.5

Standards of Conduct Governing Operating Agent’s Actions.

Notwithstanding any other provisions of this Agreement, in discharging its duties and responsibilities hereunder, the Operating Agent shall at all times comply with the following requirements:

(a)

The Operating Agent shall perform the Operating Functions on behalf of the Lessee/Owner Parties in good faith in accordance with the terms of this Agreement and applicable Law, consistent with Prudent Utility Practice, in a manner that is commercially reasonable under the circumstances without adverse distinction as between and among the Parties.

(b)

The Operating Agent shall take due consideration of the actions and recommendations of the Operating Committee and shall comply with the written decisions of the Operating Committee as to the matters listed in Section 3.3(e).

(c)

The Operating Agent shall act in accordance with the principle of full disclosure to the Lessee/Owner Parties of all information pertinent to their interests in the New Common Facilities.  The Operating Agent shall (i) provide in a timely manner to the Lessee/Owner Parties all necessary or appropriate information respecting the operation of the Common Facilities, in accordance with Article IV hereof, and (ii) regularly consult with the Operating Committee, the Lessee/Owner Parties’ operations centers, and/or other Lessee/Owner Party personnel and consultants, as appropriate, regarding the operation of the Common Facilities.

(d)

The Operating Agent shall keep, repair, maintain and preserve the Common Facilities in all material respects:  (i) in good condition (ordinary wear and tear excepted), repair and working order; (ii) in accordance with Prudent Utility Practice and all insurance policies required to be maintained by the Operating Agent(s) pursuant to this Agreement, the Unit 1 O&M Agreement, and the Unit 2 O&M Agreement; (iii) so as not to cause any manufacturer’s warranties then in effect on the New Common Facilities to be terminated other than for lapse of time; and (iv) subject to the provisions of Section 1.1(f), in compliance with the material terms of all Project Agreements of which the Operating Agent has knowledge and all applicable Laws and Government Approvals.

(e)

The Operating Agent shall perform the Operating Functions in accordance with the budget provisions of Section 3.3(b).

(f)

The Operating Agent shall perform the Operating Functions in a manner consistent with any agreements with, procedures of, and instructions issued by the Applicable Transmission System Operator and any Applicable Electric Reliability Organization.

(g)

The Operating Agent shall not in connection with the Operating Functions enter into or modify any WEPCO Affiliate Contract, or settle a dispute regarding any WEPCO Affiliate Contract, unless (i) the terms of such arrangements are completed on an arms-length basis and are subject to terms and conditions no less favorable than could be obtained with an independent third party and, where the Operating Agent is paying for services provided by an Affiliate, the price shall be no more than cost as determined or approved by a PSCW order, including a tariff order, and (ii) the Operating Agent’s action is otherwise in accordance with its 

obligations under this Agreement.  The Operating Agent shall not in connection with the Operating Functions enter into or modify any WEPCO Affiliate Contract with a value of more than $1,000,000, or settle a dispute with regard to such WEPCO Affiliate Contract, absent full advance disclosure to all of the Operating Committee Members of the proposed material terms of such contract, modification or settlement, together with evidence sufficient to show that the requirements of the preceding sentence have been satisfied.

SECTION 2.6

Cooperation with Operating Agent.

Each of the Lessee/Owner Parties agrees that it will cooperate with the Operating Agent, promptly, as and when reasonably requested by the Operating Agent in order for it to perform its duties, responsibilities and obligations under this Agreement.  Such cooperation shall include taking all reasonable actions necessary to comply with applicable Laws and to obtain any necessary or desirable Government Approvals, and executing and delivering documents, certificates or instruments necessary or appropriate to the Operating Agent’s duties, responsibilities and obligations under this Agreement.

SECTION 2.7

Change of Operating Agent.

Subject in all cases to the applicable PSCW requirements in effect from time to time:

(a)

WEPCO may, at its sole discretion, resign as Operating Agent by providing written notice to the other Parties at least 180 days in advance of the date, stated in the notice, upon which it will no longer act as Operating Agent; provided, however, that any such resignation must be in connection with WEPCO’s simultaneous resignation as Operating Agent for Unit 1 and Unit 2, and provided, further, that any resignation hereunder shall be limited to WEPCO’s role as Operating Agent with respect to the Unit Common Facilities.  For the avoidance of doubt, under no circumstances may WEPCO resign or be removed as Operating Agent for the Lessee/Owner Parties with respect to operation and maintenance of the Existing Common Facilities and/or the Site Common Facilities, so long as WEPCO owns or operates other units on the Land that require use of such facilities.

(b)

The Operating Committee may remove WEPCO as Operating Agent, or reduce the scope of its duties and responsibilities as Operating Agent, pursuant to and subject to the limitations set forth in Sections 3.3(d) and 2.7(a).  Any removal of WEPCO as Operating Agent, or reduction of the scope of Operating Functions for which WEPCO is to be responsible, shall be without prejudice to WEPCO’s rights in its capacity as a Lessee/Owner Party to this Agreement, and WEPCO may be removed as Operating Agent or have the scope of its Operating Functions reduced only to the extent or in such a manner that such removal or reduction of scope does not conflict with the requirements of Section 2.7(a) nor interfere with WEPCO’s operation of any facilities solely owned by it on the Land (including the Existing Common Facilities).  

(c)

In the event that WEPCO resigns or is removed as Operating Agent (or has the scope of its Operating Functions reduced), the Operating Committee shall promptly meet and attempt to reach consensus on appointment of a Successor Operating Agent to perform the Operating Functions that WEPCO will no longer fulfill.  If WEPCO has tendered its resignation and the unanimous consensus of the Operating Committee cannot be reached within four months 

prior to the effective date of WEPCO’s resignation, the Successor Operating Agent shall be appointed by a Majority Vote of the Operating Committee.  If the Operating Committee has voted to remove WEPCO as Operating Agent or reduce the scope of its Operating Functions, selection of the Successor Operating Agent must be approved by affirmative vote of two of the three voting Operating Committee Members.

(d)

No entity shall be allowed to bid as Successor Operating Agent unless it has (i) Acceptable Credit and (ii) at least ten years experience (together with its predecessors and Affiliates) operating major coal-fired generating plants.  The selection of a Successor Operating Agent shall be made following a Request for Proposals, and shall be based upon the foregoing objective factors, together with other pertinent factors, such as (x) whether, in operating major coal-fired plants, the entity achieved favorable results in terms of cost, efficiency and unit availability compared to the North American average for such plants; (y) the entity’s ability to dedicate sufficient qualified and trained employees to the Operating Functions; and (z) the entity’s ability to mobilize such employees within the time constraints applicable hereunder.

(e)

In the event that WEPCO is removed as Operating Agent (or has the scope of its Operating Functions reduced) pursuant to Section 3.3(d), WEPCO shall continue to perform all Operating Functions until the Successor Operating Agent has been appointed and is prepared to assume operations of the Unit Common Facilities.  In the event that WEPCO resigns as Operating Agent with respect to the Unit Common Facilities, WEPCO shall have no obligation to continue to perform the Operating Functions as they relate to the Unit Common Facilities under this Agreement from and after the earlier of:  (i) the date upon which the Successor Operating Agent has fully assumed its role as Successor Operating Agent and WEPCO has been provided notice of such assumption, or (ii) the date specified in WEPCO’s notice of resignation.

(f)

WEPCO shall reasonably cooperate with the Successor Operating Agent in facilitating the assumption of such position by the Successor Operating Agent and in familiarizing the Successor Operating Agent, its employees and agents with the New Common Facilities and their physical orientation and operation.  In furtherance of this succession, provided, that WEPCO is provided with adequate assurances that all Confidential Information to be delivered to the Successor Operating Agent will be treated by such entity as confidential in accordance with the requirements of Article XXII (and if deemed necessary by WEPCO, the execution by the Successor Operating Agent of a confidentiality agreement reasonably acceptable in form and substance to WEPCO), WEPCO agrees that it will take all reasonable actions (including turning over all manuals and as-built drawings, and providing all other plant records and pertinent documents) to permit the Successor Operating Agent to carry out its responsibilities for operations and management of the New Common Facilities under all necessary Government Approvals.  If WEPCO has resigned (rather than been removed), WEPCO shall be reimbursed for its costs of undertaking such matters as are required to assist a Successor Operating Agent under this Section.

(g)

1) If the Successor Operating Agent is an Affiliate of WEPCO, the duties, responsibilities, rights and liabilities of such Successor Operating Agent shall be governed by the term of this Agreement in the same fashion as were the duties, responsibilities, rights and liabilities of WEPCO as Operating Agent; provided, however, that the Lessee/Owner Parties, by mutual agreement, may determine whether (and if so, 

how) the provisions of this Agreement should be modified; and provided, further, that the Successor Operating Agent shall not be permitted to charge a management fee or other markup on costs incurred hereunder.

(ii)

If the Successor Operating Agent is not an Affiliate of WEPCO, prior to the effective succession of any Successor Operating Agent, the Lessee/Owner Parties shall negotiate with the Successor Operating Agent in good faith to execute an amended and restated Agreement with such entity specifying the duties, responsibilities, compensation and liabilities of such Successor Operating Agent.  In such event, in the negotiations with the Successor Operating Agent, the Lessee/Owner Parties shall advocate and support terms and conditions therein that, as among the Lessee/Owner Parties, are neither more nor less favorable to each of them than exist pursuant to this Agreement (except where all of the Lessee/Owner Parties agree otherwise).

SECTION 2.8

Ownership of Transmission Interconnection Equipment.

(a)

The Parties acknowledge and agree that the Operating Agent will hold title, on behalf of the Lessee/Owner Parties, to certain FERC-jurisdictional assets listed on Schedule 2.8 related to the Elm Road Generating Station (the "Transmission Interconnection Equipment").  The Operating Agent shall be responsible for maintaining such assets in the same manner as the Operating Agent maintains the Elm Road Generating Station.  The costs to maintain and/or replace such assets shall be treated as Operating Costs and/or Capital Costs hereunder.

(b)

The Lessee/Owner Parties further agree, that upon termination of this Agreement and the failure of the Lessee/Owner Parties to replace this Agreement with a successor agreement, upon the written request of Project Manager, (i) the Operating Agent shall transfer to Project Manager, or if Project Manager so directs, the Unit 1 Owners and/or Unit 2 Owners, all of the Operating Agent’s right, title and interest, if any, in any Transmission Interconnection Equipment and (ii) Project Manager or the Unit 1 Owners and/or Unit 2 Owners shall pay to the Operating Agent the net book value of any such transferred Transmission Interconnection Equipment.  The Operating Agent shall pay to each Lessee/Owner Party its Pro Rata Share of such amounts received from Project Manager.

ARTICLE III

OPERATING COMMITTEE

SECTION 3.1

Establishment and Nature of Operating Committee.

(a)

There is hereby established an Operating Committee to exercise the responsibilities specified in this Agreement and to perform such other duties as may from time to time be assigned to it in writing by the Parties.

(b)

The Operating Committee shall initially consist of six members (“Operating Committee Members”), two each to be designated by the Lessee/Owner Parties.  Each such Party may also designate one or more alternates who may act in the absence of the Party’s Operating Committee Member(s).  Each Lessee/Owner Party shall evidence such appointments by written notice to the other Parties, and by similar notice, any Party may change any of its 

Members or alternates on such Committee at any time.  A list of the initial Operating Committee Members is provided in Schedule 3.1.  The list of Operating Committee Members will be updated by the Operating Agent and distributed to each of the Parties with appropriate contact information as necessary to keep the list current as to membership on the Operating Committee.

(c)

So long as WEPCO has a Weighted Total Component Share of 50% or more, one of WEPCO’s Members on the Operating Committee shall be the chairman of the Operating Committee.  If WEPCO’s Weighted Total Component Share falls below 50%, then the chairmanship of the Operating Committee shall rotate among the Lessee/Owner Parties’ Members on an annual basis such that each Lessee/Owner Party shall appoint a Member to serve as the Operating Committee chairman every third year.  The chairman of the Operating Committee shall have the following duties and responsibilities:

(i)

coordinate with the other Operating Committee Members to schedule meetings of the Operating Committee, and make arrangements for meetings to take place at such time and place as appropriate (i.e., at the Elm Road Site or as the Parties may otherwise agree);

(ii)

provide notice to the other Operating Committee Members and the Operating Agent of the date, time and place for each meeting of the Operating Committee at least 20 days in advance of such meeting, except in cases of emergencies or if all the Operating Committee Members consent in writing.  The attendance of an Operating Committee Member at an Operating Committee meeting is a waiver of such notice unless such Member’s attendance is to protest the holding of the meeting;

(iii)

preside at each Operating Committee meeting and conduct all Operating Committee meetings in accordance with rules and procedures established and adopted by the Operating Committee and not inconsistent with the terms of this Agreement;

(iv)

establish an agenda for each Operating Committee meeting, including such items or matters as the chairman shall deem appropriate and such items or matters as may be requested by any other Operating Committee Member, and, reasonably in advance of the meeting, provide each other Operating Committee Member with a copy of the agenda, identifying all proposed actions to be voted upon; and

(v)

appoint a secretary for the Operating Committee, who need not be an Operating Committee Member, who shall (A) prepare a draft of the minutes for each Operating Committee meeting, in accordance with Section 3.1(g), and deliver or mail a copy of such draft minutes to each Operating Committee Member within five Business Days after the close of each Operating Committee meeting and (B) take custody of and maintain the records of all Operating Committee meetings.

(d)

The Operating Committee shall make reasonable efforts, but nonetheless shall not be obligated, to make decisions or recommendations on a consensus basis.  Where consensus is not reached and a vote is required, only one Operating Committee Member on behalf of each Lessee/Owner Party shall vote.  Such voting Operating Committee Member shall exercise, as a block, a voting right equal to the Component Share in the Component that is the subject of or is 

affected by the vote held by the Party on whose behalf the Operating Committee Member votes (or the Weighted Total Component Share of the Party where the vote affects the entire Common Facilities or entire New Common Facilities).  Except as otherwise expressly provided herein, any action of the Operating Committee shall be by Majority Vote.

(e)

The Operating Committee shall not have the authority to (i) modify the terms or provisions of this Agreement or any other Elm Road Document or (ii) take any action which is contrary to Prudent Utility Practice or any material term of this Agreement or any other Project Agreement, or which is unreasonable or inequitable under the circumstances.  The Operating Committee, and each Operating Committee Member, shall perform all of the responsibilities, duties and functions assigned to the Operating Committee under this Agreement in accordance with Prudent Utility Practice and the terms of this Agreement.

(f)

The Operating Committee shall be formed and shall conduct its first meeting on or before the commencement of the Transition Period.  After its initial meeting, the Operating Committee shall hold regularly scheduled meetings on at least a quarterly basis and shall meet at other times upon the reasonable request of any Party.  Any regularly scheduled meeting of the Operating Committee may be omitted but only by unanimous consent of the three voting Operating Committee Members.  The Lessee/Owner Parties shall cause their members of the Operating Committee to attend meetings and pursue diligently their obligations as members of the Operating Committee.  Meetings of the Operating Committee may be conducted by telephone conference.  In addition to the Operating Committee Members, other individuals representing one or more of the Parties may attend meetings of the Operating Committee but will have no right to vote on behalf of such Party.  Representatives of the Operating Agent shall be invited to and shall attend all Operating Committee meetings (except for any portion of any meeting in which one or more Operating Committee Members request the absence of the Operating Agent representatives), but will have no right to vote.

(g)

The minutes of each Operating Committee meeting shall record the following:

(i)

the date, time, location and names of the attendees of the meeting;

(ii)

the agenda of the meeting and the items or matters discussed;

(iii)

resolutions, motions and actions approved; agreements reached and decisions made by the Operating Committee, including the votes of the Operating Committee Members on such resolutions, motions, actions, agreements and decisions, and including descriptions of both majority and minority positions as to material issues; and

(iv)

the scheduled date, time and place of the next meeting of the Operating Committee.

(h)

The expenses of each Operating Committee Member shall be borne by the Lessee/Owner Party such Member represents.

SECTION 3.2

Scope of Operating Committee’s Review and Advice.

The Operating Committee shall receive information from and provide counsel to the Operating Agent on matters related to the operation and management of the Common Facilities.  The review and advisory functions of the Operating Committee shall be:

(a)

To provide liaison among the Parties with respect to the provisions of this Agreement;

(b)

To monitor the work of the Operating Agent and provide input and advice to the Operating Agent in connection with the Operating Agent’s performance of its obligations, duties and responsibilities under this Agreement.  In order to facilitate such monitoring and input, the Operating Committee may from time to time require the Operating Agent to conduct (or cause to be conducted) assessments or studies, the results of which shall be provided to the Operating Committee and the costs of which shall be recoverable as Operating Costs;

(c)

To review and make recommendations regarding the Operating Agent’s schedule for planned outages and maintenance, in accordance with Section 6.8;

(d)

To review and make recommendations regarding policies for appropriate levels of the inventory for spare parts and other materials and supplies;

(e)

To review and provide guidance regarding the form and content of the statistical and administrative reports, budgets, and information and other similar records regarding the operation of the Common Facilities to be kept by and furnished by the Operating Agent to the Lessee/Owner Parties in accordance with Article IV hereof (excluding accounting records used internally for the purpose of accumulating financial and statistical data, such as books of original entry, ledgers, work papers, and source documents);

(f)

To review and make recommendations concerning procedures for performance and efficiency testing;

(g)

To review and make recommendations regarding written practices and procedures for the operation and maintenance of the Common Facilities, and to establish the procedures called for in Section 3.3(a);

(h)

To review the records maintained by the Operating Agent relative to the performance of the Operating Functions, in support of billings to the Lessee/Owner Parties, and such other documents and records as may be necessary for the Lessee/Owner Parties to review to determine whether charges to them under such billings are proper and allowable;

(i)

To consider and, if appropriate, recommend amendments to this Agreement; provided, however, the Operating Committee shall not have authority to approve and adopt any such amendments;

(j)

To review and make recommendations regarding any proposal by the Operating Agent to implement a physical change to, or material change in the method of operation of, the Common Facilities; and

(k)

To perform such other functions and duties as may be assigned to it by agreement of all the Parties and to make any recommendations to the Operating Agent deemed appropriate or desirable.

SECTION 3.3

Operating Committee’s Authority For Certain Decisions.

(a)

Development of Procedures.  Not later than 30 days prior to the Scheduled Commercial Operation Date, the Operating Committee shall establish mutually acceptable practices and procedures, in the form of a manual, for keeping each Lessee/Owner Party advised of the status of the Common Facilities and key parameters, including Operating Costs and Capital Costs.  The Operating Committee shall deliver the written procedures to each of the Parties, who shall be responsible for updating each of their copies of the procedures manuals.  The Operating Committee shall be responsible for the distribution of any revised or additional procedures developed by the Operating Committee pursuant to this Agreement.  The Operating Agent will assist the Operating Committee with the development of the procedures and the procedures manual, and will maintain the official version of such procedures manual, which shall be available at the Elm Road Site for review by the Parties during regular business hours.  Copies of the official procedures so designated shall be provided by the Operating Agent to the Lessee/Owner Parties within five Business Days of any request therefor.

(b)

Budgets.  All operating and capital budgets for the Common Facilities, and significant variances from such budgets, shall be subject to prior review and approval of the Operating Committee in accordance with the provisions below.  The Operating Agent shall prepare and present to the Operating Committee proposed operating and capital budgets, as described below, for the Operating Committee’s review, modification (if appropriate) and approval.

(i)

A budget detailing the monthly projected Operating Costs to be incurred during the Transition Period, showing expected costs by Component and by categories consistent with Accounting Practices, shall be submitted by the Operating Agent at least 30 days prior to the initial meeting of the Operating Committee.  The Operating Committee shall review, modify, if appropriate, and approve the proposed Transition Period budget at its initial meeting.

(ii)

Budgets detailing the monthly projected Operating Costs and Capital Costs to be incurred in the first partial calendar year of commercial operation of Elm Road Unit 1, showing expected costs by Component and by categories consistent with Accounting Practices, shall be submitted by the Operating Agent by February 1 of the year preceding the year in which the Lease Effective Date is scheduled to occur.  The Operating Agent shall also prepare and submit Operating Costs and Capital Costs budgets for such partial year to the Operating Committee by September 15 of the year preceding the year in which the Lease Effective Date is scheduled to occur, and if the Scheduled Commercial Operation Date is later than April 30, updated Capital Costs and Operating Costs budgets for such partial year approximately 120 days before the Scheduled Commercial Operation Date.  The Operating Committee shall review, modify, if appropriate, and approve the proposed first partial year budgets at its first meeting following receipt of the proposed budgets (which meeting shall be scheduled to allow 

sufficient time for the Lessee/Owner Parties to review and evaluate the proposed budgets).

(iii)

For each full calendar year thereafter during the Term, the Operating Agent shall submit proposed budgets detailing the projected Operating Costs and Capital Costs to be incurred in each month of the succeeding two years, and annual forecast amounts for the three years thereafter, showing expected costs by Component and by categories consistent with Accounting Practices.  Such budgets shall be prepared and proposed to the Operating Committee by February 1 of the year prior to the first budget year for the succeeding two years and annual forecast amounts for the three years thereafter (e.g., by February 1, 2010, the Operating Agent will propose preliminary budgets for 2011 and 2012).  The Operating Committee will review, modify (if appropriate), and approve these budgets on or before March 1.  The Operating Agent shall also prepare and submit to the Operating Committee no later than September 15 of each year updated Operating Costs and Capital Costs budgets (e.g., by September 15, 2010, the Operating Agent will propose the updated Operating Costs and Capital Cost budgets for 2011, and by September 15, 2011 it will propose the updated budgets for 2012).  Each such updated budget shall include an explanation, in reasonable detail, of each material variance from the March 1 budgets.  The Operating Committee shall approve or modify and subsequently approve the proposed updated Operating Costs and Capital Costs budgets at its last quarterly meeting of the year prior to each budget year (which meeting shall be scheduled to allow sufficient time for the Lessee/Owner Parties to review and evaluate the proposed updated budgets, provided, however, that such meeting shall be held no later than November 1).

(iv)

Upon request of any Lessee/Owner Party, the Operating Agent shall update the budgeting information provided pursuant to Section 3.3(b)(iii), provided, however, that if the data requested requires the Operating Agent to develop information that goes beyond the data previously provided (e.g., development of budgeting data for a test year for which a budget has not yet been prepared) and to incur additional costs that are more than de minimis, the requesting Lessee/Owner Party shall bear such costs.  Any such data, once developed, shall be made available to all Lessee/Owner Parties. 

(v)

The Operating Agent shall inform the Operating Committee as soon as practicable of the need to expend amounts that exceed an approved Operating Costs or Capital Costs budget by more than 5%.  

(c)

Major Operating Actions.  If the Operating Agent proposes to take any of the actions described below, it shall first provide reasonable advance notice that fully informs all members of the Operating Committee of the proposed action.  Such actions, known as Major Operating Actions, shall be:

(i)

the replacement of, addition to, modification of, or repair or refurbishment of any items of property relating to the Common Facilities, or the settlement of any asserted right, claim, or penalty by a third party, which replacement, addition, modification, repair, refurbishment, or settlement has an estimated total combined cost of $2,500,000 or more of Capital Costs and/or annual Operating Costs; provided, that after 

the first full year of operations of Elm Road Unit 1 the $2,500,000 threshold amount shall be adjusted annually for changes in the CPI-U consumer price index (all items) for Milwaukee-Racine, Wisconsin; and 

(ii)

any planned action with respect to the Common Facilities that would alter by more than 5% the Net Generating Capability or net heat rate of Unit 1 and/or Unit 2 (as such terms are used in the Unit 1 O&M Agreement and Unit 2 O&M Agreement), excluding expected variations due to normal operating constraints, seasonal variations, and other temporary unit deratings.

(d)

Removal of Operating Agent.  Subject to the applicable PSCW requirements in effect from time to time, the Operating Committee may, for cause, remove WEPCO as Operating Agent or reduce the scope of its agency, but only where all of the following conditions are met:

(i)

WEPCO shall have materially and substantially breached its obligations under this Agreement;

(ii)

the breach shall have been subject to the dispute resolution provisions in Article XX, including the senior management negotiation portion of the dispute resolution mechanism;

(iii)

there shall have been an admission by WEPCO’s senior management or, if applicable, findings in an arbitration or court proceeding that WEPCO has materially and substantially breached its obligations as Operating Agent under this Agreement as a result of its Gross Negligence or willful misconduct, and that WEPCO’s acts or omissions, unless corrected, will cause a substantial reduction in the value of any Lessee/Owner Party’s interest in Unit 1 or Unit 2 and/or will materially and directly lessen any Lessee/Owner Party’s ability to provide reliable service, or will increase the cost of such service by more than twenty percent (20%);

(iv)

subsequent to the determinations described in subsection 3.3(d)(iii) ab, WEPCO shall have been given reasonable notice of such determinations and a reasonable opportunity to comply with such decision and/or cure any material and substantial breaches and provide assurance that such breaches will not be repeated;

(v)

the courts or arbitrators referred to in Article XX shall have determined in writing that WEPCO shall have failed within a reasonable time to have effected such cure and/or provided such assurance to a material and substantial extent; and

(vi)

removal of WEPCO as Operating Agent or reduction of the scope of its responsibilities as Operating Agent shall have been approved by affirmative vote of at least two of the three voting Operating Committee Members.

(e)

Decisions Requiring Special Operating Committee Vote.

(i)

The following decisions shall be made by the Operating Committee only with the approval of at least two of the three voting Operating Committee Members:

(A)

removal of the Operating Agent pursuant to Section 3.3(d); and

(B)

replacement of the Operating Agent pursuant to Section 2.7(c) if WEPCO is removed as Operating Agent.

(ii)

The selection of the accounting firm to undertake the audits required by Section 4.4(b) shall be made by the Operating Committee only with the unanimous approval of the three voting Operating Committee Members. 

SECTION 3.4

Single Operating Committee for Unit 1, Unit 2 and Common Facilities 

The Parties acknowledge and agree that it is the intent of the Parties not to duplicate the functions of the Operating Committees established under this Agreement, the Unit 1 O&M Agreement and the Unit 2 O&M Agreement.  To the fullest extent reasonably practicable, the Operating Committees under all of these agreements shall conduct their business as a single group, and shall hold combined meetings.  Where voting on an issue is required, however, only those Operating Committee Members representing Lessee/Owner Parties affected by the decision shall be eligible to vote (e.g., where a decision affects only Unit 2, only the voting Operating Committee Members appointed under the Unit 2 O&M Agreement shall vote).   

ARTICLE IV

PROVISION AND USE OF INFORMATION

SECTION 4.1

Operating Agent to Provide Relevant Information.

The Operating Agent shall, in a timely manner, provide to each of the Lessee/Owner Parties, through their Operating Committee Members and their alternates, information in the possession of the Operating Agent regarding the Common Facilities that is necessary or appropriate for each of the Lessee/Owner Parties to protect and make full use of its interest in its respective Unit(s) and the New Common Facilities, including all information reasonably requested by a Party.  The Operating Agent shall keep the Operating Committee Members promptly advised of all significant matters with respect to the Common Facilities, including changes in conditions or other developments related to the Common Facilities or the performance of Operating Functions.  The Operating Agent shall provide to the Operating Committee Members statistical and administrative reports, budgets, accounting records and information, and other records pertaining to Operating Functions as may be reasonably requested by the Operating Committee Members or as are necessary for the Operating Committee to perform its responsibilities hereunder.

SECTION 4.2

Specific Information Requirements.

Without limiting the obligations of the Operating Agent pursuant to Section 4.1, the Operating Agent shall be required to develop, maintain, and provide the following specific types of information:

(a)

Recordkeeping.  The Operating Agent shall separately maintain, or cause to be separately maintained, appropriate documentation and records of expenditures made and costs incurred by the Operating Agent together with all other charges, payments and any expenses or revenues relating to the Common Facilities.  Such records of the Operating Agent shall be readily identifiable and, upon request, be made available for inspection at a reasonable time at the Operating Agent’s offices by any Lessee/Owner Party and/or its auditors or consultants.  The Operating Agent shall also make available for inspection and copying at the Operating Agent’s offices within a reasonable time by any Lessee/Owner Party upon reasonable request any bids, contracts, purchase orders and related documents respecting the Common Facilities.  The Operating Committee shall develop reasonable policies and procedures for the Operating Agent’s retention of documents relating to the Common Facilities, consistent with applicable requirements of Law.  Incremental costs associated with recordkeeping requirements, if any, that (i) arise solely from the request of a Lessee/Owner Party to keep records in a  manner that does not result from legal, regulatory or accounting requirements applicable to such Lessee/Owner Party and (ii) would impose a significant administrative burden, the costs of which it would be inequitable to allocate on a Weighted Total Component Share basis, shall be a reimbursable expense to be borne in full by the requesting Lessee/Owner Party.

(b)

Unit Availability.  The Operating Agent shall keep all Lessee/Owner Parties simultaneously and reasonably informed in a timely manner of the projected availability of the Common Facilities and of any required or projected limitations on the dispatch of an impacted Lessee/Owner Party’s generating unit.

(c)

Notices.  The Operating Agent shall promptly furnish the Lessee/Owner Parties with copies of material notices related to the New Common Facilities delivered by the Operating Agent to any third party or received by the Operating Agent from any third party.  

(d)

[Intentionally Omitted].

(e)

Monthly Reports.  As soon as reasonably practicable but in no event later than the tenth Business Day of the month, the Operating Agent shall prepare and provide to each Operating Committee Member by e-mail a report comparing budget-to-actual expenditures for the preceding month and year-to-date, with explanations for material variance.  In addition, the report shall include forecasts of year-end Operating Costs and Capital Costs, and reasonable detail regarding unusual operating events, accidents, damage to Common Facilities (or any Components), and injuries (including OSHA recordable and lost-time accidents), as well as information reasonably available to the Operating Agent regarding the Common Facilities.  The Parties agree that the information that would be contained in such report may be included in the monthly reports prepared by the Operating Agent pursuant to the Unit 1 O&M Agreement and the Unit 2 O&M Agreement, so long as the Common Facilities information is specifically identifiable.

(f)

[Intentionally Omitted].

(g)

Annual Reports.  At least annually, or more frequently as determined by the Operating Committee, the Operating Agent shall provide to the Operating Committee Members unaudited statements for the preceding fiscal year for all costs that have been incurred pursuant 

to this Agreement.  The Operating Agent will make a reasonable effort to provide this accounting in a form that is acceptable to all Lessee/Owner Parties.  The information to be provided hereunder may be included in any such accounting required of Operating Agent pursuant to the Unit 1 O&M Agreement and Unit 2 O&M Agreement, so long as the Common Facilities information is specifically identifiable. 

SECTION 4.3

Parties’ Rights of Access.

(a)

Commencing on the Lease Effective Date, each Lessee/Owner Party shall have reasonable rights of access to (i) go upon and into the Elm Road Site and to inspect and observe operation of the New Common Facilities, and with reasonable advance notice, to go upon and into the Land to inspect and observe the Existing Common Facilities, subject to the Project Agreements and such reasonable conditions as the Operating Agent may impose for safety, security and operating reasons, and (ii) during normal business hours, review documents and records relating to the Common Facilities being maintained by the Operating Agent in accordance with this Agreement, at its own expense.  The Lessee/Owner Parties’ rights of access to the Elm Road Site and documents are not intended to substitute for or diminish in any way the Operating Agent’s affirmative duty to provide information as provided for herein.

(b)

Upon termination of the Property Rights Agreements and for so long as a Lessee/Owner Party has rights in the New Common Facilities, such Lessee/Owner Party shall have reasonable rights of access to (i) go upon and into the Elm Road Site and to inspect and observe the operation of the New Common Facilities, and with reasonable advance notice, to go upon and into the Land to inspect and observe the Existing Common Facilities, subject to such reasonable conditions as the Operating Agent may impose for safety, security and operating reasons, and (ii) during normal business hours, review documents and records relating to the Common Facilities being maintained by the Operating Agent in accordance with this Agreement, at its own expense.  The provisions of this subsection 4.3(b) shall survive termination of this Agreement.

SECTION 4.4

Audits.

(a)

Each Lessee/Owner Party shall have the right from time to time (but not more frequently than once each year) to conduct audits of the books, records and other documents maintained by the Operating Agent with respect to the Common Facilities, and such other documents as may be necessary to ensure compliance with this Agreement, including ascertaining the correctness and propriety of all charges to, and payments made by, the Lessee/Owner Party under this Agreement.  Such audits may be made either by the Lessee/Owner Party’s own officers or employees, or through its duly authorized agents or representatives, subject to Article XXII.  No payment under this Agreement shall constitute a waiver of the right of the Party to conduct an audit, or to question or contest the correctness of any charge, credit, allocation, or other accounting matter hereunder.  The Operating Agent shall cooperate with any Lessee/Owner Party in the conduct of any such audit, which shall include the responsibility to furnish requested records and make requested copies in a timely manner, and to retain custody and care of the records pertinent to the Common Facilities and this Agreement in an orderly and accessible fashion.  During normal business hours the Operating Agent shall provide each Lessee/Owner Party, through its duly authorized agents or representatives 

(including any auditor utilized by a Party, or any nationally recognized accounting firm retained by such Party), access to, and upon request, copies of the Operating Agent’s books, records and other documents with respect to the Common Facilities, and such other third-party documents (subject to Section 4.4(b)) as may be necessary to ascertain the correctness and propriety of all charges to, and payments made by, the Lessee/Owner Party under this Agreement, which books, records and other documents shall be in a form sufficient to enable each Lessee/Owner Party to verify the costs that have been allocated and billed to each Party pursuant to this Agreement.  All such audits shall be conducted at the Lessee/Owner Party’s sole cost and expense and subject to its compliance with the Operating Agent’s reasonable policies and procedures, including security and safety requirements, and the confidentiality provisions of Article XXII below.

(b)

To the extent that third-party documents requested by a Lessee/Owner Party under Section 4.4(a) cannot be made available to a requesting Lessee/Owner Party consistent with the confidentiality requirements imposed by such third party, notwithstanding the Operating Agent’s commercially reasonable efforts to obtain such documents for the Lessee/Owner Parties and the requesting Lessee/Owner Party’s willingness to execute such non-disclosure agreements as the third party and/or the Operating Agent may reasonably require, the Operating Agent shall, on the request and at the expense of the requesting Lessee/Owner Party, cause the Operating Agent’s independent auditor to prepare an audit report responding to such questions as the requesting Lessee/Owner Party identifies.

(c)

On or before March 1 following the second full calendar year of commercial operation of Elm Road Unit 1, a nationally recognized accounting firm selected by the unanimous vote of the three voting Operating Committee Members shall conduct an audit of (i) records maintained by the Operating Agent and (ii) all costs charged to each Party under this Agreement.  Such audits shall be conducted on a regular basis (but in no event at intervals greater than every five years), and a final audit shall be conducted no later than six months after the retirement of Unit 1 or Unit 2, whichever is the last to be retired.  The costs of such audits shall be borne by the Lessee/Owner Parties on the basis of their Weighted Total Component Shares.  The audits provided for herein may be conducted in conjunction with any audits required by parallel provisions of the Unit 1 O&M Agreement and Unit 2 O&M Agreement, but audit results for the Common Facilities must be specifically identifiable.

(d)

At the request of any of the Lessee/Owner Parties, the Operating Agent agrees to permit the Lessee/Owner Parties and their agents to make such reasonable investigations as they deem necessary or appropriate with respect to the effective operation of the Operating Agent’s system of internal control over financial reporting (the “Internal Controls”), including a report on Internal Controls from a nationally recognized audit firm.  The Operating Agent agrees to respond to reasonable inquiries of the Lessee/Owner Parties and their respective independent auditors with respect to the Internal Controls to enable them to conclude that the Internal Controls are operating effectively.  The Parties agree that all incremental internal and third party expenses incurred by the Operating Agent in respect of such investigations, reports and inquiries shall be borne by the requesting Lessee/Owner Party.  All agents and audit firms engaged by the requesting Party shall comply with the confidentiality terms and conditions provided in Article XXII hereof unless otherwise required by Law.

ARTICLE V

TRANSITION

SECTION 5.1

Control During and After Transition Period.

During the Transition Period, the Operating Agent will begin preparation for the Operating Functions related to the New Common Facilities. Except as otherwise provided in the proviso of the immediately succeeding sentence, prior to the Lease Effective Date, in accordance with the terms of the Unit 1 Ownership Agreement and EPC Contract (which agreements may provide for control of some of the New Common Facilities to pass to the Operating Agent prior to the Lease Effective Date), the Project Manager shall be in control of the New Common Facilities.  During this period, all acts by the Operating Agent in preparation for the operation of such New Common Facilities shall be taken with the knowledge and approval of the Project Manager and shall not materially interfere with or impair the activities of the Project Manager or EPC Contractor; provided, however, that all systems of the New Common Facilities turned over to the Operating Agent by the Project Manager, in accordance with the Interim Use and Operating Agreement or otherwise, shall be under the control of the Operating Agent and all acts of the Project Manager and EPC Contractor with respect to such systems will be undertaken only with the knowledge and approval of the Operating Agent.

SECTION 5.2

Documents and Agreements.

(a)

From and after the Lease Effective Date or as otherwise provided in the Interim Use and Operating Agreement, the Operating Agent shall be responsible for maintaining and updating all warranty information, drawings and documents related to the New Common Facilities.

(b)

At an Operating Committee meeting prior to the Scheduled Commercial Operation Date, the Operating Committee, in conjunction with the Operating Agent, shall review all executory contracts then in place respecting the New Common Facilities and determine which contracts are reasonably necessary to the Operating Functions.  Following the Lease Effective Date, such contracts shall be enforced by the Operating Agent consistent with Sections 2.2(o) and 2.2(p).

SECTION 5.3

Cooperation.

During the Transition Period, each of the Parties shall use reasonable efforts to ensure that its actions at the Elm Road Site are consistent with and support the efforts of the Project Manager and EPC Contractor to complete construction in a timely manner.

SECTION 5.4

Costs Incurred by Operating Agent During Transition Period.

It is anticipated that the Operating Agent will incur certain costs during the Transition Period in connection with the performance of its duties as Operating Agent during this period.  Such costs may include costs of labor and labor overheads; costs of procuring initial inventories of spare parts, materials and supplies; costs of procuring certain types of plant equipment, such as office equipment and shop tools; and costs associated with employee training.  To the extent 

such costs are incurred consistent with Prudent Utility Practice on behalf of the Lessee/Owner Parties in connection with the preparation for commercial operations of the New Common Facilities, and are not reimbursed to the Operating Agent and billed as “Project Costs” under the Ownership Agreement, the Operating Agent shall appropriately allocate such costs consistent with the cost-allocation and billing provisions of this Agreement.  For the avoidance of doubt, all costs associated with the operation of the Advance Deliverables (as such term is defined in the Interim Use and Operating Agreement) for the sole purpose of operating the Oak Creek Power Plant shall be for the account of WEPCO as owner of the Oak Creek Power Plant and shall not be shared among the other Lessee/Owner Parties.

SECTION 5.5

Testing and Initial Start-up.

The Operating Agent’s role in the initial start-up and testing of the New Common Facilities during the Transition Period shall be as set forth with respect to WEPCO as Lessee in Article IV of Schedule 3.1(a) to the WEPCO Unit 1 Facility Lease. 

ARTICLE VI

OPERATIONS AND SCHEDULING

SECTION 6.1

Commercial Operation.

The provisions in this Article VI shall take effect as of the Lease Effective Date.  WEPCO shall take all actions necessary to satisfy its obligations under and pursuant to the WEPCO Unit 1 Facility Lease (including Schedule 5.1 thereto) in a timely manner such that the Lease Effective Date will occur simultaneously with the Commercial Operation Date (as defined in the Unit 1 Ownership Agreement as of the date of execution thereof) or as soon thereafter as practicable.

SECTION 6.2

Auxiliary Services.

The Operating Agent shall procure such auxiliary services, including potable water, electric energy, sanitary sewer services and others, as are required from time to time in connection with the Common Facilities’ operations.

SECTION 6.3

Prudent Operation.

It is the intent of the Parties that the New Common Facilities will be operated within the parameters recommended by the manufacturers of the New Common Facilities in order to maximize the useful life of the New Common Facilities and preserve their ability to operate reliably and to support the operation of Unit 1 and Unit 2.  Notwithstanding the foregoing, the Operating Agent shall be permitted to operate the Common Facilities in a manner consistent with the needs of the rest of the Elm Road Generating Station and the Oak Creek Power Plant.

SECTION 6.4

[Intentionally Omitted]

SECTION 6.5

[Intentionally Omitted]

SECTION 6.6

[Intentionally Omitted]

SECTION 6.7

[Intentionally Omitted]

SECTION 6.8

Coordination of Maintenance.

(a)

By September 15 of each year, the Operating Agent shall submit to the Operating Committee, in conjunction with such other maintenance plan submissions required by the Unit 1 O&M Agreement and the Unit 2 O&M Agreement, for its review pursuant to Section 3.2(c) scheduled maintenance plans for the following calendar year and for the four calendar years thereafter.  The one-year plan shall describe in reasonable detail the contemplated time and duration of each maintenance action and shall cross-reference the related budget; the four-year plan need only include the contemplated time and duration of each maintenance action, the maintenance work to be performed and the estimated cost thereof, to the extent reasonably projected, for major maintenance projects.  The Operating Committee shall make recommendations concerning the maintenance plans at its last quarterly meeting of the year (which meeting shall be scheduled to allow sufficient time for the Lessee/Owner Parties to review and evaluate the proposed maintenance schedule, provided, that such meeting shall be held no later than November 1).  In establishing maintenance schedules for the Common Facilities, the Operating Agent shall use commercially reasonable efforts to coordinate such actions with the maintenance schedules of Unit 1 and Unit 2 and Oak Creek Power Plant and to accommodate the preferences of the Lessee/Owner Parties, taking into account the schedules already established for maintenance of their other resources; provided, however, that the Operating Agent shall retain the final responsibility for determining maintenance schedules for the Common Facilities.  Scheduled maintenance plans may be changed by the Operating Agent from time to time as deemed appropriate by the Operating Agent, provided that the Lessee/Owner Parties are simultaneously informed of all such changes on a timely basis, including being provided as much advance notice as is practicable of any anticipated changes to the maintenance schedule, and are provided a reasonable opportunity to comment on such revisions, which the Operating Agent shall consider in good faith.  The Operating Agent makes no representation, warranty or promise of any kind as to the accuracy of any estimates or other information contained in any scheduled maintenance plans, other than that they will be prepared in accordance with Prudent Utility Practice and the other requirements of this Agreement.

(b)

Scheduled outages for major maintenance on New Common Facilities shall be as required by the manufacturers’ applicable conditions of sale and delivery of the affected facilities and equipment or at intervals consistent with Prudent Utility Practice and manufacturers’ recommendations.  The Operating Agent may shut down the Common Facilities, request the Operating Agent(s) of Unit 1 and/or Unit 2, and/or the operator of Oak Creek Power Plant, to reduce power output of any generating unit, or take other appropriate action necessary to ensure proper operation of the Common Facilities in accordance with Prudent Utility Practice and compliance with Law.

(c)

For maintenance not included in the annual maintenance plan that would require shutdown of or reduction of output from Unit 1, Unit 2 and/or the Oak Creek Power Plant, where 

the Operating Agent (following Prudent Utility Practice) has discretion as to the timing of such maintenance, the Operating Agent shall simultaneously provide the Lessee/Owner Parties as much advance notice as is practicable of the need for any such maintenance, and provide a reasonable opportunity to comment on the timing of such maintenance, which the Operating Agent shall consider in good faith.

(d)

The scheduling of maintenance outages shall be consistent with the requirements of the Applicable Transmission System Operator for the transmission system to which Unit 1, Unit 2 and the Oak Creek Power Plant are interconnected.  The Lessee/Owner Parties shall all be kept timely and simultaneously informed of the Common Facilities’ outage schedule, and any known or likely changes therein.

(e)

If outages of the Common Facilities are required because of maintenance associated with transmission facilities subject to the control of the Applicable Transmission System Operator, the Operating Agent shall simultaneously notify the Lessee/Owner Parties upon receiving notice from such Applicable Transmission System Operator of the need for such outage.  In the case of outages of the Common Facilities required for scheduled transmission maintenance that have a material adverse impact on the operation of Unit 1, Unit 2 and/or the Oak Creek Power Plant, the Operating Agent shall provide a reasonable opportunity for the Lessee/Owner Parties to comment to the Operating Agent on the timing of such outage.  The Operating Agent shall consider such comments in communicating with such Applicable Transmission System Operator regarding the timing of such maintenance.

ARTICLE VII

[INTENTIONALLY OMITTED]

ARTICLE VIII

[INTENTIONALLY OMITTED]

ARTICLE IX

ALLOCATION OF CAPITAL COSTS AND OPERATING COSTS

SECTION 9.1

General Principles.

(a)

The Operating Agent shall maintain separate accounts for the New Common Facilities and Existing Common Facilities, and all Capital Costs and Operating Costs for the Common Facilities shall be kept and recorded in separate accounts where practical and shall include separate accounts at a minimum for plant, inventory, income and expense accounts.  The Operating Agent’s accounting will be in conformance with Accounting Practices and the provisions of this Article IX.  An initial list of the specific FERC accounts in which costs of the Common Facilities shall be recorded is included in Schedule 9.1 attached.  The inclusion of a particular FERC account is not intended to indicate that all costs recorded in that account are appropriate to be charged to the Common Facilities or the Lessee/Owner Parties, nor is the 

absence of an account intended to indicate exclusion of costs recorded in such account that are appropriate to be charged to the Common Facilities or the Lessee/Owner Parties.

(b)

It is the intent of the Parties that the Capital Costs and Operating Costs for which the Operating Agent is to be reimbursed in accordance with this Agreement will be assigned to the Common Facilities and then to the Oak Creek Power Plant, Unit 1 and Unit 2 and ultimately to the Lessee/Owner Parties under the Unit 1 O&M Agreement and the Unit 2 O&M Agreement.  These costs shall be directly charged to the Common Facilities and all costs so directly charged to the Common Facilities will be further allocated to the Oak Creek Power Plant, Unit 1 and Unit 2 in an equitable manner.  The Parties agree that the following basic principles will guide the classification of costs and the assignment of such costs to the Common Facilities and in turn to the units hereunder (for allocation to the Lessee/Owner Parties under the Unit 1 O&M Agreement and Unit 2 O&M Agreement).

(i)

The guiding principle in cost assignment should be cost causation.  If operation and maintenance of the Common Facilities did not cause a cost to be incurred, none of that cost shall be assigned to the Common Facilities.  Thus, for example, the Operating Agent will not include in its cost assignment to the Common Facilities any charges relating to WEC’s support of its non-electric utilities or other businesses that are not engaged in support of the Common Facilities.  Further, because costs supporting, but not directly assignable to, the Elm Road Generating Station will be allocated to Unit 1 and Unit 2 pursuant to the Unit 1 O&M Agreement and Unit 2 O&M Agreement, the provisions of this Article IX are intended to apply only to costs directly assignable to the Common Facilities.

(ii)

In general, there are two levels of cost assignment.  The first level is where costs are directly charged to the Common Facilities.  The second level is where those costs are allocated to the Oak Creek Power Plant, Unit 1 and Unit 2.

(iii)

First Level:  Costs are to be directly charged to the Common Facilities.  Direct charges shall mean those costs incurred directly for the benefit of the Common Facilities or that can be directly assigned to the Common Facilities on the basis of specific information unique to the Common Facilities.  The Operating Agent shall directly charge the Common Facilities for costs that relate specifically to the operation and maintenance of the Common Facilities. 

(iv)

Second Level:  The following principles shall apply in allocating the New Common Facilities costs to the Oak Creek Power Plant, Unit 1 and Unit 2:

(A)

Some costs will be inventoried and, upon delivery to the Elm Road Site, the inventory will be allocated among Oak Creek Power Plant, Unit 1 and Unit 2; and

(B)

Allocation of the Common Facilities costs may be based on quantity of coal delivered, net generation output, MW capacity (as described below), or other factors, as appropriate in light of cost-causation principles and the nature of the costs.

(v)

Certain costs assigned to the Common Facilities will be trued up in accordance with Section 9.2(a) to reflect actual values at the end of each calendar year and, if appropriate, during the year to minimize year-end adjustments; however, such true-up and adjustment shall be conducted as part of the overall true-up of costs under the Unit 1 O&M Agreement and Unit 2 O&M Agreement, which the Parties agree shall include the costs allocated to Unit 1 and Unit 2 pursuant to this Agreement.

(vi)

The Parties recognize that adjustments to the allocators specified in the Schedules for allocating costs of the Common Facilities among units may be appropriate from time to time to effectuate the Parties' original intent in light of changed circumstances.

(vii)

Costs incurred by the Operating Agent consistent with this Agreement in special or unusual circumstances must be evaluated for appropriate cost sharing.  When appropriate, the Parties will develop a special method for handling these costs to ensure equitable allocations consistent with the foregoing principles.

(viii)

The Parties have endeavored to identify in Schedule 9.4 the types of Common Facilities costs expected to be incurred and the appropriate treatment of such costs.  To the extent that costs are incurred by the Operating Agent consistent with this Agreement that are not specifically identified in Schedule 9.4, they shall be assigned in accordance with the general cost-sharing principles of this Article IX, as best reflects the nature of such costs.  If such costs are expected to recur, the Parties shall modify the Schedule to reflect the agreed-upon treatment of such costs.  

(ix)

As an exception to the general method of cost assignment, costs incurred solely for the benefit of an identified Lessee/Owner Party will be directly charged to such Party where such direct charges are specifically provided for in this Agreement.

(x)

Where the term “MW capacity” is used to allocate costs under this Agreement, the MW capacity of a unit shall be the most recent net generating capacity value, determined by an URGE (Uniform Rating of Generation Equipment) test as specified by MAIN, and accepted for summer capacity planning by MAIN.  For the avoidance of doubt, the MW capacity for each of Unit 1 and Unit 2 shall be its Net Generating Capability; provided, however, that prior to the respective Unit 1 and Unit 2 lease effective dates, the MW capacity for each of Unit 1 and Unit 2 shall be 615 MW.  If an URGE/MAIN test results in a change to a unit’s net generating capacity value in the middle of a billing period, the new value shall be incorporated in the next billing period.

SECTION 9.2

Computation of the Operating Agent’s Labor Costs.

(a)

All costs associated with the Operating Agent’s internal labor shall be charged using productive labor rates.  Productive labor rates initially will be computed using an estimate of labor costs divided by estimated productive hours (base and overtime hours) for each relevant employee group.  Each productive labor rate will be trued up to reflect actual labor costs and hours of the relevant employee group at least annually, or more often if it is determined that a 

significant variance from the original estimate has occurred.  An example of a productive labor rate calculation is included in Schedule 9.2.

(b)

By way of example, a productive labor rate may include the following costs:

(i)

Compensation for overtime and shift premiums incurred by employees located at the Elm Road Generating Station who provide services to the Common Facilities;

(ii)

Benefits including health insurance, pension and other retirement benefits, payroll taxes and other costs associated with compensation of such employees;

(iii)

Compensated absences paid to such employees including vacation, sick leave, disability and FMLA related compensation; and

(iv)

Incentive-based compensation payable to Operating Agent management personnel who provide services to the Common Facilities for meeting various operational and safety goals consistent with WEPCO’s general incentive plans.  The Parties acknowledge that incentive compensation may be an integral component of management employee total compensation and that the Operating Agent may pay such compensation to motivate employees to achieve operational and safety objectives.  To ensure alignment of the incentive compensation with the interests of the Lessee/Owner Parties, the Lessee/Owner Parties shall be responsible for their allocated portion of such incentive payment based upon the percentage (on a weighted basis, if the business unit compensation plan so provides) of the Elm Road Generating Station’s achievement of the station-specific goals defined in the business unit compensation plan under which the incentive compensation is provided.

(c)

Labor charges shall be assigned to the Common Facilities using productive hours worked.

(d)

The Operating Agent shall maintain lists of all employees primarily assigned to the Common Facilities in order to facilitate the true-up of the productive labor rates for such employees.

SECTION 9.3

[Intentionally Omitted]

SECTION 9.4

Costs of Common Facilities. 

Common Facilities costs are those costs that are directly assignable to the combined operation of multiple units located on the Land but that cannot be directly assigned to a single unit.  Schedule 9.4 lists such costs together with the methods utilized to allocate each category of such costs to Unit 1, Unit 2, and the Oak Creek Power Plant.  

SECTION 9.5

[Intentionally Omitted]

SECTION 9.6

[Intentionally Omitted]

SECTION 9.7

[Intentionally Omitted]

SECTION 9.8

Miscellaneous.

(a)

Accrual Accounting Methods.  Notwithstanding any other provisions of this Agreement, the Parties recognize that application of accrual accounting in determining costs to be assigned to the Common Facilities, to the extent consistent with Accounting Practices, can operate unfairly in certain circumstances.  Where Accounting Practices require the Operating Agent to accrue for potential future liabilities, excluding pensions and other post-retirement benefits, but (A) the Operating Agent does not reasonably expect to pay out such potential costs within one month, and (B) the Operating Agent will not deposit accrual payments upon receipt into an external interest-bearing account identified for that purpose, the Operating Agent shall not collect the accruals on an ongoing basis from the Lessee/Owner Parties through this Article IX and the Unit 1 O&M Agreement and/or the Unit 2 O&M Agreement.  Instead, it shall inform the Lessee/Owner Parties that each of them should record its share of such potential costs, along with the normal monthly accruals for Capital Costs and Operating Costs, as an obligation in its own accrual accounting, and the Operating Agent shall bill and collect the costs only at the time and in the amount the accrued cost is actually paid by the Operating Agent.  If, based on an audit, it is determined that accrued costs were collected by the Operating Agent for costs that were not actually paid at or about the time originally anticipated at the time the accrual was initiated and are not likely to be paid out within one month, the Operating Agent shall make appropriate refunds of such amounts, plus interest at the True-Up Interest Rate, Compounded Monthly, over the actual number of days elapsed from the payment by the Lessee/Owner Party to the date of such refund. 

(b)

Change of Accounting Rules.  If accounting rules change during the term of the Agreement such that the Operating Agent is required to make any form of catch-up cost accrual or payments associated with labor or other costs arising out of past periods, catch-up accruals or payments associated with such labor or other costs relating to prior periods shall be permitted only to the extent related to activities or services provided in connection with this Agreement, and in no event prior to the Transition Period. 

(c)

Capital Costs.  

(i)

Any accounting for retirements, replacements, additions or improvements shall follow prescribed Accounting Practices including the Operating Agent’s consistently applied policies for determining capital versus expense.

(ii)

Each Lessee/Owner Party shall pay, or shall cause its appropriate Affiliate to pay, for its share of all Capital Costs directly related to the Common Facilities that meet the WEPCO Unit 1 Facility Lease criteria for improvements.  Each Lessee/Owner Party’s responsibility for such Capital Costs will be based on its or its Lessor’s ownership percentage(s) of the affected Component(s) as indicated in the New Common Facilities Ownership Agreement.  No “allowance for funds used during construction” shall be included in the Capital Cost obligations of WPPI or MGE, regardless of whether WEPCO records such AFUDC in the construction work in progress records or the fixed asset accounts for WEPCO’s proportionate share, as Lessee/Owner Party, of capital investments for the Common Facilities.

(iii)

Each Lessee/Owner Party shall pay, or shall cause its appropriate Affiliate to pay, for its share of all Capital Costs directly related to the Common Facilities that the Parties agree shall not be capitalized under the WEPCO Unit 1 Facility Lease.  Each Lessee/Owner Party's responsibility for such Capital Costs will be based on its utilization percentage of such Common Facilities.  A Lessee/Owner Party's utilization percentage will be calculated based on its Elm Road Unit 1 MW capacity and/or Elm Road Unit 2 MW capacity divided by total Land MW capacity or such other method of measurement deemed appropriate and agreed upon by the Parties.  Upon payment of such Capital Costs, each Lessee/Owner Party will acquire an undivided ownership interest in such capital improvements based on each Lessee/Owner Party's utilization percentage.

(d)

Title to Improvements.  Notwithstanding any provision to the contrary contained in this Agreement, the Parties acknowledge and agree that except as provided in Section 9.8(c)(iii), title to all replacements, additions or improvements to the New Common Facilities of any kind or nature whatsoever shall automatically vest with the New Common Facilities owners pursuant to the New Common Facilities Ownership Agreement.

(e)

Non-Recurring Costs.  The Lessee/Owner Parties’ obligations to reimburse the Operating Agent for payments made pursuant to any settlements, to satisfy any judgments, and/or as a penalty for violation of any Law or Government Approval shall be governed by Article XVI.  The Lessee/Owner Parties’ responsibility for any other special and/or non-recurring costs the Operating Agent may incur consistent with this Agreement in connection with the Common Facilities shall be allocated in accordance with the general principles established in this Article IX, as determined by agreement of the Parties.

(f)

The Lessee/Owner Parties’ allocated shares of Capital Costs and Operating Costs to be paid to the Operating Agent pursuant to Section 9.9 shall be as determined pursuant to the sharing principles described in this Article IX, except to the extent (i) a Party (including the Operating Agent) is solely responsible for the costs under this Agreement or the Agreement otherwise limits the Operating Agent’s right to reimbursement of such costs, or (ii) in the future it is determined by mutual agreement of all the Parties, or by Dispute resolution pursuant to Article XX upon any issue raised by any Party, that operation of any particular provision is inequitable under the circumstances at the time.

(g)

If a Dispute arises with respect to whether costs should be included as Capital Costs hereunder and/or whether the allocation of Capital Costs under Section 9.8(c) is equitable, during the pendency of such a Dispute each of the Lessee/Owner Parties shall pay its invoiced share subject to later adjustment (either up or down) of the share of Capital Costs it is obligated to pay, and the Lessee/Owner Parties agree to make any equalization payments among themselves that are necessary to implement the resolution of the Dispute.

SECTION 9.9

Reimbursement Responsibility.

The Lessee/Owner Parties shall reimburse the Operating Agent for all Capital Costs and Operating Costs it incurs in connection and consistent with this Agreement in accordance with the Unit 1 O&M Agreement and the Unit 2 O&M Agreement.

ARTICLE X

[INTENTIONALLY OMITTED]

ARTICLE XI

TAXES

To the extent possible, each Lessee/Owner Party shall report, file returns with respect to, be responsible for and pay all real property, franchise, business, gross receipts, or other Taxes, if any, arising out of or relating to any of its rights, benefits, advantages, titles and interests under this Agreement.  To the extent that the Lessee/Owner Parties do not pay directly for Taxes relating to the Common Facilities, such Taxes shall be included as Operating Costs pursuant to Article IX.

ARTICLE XII

[INTENTIONALLY OMITTED]

ARTICLE XIII

INSURANCE

SECTION 13.1

Operating Agent’s Duty to Provide Insurance Coverage.

To the extent the Common Facilities are not covered by insurance maintained by the Operating Agent for Unit 1 and/or Unit 2 (or by WEPCO in its role as owner/operator of Oak Creek Power Plant), commencing on the Lease Effective Date, the Operating Agent shall procure and maintain insurance coverage for the Common Facilities that is consistent with Prudent Utility Practice and the insurance coverage provided for in the WEPCO Unit 1 Facility Lease.  In procuring any insurance coverage for the New Common Facilities, the Operating Agent shall use commercially reasonable efforts to ensure that such insurance coverage provides that (a) each Lessee/Owner Party is a “named insured” with respect to its ownership or leasehold interest, (b) each Lessee/Owner Party will receive at least 30 days (10 days in the event of non-payment) written notice from the insurer prior to the cancellation or termination or any material change in such insurance coverages, and (c) the Operating Agent, on behalf of the Lessee/Owner Parties, shall be solely responsible for pursuing claims and/or negotiating settlements in respect of claims under such insurance coverages.  Insurance for the Common Facilities may be obtained by the Operating Agent under policies that cover multiple facilities owned by WEPCO or in which WEPCO has an insurable interest.  The costs of insurance coverage procured specifically and separately for the New Common Facilities shall be directly charged to the New Common Facilities under Article IX.  If this Agreement terminates but the WEPCO Unit 1 Facility Lease or WEPCO Unit 2 Facility Lease is still in effect, WEPCO shall be obligated to procure and maintain, on behalf and at the cost of the Lessee/Owner Parties, insurance for the Common Facilities under this Section 13.1 (i.e., to the extent insurance for the Common Facilities is not covered under other policies) until termination of both WEPCO Facility Leases or, if sooner, the effective date of any replacement operating agreement pursuant to which the Lessee/Owner 

Parties’ new Operating Agent is required to obtain equivalent insurance coverage.  The obligations of the Lessee/Owner Parties under this Section shall survive termination of this Agreement.

SECTION 13.2

Inspections.

Commencing on the Lease Effective Date, the Operating Agent shall be responsible for overseeing the engineering and loss-prevention inspections at the Common Facilities.  The Lessee/Owner Parties reserve the right to perform inspections and review all specifications and drawings of the New Common Facilities, including those for fire protection and machinery.

SECTION 13.3

Contractors’ Insurance.

The Operating Agent shall require all contractors, sub-contractors, engineers, and all equipment suppliers or manufacturers providing services or equipment for the New Common Facilities to provide certificates demonstrating that they have reasonably adequate insurance (naming the Lessee/Owner Parties as “additional insureds”) and limits thereof as determined by the Operating Agent, for workers’ compensation, public liability, contractors’ liability and such other hazards as the Operating Agent determines to be appropriate with respect to the New Common Facilities.

ARTICLE XIV

[INTENTIONALLY OMITTED]

ARTICLE XV

DAMAGE TO FACILITY

SECTION 15.1

Allocation of Loss Proceeds.

(a)

If the New Common Facilities are to be repaired or reconstructed following an Event of Loss, or Event of Total Loss, then each of the Lessee/Owner Parties agrees that any insurance proceeds received by the Operating Agent in connection with such Event of Loss or Event of Total Loss, shall be used by the Operating Agent in connection with the repair or reconstruction of the New Common Facilities.

(b)

If the New Common Facilities are not repaired or reconstructed following an Event of Loss or Event of Total Loss, then any insurance proceeds received by the Operating Agent in connection with such Event of Loss or Event of Total Loss shall be paid to each New Common Facilities owner or Lessee/Owner Party in accordance with the applicable Project Agreements.  

(c)

The Parties acknowledge that events and circumstances giving rise to an Event of Loss or Event of Total Loss under this Agreement may also give rise to an “Event of Loss” or “Event of Total Loss” under the Unit 1 O&M Agreement and/or the Unit 2 O&M Agreement and that all or a portion of any Loss Proceeds received by the Lessee/Owner Parties pursuant to this Agreement may also constitute “Loss Proceeds” subject to the Unit 1 O&M Agreement and/or 

the Unit 2 O&M Agreement.  The Parties further acknowledge and agree that if and to the extent that there is any conflict between the insurance provisions (including any provisions with respect to the receipt, payment, control and use of Loss Proceeds) in this Agreement and in the Unit 1 O&M Agreement and/or the Unit 2 O&M Agreement, that all such insurance provisions shall be interpreted and construed, if possible, so as to avoid or minimize any such conflict.

SECTION 15.2

Event of Total Loss.

(a)

If an Event of Total Loss occurs with respect to the New Common Facilities after the Lease Effective Date and the WEPCO Unit 1 Facility Lease and the WEPCO Unit 2 Facility Lease are terminated as a result of the Event of Total Loss, then this Agreement shall terminate upon termination of the WEPCO Unit 1 Facility Lease and the WEPCO Unit 2 Facility Lease.  

(b)

If an Event of Total Loss occurs with respect to the New Common Facilities after the Lease Effective Date and the WEPCO Unit 1 Facility Lease and/or the WEPCO Unit 2 Facility Lease is continued by mutual agreement of the parties thereto and as approved by the PSCW, then this Agreement shall terminate as to any Lessee/Owner Party that does not continue to have an ownership or leasehold interest in the New Common Facilities.  Each remaining Lessee/Owner Party acknowledges and agrees that (i) WEPCO, acting as Operating Agent for the remaining Lessee/Owner Parties, shall be responsible for rebuilding the affected New Common Facilities in accordance with the applicable WEPCO Unit 1 Facility Lease and/or WEPCO Unit 2 Facility Lease and (ii) it shall be responsible for and shall pay, or cause the payment of, its Component Share of any costs and expenses incurred by WEPCO to rebuild each affected Component of the New Common Facilities in accordance with this sentence.

SECTION 15.3

Event of Loss.

(a)

If an Event of Loss occurs with respect to the New Common Facilities after the Lease Effective Date and the affected WEPCO Unit 1 Facility Lease and/or the affected WEPCO Unit 2 Facility Lease is in full force and effect, then the Lessee/Owner Parties acknowledge and agree that WEPCO, acting as Operating Agent for the remaining Lessee/Owner Parties, shall be responsible for repairing the affected New Common Facilities in accordance with the applicable WEPCO Unit 1 Facility Lease and/or the applicable WEPCO Unit 2 Facility Lease.  Each of the Lessee/Owner Parties agrees that it shall be responsible for and shall pay, or cause the payment of, its Component Share of any costs and expenses incurred by WEPCO to repair the affected Component of the New Common Facilities in accordance with the immediately preceding sentence.

(b)

If an Event of Loss occurs with respect to the New Common Facilities after the Lease Effective Date and the applicable WEPCO Unit 1 Facility Lease and/or the applicable WEPCO Unit 2 Facility Lease has terminated but this Agreement has not terminated, then this Agreement shall terminate as to any Lessee/Owner Party that does not continue to have an ownership or leasehold interest in the New Common Facilities.

ARTICLE XVI

INDEMNIFICATION AND LIABILITY

SECTION 16.1

General Indemnity.

(a)

Each Lessee/Owner Party shall, severally and not jointly, in accordance with its Weighted Total Component Share, indemnify, defend and hold harmless the Operating Agent, in its capacity as Operating Agent, and its Representatives from and against any and all Losses asserted against, imposed upon or incurred by the Operating Agent or its Representatives by reason of or resulting from claims of third parties, except for those Losses arising directly or indirectly from the Operating Agent’s or its Representatives’ Gross Negligence or willful misconduct.

(b)

The Operating Agent shall indemnify, defend and hold harmless each Lessee/Owner Party and its Representatives from and against any and all Losses and any and all regulatory penalties and fines and reasonable expenses (including reasonable attorneys’ fees and expenses) asserted against, imposed upon or incurred by a Lessee/Owner Party or its Representatives by reason of or resulting from claims of third parties arising directly or indirectly from the Operating Agent’s or its Representatives’ Gross Negligence or willful misconduct.

(c)

Each Lessee/Owner Party shall indemnify, defend and hold harmless the other Lessee/Owner Parties and their Representatives from and against any and all Losses asserted against, imposed upon or incurred by any of them by reason of or resulting from the Indemnifying Party’s or its Representatives’ Gross Negligence or willful misconduct.

SECTION 16.2

Indemnification for Regulatory Penalties.

(a)

Each Lessee/Owner Party shall indemnify, defend and hold harmless the Operating Agent and its Representatives from and against any and all regulatory penalties and fines and reasonable expenses (including reasonable attorneys’ fees and expenses) arising from such Lessee/Owner Party’s violation of any Law or Government Approval in connection with the Operating Agent’s or its Representatives' performance of (or failure to perform) the Operating Functions.

(b)

Each Lessee/Owner Party shall indemnify, defend and hold harmless the other Lessee/Owner Parties and their Representatives from and against any and all regulatory penalties and fines and reasonable expenses (including reasonable attorneys’ fees and expenses) arising from such Indemnifying Lessee/Owner Party’s violation of any Law or Government Approval in connection with its performance of (or failure to perform) its duties under this Agreement.

(c)

Each Lessee/Owner Party shall, severally and not jointly, in accordance with its Weighted Total Component Share, indemnify, defend and hold harmless the Operating Agent and its Representatives for any and all regulatory penalties and reasonable expenses (including reasonable attorneys’ fees and expenses) arising from the Operating Agent’s or its Representatives' violation of any Law or Government Approval; provided, that such penalties, fines and expenses did not result from the Operating Agent’s or its Representatives' Gross Negligence or willful misconduct; and provided further, that settlement language characterizing the Operating Agent’s or its Representatives' actions as constituting or not constituting Gross Negligence or willful misconduct shall not be dispositive as among the Parties.

SECTION 16.3

Liability Among the Parties.

(a)

All issues of liability as between and among the Parties arising under this Agreement shall constitute Disputes to be resolved pursuant to the provisions of Article XX.

(b)

Notwithstanding any provision in this Agreement to the contrary, no Party, nor any of its Representatives, shall be liable hereunder for any consequential or indirect loss or damage, including loss of profit, cost of capital, loss of goodwill, loss of revenues from the sale of capacity or energy, increased operating costs or any other special or incidental damages.  It is the intent of the Parties that the limitation on damages be without regard to the cause or causes thereof, including the negligence of any Party, and whether such negligence be sole, joint or concurrent, or active or passive.

(c)

Any indemnification obligation of the Operating Agent shall not constitute Operating Costs or other costs hereunder for which the Operating Agent is entitled to be reimbursed.

SECTION 16.4

Cooperation Regarding Claims.

Except with respect to claims against the Lessee/Owner Parties with respect to agreements entered into by the Operating Agent pursuant to Section 2.2(b), which claims shall be governed by Sections 2.2(o) and 2.2(p), if any Party (in such capacity, an “Indemnified Party”) receives notice or has knowledge of any Loss that may result in a claim for indemnification by such Indemnified Party against any other Party (in such capacity, an “Indemnifying Party”) pursuant to this Article XVI, such Indemnified Party shall as promptly as possible give the Indemnifying Party notice of such Loss; provided, that failure promptly to give such Notice or to provide such information and documents shall not relieve the Indemnifying Party from the obligation hereunder to respond to or to defend the Indemnified Party against such Loss unless such failure shall materially diminish the ability of the Indemnifying Party to respond to such claim or to defend the Indemnified Party.  Such notice shall include a reasonably detailed description of the facts and circumstances relating to such Loss, and a complete copy of all notices, pleadings and other papers related thereto, and in reasonable detail the basis for its potential claim for indemnification with respect thereto.  The Indemnifying Party, upon its acknowledgment in writing of its obligation to indemnify the Indemnified Party, shall be entitled to assume the defense or to represent the interests of the Indemnified Party in respect of such Loss, which shall include the right to select and direct legal counsel and other consultants, appear in proceedings on behalf of such Indemnified Party and to propose, accept or reject offers of settlement, all at its sole cost; provided, that if and to the extent that any such settlement is reasonably likely to involve injunctive, equitable or prospective relief or materially and adversely affect the Indemnified Party’s business or operations other than as a result of money damages or other money payments, then such settlement will be subject to the reasonable approval of the Indemnified Party.  Nothing herein shall prevent an Indemnified Party from retaining its own legal counsel and other consultants and participating in its own defense at its own cost and expense.  The Parties shall cooperate with each other in any notification to insurers.

SECTION 16.5

Survival of Provisions.

The provisions of this Article XVI shall survive the termination of this Agreement.

ARTICLE XVII

ASSIGNMENTS AND DELEGATIONS

SECTION 17.1

Successors and Assigns.

This Agreement shall be binding on each Party’s successors and permitted assigns.

SECTION 17.2

Assignment by Operating Agent. 

(a)

The Operating Agent shall not assign this Agreement or assign its rights hereunder without the prior written consent of all Lessee/Owner Parties, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that without the consent of the Lessee/Owner Parties, Operating Agent may (i) assign its rights under this Agreement to an Affiliate with Acceptable Credit, or (ii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of the Operating Agent, subject to the assignee’s having Acceptable Credit; provided, however, that in each such case, prior to such assignment any such assignee shall agree in writing to be bound by the terms and conditions hereof.

(b)

The Operating Agent shall not delegate all or substantially all of its obligations hereunder without the prior written consent of all Lessee/Owner Parties.  The Operating Agent may partially delegate its obligations by subcontracting with third parties (including Affiliates) for the performance of certain Operating Functions, subject to applicable consultation and approval rights of the Lessee/Owner Parties with respect to such contracts, as provided under this Agreement.  In any event, the Operating Agent shall remain liable to the Lessee/Owner Parties for the performance of all of the Operating Functions hereunder.

SECTION 17.3

Assignment by Lessee/Owner Parties.

(a)

Without the prior written consent of the other Lessee/Owner Parties (which consent shall not be unreasonably withheld, delayed or conditioned), no Lessee/Owner Party may assign this Agreement or assign its rights or delegate its duties hereunder except (i) in the case of WEPCO or MGE, to (x) ERGS or MGE Power, respectively, or (y) an Acceptable Assignee (as defined in the applicable Facility Lease as of its execution) that is its transferee pursuant to and under the WEPCO Unit 1 Facility Lease, WEPCO Unit 2 Facility Lease, MGE Facility Lease, or such other agreement as may be applicable; and (ii) in the case of WPPI, to a party that is its transferee as permitted by Article XIII of the Ownership Agreement.  

(b)

In the case of any transfer by (i) WEPCO or MGE under their respective Facility Leases, or (ii) WPPI under the Ownership Agreement, the transferor shall require in connection with such transfer that its transferee execute a counterpart of this Agreement to evidence its assent hereto.  Upon such execution, the transferring Party shall be released from its obligations hereunder, except for any obligations that survive termination of this Agreement.

ARTICLE XVIII

DEFAULT AND REMEDIES

SECTION 18.1

Events of Default.

The following shall be Events of Default under this Agreement:

(a)

The failure of any Party to perform or abide by any material obligation under this Agreement, within 60 days of receipt of written notice of non-performance; provided, however, that if such default cannot be cured within such 60-day period, no Event of Default shall occur for so long as the non-performing Party is diligently pursuing a cure, and such non-performance is curable; or

(b)

The occurrence of any Event of Default (as such term is defined in the Unit 1 O&M Agreement) under the Unit 1 O&M Agreement or any Event of Default (as such term is defined in the Unit 2 O&M Agreement) under the Unit 2 O&M Agreement. 

SECTION 18.2

Effect of Default.

(a)

Subject to Section 18.2(b), upon the occurrence of any Event of Default, the non-defaulting Parties shall be entitled to exercise all remedies available to them at law or in equity, including specific performance, it being agreed that monetary damages may not be an adequate remedy for the breach of the Parties’ obligations hereunder.  

(b)

Notwithstanding any remedies otherwise available to the non-defaulting Parties at law in or in equity that may be pursued in accordance with Article XX, in the event of a breach or default by any Party, it is the Parties’ intention that (i) this Agreement may be terminated only pursuant to its express terms and (ii) the Lessee/Owner Parties shall have no right to replace the Operating Agent or reduce the scope of its duties except as provided in Section 3.3(d)..

ARTICLE XIX

FORCE MAJEURE

SECTION 19.1

Effect of Force Majeure.

If any Party is rendered unable by an event of Force Majeure to carry out, in whole or part, its obligations under this Agreement, then, for only the pendency of such event of Force Majeure, the Party affected by the event shall be temporarily relieved of its obligations hereunder (other than the obligation to make payments then due or becoming due with respect to performance which occurred prior to the event) insofar as they are affected by such event of Force Majeure but for no longer period.

SECTION 19.2

Definition of Force Majeure.

“Force Majeure” shall mean any cause or occurrence, beyond the reasonable control, and without the fault or negligence of the Party claiming Force Majeure, which causes the Party 

to be unable, or otherwise materially impairs its ability, to perform its obligations under this Agreement and which such Party could not have been reasonably expected to avoid by the exercise of reasonable foresight, including any acts of God, strikes, work stoppages, lockouts or other labor actions that are in each case of an industry or sector-wide nature and that are not directed solely or specifically at such Party, acts of the public enemy, wars, terrorism, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, civil disturbances, explosions, change in Law (including such change that results in any rescission, termination, material modification, suspension of determination of invalidity or lack of effectiveness of any Government Approval), the binding order of any Governmental Authority (provided, that such order has been resisted in good faith by all reasonable legal means), the failure to act on the part of any Governmental Authority (provided, that such action has been timely requested and diligently pursued) and any other cause whether of the kind herein enumerated or otherwise, which, despite the reasonable efforts of such Party to prevent or mitigate its effects, prevents or delays the performance of such Party, or prevents the obtaining of the benefits of performance by the other Parties, and is not within the control of the Party claiming excuse.

SECTION 19.3

Notice of Force Majeure.

As soon as reasonably practicable following the occurrence of an event of Force Majeure, the affected Party shall provide the other Parties with written notice thereof setting forth the full details of such event, the efforts being undertaken to remove or mitigate the Force Majeure, and the expected time of removal.  The party affected by such event of Force Majeure shall take all reasonable measures to mitigate or minimize the effects of such event of Force Majeure.

ARTICLE XX

DISPUTE RESOLUTION

SECTION 20.1

Exclusive Procedure.

Any controversy, claim or dispute of whatsoever nature or kind between or among the Parties arising out of this Agreement or its validity or interpretation (each a “Dispute”) shall be resolved using the same procedures as are set forth in Article XX of the Unit 1 O&M Agreement and/or Article XX of the Unit 2 O&M Agreement, with all Lessee/Owner Parties under this Agreement having the right to participate in such dispute-resolution process.

SECTION 20.2

Survival.

The provisions of this Article XX shall survive the termination of this Agreement.

ARTICLE XXI

REPRESENTATIONS AND WARRANTIES

Each Party hereby represents and warrants to each other Party as of the date of this Agreement as follows:

(a)

Due Organization, Etc.  It:  (i) is duly formed, validly existing and in good standing under the Laws of the State of Wisconsin, (ii) has all requisite power and all material Government Approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is duly qualified to do business in all jurisdictions in which the nature of the business conducted by it or proposed to be conducted by it makes such qualification necessary.

(b)

Due Authorization.  It has all necessary corporate power and authority to execute, deliver and perform its obligations under this Operating Agreement and each other Project Agreement to which it is a party, and the execution, delivery and performance by it of this Agreement and each other Project Agreement to which it is a party have been duly authorized by all necessary corporate action on its part.

(c)

Non-Contravention.  The execution, delivery and performance by it of this Agreement and each other Project Agreement to which it is a party does not and shall not:

(i)

violate its constituent documents;

(ii)

violate any Law or Government Approval applicable to it or its property or to the Unit; or

(iii)

result in a breach of or constitute a default under any Project Agreement or any other material agreement to which it is a party.

(d)

Enforceability, Etc.  This Operating Agreement and each other Project Agreement to which it is a party:  (i) has been duly authorized and duly and validly executed and delivered by it; and (ii) assuming the due authorization, execution and delivery thereof by the other parties thereto, constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, conditions and provisions, except as the same may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and by general principles of equity.

(e)

Litigation.  Except as disclosed in writing to the other Parties, there is no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending or, to its knowledge, threatened against or affecting it or any of its properties, rights or assets, which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement and each other Project Agreement to which it is party.

(f)

Government Approvals.  Except as disclosed in writing to the other Parties, all Government Approvals necessary under any applicable Law in connection with the due execution and delivery of, and performance by it of its obligations and the exercise of its rights under, this Agreement and each other Project Agreement to which it is a party have been duly obtained or made and are in full force and effect, are final and not subject to appeal or renewal, are held in its name and are free from conditions or requirements compliance with which could reasonably be expected to have a material adverse effect or which it does not reasonably expect to be able to satisfy.

(g)

No Breach of Project Agreements.  It is not in breach of any material obligation under any of the Project Agreements to which it is a party.

ARTICLE XXII

CONFIDENTIALITY

SECTION 22.1

Non-Disclosure Obligations.

(a)

Each Party agrees that it, its Affiliates and its Affiliates’ respective directors, officers, employees, representatives, agents and advisors will use any Confidential Information and Trade Secrets of another Party solely for the purposes of implementing and enforcing this Agreement and the other Project Agreements to which it is a party.  Each Party further agrees that a receiving Party may disclose Confidential Information or Trade Secrets only to such Representatives who are involved in the receiving Party’s implementation or enforcement of this Agreement and other Project Agreements, and then only on a need to know basis.  

(b)

Subject to Section 22.1(c) and (e), each Party agrees that it will not (and each Party shall take full responsibility for ensuring that all of its Affiliates and all of its and its Affiliates’ respective Representatives do not) in any way disclose, communicate, transfer or use (other than as permitted by this Article 22) any Confidential Information or Trade Secrets of another Party, without the prior written consent in each instance of such other Party.  With respect to Trade Secrets, the covenants in the preceding sentence shall apply for as long as the underlying information or data remains a Trade Secret; and with respect to Confidential Information, the covenants in the preceding sentence shall apply for two years after the expiration or termination of this Agreement as to such Party or Parties.

(c)

Notwithstanding Section 22.1(b) each Party shall have the right to disclose Confidential Information or Trade Secrets without the consent of the other Parties to its lenders and with the consent of the other Parties, such consent not to be unreasonably withheld, to any Person (and its Representatives) contemplating a purchase, directly or indirectly, of all or an interest in such Party or such Party’s interest in Elm Road Unit 1, provided, that such lender or Person agrees in writing that it (and its Representatives) will maintain such Confidential Information and Trade Secrets in accordance with the terms and conditions of this Article XXII.

(d)

Notwithstanding any other provision of this Agreement to the contrary, if a Party seeks to use information in a court or regulatory proceeding as part of its implementation or enforcement of this Agreement, the fact that such information has been deemed Confidential Information hereunder shall not foreclose the Party from attempting to establish that, under the circumstances present at the time of the proceeding, the information need not be subject to a protective order or similar confidential treatment in such proceeding.

(e)

Notwithstanding anything herein to the contrary, any Party (and its Representatives) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure.  However, any such information relating to the tax treatment or tax structure is required to be kept confidential to the extent necessary to comply with any applicable federal or state securities laws.

SECTION 22.2

Law.

Each Party agrees that if it becomes subject to a subpoena or other Law to disclose any of the Confidential Information or Trade Secrets of another Party, it will provide such Party with prompt notice so that such Party may seek a protective order or other appropriate remedy.  If such protective order or other appropriate remedy is denied or otherwise not obtained, the Party required to furnish the information shall furnish only that portion of the Confidential Information and/or Trade Secrets which is, in the opinion of its counsel, legally compelled, and will cooperate with the other Party and its counsel to enable the other Party to attempt to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information and/or Trade Secrets to be disclosed.

ARTICLE XXIII

TERM

This Agreement shall be binding on each signatory upon execution of this Agreement by WEPCO, as Operating Agent and Lessee/Owner Party, and any other Lessee/Owner Party .  The term (“Term”) of this Agreement shall commence, for each of MGE and WPPI, upon the closing of the acquisition of an ownership interest in Unit 1 or Unit 2 by MGE Power and WPPI, respectively, pursuant to the Unit 1 Ownership Agreement or Unit 2 Ownership Agreement.  The Term of the Agreement shall commence, for WEPCO as both Lessee/Owner Party and Operating Agent, upon the first of such closings.  The Term of this Agreement shall terminate upon the later to occur of the expiry of the stated terms of the WEPCO Unit 1 Facility Lease and the WEPCO Unit 2 Facility Lease, including any renewal terms (if the WEPCO Unit 1 Facility Lease or the WEPCO Unit 2 Facility Lease is renewed); provided, however, that if WEPCO acquires or has acquired an ownership interest in Unit 1 or Unit 2 at or before the termination of the WEPCO Unit 1 Facility Lease or the WEPCO Unit 2 Facility Lease, this Agreement shall remain in full force and effect so long as WEPCO retains such ownership; and provided, further, that this Agreement shall terminate following an Event of Total Loss or Event of Loss to the extent provided in Article XV hereof.  For the avoidance of doubt, the termination of this Agreement shall not relieve any Party of any liabilities accrued up to the date of termination.  Notwithstanding any termination of this Agreement, the Parties agree to enter into appropriate arrangements as needed which recognize each Party’s interest in the ongoing viability of the Site Common Facilities as they relate to the operation of any electric generating facilities remaining on the Land at such time.

ARTICLE XXIV

MISCELLANEOUS

SECTION 24.1

Applicable Law.

The rights and obligations of the Parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Wisconsin.

SECTION 24.2

Jury Trial.

EACH OF THE PARTIES WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

SECTION 24.3

Notices.

Unless otherwise expressly specified or permitted by the terms of this Agreement, all communications and notices provided for herein to a Party shall be in writing or shall be produced by a telecommunications device capable of creating a written record, and any such notice shall be effective (a) upon personal delivery thereof, including by overnight mail or next Business Day or same-day 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 electronic means, upon transmission thereof, provided, such transmission is promptly confirmed by either of the methods set forth in clause (a) or (b) above, in each case addressed as provided below or to such other address as any Party may designate by written notice to the other Parties.

If to WEPCO:

Wisconsin Electric Power Company

231 West Michigan Street

Milwaukee, WI 53203

Fax:

414-221-2140

Attn:

General Counsel

Vice President - Fossil Operations

If to MGE:

Madison Gas and Electric Company

P.O. Box 1231 

Madison, WI 53701-1231

or

133 South Blair Street

Madison, WI 53703

Fax:

608-252-4794

Attn:

Chief Financial Officer

General Counsel

Vice President-Power Operations

If to WPPI:

Wisconsin Public Power Inc.

1425 Corporate Center Drive

Sun Prairie, WI 53590-9109

Fax:

608-837-0274

Attn:

Senior Vice President--Legal and Regulatory Affairs

Senior Vice President--Power Supply

SECTION 24.4

Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute the same agreement.

SECTION 24.5

Severability.

Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law; provided, however, if any provision of this Agreement shall be prohibited by or deemed invalid under any applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

SECTION 24.6

Third-Party Beneficiaries.

Except as expressly provided herein, none of the provisions of this Agreement is intended for the benefit of any person except the Parties, their respective successors and permitted assigns.

SECTION 24.7

Entire Agreement.

This Agreement states the rights of the Parties with respect to operation and maintenance of the Common Facilities and the other transactions contemplated by this Agreement and supersedes all prior agreements, oral or written, with respect thereto.

SECTION 24.8

Schedules.

The Schedules, along with all attachments referenced therein, are incorporated herein by reference and made a part hereof.

SECTION 24.9

No Joint Venture.

Any intention to create a joint venture or partnership relation between any of the Parties is hereby expressly disclaimed.  Each of the Parties shall be severally, and not jointly, liable for its obligations hereunder.

SECTION 24.10

Amendments and Waivers.

(a)

No term, covenant, agreement or condition of this Agreement may be terminated or amended except by an instrument or instruments in writing executed by all of the Parties.  Failure or forbearance by a Party to exercise any of its rights or remedies under this Agreement shall not constitute a waiver of such rights or remedies.  No Party shall be deemed to have waived or forborne any right or remedy resulting from such failure to perform unless it has made such waiver specifically in writing.

(b)

WPPI agrees that in any Dispute arising under this Agreement, it will not assert as a defense any rights or protections that it may have under Wis. Stat. § 893.80, or claim sovereign immunity based upon its status as a political subdivision and body politic and corporate of the State of Wisconsin.

SECTION 24.11

Survival.

Except as expressly provided herein, the warranties and covenants made by each Party shall not survive the expiration or termination of this Agreement in accordance with its terms.

SECTION 24.12

Further Assurances.

Each Party shall promptly and duly execute and deliver such further documents and assurances for and take such further actions reasonably requested by the other Parties, all as may be reasonably necessary to carry out the purpose of this Agreement.

SECTION 24.13

Interpretation Necessitated by Certain Future MGE or WPPI Elections.

If either MGE or WPPI elects not to participate in the ownership or lease of any part of the Elm Road Generating Station, the Agreement shall be interpreted as an Agreement between and among the participating Party (either MGE or WPPI) and WEPCO, as Lessee/Owner Parties, and WEPCO, as Operating Agent, as necessary to give reasonable effect to the provisions of the Agreement, and all references to the non-participating Party should be disregarded.

SECTION 24.14

Certifications and Opinions of Counsel.

On each Closing Date (as defined in the Ownership Agreement), each Party shall provide to the other Parties:

(a)

an officer’s certificate, duly executed by an authorized officer of such Party, dated as of such Closing Date, with respect to the accuracy of the representations and warranties of such Party set forth in Article XXI; and

(b)

an opinion of in-house counsel of such Party, dated as of such Closing Date, with respect to the matters set forth in Schedule 24.14 hereto.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, each of the Parties have caused this Elm Road Common Facilities Operating and Maintenance Agreement to be duly executed and delivered under seal by their respective duly authorized officers as of the date first above written.

WISCONSIN ELECTRIC POWER COMPANY, as Lessee/Owner Party

By:  /s/ Scott A. Patulski

Title: Vice President

MADISON GAS AND ELECTRIC COMPANY, as Lessee/Owner Party

By:  /s/ Gary J. Wolter

Title: Chairman, President and CEO

WISCONSIN PUBLIC POWER INC., as Lessee/Owner Party

By:  /s/ J. Leroy Thilly

Title: President and CEO

WISCONSIN ELECTRIC POWER COMPANY, as Operating Agent

By:  /s/ Scott A. Patulski

Title: Vice President

EXHIBIT A

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Breakdown of Components into Unit Common Facilities and Site Common Facilities

SITE COMMON FACILITIES

(1)

A circulating water system, including water intake structure, central distribution system, pumps and all facilities, components, equipment and materials that make up the circulating water system;

(2)

Fuel delivery and handling systems, including railroad infrastructure, central coal unloading, central storage, central conveying systems and all facilities, components, equipment and materials that make up the fuel delivery and handling systems;

(3)

Balance of site-wide common facilities and systems, including roads, training/visitors center, security systems and all facilities, components, equipment and materials that constitute a part of such site-wide common systems.

UNIT COMMON FACILITIES

(1)

Common operating systems for Unit 1 and Unit 2, including control room, administration building and all facilities, components, equipment and materials that make up the common operating systems;

(2)

Limestone/gypsum delivery, storage and handling systems.

Schedule 1.1

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Examples of Interest Calculation

SCHEDULE 3.1

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Initial Operating Committee Members

WEPCO:

Scott Patulski

Robin Smerchek

MGE POWER:

Peter J. Waldron

Jeffrey C. Newman

WPPI:

Steve Frey

Cole Price

SCHEDULE 9.1

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

FERC Accounts 

There follows an initial list of the specific FERC accounts in which direct operation and maintenance costs of the Common Facilities shall be recorded.  The list will be revised as necessary.

404

Amortization of limited term electric plant

408.1

Taxes other than income taxes, utility operating income

500

Operation supervision & engineering

501

Fuel Expenses

502

Steam expenses

505

Electric expenses

506

Miscellaneous steam power expenses

507

Rents

510

Maintenance supervision & engineering

511

Maintenance of structures

512

Maintenance of boiler plant

513

Maintenance of electric plant

514

Maintenance of miscellaneous steam plant

SCHEDULE 9.2

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Productive Labor Rate

SCHEDULE 9.4A

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Costs Directly Assigned to Common Facilities that are Allocable Solely to Elm Road Units 1 & 2

				
	Type of Cost

	Basis for Assigning Costs to Elm Road Unit 1

	Basis for Assigning Costs to Elm Road Unit 2

	Comments

	Materials-spare parts inventory

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Will be inventoried.

	Elm Road Dedicated Labor 

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Annual true-up of productive labor rates.

Primarily operating staff.

	Management Labor

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Annual true-up of productive labor rates.

Primarily operating staff.

	Propane inventory

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Will be inventoried.

	Limestone inventory

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Will be inventoried.

	Ammonia inventory

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Will be inventoried.

	Chemicals, boiler make-up water 

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1&2 MW capacity

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	 
	Ash handling

	Elm Road Unit 1 MWH monthly net generation/Total Elm Road Units 1&2 MWH monthly net generation

	Elm Road Unit 2 MWH monthly net generation/Total Elm Road Units 1&2 MWH monthly net generation

	 
	Materials Management / Storeroom Costs

	Elm Road Unit 1 total MW capacity/Total Elm Road Units 1 & 2 MW capacity 

	Elm Road Unit 2 total MW capacity/Total Elm Road Units 1&2 MW capacity

	 
	Station Energy Usage

	Station Energy Usage allocation to be determined following finalization of design

	Station Energy Usage allocation to be determined following finalization of design

	 

SCHEDULE 9.4B

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Costs Directly Assigned to Common Facilities that are Allocable to Units 1 and 2 and Oak Creek Power Plant

					
	Type of Cost

	Basis for Assigning Costs to Elm Road Unit 1

	Basis for Assigning Costs to Elm Road Unit 2

	Basis for Assigning Costs to Oak Creek Power Plant

	Comments

	Telecom Leased Lines

	Elm Road Unit 1 total MW capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Coal Handling

Operating and Maintenance Costs

	Annual coal tons nominated by Elm Road Unit 1/Annual Land coal tons nominated

	Annual coal tons nominated by Elm Road Unit 2/Annual Land coal tons nominated

	Annual coal tons nominated by Oak Creek Power Plant/Annual Land coal tons nominated

	Coal handling includes Land rail, Elm Road Coal Pile, dumper costs.  Annual true-up based on actual annual coal tons delivered.

	Cooling water intake system operating/main-tenance costs

	Elm Road Unit 1 GPM capacity/Total Land GPM capacity

	Elm Road Unit 2 GPM capacity/Total Land GPM capacity

	Oak Creek Power Plant GPM capacity/Total Land GPM capacity

	GPM based on design capacity per EPC Contract. [May change depending on revisions to Unit design.] 

	Wastewater maintenance

	Elm Road Unit 1 GPM capacity/Total Land GPM capacity

	Elm Road Unit 2 GPM capacity/Total Land GPM capacity

	Oak Creek Power Plant GPM capacity/Total Land GPM capacity

	GPM based on design capacity per EPC Contract.  May change depending on revisions to Unit design.

	Land security costs

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Common grounds maintenance

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	Includes road maintenance

	Visitor/Training center

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Utilities

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Fishing pier

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Recreation trail

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 
	Insurance on New Common Facilities 

	Elm Road Unit 1 MW total capacity/Total Land MW capacity

	Elm Road Unit 2 total MW capacity/Total Land MW capacity

	Oak Creek Power Plant total MW capacity/Total Land MW capacity

	 

SCHEDULE 24.14

ELM ROAD COMMON FACILITIES OPERATING AND MAINTENANCE AGREEMENT

Legal Opinion Matters

Matters to be covered by opinion of counsel to each of the Parties, which may be in-house:

1.

Each Party is a corporation/municipal electric company duly formed, validly existing and in current good standing under the laws of the State of Wisconsin.

2.

Each Party has all requisite entity power and authority to execute, deliver and perform its obligations under this Agreement and the Project Agreements to which it is a party, and to carry on its business as now being conducted and as proposed to be conducted under the Project Agreements to which it is a party.

3.

The execution, delivery and performance by each Party of the Project Agreements to which it is a party have been duly authorized by each such Party.

4.

Each of the Project Agreements to which a Party is a party constitutes the legal, valid and binding obligations of each such Party enforceable against each such Party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to creditors’ rights generally and by general principles of equity (whether considered in a proceeding in equity or at law).

The foregoing opinions are limited solely to (i) the internal substantive laws of the State of Wisconsin as applied by courts located in the State of Wisconsin, without regard to choice of law, and (ii) the federal laws of the United States of America, in all cases insofar as such laws are applicable to the matters covered hereby, and no opinion is expressed herein on the applicability or effect of the laws of any other jurisdiction.  In addition, no opinion is expressed with respect to the applicability or effect of any other federal or state laws, statutes, ordinances or regulations promulgated by any Governmental Authority.

EndnotesELM ROAD I OWNERSHIP AGREEMENT

EXECUTION COPY

NEW COMMON FACILITIES OWNERSHIP AGREEMENT

among

ELM ROAD GENERATING STATION SUPERCRITICAL, LLC

and

MGE POWER ELM ROAD, LLC

and

WISCONSIN PUBLIC POWER INC.

Dated as of December 17, 2004

TABLE OF CONTENTS

PAGE

ARTICLE I:  DEFINITIONS; RULES OF INTERPRETATION

2

1.1

Definitions

2

1.2

Rules of Interpretation and Construction

13

ARTICLE II:  OWNERSHIP OF THE NEW COMMON FACILITIES

15

2.1

New Common Facilities Owners

15

2.2

Component Ownership Interests

15

2.3

Tenancies-in-Common

16

ARTICLE III: RIGHTS AND OBLIGATIONS OF THE PARTIES

16

3.1

Effectiveness of Rights and Obligations of the Parties 

16

3.2

Rights and Obligations with Respect to Government Approvals

16

ARTICLE IV: CONDITIONS TO TRANSFERS OF COMPONENT

            OWNERSHIP INTERESTS

17

4.1.

Transfers of Component Ownership Interests

17

4.2

Closing Costs

19

4.3

Effectiveness of Rights and Obligations

20

4.4

Release

20

ARTICLE V:  APPOINTMENT OF NEW COMMON FACILITIES AGENT

20

ARTICLE VI:  PAYMENTS BY THE NEW COMMON FACILITIES OWNERS

20

ARTICLE VII:  TAXES

21

7.1

Tenants in Common

21

7.2

Liability and Compliance

21

7.3

Receipts, Records and Documentation

21

7.4

Tax Matters

22

ARTICLE VIII:  OTHER RIGHTS AND OBLIGATIONS OF THE 

NEW COMMON FACILITIES OWNERS

23

8.1

Operation and Maintenance of the New Common Facilities

23

8.2

Capital Improvements to the New Common Facilities; 

Payment of Capital Costs of Improvements

23

ARTICLE IX:  INSURANCE; EVENTS OF LOSS AND TOTAL LOSS

24

9.1

Insurance Coverage

24

9.2

Event of Loss and Event of Total Loss

24

9.3

Responsibility for Costs and Expenses

25

9.4

Allocation of Loss Proceeds and Condemnation Awards

26

ARTICLE X:  RETIREMENT OF COMPONENTS

26

10.1

Date of Retirement

26

10.2

Retirement Costs

27

10.3

Termination of Agreement

27

ARTICLE XI: NEW COMMON FACILITIES OWNER’S VOTING RIGHTS

27

11.1

Decision-Making

27

11.2

Voting Requirements

28

ARTICLE XII:  DEFAULTS; REMEDIES

28

12.1

Exclusive Remedies

28

12.2

Remedies for Material Breach

28

12.3

Limitation on Remedies for Breach of Representation and Warranties

28

12.4

Damage to the New Common Facilities 

28

12.5

Waiver of Partition Rights

28

12.6

Disputes

29

ARTICLE XIII:  TRANSFER RESTRICTIONS

29

13.1

Prohibition on Transfers and Liens

29

13.2

Transfers to WEPCO

29

13.3

Transfers of Component Ownership Interests Upon Retirement of a New Unit

30

13.4

Collateral Assignments

30

ARTICLE XIV:  REPRESENTATIONS AND WARRANTIES

31

14.1

Due Organization

31

14.2

Due Authorization

31

14.3

Non-Contravention

31

14.4

Enforceability

31

14.5

Litigation

31

14.6

Government Approvals

32

14.7

No Breach

32

14.8

Disclaimer of Other Representations and Warranties

32

ARTICLE XV:  CONFIDENTIALITY

32

15.1

Non-Disclosure Obligations

32

15.2

Law

33

ARTICLE XVI:  INDEMNITY; LIMITATION ON LIABILITY

34

16.1

Indemnities

34

16.2

Cooperation Regarding Claims

34

16.3

Limitation on Liability

34

16.4

Disputes

35

ARTICLE XVII:  DISPUTE RESOLUTION

35

17.1

Exclusive Procedure

35

17.2

Dispute Notices

35

17.3

Informal Resolution of Disputes

36

17.4

Continued Performance

36

17.5

Consolidation of Proceedings

36

ARTICLE XVIII:  MISCELLANEOUS

37

18.1

Applicable Law

37

18.2

Jury Trial

37

18.3

Notices

37

18.4

Counterparts

37

18.5

Severability

37

18.6

Parties Bound

37

18.7

Third-Party Beneficiaries

38

18.8

Entire Agreement

38

18.9

Headings and Table of Contents

38

18.10

Schedules and Exhibits

38

18.11

Amendments and Waivers

38

18.12

No Joint Venture

38

18.13

Survival

38

18.14

Waiver of Immunity

38

18.15

Further Assurances

39

EXHIBITS:

Exhibit A

Description of Unit 1, Unit 2 and New Common Facilities

Exhibit B

Form of Bill of Sale 

Exhibit C

Form of Assignment and Assumption Agreement

Exhibit D

Elm Road Ownership Computations

Exhibit E

Form of Consent and Agreement

SCHEDULES:

Schedule 7.4A

Tax Matters (Tax Exempt New Common Facilities Owner)

Schedule 7.4B

Tax Matters (New Common Facilities Owner)

Schedule 18.3

Notice Information

NEW COMMON FACILITIES OWNERSHIP AGREEMENT

This NEW COMMON FACILITIES OWNERSHIP AGREEMENT (this “Agreement”), dated as of December 17, 2004, is entered into among ELM ROAD GENERATING STATION SUPERCRITICAL, LLC, a Wisconsin limited liability company (“ERGS SC”), MGE POWER ELM ROAD, LLC, a Wisconsin limited liability company (“MGE Power”), and WISCONSIN PUBLIC POWER INC., a Wisconsin municipal electric company (“WPPI”). 

RECITALS:

WHEREAS, as part of its Power The Future initiative, Wisconsin Energy Corporation, a Wisconsin corporation (“WEC”), and its wholly owned subsidiary W.E. Power LLC, a Wisconsin limited liability company (“WE Power”), have filed an application with the Public Service Commission of Wisconsin (the “PSCW”) for a certificate of public convenience and necessity (a “CPCN”) to construct and own (i) an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (as further described in Exhibit A, “Unit 1”), (ii) an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (as further described in Exhibit A, “Unit 2”) and (iii) certain facilities utilized in common in the operation and maintenance of the New Units and, where applicable, one or more of the Existing Units (as further described in Exhibit A, the “New Common Facilities”) to be located on property owned by Wisconsin Electric Power Company, a Wisconsin corporation (“WEPCO”) and affiliate of WE Power; 

WHEREAS, WE Power and ERGS SC, WE Power’s wholly-owned subsidiary, have been actively engaged in the preliminary development, design and engineering of the New Units and the New Common Facilities sufficient to support WEC’s and WE Power’s CPCN application and other permitting approval processes related thereto; 

WHEREAS, if WEC and WE Power receive a satisfactory CPCN and certain other material Government Approvals, then ERGS SC may, in ERGS SC’s sole discretion, elect to proceed with the development, design, engineering, permitting, construction and commissioning of one or both of the New Units and the New Common Facilities in accordance with the Unit Ownership Agreements;

WHEREAS, if ERGS SC elects to proceed with one or both of the New Units and the New Common Facilities pursuant to the applicable provisions of the Unit Ownership Agreements, then each of MGE Power and WPPI may, in its sole discretion, elect to purchase an undivided ownership interest in one or both of the Unit 1 Facility and Unit 2; and

WHEREAS, ERGS SC, MGE Power and WPPI have set forth in this Agreement the terms and conditions by which they shall jointly own the New Common Facilities should MGE Power and/or WPPI become Unit Owners pursuant to one or both of the Unit Ownership Agreements.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ERGS SC, MGE Power and WPPI agree as follows:

ARTICLE I: DEFINITIONS; RULES OF INTERPRETATION

 

1.1

Definitions.  Unless the context otherwise requires, the following capitalized terms have the meanings given to them below:

“Active Owner” means ERGS or any other Person (other than MGE Power or WPPI) that has an ownership interest in one or more non-retired Units at the Elm Road Site that utilize one or more of the Components.

“Affiliate” means, with respect to any Person, (a) each entity that such Person Controls, (b) each Person that Controls such Person, and (c) each entity that is under common Control with such Person.

“Agreement” has the meaning given to such term in the Preamble to this Agreement.

“Business Day” means any day on which commercial banks are not authorized or required to close in Milwaukee, Wisconsin.

“Call Option Period” means, in respect of a given Retired Owner, the period of time commencing on the date on which the last New Unit in which such Retired Owner has a Unit Ownership Interest is retired pursuant to the applicable Unit Ownership Agreement and ending on the earlier of: (a) the date on which such Retired Owner elects to Transfer its Composite Component Ownership Interest pursuant to Section 13.3(a) of this Agreement, or (b) the date on which all of the Components in which such Retired Owner has a Component Ownership Interest are retired pursuant to Article X of this Agreement.

“Capital Improvements” has the meaning given to such term in Section 8.2(a) of this Agreement.

“Claims” means liabilities, obligations, damages, losses, demands, penalties, interest, fines, claims, actions, suits, judgments, settlements, and reasonable costs, fees, expenses and disbursements (including reasonable legal fees) and expenses and costs of investigation whether any of the foregoing be founded or unfounded, of any kind and nature whatsoever.

“Code” means the Internal Revenue Code of 1986.

“Commercial Operation Date” means the date on which Unit 1 or Unit 2 shall have achieved Commercial Operation (as such term is defined in the respective ERGS SC Facility Lease). 

“Common Facilities O&M Agreement” means that certain Elm Road Generating Station Common Facilities Operating and Maintenance Agreement, dated as of the date hereof, among WEPCO, MGE and WPPI.

“Components” has the meaning given to such term in Exhibit A to this Agreement.

“Component Ownership Interest” means a Unit 1 Component Ownership Interest or a Unit 2 Component Ownership Interest.

“Composite Component Ownership Interest” means, for any given New Common Facilities Owner, such New Common Facilities Owner’s collective Total Component Ownership Interest in each of the Components.

“Condemnation Award” means any monetary award that a New Common Facilities Owner or Lessee/Owner Party receives, as a result of a taking of all or a portion of the New Common Facilities (or any Component) by an exercise of eminent domain or a similar right or power by a Governmental Authority, or as a result of a Governmental Authority order that the New Common Facilities (or any Component) cease to operate.

“Confidential Information” means, with respect to a Party, all proprietary and confidential business information and data of such Party (including Trade Secrets) that are not generally known by or readily ascertainable by or available to, on a legal or authorized basis, the general public; and which (i) has been expressly and clearly designated as confidential by the Party providing the information, (ii) are within a category of information that the Parties have designated as confidential, or (iii) the receiving Party would normally consider and treat as confidential if the information were its own.  In addition, “Confidential Information” shall include any information or data which was treated as “Confidential Information” pursuant to one or both of the Mutual Confidentiality Agreements.  For the avoidance of doubt, “Confidential Information” shall not include any such information:  (a) which is already known to the receiving Party; or (b) which (i) has become generally known to the public through no wrongful act of the receiving Party or its Representatives, (ii) has been received by the receiving Party from a third party without (to the receiving Party’s knowledge) restriction on disclosure and without (to the receiving Party’s knowledge) a breach by the third party of an obligation of confidentiality, (iii) is independently developed by the receiving Party without use of the Confidential Information received from a disclosing Party, or (iv) when received by the receiving Party constituted Confidential Information but, due to the passage of time, the factual predicate justifying treatment as Confidential Information no longer applies.

“Construction Account” means a bank account over which no New Common Facilities Owner or any of its Affiliates has control.

“Control” means the possession, directly or indirectly, through one or more intermediaries, of the following:

(a) (i)

in the case of a corporation, 50% or more of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to 50% or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, 50% or more of the beneficial interest therein; and (iv) in the case of any other entity, 50% or more of the economic or beneficial interest therein; and

(b)

in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

“CPCN” has the meaning given to such term in the Recitals of this Agreement.

“Dispute” has the meaning given to such term in Section 17.1 of this Agreement.

“Dispute Notice” has the meaning given to such term in Section 17.2 of this Agreement.

“Disputing Party” has the meaning given to such term in Section 17.2 of this Agreement.

“Elm Road Documents” means, collectively, this Agreement, the Unit Ownership Agreements, the Unit 1 O&M Agreement, the Unit 2 O&M Agreement, the Common Facilities O&M Agreement, the Unit 1 Construction Agreements and the Unit 2 Construction Agreements.

“Elm Road I Project Documents” means, collectively, this Agreement, the Unit 1 Ownership Agreement, the Unit 1 Construction Agreements, the Unit 1 O&M Agreement, the Common Facilities O&M Agreement, the ERGS SC Unit 1 Facility Lease, the ERGS SC Unit 1 Ground Lease, the ERGS SC Unit 1 Ground Sublease, the Unit 1 Property Rights Agreement and the MGE Power Unit 1 Facility Lease.

“Elm Road II Project Documents” means, collectively, this Agreement, the Unit 2 Ownership Agreement, the Unit 2 Construction Agreements, the Unit 2 O&M Agreement, the Common Facilities O&M Agreement, the ERGS SC Unit 2 Facility Lease, the ERGS SC Unit 2 Ground Lease, the ERGS SC Unit 2 Ground Sublease, the Unit 2 Property Rights Agreement and the MGE Power Unit 2 Facility Lease.

“Elm Road Site” means the land upon which Unit 1, Unit 2 and the New Common Facilities will be constructed, as described in greater detail in the ERGS SC Unit 1 Ground Lease and the ERGS SC Unit 2 Ground Lease.  

“ERGS SC” has the meaning given to such term in the Preamble to this Agreement.

“ERGS SC Facility Leases” means, collectively, the ERGS SC Unit 1 Facility Lease and the ERGS SC Unit 2 Facility Lease.

“ERGS SC Unit 1 Facility Lease” means that certain Elm Road I Facility Lease Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 1 Ground Lease” means that certain Elm Road I Ground Lease and Easement Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 1 Ground Sublease” means that certain Elm Road I Ground Sublease Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 1 Lease Effective Date” has the meaning given to “Lease Effective Date” in the ERGS SC Unit 1 Facility Lease; provided, however, that if the ERGS SC Unit 1 Facility Lease has terminated or expired prior to such “Lease Effective Date”, then “ERGS SC Unit 1 Lease Effective Date” shall mean the Commercial Operation Date of Unit 1.

“ERGS SC Unit 2 Facility Lease” means that certain Elm Road II Facility Lease Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 2 Ground Lease” means that certain Elm Road II Ground Lease and Easement Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 2 Ground Sublease” means that certain Elm Road II Ground Sublease Agreement, dated as of November 9, 2004, between WEPCO and ERGS SC.

“ERGS SC Unit 2 Lease Effective Date” has the meaning given to “Lease Effective Date” in the ERGS SC Unit 2 Facility Lease; provided, however, that if the ERGS SC Unit 2 Facility Lease has terminated or expired prior to such “Lease Effective Date”, then “ERGS SC Unit 2 Lease Effective Date” shall mean the Commercial Operation Date of Unit 2.

“Event of Loss” means any loss of, destruction or damage to, or taking of any part of the New Common Facilities (or any Component).

“Event of Total Loss” means, with respect to the New Common Facilities (or any Component): (a) all or substantially all of the New Common Facilities (or any Component), shall be damaged to the extent of being completely or substantially completely destroyed; (b) any damage to the New Common Facilities (or any Component) that results in an insurance settlement with respect thereto on the basis of a total loss or an agreed constructive or a compromised total loss of the New Common Facilities (or any Component); or (c) all or substantially all of or a material portion of the New Common Facilities (or any Component) has been taken by exercise of eminent domain or a similar right or power by a Governmental Authority, or a Governmental Authority shall order the New Common Facilities (or any Component) to cease to operate permanently.

“Existing Common Facilities” means any and all facilities, components, equipment and materials which are (a) utilized in support of the operation and maintenance of the Existing Units and one or both New Units, (b) owned by WEPCO and located on the Land (as such term is defined in the ERGS SC Unit 1 Ground Lease and the ERGS SC Unit 2 Ground Lease) and (c) in-place and operational prior to the initiation of construction of the Unit 1 Facility, as such facilities, components, equipment and materials may be repaired from time to time.

 

“Existing Units” means WEPCO’s existing four coal-based electric generating units and one oil-based electric generating unit and related facilities at its Oak Creek generating facility, including any improvements thereto, other than the Existing Common Facilities, and any replacement or additional units installed on the site now occupied by the Existing Units, other than the New Units.

“Financing Documents” means each agreement, document or instrument pursuant to which a New Common Facilities Owner or one of its Affiliates is provided construction and/or term debt financing and/or working capital and/or other financing or refinancing in connection with the Project by one or more Lenders, and each other agreement, document or instrument delivered in connection with any of the foregoing.

“Government Approval” means any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, variance, order, judgment, decree, publication, declaration or registration issued by any Governmental Authority.

“Governmental Authority” means any applicable federal, state, county, municipal or other government, quasi-government or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof.

“Gross Negligence” shall be determined by reference to the Wisconsin common law concept of gross negligence, provided that no Party shall use the absence of a gross negligence concept under Wisconsin law as a defense to a claim alleging Gross Negligence or as a basis to substitute a standard other than Gross Negligence where provided for in this Agreement. 

“Indemnified Party” has the meaning given to such term in Section 16.2 of this Agreement.

“Indemnifying Party” has the meaning given to such term in Section 16.2 of this Agreement.

“Law” means any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority or judicial or administrative body, whether now or hereafter in effect.

“Lenders” means the banks, bond and commercial paper holders and/or financial institutions (together with their administrative agents, collateral agents, depositary banks and other agents) and/or other Persons which provide construction and/or term debt financing and/or working capital and/or other financing or refinancing to a New Common Facilities Owner or one of its Affiliates in connection with the Project pursuant to one or more Financing Documents.

“Lessee” means (a) in respect of ERGS SC, WEPCO as lessee under the ERGS SC Unit 1 Facility Lease and/or the ERGS SC Unit 2 Facility Lease, and (b) in respect of MGE Power, MGE as lessee under the MGE Power Unit 1 Facility Lease and/or the MGE Power Unit 2 Facility Lease.

“Lessee/Owner Parties” has the meaning given to such term in the Common Facilities O&M Agreement.

“Lien” means, with respect to any property, any mortgage, lien, pledge, charge, lease, easement, servitude, right of others, security interest or encumbrance of any kind in respect of such property.  

“Loss Proceeds” means all proceeds (including insurance proceeds) payable by a third-party (including an insurer or re-insurer) to any New Common Facilities Owner or Lessee/Owner Party in respect of an Event of Loss or an Event of Total Loss pursuant to insurance required to be maintained pursuant to Sections 9.1(a) or 9.1(b) of this Agreement; provided that “Loss Proceeds” shall not include any third-party liability insurance proceeds or other insurance proceeds payable directly to a third party in accordance with the terms of such insurance policy.

“Measurement Basis” has the meaning given to such term in Exhibit D to this Agreement.

“MGE” means Madison Gas & Electric Company, a Wisconsin corporation and an Affiliate of MGE Power.

“MGE Power” has the meaning given to such term in the Preamble to this Agreement.

“MGE Power Unit 1 Facility Lease” means that certain Elm Road I Facility Lease Agreement in respect of Unit 1, to be entered into by MGE and MGE Power in the form approved by the PSCW.

“MGE Power Unit 2 Facility Lease” means that certain Elm Road II Facility Lease Agreement in respect of Unit 2, to be entered into by MGE and MGE Power in the form approved by the PSCW.

“Mutual Confidentiality Agreements” means the Mutual Confidentiality Agreement, dated as of July 12, 2002, between WEC and WPPI and the Mutual Confidentiality Agreement, dated as of January 13, 2003, between WEC and MGE.  

“New Common Facilities” has the meaning given to such term in the Recitals to this Agreement.

“New Common Facilities Owner” means any Person who owns a Component Ownership Interest.

“New Common Facilities Service Costs” means 50% of all Service Costs (as such term is defined in the Unit 1 Ownership Agreement) incurred and allocable to the New Common Facilities in accordance with Exhibit D of the Unit 1 Ownership Agreement, plus Carrying Costs (as such term is defined in the Unit 1 Ownership Agreement and applying the percentage in clause (b)(i) of such definition).

“New Unit” means Unit 1 or Unit 2 and “New Units” means, collectively, Unit 1 and Unit 2.

“NPV of Retirement Costs” means, with respect to any Component at any time, the net present value of the aggregate amount of costs and expenses which would be incurred pursuant to Section 10.2 to retire permanently such Component from service.  The aggregate costs and expenses to be present-valued shall be determined by calculating the costs to retire the Component at the time the calculation is being made, and escalating such figure to the expected time of retirement of such Component.  The costs and expenses and the time of retirement shall be determined by an independent appraiser mutually acceptable to the Retiring Owner(s) and Active Owner(s).  For purposes of this definition, (a) the net present value shall be determined using an annual discount rate equal to the annual after-tax effective RRLF% from the ERGS SC Unit 1 Facility Lease and (b) the escalation shall be determined using an annual percentage rate equal to the average of the latest available GDP-IPD annual numbers provided by the Department of Commerce, Bureau of Economic Analysis during the immediately preceding ten years. 

“Operating Agent” means the “Operating Agent” under the Unit 1 O&M Agreement, the Unit 2 O&M Agreement or the Common Facilities O&M Agreement, as the context may require.

“Organic Documents” means: (a) with respect to any Person that is a corporation, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock; (b) with respect to any Person that is a limited partnership, its certificate of limited partnership and partnership agreement; (c) with respect to any Person that is a limited liability company, its certificate of formation and its limited liability company agreement, and (d) with respect to WPPI and/or any WPPI Member, the legislation enabling its formation, its formation contracts and its by-laws, in each case, as amended, supplemented, amended and restated, or otherwise modified and in effect from time to time.

“Participation Agreements” means, collectively, (a) that certain Agreement Granting Rights and Establishing Terms for Ownership Participation in Wisconsin Energy Corporation’s Proposed Elm Road Generating Station, dated July 24, 2002, between WEC and WPPI and (b) that certain Letter Agreement for Termination of Option Agreement, dated January 31, 2003, between WEC and MGE.

“Party” or “Parties” means ERGS SC, MGE Power and WPPI.

“Permitted Encumbrances” means, in respect of any property:

(a)

Liens for Taxes, assessments or governmental charges not due and delinquent;

(b)

Liens for Taxes, assessments or governmental charges already due, but whose validity or amount is being contested in good faith, by appropriate proceedings initiated timely and diligently prosecuted, and for which adequate reserves in accordance with generally accepted accounting principles are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted;

(c)

carrier’s, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business or incident to the construction or improvement of such property in respect of obligations which are not overdue for a period of more than 30 days or which are being contested in good faith, by appropriate proceedings initiated timely and diligently prosecuted, and for which adequate reserves in accordance with generally accepted accounting principles are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted;

(d)

easements, rights of way, reservation, restrictions, covenants, party-wall agreements, agreements for joint or common use, landlords’ rights of distraint and other similar encumbrances affecting such property, granted in the ordinary course of business, which in the aggregate are not material in amount and which do not in the aggregate materially detract from the value of such property subject thereto or impair the use of such property for the purposes for which it is held;

(e)

court proceedings affecting such property, provided the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings initiated in a timely manner and diligently prosecuted, and for which adequate reserves in accordance with generally accepted accounting principles are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted;

(f)

minor defects and irregularities in title to such property, which do not in the aggregate materially impair the value of such property or the use of such property for the purposes for which it is held; and

(g)

Liens arising in connection with Liens pursuant to the Security Documents, if any.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint-stock company, a trust, an unincorporated organization or any government or political subdivision thereof.

 

“Project” means, collectively, the development, design, engineering, permitting, construction and commissioning of the New Common Facilities.

“Project Manager” means Elm Road Services LLC, a Wisconsin limited liability company, in its capacity as “Project Manager” under the Unit Ownership Agreements.

“Prudent Utility Practice” means any of the practices, methods and acts, which, in the exercise of reasonable judgment in the light of the facts known at the time the decision was made (including, but not limited to, the practices, methods and acts engaged in or approved by a significant portion of the electric generating power industry prior thereto), reasonably could have been expected to accomplish the desired result consistent with reliability, safety, good business practice and expediency.  Prudent Utility Practice is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather is a spectrum of possible practices, methods or acts which reasonably could have been expected to accomplish the desired result at a reasonable cost consistent with reliability, safety, good business practice and expediency.  Prudent Utility Practice includes due regard for manufacturers’ warranties, environmental considerations, and the requirements of Governmental Authorities that have jurisdiction.  In applying the standard of Prudent Utility Practice to any matter under this Agreement, equitable consideration shall be given to the circumstances, requirements and obligations of each of the Parties.

“PSCW” has the meaning given to such term in the Recitals to this Agreement.

“Purchase Price” has the meaning given to such term in Section 4.1(b)(ii) of this Agreement.

“Put Option Period” means, in respect of a Retired Owner, a period of time commencing on the date on which the last New Unit in which such Retired Owner has a Unit Ownership Interest is retired pursuant to the applicable Unit Ownership Agreement and ending on the earlier of: (a) the date on which one or more Active Owner(s) elect to acquire the Composite Component Ownership Interest of such Retired Owner pursuant to Section 13.3(b) of this Agreement, or (b) the date on which all of the Components in which such Retired Owner has a Component Ownership Interest are retired pursuant to Article X of this Agreement.

“Reconstruction Agent” has the meaning given to such term in Section 9.2(a)(ii)(B) of this Agreement.

“Representatives” means, in respect of a Person, the officers, directors, employees, agents, advisors or representatives of such Person; provided, however, that neither the Operating Agent, the Project Manager nor any agent appointed pursuant to Article V shall be a Representative of any New Common Facilities Owner for purposes of Section 12.4 and Article XVI of this Agreement.

“Retired Owner” means each of MGE Power and/or WPPI if and when each has no Unit Ownership Interest in any New Unit that utilizes one or more of the Components, but continues to have one or more Component Ownership Interests.

“Retirement Price” means, with respect to a given Component at any time, (a) the net book value of such Component at such time (i.e., the depreciated cost of such Component based upon the books maintained in accordance with this Agreement and the Unit 1 Ownership Agreement), less (b) the NPV of Retirement Costs of such Component pro-rated for the numbers of years such Component has been in operation relative to the estimated useful life of such Component as determined by the independent appraiser in connection with its determination of the NPV of Retirement Costs for such Component.  For purposes of Section 4.1(b)(v) of this Agreement, the “Retirement Price” of any Component determined above shall be pro rated for each Retired Owner based on its Total Component Ownership Interest in such Component.

“Retiring Owner(s)” has the meaning given to such term in Section 13.3(a) of this Agreement.

“Security Documents” means with respect to a New Common Facilities Owner or one of its Affiliates, all security agreements, pledges, consents and other security documents, if any, granting Liens to its Lenders to secure its Secured Obligations.

“Secured Obligations” means with respect to a New Common Facilities Owner or one of its Affiliates, the obligations and liabilities of such New Common Facilities Owner or Affiliate under its Financing Documents, if any. 

“Taxes” and “Tax” means any and all fees (including documentation, recording, license and registration fees), taxes (including income (whether net, gross or adjusted gross), gross receipts, lease, sublease, sales, rental, use, turnover, value-added, property, excise and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions thereto imposed by any Governmental Authority.

“Tax Indemnifying Party” has the meaning given to such term in Section 7.2(b) of this Agreement.

“Tax Indemnitee Party” has the meaning given to such term in Section 7.2(b) of this Agreement.

“Total Component Ownership Interest” means, for any given New Common Facilities Owner and any given Component, such New Common Facilities Owner’s combined Unit 1 Component Ownership Interest and Unit 2 Component Ownership Interest in such Component.  

“Total New Common Facilities Weighted Ownership Percentage” has the meaning given to such term in Exhibit D to this Agreement.

“Trade Secret” means, with respect to a Party, information of such Party, including a formula, pattern, compilation, program, device, technique or process, which (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons who can obtain economic value from its disclosure or use and (b) is the subject of efforts to maintain its secrecy that are reasonable under the circumstances.

“Transfer” has the meaning given to such term in Section 13.1(a) of this Agreement.

“Transfer Date” has the meaning given to such term in Section 4.1(a) of this Agreement.

“Transferee” has the meaning given to such term in Section 4.1(a) of this Agreement.

“Transferor” has the meaning given to such term in Section 4.1(a) of this Agreement.

“Unit Owner” means a Unit 1 Owner or a Unit 2 Owner. 

“Unit Ownership Agreements” means the Unit 1 Ownership Agreement and the Unit 2 Ownership Agreement. 

“Units” means the Existing Units and the New Units.

“Unit 1” has the meaning given to such term in the Recitals to this Agreement. 

“Unit 1 Component Ownership Interest” has the meaning given to such term in Section 2.2(a) of this Agreement.   

“Unit 1 Construction Agreements” has the meaning given to “Construction Agreements” in the Unit 1 Ownership Agreement.

“Unit 1 Facility” means Unit 1 and, prior to the ERGS SC Unit 1 Lease Effective Date, the New Common Facilities.

“Unit 1 Facility Ownership Interest” means, in respect of a Unit 1 Owner, the Unit 1 Ownership Interest and, prior to the ERGS SC Unit 1 Lease Effective Date, the Unit 1 Component Ownership Interest(s) of such Unit 1 Owner.

“Unit 1 O&M Agreement” means that certain Elm Road Generating Station Unit 1 Operating and Maintenance Agreement, dated as of the date hereof, among WEPCO, MGE and WPPI.

“Unit 1 Owners” means ERGS SC and each other Person that becomes a Unit 1 Owner in accordance with the terms and conditions of the Unit 1 Ownership Agreement.

“Unit 1 Ownership Agreement” means that certain Elm Road I Ownership Agreement, dated as of the date hereof, among ERGS SC, MGE Power, WPPI, the Project Manager and, solely for purposes of Section 18.16 therein, WE Power.

“Unit 1 Ownership Interest” has the meaning given to such term in the Unit 1 Ownership Agreement.

“Unit 1 Property Rights Agreement” means that certain Elm Road Generating Station Unit 1 Easement and Indemnification Agreement, dated as of the date hereof, among WEPCO, MGE Power and WPPI.

“Unit 2” has the meaning given to such term in the Recitals to this Agreement.

“Unit 2 Component Ownership Interest” has the meaning given to such term in Section 2.2(b) of this Agreement.  

“Unit 2 Construction Agreements” has the meaning given to “Construction Agreements” in the Unit 2 Ownership Agreement.

“Unit 2 O&M Agreement” means that certain Elm Road Generating Station Unit 2 Operating and Maintenance Agreement, dated as of the date hereof, among WEPCO, MGE and WPPI.

“Unit 2 Owners” means ERGS SC and each other Person that becomes a Unit 2 Owner in accordance with the terms and conditions of the Unit 2 Ownership Agreement.

“Unit 2 Ownership Agreement” means that certain Elm Road II Ownership Agreement, dated as of the date hereof, among ERGS SC, MGE Power, WPPI, the Project Manager and, solely for purposes of Section 18.16 therein, WE Power.

“Unit 2 Ownership Interest” has the meaning given to such term in the Unit 2 Ownership Agreement.

“Unit 2 Property Rights Agreement” means that certain Elm Road Generating Station Unit 2 Easement and Indemnification Agreement, dated as of the date hereof, among WEPCO, MGE Power and WPPI.

“Units” means the Existing Units and the New Units.

“WEC” has the meaning given to such term in the Recitals to this Agreement.

“WE Power” has the meaning given to such term in the Recitals to this Agreement.

“WEPCO” has the meaning given to such term in the Recitals to this Agreement.

“WPPI” has the meaning given to such term in the Preamble to this Agreement.

“WPPI Member” means a member of WPPI under its Organic Documents.

1.2

Rules of Interpretation and Construction.

(a)

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, if applicable, 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 either gender includes the other gender;

(iv)

reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified from time to time in accordance with the terms thereof;

(v)

reference to any Law means such Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Law means that provision of such Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or re-enactment of such section or other provision;

(vi)

reference to any Preamble, Recital, Article, Section, Annex, Schedule or Exhibit of this Agreement means such Article or Section thereof or Preamble, Recital, Annex, Schedule or Exhibit thereto;

(vii)

“hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this document as a whole and not to any particular Article, Section or other provision thereof;

(viii)

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

(ix)

with respect to any rights and obligations of the Parties under this Agreement, all such rights and obligations shall be construed to the extent permitted by applicable Law.

(b)

Computation of Time Periods.  For purposes of computation of periods of time under this Agreement, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.  If a Party is required to take an action pursuant to this Agreement and the day on which such action becomes due is not a Business Day, then such action shall be taken on the next day that is a Business Day.

(c)

Accounting Terms and Determinations.  Unless otherwise specified in this Agreement, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and any financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles in the United States as in effect from time to time applied on a consistent basis.

(d)

Coordination With Other Agreements.  If there is any conflict between this Agreement and any of the other Elm Road Documents, this Agreement and the Elm Road Document(s) shall be interpreted and construed, if possible, so as to avoid or minimize such conflict.

(e)

Legal Representation of the 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 as the drafter shall not apply to any construction or interpretation thereof.

(f)

Payments.  All payments permitted or required to be made by or on behalf of the Parties under the terms of this Agreement shall be made to the account or accounts designated by the Party to which the payment is owed, by wire transfer (in immediately available funds in the lawful currency of the United States).

(g)

Computation of Component Ownership Interests and Total New Common Facilities Weighted Ownership Interests.  Notwithstanding any provision to the contrary in this Agreement, the Parties acknowledge and agree that for purposes of this Agreement, each New Common Facilities Owner’s Component Ownership Interest in each of the Components and Total New Common Facilities Weighted Ownership Percentage shall be determined (i) after the ERGS SC Unit 1 Lease Effective Date and prior to the date on which the first New Unit is retired in accordance with Exhibit D, an electronic copy of which was distributed by ERGS SC to the other Parties on the date hereof and is incorporated herein and (ii) after the first New Unit is retired, in accordance with Sections 13.3, 4.1(b)(iv) and 4.1(b)(v).

ARTICLE II:  OWNERSHIP OF THE NEW COMMON FACILITIES

2.1

New Common Facilities Owners.  Each Party that owns a Unit 1 Component Ownership Interest in accordance with the Unit 1 Ownership Agreement on the ERGS SC Unit 1 Lease Effective Date shall be a New Common Facilities Owner.

2.2

Component Ownership Interests.  

(a)

Unit 1 Component Ownership Interests.  Effective as of the ERGS SC Unit 1 Lease Effective Date, each Party shall have the percentage undivided ownership interest in each Component which is allocated to Unit 1 (each, a “Unit 1 Component Ownership Interest”) pursuant to the Unit 1 Ownership Agreement.  If at any time after the ERGS SC Unit 1 Lease Effective Date, a New Common Facilities Owner Transfers all or a portion of its Unit 1 Ownership Interest to a transferee in accordance with the terms of the Unit 1 Ownership Agreement, then, subject to satisfaction of the applicable conditions in Section 4.1, such New Common Facilities Owner shall also Transfer to such transferee all of the Unit 1 Component Ownership Interests which are allocated (in accordance with Exhibit D) to the Unit 1 Ownership Interest being Transferred.  Effective upon such Transfer, (i) the transferee shall become a New Common Facilities Owner, if it is not already, and shall succeed to the Unit 1 Component Ownership Interests Transferred and (ii) the transferor’s Unit 1 Component Ownership Interests shall be reduced by the amount of Unit 1 Component Ownership Interests so Transferred.

(b)

Unit 2 Component Ownership Interests.  If MGE Power, WPPI and/or any other Person becomes a Unit 2 Owner and acquires a Unit 2 Ownership Interest before the ERGS SC Unit 2 Lease Effective Date in accordance with the terms of the Unit 2 Ownership Agreement, then, subject to satisfaction of the applicable conditions in Section 4.1, effective upon the ERGS SC Unit 2 Lease Effective Date (i) such Person shall become a New Common Facilities Owner, if it is not already, (ii) such Person shall, in accordance with (iii) below, acquire from the then existing New Common Facilities Owner(s), a percentage undivided ownership interest in each Component which is allocated to Unit 2 in accordance with Exhibit D (each, a “Unit 2 Component Ownership Interest”), and (iii) each then existing New Common Facilities Owner(s) shall Transfer a portion of each of its Unit 1 Component Ownership Interests to such Person such that, effective upon such Transfer, the Unit 1 Component Ownership Interests, if any, and the Unit 2 Component Ownership Interests, if any, of each of the New Common Facilities Owners (including any Person(s) becoming a New Common Facilities Owner pursuant to this sentence) shall be in accordance with Exhibit D; provided, however, that in no event shall the provisions of Section 2.2(b)(i) – (iii) apply to MGE Power or WPPI if on or before the ERGS SC Unit 2 Lease Effective Date such Party has provided ERGS SC written notice pursuant to Section 12.2(a) of the Unit 2 Ownership Agreement of its withdrawal from the Unit 2 Ownership Agreement.  If at any time on or after the ERGS SC Unit 2 Lease Effective Date, a New Common Facilities Owner Transfers all or a portion of its Unit 2 Ownership Interest to a transferee in accordance with the terms of the Unit 2 Ownership Agreement, then, subject to satisfaction of the applicable conditions in Section 4.1, such New Common Facilities Owner shall also Transfer to such transferee all of the Unit 2 Component Ownership Interests which are allocated (in accordance with Exhibit D) to the Unit 2 Ownership Interest being Transferred.  Effective upon such Transfer, (i) the transferee shall become a New Common Facilities Owner, if it is not already, and shall succeed to the Unit 2 Component Ownership Interests Transferred and (ii) the transferor’s Unit 2 Component Ownership Interests shall be reduced by the amount of Unit 2 Component Ownership Interests so Transferred.

(c)

Change in Measurement Basis.  Effective as of the ERGS SC Unit 1 Lease Effective Date, Exhibit D to this Agreement shall automatically be amended to be consistent with Exhibit D to the Unit 1 Ownership Agreement as in effect on the ERGS SC Unit 1 Lease Effective Date.  The Parties acknowledge and agree that if one or more of the Existing Units are retired, the Measurement Basis values attributed to the retired Existing Units in computing Component Ownership Interests in Exhibit D will not change.

2.3

Tenancies-in-Common.  The New Common Facilities Owners shall own their respective Total Component Ownership Interests in each of the Components as tenants-in-common.

ARTICLE III: RIGHTS AND OBLIGATIONS OF THE PARTIES

3.1

Effectiveness of Rights and Obligations of the Parties.  The Parties acknowledge and agree that:

(a) 

the rights and obligations of the Parties under this Agreement (other than this Section 3.1 and Section 3.2 and Articles I, XII, XIII, XIV, XV, XVI, XVII and XVIII) shall not be binding upon the Parties until the ERGS SC Unit 1 Lease Effective Date, and shall, as appropriate, continue beyond the date on which any such Parties become New Common Facilities Owners under this Agreement; and 

(b)

the rights and obligations of the Parties under this Section 3.1 and Section 3.2 and Articles I, XII, XIII, XIV, XV, XVI, XVII and XVIII shall be binding upon the Parties as of the date of this Agreement.

3.2

Rights and Obligations with Respect to Government Approvals.  Each Party shall use commercially reasonable efforts:

(a)

to obtain any Government Approvals required to execute, deliver and perform its obligations under this Agreement and to own any of its Component Ownership Interests;

(b)

to actively and publicly support the efforts of the other Parties to obtain the Government Approvals required to be obtained by them pursuant to Section 3.2(a); and

(c)

if it participates in any proceedings relating to the Government Approvals required to be obtained by the other Parties pursuant to Section 3.2(a), (i) to support the issuance of all such Government Approvals that are consistent with this Agreement and the other Elm Road Documents, and (ii) to oppose the efforts of other Persons to adversely affect any Party’s rights under this Agreement or the other Elm Road Documents.

ARTICLE IV: CONDITIONS TO TRANSFERS OF COMPONENT OWNERSHIP INTERESTS

4.1

Transfers of Component Ownership Interests.  Except as otherwise provided in Section 2.2 and Article XIII:

(a)

Conditions Precedent to all Transfers.  In no event may a New Common Facilities Owner (“Transferor”) Transfer any of its Component Ownership Interests to another Person (“Transferee”) unless and until all of the following conditions precedent to such Transfer have been satisfied or waived by the Party for whose benefit such conditions exist as of the date of such Transfer (the “Transfer Date”):

(i)

if Transferee is not already a New Common Facilities Owner, Transferee must deliver to Transferor, with copies to each of the other New Common Facilities Owners, an assignment and assumption agreement in respect of Transferee’s assumption of Transferor’s rights and obligations under this Agreement in respect of the Component Ownership Interests being Transferred, substantially in the form of Exhibit C, duly executed by Transferee;

(ii)

either (A) Transferor must not be in default of any of its material obligations under this Agreement on the Transfer Date or (B) such default must be cured on or prior to the Transfer Date;

(iii) 

where a Transferor seeks to Transfer all or a portion of its Unit 1 Ownership Interest, then Transferor must Transfer to the same Transferee (A) Transferor’s Unit 1 Ownership Interest in accordance with the applicable provisions of the Unit 1 Ownership Agreement, including the conditions precedent to such Transfer of the Unit 1 Ownership Interest set forth therein and (B) Transferor’s Unit 1 Component Ownership Interests allocated (in accordance with Exhibit D) to the Unit 1 Ownership Interest being Transferred;

(iv) 

where a Transferor seeks to Transfer all or a portion of its Unit 2 Ownership Interest, then Transferor must Transfer to the same Transferee (A) Transferor’s Unit 2 Ownership Interest in accordance with the applicable provisions of the Unit 2 Ownership Agreement, including the conditions precedent to such Transfer of the Unit 2 Ownership Interest set forth therein and (B) Transferor’s Unit 2 Component Ownership Interests allocated (in accordance with Exhibit D) to the Unit 2 Ownership Interest being Transferred;

(v)

Transferor and Transferee must provide to the other New Common Facilities Owners such other documents as the other New Common Facilities Owners may reasonably request in connection with the Transfer of the Component Ownership Interests and the assumption by Transferee of Transferor’s rights and obligations under this Agreement in respect of the Component Ownership Interests being Transferred; and

(vi) 

Transferor and Transferee must comply with all applicable Laws and Government Approvals in connection with the Transfer, including any restrictions imposed on Transferor and/or Transferee by the PSCW.

(b)

Conditions Precedent to Transfers of Component Ownership Interests Between Existing New Common Facilities Owners.  In addition to the conditions precedent set forth in Section 4.1(a), in no event may a Transferor Transfer any of its Component Ownership Interests to a Transferee that is already a New Common Facilities Owner unless and until all of the following conditions precedent to such Transfer have been satisfied or waived by the Party for whose benefit such conditions exist as of the Transfer Date:

 

(i)

Transferor must deliver to Transferee a bill of sale in respect of the Component Ownership Interests being Transferred to Transferee substantially in the form of Exhibit B, duly executed by Transferor;

(ii)

if the Transfer is in connection with a Transfer of a Unit 1 Component Ownership Interest from a Unit 1 Owner to a Unit 2 Owner on the ERGS SC Unit 2 Lease Effective Date in accordance with the first sentence of Section 2.2(b), then Transferee (A) must pay to each Transferor an amount (the “Purchase Price”) in respect of the Component Ownership Interests being Transferred by such Transferor determined in accordance with Exhibit D and (B) must reimburse each Transferor such Transferor’s pro rata share (calculated in accordance with Exhibit D) of the New Common Facilities Service Costs;

(iii)

if the Transfer is in connection with a Transfer of a Unit 2 Ownership Interest pursuant to Section 12.2(b) of the Unit 2 Ownership Agreement after the ERGS SC Unit 2 Lease Effective Date, then each Transferee shall pay to Transferor such Transferee’s pro rata share (based on the Unit 2 Component Ownership Interests that it is purchasing from Transferor) of the Purchase Price and the New Common Facilities Service Costs paid by Transferor pursuant to Section 4.1(b)(ii);  

(iv)

if the Transfer is pursuant to Section 13.3(a), then on the Transfer Date, the Retired Owner shall pay to the Active Owner(s) an amount equal to the sum of the pro rata amounts (based on the Retired Owner’s respective Total Component Ownership Interests) of the NPV of Retirement Costs of each Component in which the Retired Owner has a Component Ownership Interest which is being Transferred to the Active Owner(s), provided that if there is more than one Active Owner, then the Active Owners shall each be paid based on their respective Total Component Ownership Interests;

(v) 

if the Transfer is pursuant to Section 13.3(b), then on the Transfer Date, each Active Owner shall pay to (or receive from, if the Retirement Price is negative) each Retired Owner a pro rata amount (based on each Active Owner’s respective Total Component Ownership Interests) of the Retirement Price of each Component in which such Retired Owner has a Component Ownership Interest which is being Transferred to the Active Owner(s);

(vi)

if (A) the Transfer is to ERGS SC in connection with a Transfer of a Unit 1 Ownership Interest or a Unit 2 Ownership Interest in accordance with the provisions of Section 9.5 of the Unit 1 Ownership Agreement or the Unit 2 Ownership Agreement, respectively, and (B) Transferor received Loss Proceeds in respect of the Component Ownership Interests being Transferred which Transferor paid or caused to be paid to a Construction Account pursuant to Section 9.4(a), then ERGS SC shall pay to Transferor an amount equal to the amount of Loss Proceeds that would have been paid to Transferor pursuant to the insurance coverage obtained for the New Common Facilities Owners pursuant to Section 9.1 if the Components in which Transferor is Transferring its Component Ownership Interests were not repaired or reconstructed pursuant to Section 9.2;

(vii)

Transferor must deliver to Transferee evidence reasonably satisfactory to Transferee that Transferor has good and marketable title to the Component Ownership Interests being Transferred and that such Component Ownership Interests are free and clear of all Liens other than those specified in paragraphs (a) through (f) of the definition of Permitted Encumbrances; 

(viii)

Transferor must deliver to Transferee executed releases from all holders of Liens (other than those specified in paragraphs (a) through (f) of the definition of Permitted Encumbrances) on the Component Ownership Interests, releasing from such Liens the Component Ownership Interests being Transferred to Transferee; and

(ix)

Transferor and Transferee must provide to one another such other documents as they may reasonably request in connection with the Transfer of the Component Ownership Interests and the assumption by Transferee of Transferor’s rights and obligations under this Agreement in respect of the Component Ownership Interests being Transferred.

4.2

Closing Costs.  In addition to the obligations of the respective Parties set forth in Section 4.1, if Transferor is Transferring any of its Component Ownership Interests to a Transferee that is already a New Common Facilities Owner, each Party shall bear its own closing costs, including any Taxes (other than transfer Taxes) and fees imposed by Law upon it in connection the acquisition and transfer of the Component Ownership Interests contemplated in this Article IV.  Notwithstanding any provision in this Agreement to the contrary, any and all transfer Taxes which arise as a result of a Transfer of any Component Ownership Interests pursuant to Section 4.1(b) shall be borne equally by Transferor and Transferee.

4.3

Effectiveness of Rights and Obligations.  

(a)

MGE Power and WPPI shall be subject to all of the obligations and liabilities of the New Common Facilities Owners and shall enjoy all of the rights and benefits of the New Common Facilities Owners to the extent of their respective Component Ownership Interests, in each case, as provided for in this Agreement effective as of the date each such Party becomes a New Common Facilities Owner in accordance with the terms and conditions of Articles II and IV.

(b)

Each Transferee (who is not already a New Common Facilities Owner) shall be subject to all of the obligations and liabilities of the New Common Facilities Owners and shall enjoy all of the rights and benefits of the New Common Facilities Owners to the extent of its Transferred Component Ownership Interests, in each case, as provided for in this Agreement, effective as of the date each such Transferee becomes a New Common Facilities Owner in accordance with the terms and conditions of Articles II and IV.

4.4

Release.  If a Transferor Transfers all, but not less than all, of its Composite Component Ownership Interest in accordance with this Article IV, then effective as of the date of the Transfer, such Transferor shall cease to be a party to this Agreement and shall be released from all of its obligations under this Agreement other than those obligations arising prior to the date of the Transfer and those obligations which survive termination of this Agreement pursuant to Section 18.13.

ARTICLE V:  APPOINTMENT OF NEW COMMON FACILITIES AGENT

If two or more of the New Common Facilities Owners determine that they require an agent to act on their behalf in connection with the performance of their obligations and the exercise of their rights under this Agreement, then the New Common Facilities Owners shall enter into an agreement with the Project Manager or such other Person as the New Common Facilities Owners may select by a vote of the New Common Facilities Owners pursuant to Article XI to serve as their agent on terms substantially similar to the terms by which the Project Manager serves as the agent to the Unit 1 Owners and the Unit 2 Owners under the respective Unit Ownership Agreements.

ARTICLE VI:  PAYMENTS BY THE NEW COMMON FACILITIES OWNERS

If a New Common Facilities Owner reasonably believes that it will incur, or has incurred, costs or expenses on behalf of one or more of the other New Common Facilities Owners, then such New Common Facilities Owner shall provide written notice thereof to the other New Common Facilities Owners.  The New Common Facilities Owners shall meet and negotiate in good faith to reach agreement on whether such costs and expenses are being prudently incurred on behalf of the New Common Facilities Owners and, if so, an equitable basis on which such costs and expenses should be shared by the affected New Common Facilities Owners.     

ARTICLE VII:  TAXES

7.1

Tenants in Common.  It is the intent of the Parties that each New Common Facilities Owner shall be treated as the owner of the New Common Facilities to the extent of its Composite Component Ownership Interest, and that the Parties shall not be treated as partners, for federal, state or local income tax purposes.  Each Party agrees and covenants that it shall not take or omit to take any action or reporting position with any Governmental Authority contrary to this Section 7.1.  Furthermore, each Party agrees that to the extent permitted by Section 761 of the Code and the Treasury Regulations thereunder, it will, in a timely manner, cooperate in ERGS SC’s filing of the election provided for in Section 1.761-2(b) of the Treasury Regulations to elect out of the provisions of Subchapter K of the Code.

7.2

Liability and Compliance.  

(a)

Except as provided in Section 4.2, to the extent possible, each New Common Facilities Owner shall, or shall cause its Lessee (if any) to, separately report, and to promptly and timely file returns, reports or statements with respect to, and be responsible for and pay to each applicable Governmental Authority any Taxes, however imposed, relating to:

(i)

its Composite Component Ownership Interest (including any Taxes imposed on or with respect to the New Common Facilities but only to the extent attributable to its Composite Component Ownership Interest);

(ii)

the acquisition, manufacture, purchase, ownership, delivery, non-delivery, redelivery, transport, location, lease, sublease, hire, assignment, alteration, improvement, possession, repossession, presence, use, replacement, substitution, operation, insurance, installation, modification, rebuilding, overhaul, condition, storage, maintenance, repair, acceptance, sale, return, abandonment, preparation, transfer of title, or other disposition of its Composite Component Ownership Interest; or

(iii)

the execution, delivery or performance of any agreements entered into by it with respect to (A) its Composite Component Ownership Interest, (B) the Elm Road I Project Documents or the Elm Road II Project Documents or (C) any of the transactions contemplated thereby, or any proceeds or payments or amounts payable under any thereof (including any agreements entered into between it and a Lessee, if any).

(b)

Subject to Article 3 of Schedule 7.4A and Article 5 of Schedule 7.4B, from and after the ERGS SC Unit 1 Lease Effective Date each New Common Facilities Owner (the “Tax Indemnifying Party”) shall indemnify and hold harmless each other New Common Facilities Owner (the “Tax Indemnitee Party”), on an After-Tax Basis (which, for purposes of this Section 7.2, shall be defined, in the case of a Tax Exempt New Common Facilities Owner, by Schedule 7.4A, and in the case of any other New Common Facilities Owner, by Schedule 7.4B), from and against any Taxes imposed on such Tax Indemnitee Party or the New Common Facilities or any part thereof, to the extent such Taxes are the responsibility of the Tax Indemnifying Party pursuant to this Section 7.2.  Furthermore, if (i) a Tax is imposed, directly or indirectly, on or against the New Common Facilities or any part thereof by any Governmental Authority, (ii) a New Common Facilities Owner has not provided each Tax Indemnitee Party notice of timely payment of its share of such Taxes to the appropriate Governmental Authority, and (iii) a Tax Indemnitee Party reasonably determines that the payment of such Tax is required to avoid a loss or forfeiture of the New Common Facilities, such Tax Indemnitee Party shall have the right to take all steps necessary to ensure that such Tax is paid to the appropriate Governmental Authority, including the payment of such Tax directly to the appropriate Governmental Authority.  In such event, the Tax Indemnifying Party shall indemnify and hold harmless such Tax Indemnitee Party, on an After-Tax Basis (but without duplication of payments made by it pursuant to the first sentence of this Section 7.2(b)), from and against the amount of such Tax and all costs and expenses incurred by such Tax Indemnitee Party associated with the payment of such Tax (including reasonable attorney’s fees, penalties and interest).

(c)

Each New Common Facilities Owner will provide each other New Common Facilities Owner a copy of any invoice, notice or levy for Taxes described in this Section 7.2 and, if applicable, request payment pursuant to such invoice, notice or levy as provided for in this Section 7.2.

7.3

Receipts, Records and Documentation.  Within a reasonable time after a Party notifies another Party of a written request for specified information or copies of specified records reasonably necessary to enable the notifying Party to fulfill its Tax filing, Tax audit or other Tax obligations or to contest Taxes imposed upon it, which information or records are not within the notifying Party’s possession or control, such receiving Party shall provide such information or copies of such records to the notifying Party if such information is within its possession or control.  Notwithstanding the foregoing, no Party shall be obligated to provide copies of its Tax returns or work papers.  If requested by a Party, each Party receiving the request also agrees to provide, or cause its Lessee, if any, to provide, any certification, documentation or other evidence as may be required for the allowance of a reduction in, exemption from or reduced rate of Tax, at the cost and expense of the requesting Party, if, in the case of the receiving Party, such Party is eligible to comply with such request and has determined in good faith that compliance with such request would not have a material adverse effect on such Party or any of its Affiliates.

7.4

Tax Matters.  Except as provided in this Article VII, each New Common Facilities Owner agrees that:

(a)

any tax matter between a New Common Facilities Owner and a New Common Facilities Owner that is a political subdivision of a State within the meaning of Section 115 of the Code that is exempt from federal, state and local taxes as a result thereof (“Tax Exempt New Common Facilities Owner”) or attributable to the Composite Component Ownership Interest of a Tax Exempt New Common Facilities Owner shall be governed by and in accordance with Schedule 7.4A; and

(b)

any tax matter between two or more New Common Facilities Owners (none of which is a Tax Exempt New Common Facilities Owner) or attributable to the Composite Component Ownership Interest of a New Common Facilities Owner (which is not a Tax Exempt New Common Facilities Owner), shall be governed by and in accordance with Schedule 7.4B.

ARTICLE VIII:  OTHER RIGHTS AND OBLIGATIONS OF

THE NEW COMMON FACILITIES OWNERS

8.1

Operation and Maintenance of the New Common Facilities.  

(a)

The New Common Facilities Owners acknowledge and agree that, following the ERGS SC Unit 1 Lease Effective Date, the New Common Facilities shall be operated and maintained by the Operating Agent under the Common Facilities O&M Agreement, in accordance with the terms and conditions of the Common Facilities O&M Agreement.  

(b)

The New Common Facilities Owners agree that if the Common Facilities O&M Agreement expires or is terminated for any reason and both ERGS SC Facility Leases expire or are terminated for any reason, then the New Common Facilities Owners (or, in MGE Power’s case, its Lessee, if applicable) shall use commercially reasonable efforts to enter into a replacement “Common Facilities O&M Agreement” on terms and conditions that, as amongst the New Common Facilities Owners or Lessee, if applicable, are neither materially more nor materially less favorable than existed as amongst the Lessee/Owner Parties pursuant to the Common Facilities O&M Agreement, as the same was in effect immediately prior to its expiration or termination (except where all of the New Common Facilities Owners agree otherwise).  

8.2

Capital Improvements to the New Common Facilities; Payment of Capital Costs of Improvements.

(a)

The New Common Facilities Owners acknowledge and agree that for so long as the Common Facilities O&M Agreement is in full force and effect, all decisions to make, and responsibility for the payment of, capital improvements, replacements, additions and renewals (collectively, “Capital Improvements”) to the New Common Facilities (or any Component) after the ERGS SC Unit 1 Lease Effective Date shall rest with the parties to the Common Facilities O&M Agreement in accordance with the terms and conditions therein.  

(b)

The New Common Facilities Owners agree that if the Common Facilities O&M Agreement and both ERGS SC Facility Leases expire or are terminated for any reason and the Common Facilities O&M Agreement is not replaced with a replacement “Common Facilities O&M Agreement” that governs decisions concerning, and funding of, Capital Improvements, then the New Common Facilities Owners shall determine what Capital Improvements to the New Common Facilities (or any Component) should be made in accordance with this Section 8.2(b) and Section 11.2.  Any such determination by the New Common Facilities Owners must be consistent with and not in contravention of (i) the terms and conditions of the ERGS SC Facility Leases and the Common Facilities O&M Agreement with respect to Capital Improvements, in each case, as the same were in effect immediately prior to their expiration or termination, and (ii) applicable Laws and Government Approvals.  Each of the New Common Facilities Owners agrees that it shall be responsible for, and shall pay its pro rata share (based on its Total Component Ownership Interest) of any costs and expenses incurred to make any Capital Improvements to any Component approved by the New Common Facilities Owners pursuant to this Section 8.2(b) and Section 11.2.

ARTICLE IX:  INSURANCE; EVENTS OF LOSS AND TOTAL LOSS

9.1

Insurance Coverage.  

(a)

On or After the ERGS SC Unit 1 Lease Effective Date.  If at any time on or after the ERGS SC Unit 1 Lease Effective Date, the Common Facilities O&M Agreement expires or is terminated for any reason and is not replaced with a replacement “Common Facilities O&M Agreement” and both ERGS SC Facility Leases expire or are terminated for any reason, then the New Common Facilities Owners shall meet and make arrangements for insurance in respect of the New Common Facilities to be carried and maintained; provided, that such insurance shall have the minimum coverages and otherwise satisfy the requirements of Schedule 13.2 to the ERGS SC Facility Leases (as in effect immediately prior to expiration or termination) applicable to insurance during the Lease Term (as defined in the ERGS SC Facility Leases).  The Parties acknowledge and agree that the insurance requirements in this Section 9.1 may be satisfied by insurance coverage obtained by the Operating Agent under one or more of the Unit 1 O&M Agreement, the Unit 2 O&M Agreement and the Common Facilities O&M Agreement or by insurance coverage obtained by the Project Manager under one or both of the Unit Ownership Agreements.

(b)

Terms of Insurance Coverages.  Notwithstanding anything to the contrary contained in Schedule 13.2 to the ERGS SC Facility Leases, the New Common Facilities Owners shall use commercially reasonable efforts to ensure that all insurance coverages obtained pursuant to Section 9.1(a) provide that:  (i) each New Common Facilities Owner is a named insured in respect of its Composite Component Ownership Interest and that its Lenders are named as additional insureds or loss payees in respect of its Composite Component Ownership Interest; (ii) each New Common Facilities Owner will receive at least 30 days written notice from the insurer prior to the cancellation or termination of or any material change in any such insurance coverages; and (iii) one of the New Common Facilities Owners (selected by vote of the New Common Facilities Owners pursuant to Article XI) or an agent selected pursuant to Article V, on behalf of the New Common Facilities Owners and any other named or additional insureds or loss payees, shall be solely responsible for pursuing claims and/or negotiating settlements in respect of claims under such insurance coverages.  In addition, each of the New Common Facilities Owners agrees that its respective Lenders, if any, shall not be mortgagees under any insurance coverages obtained pursuant to Section 9.1(a).  

9.2 

Event of Loss and Event of Total Loss.  

(a)

Decision to Repair or Reconstruct New Common Facilities.  If at any time after the ERGS SC Unit 1 Lease Effective Date, an Event of Loss or an Event of Total Loss occurs with respect to the New Common Facilities and one or more Units which utilize such New Common Facilities is operating or is being repaired or reconstructed pursuant to the terms of the applicable Unit Ownership Agreement, Unit 1 O&M Agreement or Unit 2 O&M Agreement, then such New Common Facilities shall be repaired or reconstructed based on the needs of the Units which will utilize such New Common Facilities as follows:

(i)

if one or both of the ERGS SC Facility Leases are in full force and effect, the New Common Facilities Owners acknowledge and agree that:

(A) 

if the Common Facilities O&M Agreement is then in effect, then the Operating Agent under the Common Facilities O&M Agreement shall be responsible for repairing or reconstructing the New Common Facilities in accordance with the Common Facilities O&M Agreement and the ERGS SC Facility Leases which are then in effect; and

(B) 

if the Common Facilities O&M Agreement has expired or terminated and has not been replaced with a replacement “Common Facilities O&M Agreement,” then WEPCO shall be responsible for repairing or reconstructing the New Common Facilities in accordance with the ERGS SC Facility Leases which are then in effect; and

(ii)

if both of the ERGS SC Facility Leases have expired or terminated, the New Common Facilities Owners acknowledge and agree that:

(A) 

if the Common Facilities O&M Agreement is then in effect, then the Operating Agent under the Common Facilities O&M Agreement shall be responsible for repairing or reconstructing the New Common Facilities in accordance with the Common Facilities O&M Agreement; and

(B) 

if the Common Facilities O&M Agreement has expired or terminated, then the New Common Facilities Owners shall, by a vote of such New Common Facilities Owners pursuant to Article XI, select a Person to act as their agent (the “Reconstruction Agent”) who shall be responsible for the oversight and management of the repair or reconstruction of such New Common Facilities in accordance with provisions substantially similar to those governing the Project Manager under the Unit Ownership Agreements; provided, that if either or both of Unit 1 and/or Unit 2 are concurrently being repaired or reconstructed, then the New Common Facilities Owners agree that they shall select as their Reconstruction Agent the Person selected by the Unit Owners to act as their “Reconstruction Agent” in accordance with the applicable Unit Ownership Agreement(s).  If repair or reconstruction is to occur pursuant to this Article IX, the Reconstruction Agent shall prepare or cause to be prepared and shall promptly deliver to the New Common Facilities Owners (1) a good faith estimate of the total costs and expenses to be incurred by or on behalf of the Reconstruction Agent pursuant to this Section 9.2(a)(ii)(B) and (2) a schedule for completion of such repair or reconstruction of the New Common Facilities.

(b)

Retirement of New Common  Facilities.  If the New Common Facilities are not being repaired or reconstructed pursuant to Section 9.2(a), then such New Common Facilities may be retired by the New Common Facilities Owners in accordance with Article X. 

9.3

Responsibility for Costs and Expenses.  The Reconstruction Agent shall, from time to time, prepare and deliver to each New Common Facilities Owner a billing statement setting forth in reasonable detail the aggregate amount and each New Common Facilities Owner’s pro rata share (based on its applicable Total Component Ownership Interest with respect to each Component being repaired or reconstructed) of all reasonable and prudently incurred costs and expenses, if any, which the Reconstruction Agent has incurred or reasonably expects to incur in the succeeding month in connection with the Reconstruction Agent’s obligations pursuant to this Section 9.2(a)(ii)(B).  All costs and expenses incurred by or on behalf of the Reconstruction Agent pursuant to Section 9.2(a)(ii)(B) shall be borne by each New Common Facilities Owner in proportion to its respective Total Component Ownership Interest with respect to each Component being repaired or reconstructed.  

9.4

Allocation of Loss Proceeds and Condemnation Awards.

(a)                  If the New Common Facilities are to be repaired or reconstructed following an Event of Loss or an Event of Total Loss pursuant to Section 9.2(a)(ii)(B), then each of the New Common Facilities Owners agrees that it shall pay, or cause to be paid, to a Construction Account any Loss Proceeds received by such New Common Facilities Owner in connection with such Event of Loss or Event of Total Loss for use by the Reconstruction Agent in connection with the repair or reconstruction of the New Common Facilities pursuant to Section 9.2(a)(ii)(B). 

(b)                If the New Common Facilities are not repaired or reconstructed following an Event of Loss or an Event of Total Loss pursuant to Section 9.2(a), then any Loss Proceeds received by the New Common Facilities Owners in connection with such Event of Loss or Event of Total Loss shall be paid to, or retained by, each of the New Common Facilities Owners consistent with its insured interest in the New Common Facilities.  Each of the New Common Facilities Owners agrees that it shall pay, or cause to be paid, consistent with this Section 9.4(b), to one or more of the other New Common Facilities Owners any Loss Proceeds received by it pursuant to insurance required to be obtained pursuant to Section 9.1 which are in excess of its insured interest in the New Common Facilities. 

(c)

Each of the New Common Facilities Owners shall be entitled to retain any Condemnation Awards received by it in respect of its Composite Component Ownership Interest as a result of an Event of Loss or Event of Total Loss.

(d)

The Parties acknowledge that events and circumstances giving rise to an Event of Loss or Event of Total Loss under this Agreement may also give rise to an “Event of Loss” or “Event of Total Loss” under the Unit 1 Ownership Agreement and/or the Unit 2 Ownership Agreement and that all or a portion of any Loss Proceeds received by the New Common Facilities Owners pursuant to this Agreement may also constitute “Loss Proceeds” subject to the Unit 1 Ownership Agreement and/or the Unit 2 Ownership Agreement.  The Parties further acknowledge and agree that if and to the extent that there is any conflict between the insurance provisions (including any provisions with respect to the receipt, payment, control and use of Loss Proceeds) in this Agreement and in the Unit 1 Ownership Agreement and/or the Unit 2 Ownership Agreement, that all such insurance provisions shall be interpreted and construed, if possible, so as to avoid or minimize any such conflict.

ARTICLE X:  RETIREMENT OF COMPONENTS

10.1

Date of Retirement.  The New Common Facilities Owners shall determine the date on which to retire permanently each Component by a vote of the New Common Facilities Owners pursuant to Article XI, provided, however, that in no event shall a Component be retired pursuant to this Section 10.1 unless all of the Units that utilize such Component have also been retired.  

10.2

Retirement Costs.  Each of the New Common Facilities Owners shall be responsible for paying its pro rata share (based on its Total Component Ownership Interest in each Component being retired) of the aggregate amount of all costs and expenses prudently incurred to retire permanently each Component from service, including decommissioning, dismantling, demolishing and removal of equipment, facilities and structures, security, maintenance, disposing of debris, abandonment and all other costs and expenses prudently incurred to retire permanently each Component from service, net of any amounts recovered in connection with the sale of any retired equipment, facilities and structures. 

10.3

Termination of Agreement.  Effective as of the date five Business Days after the successful completion of the permanent retirement of all of the Components in accordance with the terms and conditions of this Article X, this Agreement shall automatically terminate and each of the Parties shall be released from all of its obligations under this Agreement other than those obligations arising prior to such termination and those obligations which survive termination of this Agreement pursuant to Section 18.13.

ARTICLE XI:  NEW COMMON FACILITIES OWNERS’ VOTING RIGHTS

11.1

Decision-Making.  

(a)

The Parties acknowledge and agree that before the ERGS SC Unit 1 Lease Effective Date, the Unit 1 Ownership Agreement shall control as to all decisions concerning the development, design, engineering, permitting, construction and commissioning of the New Common Facilities.

(b)

The New Common Facilities Owners recognize the importance of developing and maintaining a cooperative working relationship in connection with the ownership of the New Common Facilities.  Accordingly, the New Common Facilities Owners shall make commercially reasonable efforts to reach consensus on all actions and approvals to be made by the New Common Facilities Owners pursuant to this Agreement.  If consensus cannot be reached, then decisions shall be made by a vote of the New Common Facilities Owners.  Each New Common Facilities Owner shall have a voting right equal to its Total New Common Facilities Weighted Ownership Percentage.  Actions and approvals made by the New Common Facilities Owners pursuant to this Agreement shall not be unreasonable or contrary to Prudent Utility Practice or otherwise contravene any material terms of this Agreement or either of the ERGS SC Facility Leases.  For purposes of this Article XI, a decision shall be deemed reasonable if it is required by this Agreement or either of the ERGS SC Facility Leases.

(c)

If, after the ERGS SC Unit 1 Lease Effective Date, the Common Facilities O&M Agreement expires or is terminated for any reason and is not replaced with a replacement “Common Facilities O&M Agreement” and both of the ERGS SC Facility Leases expire or are terminated for any reason, then the New Common Facilities Owners agree to establish an ownership committee, which will vote in accordance with Sections 11.1(b) and 11.2, to facilitate communication and decision making by the New Common Facilities Owners under this Agreement with respect to the operation and maintenance of the New Common Facilities.

11.2

Voting Requirements.  The affirmative vote of one or more New Common Facilities Owners collectively with greater than 50% of the voting rights in the New Common Facilities (i.e., one or more New Common Facilities Owners whose collective Total New Common Facilities Weighted Average Ownership Percentage(s) is greater than 50%) shall be required for any action or approval of the New Common Facilities Owners under this Agreement.

ARTICLE XII:  DEFAULTS; REMEDIES

12.1

Exclusive Remedies.  Except as provided in this Article XII and Article XVI, no Party shall be liable to any other Party for breach or default of any of its respective obligations, covenants or representations and warranties under this Agreement.  The Parties acknowledge and agree that the rights and remedies set forth in this Article XII and Article XVI are the sole and exclusive rights and remedies of the Parties in respect of any breach or default of any obligation, covenant or representation and warranty under this Agreement, and are in lieu of, and each Party hereby expressly waives, any and all other rights and remedies of whatever nature or kind that it may have at law or in equity or otherwise.

12.2

Remedies for Material Breach.  If a Party fails to perform or breaches any of its material obligations under this Agreement, then each non-defaulting Party shall be entitled to exercise all remedies available to it at law or in equity.  The Parties acknowledge and agree that monetary damages may not be an adequate remedy at law for the failure of a Party to perform certain material obligations under this Agreement (including the failure of a Party to sell or to acquire Component Ownership Interests), and under such circumstances, a non-defaulting Party shall have the right to specific performance by the defaulting Party of such obligations under this Agreement.  

12.3

Limitation on Remedies for Breach of Representation and Warranties.  Notwithstanding any provision to the contrary contained in this Agreement, the Parties acknowledge and agree that no Party shall be liable for monetary damages to any other Party arising from or in connection with (a) any breach of such Party’s representations and warranties provided to such other Party in this Agreement or in any certificate delivered pursuant to this Agreement or (b) any reports, notices, certificates, documents, information or data of any kind or nature (whether or not prepared by or on behalf of such Party) provided to such other Party pursuant to or in connection with this Agreement.

12.4

Damage to the New Common Facilities.  Each Party shall be liable for any loss or damage (including any deductible under applicable insurance, if any) to the New Common Facilities arising as a result of the acts of such Party or its Representatives on or about the Elm Road Site.

12.5

Waiver of Partition Rights.  The Parties acknowledge that any exercise of the remedy of partition (whether at law or in equity) of the New Common Facilities (or any of the Components) would be impracticable in view of the purposes and requirements of this Agreement and the Project, would violate the spirit and intent of this Agreement and the Project, and would defeat the Parties’ intentions and reasonable expectations as well as the consideration upon which each Party entered into this Agreement.  Accordingly, each Party agrees that during the term of this Agreement it (a) will not commence, maintain, support or join in any action or proceedings of any kind to partition the New Common Facilities (or any of the Components), and (b) waives, after consultation with its qualified legal counsel, any and all rights that it may have under this Agreement or applicable Law (whether at law or in equity) or otherwise to commence, maintain, support or join in any such action or proceeding.  Each Party acknowledges that all Parties have entered into and will perform the terms of this Agreement in reliance upon all other Parties’ agreement and adherence to the terms of this Section 12.5, and would not have entered into this Agreement but for such reliance; and that it would be unjust and inequitable for any Party to violate or to seek relief from any provision of this Section 12.5.

12.6

Disputes.  Any Dispute between or among the Parties under this Article XII shall be resolved pursuant to Article XVII. 

ARTICLE XIII:  TRANSFER RESTRICTIONS  

13.1

Prohibition on Transfers and Liens.  

(a)

Except as otherwise provided in Section 2.2 and this Article XIII, no Party may sell, lease, assign, transfer, convey or otherwise dispose of in any manner, directly or indirectly (collectively, “Transfer”) all or any part of its rights, obligations, benefits, advantages, titles and interest in this Agreement or the New Common Facilities (or any Component), and any such Transfer in contravention of this Article XIII shall be null and void ab initio. Notwithstanding the foregoing, the Parties agree that (i) each of ERGS SC’s lease of its Component Ownership Interests to WEPCO pursuant to the ERGS SC Facility Leases and MGE Power’s lease of its Component Ownership Interests to MGE pursuant to the MGE Power Unit 1 Facility Lease and the MGE Power Unit 2 Facility Lease and (ii) any New Common Facilities Owner’s lease of its Component Ownership Interests to a Permitted Lessee (as such term is defined in the ERGS SC Facility Leases) shall not constitute a “Transfer” or a “Lien” for purposes of this Agreement.

(b)

Except as otherwise provided in this Article XIII, no Party may create or permit to exist a Lien in respect of any of its Composite Component Ownership Interest (other than a Permitted Encumbrance) without the prior written consent of the other Parties, such consent not to be unreasonably withheld or delayed.  In no event may any Party take any action that would cause or permit a Lien to exist on any of any other Party’s Composite Component Ownership Interest.

13.2

Transfers to WEPCO.  If either of the ERGS SC Facility Leases expires or is terminated and WEPCO does not acquire ERGS SC’s respective Unit 1 Ownership Interest or Unit 2 Ownership Interest, but does elect to acquire a pro rata share of ERGS SC’s Component Ownership Interests, then ERGS SC may Transfer such pro rata share of its Component Ownership Interests to WEPCO in accordance with the respective ERGS SC Facility Lease, provided that ERGS SC and WEPCO comply with the requirements of Sections 4.1(a)(i), 4.1(a)(v) and 4.1(vi). 

13.3

Transfers of Component Ownership Interests Upon Retirement of A New Unit.  

(a)

At any time during its respective Put Option Period, each Retired Owner shall have an option to transfer all (but not less than all) of its Composite Component Ownership Interest to the Active Owner(s).  In order to exercise such option, a Retired Owner must provide written notice to the Active Owner(s).  On the 60th day after such notice is provided, the Retired Owner shall (i) Transfer all (but not less than all) of its Composite Component Ownership Interest to the Active Owner(s) and (ii) pay the Active Owners in accordance with Section 4.1(b)(iv).  If there is more than one Active Owner, the Retired Owner shall Transfer its Composite Component Ownership Interest to the Active Owners pro rata according to their respective Total Component Ownership Interests. 

(b)

At any time during a Call Option Period, the Active Owner(s) shall each individually have an option to acquire all (but not less than all) of the Composite Component Ownership Interest of each Retired Owner.  In order to exercise such call option, an Active Owner must provide simultaneous written notice to all Retired Owners and all other Active Owners, if any, of its election to purchase the Composite Component Ownership Interest of each Retired Owner.  The other Active Owners, if any, shall have 30 days in which to notify the electing Active Owner and the other Retired Owner(s) whether or not they elect to participate in the purchase of the Composite Component Ownership Interests of the Retired Owner(s).  Sixty days following the issuance of the initial call option notice, the Active Owner(s) electing to participate in such option in accordance with this Section 13.3(b) shall (i) acquire all (but not less than all) of the Composite Component Ownership Interest of each Retired Owner and (ii) pay each Retired Owner in accordance with Section 4.1(b)(v).  If there is more than one Active Owner, each Retired Owner shall Transfer its Composite Component Ownership Interest to the Active Owners pro rata according to their respective Total Component Ownership Interests. 

13.4

Collateral Assignments.  Notwithstanding any provision to the contrary contained in this Article XIII, each Party may, at any time, without the prior written consent of the other Parties, assign to its Lenders as collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of its Secured Obligations, all or any portion of its Composite Component Ownership Interest and its rights and obligations under this Agreement.  Any assignment provided for in this Section 13.4, however, shall not relieve such Party of any of its obligations under this Agreement.  If the Lenders exercise their remedies under the applicable Security Documents and foreclose on all or any portion of such Party’s Composite Component Ownership Interest, then the Lenders shall, except to the extent otherwise agreed by the Parties in writing, be bound by the terms and conditions of this Agreement.  Each Party hereby irrevocably consents to any such assignment and to the creation of any such security interest in favor of the Lenders, in each case, pursuant to the applicable Security Documents.  Each Party hereby agrees, in connection with any collateral assignment by any other Party of all or any portion of its Composite Component Ownership Interest and/or its rights and obligations under this Agreement to its Lenders, to enter into a consent to assignment containing terms and conditions substantially similar to those provided in the form attached as Exhibit E and such other commercially reasonable terms and conditions as such Lenders may reasonably require.

ARTICLE XIV: REPRESENTATIONS AND WARRANTIES

 

Each Party represents and warrants to each other Party, as of the date hereof, as follows:

 

14.1

Due Organization.

(a) 

It is duly formed, validly existing and in good standing under the Laws of the State of Wisconsin.

(b) 

It has all requisite limited liability company or municipal electric company power necessary to own its assets and carry on its business as now being conducted or as proposed to be conducted under this Agreement.

14.2

Due Authorization.  It has all necessary limited liability company or municipal electric company power and authority to execute, deliver and perform its obligations under this Agreement, and the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary limited liability company or municipal electric company action on its part.

 

14.3

Non-Contravention.  The execution, delivery and performance by it of this Agreement do not and shall not:

 

 

(a)

violate its Organic Documents;

 

(b)

violate any Law or Government Approval applicable to it or its property;

 

(c)

result in a breach of or constitute a default of any of the Elm Road I Project Documents or Elm Road II Project Documents to which it is a party or any other material agreement to which it is a party; or

 

(d)

result in, or require the creation or imposition of, any Lien (other than a Permitted Encumbrance) on any of its properties.

14.4

Enforceability.  Assuming the due authorization, execution and delivery of this Agreement by the other Parties, this Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other similar Laws affecting creditors’ rights generally and by general principles of equity.

14.5

Litigation.  Except as disclosed in writing to the other Parties, there is no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending or, to its knowledge, threatened in writing against or affecting it or any of its properties, rights or assets which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement or the validity or enforceability of this Agreement.  

 

14.6

Government Approvals.  Except as disclosed in writing to the other Parties, all material Government Approvals required by applicable Law to have been obtained by it prior to the date of this representation and warranty in connection with (a) owning its assets and carrying on its business as now being conducted or as proposed to be conducted under this Agreement and (b) the due execution and delivery of, and performance by it of its obligations and the exercise of its rights under, this Agreement have been duly obtained or made and are in full force and effect, are held in its name and are free from conditions or requirements (i) compliance with which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement or the validity or enforceability of this Agreement or (ii) which it does not reasonably expect to be able to satisfy. 

 

14.7

No Breach.  It is not in breach of any material obligation under this Agreement or any other Elm Road I Project Document or Elm Road II Project Document to which it is a party.

14.8

Disclaimer of Other Representations and Warranties.  Each Party acknowledges and agrees that except as expressly set forth in this Agreement, no Party makes any representation or warranty, written or oral, statutory, express or implied, at law or in equity or otherwise, with respect to:

(a) 

the New Common Facilities (or any Component Ownership Interest) or the Project, including with respect to (i) the merchantability, usage, suitability or fitness for any particular purpose of the New Common Facilities (or any Component Ownership Interest) or the workmanship thereof or the absence of defects therein, whether latent or patent, (ii) the business, financial condition, prospects (financial or otherwise), liabilities or risks of the New Common Facilities (or any Component Ownership Interest) or the Project, or (iii) the physical condition, quality or value of the New Common Facilities (or any Component Ownership Interest) or the Project, and any such other representation or warranty is hereby expressly disclaimed; or

(b) 

the accuracy or completeness of the reports, notices, documents, information or data of whatever kind or nature heretofore, now or hereafter made available to any Party in connection with this Agreement.

ARTICLE XV:  CONFIDENTIALITY

15.1

Non-Disclosure Obligations.  

(a)

Each Party agrees that it and its Affiliates and their respective Representatives will use any Confidential Information and Trade Secrets of another Party solely for the purpose of performing its obligations and exercising its rights under this Agreement and the other Elm Road I Project Documents and Elm Road II Project Documents to which it is party.  Each Party further agrees that a receiving Party may disclose Confidential Information or Trade Secrets only to the receiving Party’s Representatives who are involved in performing the obligations and exercising the rights of the receiving Party under this Agreement and the other Elm Road I Project Documents and Elm Road II Project Documents to which it is a party, and then only on a need-to-know basis.  

 

(b)

Subject to Section 15.1(c), each Party agrees that it will not (and each Party shall take full responsibility for ensuring that all of its Affiliates and all of its and its Affiliates’ respective Representatives do not) in any way disclose, communicate, transfer or use (other than as permitted by this Section 15.1) any Confidential Information or Trade Secrets of another Party, without the prior written consent in each instance of such other Party.  With respect to Trade Secrets, the provisions in this Section 15.1(b) shall apply for as long as the underlying information or data remains a Trade Secret; and with respect to Confidential Information, the provisions in this Section 15.1(b) shall apply for two years after the expiration or termination of this Agreement as to such Party or Parties.

(c)

Notwithstanding Section 15.1(b), each Party shall have the right to disclose Confidential Information or Trade Secrets without the consent of the other Parties to its Lenders and to any Person (and its Representatives) contemplating a purchase, directly or indirectly, of all or an interest in such Party or such Party’s Component Ownership Interests, provided that such Lender or Person agrees in writing that it (and its Representatives) will maintain such Confidential Information and Trade Secrets in accordance with the terms and conditions of this Article XV.  

(d)

Notwithstanding any other provision of this Agreement to the contrary, if a Party seeks to use information in a court or regulatory proceeding as part of its implementation or enforcement of this Agreement, the fact that such information has been deemed Confidential Information hereunder shall not foreclose the Party from attempting to establish that, under the circumstances present at the time of the proceeding, the information need not be subject to a protective order or similar confidential treatment in such proceeding.

(e)

Notwithstanding anything in this Agreement to the contrary, any Party (and its Representatives) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure.  In addition, each Party acknowledges that it has no proprietary or exclusive rights to the tax treatment or tax structure of the transactions contemplated by this Agreement or any tax matter or tax idea related to such transactions.  However, each Party (and its Representatives) shall keep confidential any such information relating to the tax treatment or tax structure of the transactions contemplated by this Agreement that is required to be kept confidential to the extent necessary to comply with any applicable federal or state securities laws.

15.2

Law.  Each Party agrees that if it becomes subject to a subpoena or other Law to disclose any of the Confidential Information or Trade Secrets of one of the other Parties, it will provide such other Party with prompt notice so that such other Party may seek a protective order or other appropriate remedy.  If such protective order or other appropriate remedy is denied or otherwise not obtained, the Party required to furnish the information shall furnish only that portion of the Confidential Information and/or Trade Secrets which is, in the opinion of its counsel, legally compelled, and will cooperate with the other Party and its counsel to enable the other Party to attempt to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information and/or Trade Secrets to be disclosed.

ARTICLE XVI:  INDEMNITY; LIMITATION ON LIABILITY

16.1

Indemnities.  Each Party shall indemnify, defend and hold harmless each other Party and its Representatives from and against any and all third party Claims arising (i) under or in connection with this Agreement or (ii) in connection with the acts or omissions of such Party or its Representatives on or about the Elm Road Site, in each case, which are asserted against, imposed upon or incurred by such other Party and its Representatives, by reason of such Party’s or its Representatives’ Gross Negligence or willful misconduct. 

16.2

Cooperation Regarding Claims.  If any Party (an “Indemnified Party”) receives notice or has knowledge of any Claim that may result in a claim for indemnification by such Indemnified Party or its Representatives against any other Party (an “Indemnifying Party”) pursuant to this Article XVI, such Indemnified Party shall as promptly as possible give the Indemnifying Party notice of such Claim, including a reasonably detailed description of the facts and circumstances relating to such Claim, a complete copy of all notices, pleadings and other papers related thereto, and in reasonable detail the basis for its claim for indemnification with respect thereto.  Failure to promptly give such notice or to provide such information and documents shall not relieve the Indemnifying Party from the obligation hereunder to respond to or defend the Indemnified Party or its Representatives against such Claim unless such failure shall materially diminish the ability of the Indemnifying Party to respond to or to defend the Indemnified Party or its Representatives against such Claim.  The Indemnifying Party, upon its acknowledgment in writing of its obligation to indemnify the Indemnified Party or its Representatives in accordance with this Article XVI, shall be entitled to assume the defense or to represent the interest of the Indemnified Party or its Representatives with respect to such Claim, which shall include the right to select and direct legal counsel and other consultants, appear in proceedings on behalf of such Indemnified Party or its Representatives and to propose, accept or reject offers of settlement, all at its sole cost.  If and to the extent that any such settlement is reasonably likely to involve injunctive, equitable or prospective relief or materially and adversely affect the Indemnified Party’s or its Representatives’ business or operations other than as a result of money damages or other money payments, then such settlement will be subject to the reasonable approval of the Indemnified Party or its Representatives.  Nothing herein shall prevent an Indemnified Party or its Representatives from retaining its own legal counsel and other consultants and participating in its own defense at its own cost and expense.  The Parties shall cooperate with each other in any notification to insurers.

16.3

Limitation on Liability.  

(a)

Notwithstanding any provision in this Agreement to the contrary, no Party nor any of its respective Representatives shall be liable under this Agreement for any exemplary or punitive damages or consequential or indirect loss or damage, including loss of profit, cost of capital, loss of goodwill, replacement power, loss of revenue from the sale of capacity or energy or any other special or incidental damages. 

(b)

The Parties acknowledge and agree that (i) this Agreement is executed and delivered by the member(s) of ERGS SC and MGE Power, not individually or personally but solely as the members of such Party; (ii) each of the representations, undertakings and agreements herein made on the part of ERGS SC and MGE Power is made not as a personal representation, undertaking and agreement by the member(s) of such Party, but is made and intended for the purpose of binding only ERGS SC and MGE Power; (iii) nothing herein contained shall be construed as creating any liability on the member(s) of ERGS SC or MGE Power, individually or personally, to perform any covenants, either expressly contained or implied herein, and all such liability, if any, is hereby expressly waived by the Parties and by any Person claiming by, through or under the Parties; and (iv) under no circumstances shall the member(s) of ERGS SC or MGE Power be personally liable for the payment of any indebtedness or expenses of ERGS SC or MGE Power, respectively, or for the breach or failure of any obligation, representation, warranty or covenant made or undertaken under this Agreement by ERGS SC or MGE Power, respectively.  

(c)

The Parties acknowledge and agree that (i) each of the representations, undertakings and agreements herein made on the part of the Parties is made not as a personal representation, undertaking and agreement by the Representative of such Party, but is made and intended for the purpose of binding only the Party; (ii) nothing herein contained shall be construed as creating any liability on the Representatives of the Parties, individually or personally, to perform any covenants, either expressly contained or implied herein, and all such liability, if any, is hereby expressly waived by the Parties and by any Person claiming by, through or under the Parties; and (iii) under no circumstances shall the Representatives of the Parties be personally liable for the payment of any indebtedness or expenses of such Parties, respectively, or for the breach or failure of any obligation, representation, warranty or covenant made or undertaken under this Agreement by such Parties, respectively.  

16.4

Disputes.  All issues of liability as between and among the Parties arising under this Agreement shall constitute Disputes to be resolved pursuant to the provisions of Article XVII.

ARTICLE XVII:  DISPUTE RESOLUTION

17.1

Exclusive Procedure.  Any controversy, claim or dispute of whatsoever nature or kind between or among the Parties arising out of or in connection with this Agreement or its validity or interpretation (each a “Dispute”) shall be resolved pursuant to the procedures of this Article XVII.

 

17.2

Dispute Notices.  If a Dispute arises between or among the Parties, then any Party to such Dispute may provide written notice thereof to the other Parties, including a detailed description of the subject matter of the Dispute (the “Dispute Notice”).  The Dispute Notice shall identify the Party or Parties to the Dispute, which shall participate in the Dispute resolution process.  Each other Party in receipt of a Dispute Notice shall inform the other Parties in writing whether it will participate in the Dispute resolution process.  If a Party in receipt of a Dispute Notice believes that it has counterclaims arising out of the same set of facts as the Dispute, it shall promptly notify the other Parties of such counterclaims no later than two Business Days before the first meeting of the senior executives required pursuant to Section 17.3(b).  The Party providing the Dispute Notice, each other Party identified in the Dispute Notice as a Party to the Dispute and each other Party electing to participate in the Dispute shall be referred to as a “Disputing Party”.

 

17.3

Informal Resolution of Disputes.  

(a)

Upon the issuance or receipt of a Dispute Notice, the representatives of each Disputing Party shall in good faith attempt to resolve such Dispute by informal negotiations within ten Business Days from the date of receipt of such Dispute Notice.

(b)

If the Dispute is not resolved within ten Business Days following receipt of the Dispute Notice or such later date as the Disputing Parties may mutually agree, then each Disputing Party shall promptly designate its most senior executive responsible for the subject matter of the Dispute who shall have authority to resolve the Dispute.  The senior executives shall obtain such information as may be necessary to inform themselves of the substance and particulars of the Dispute and shall meet within 20 Business Days, at a time and place mutually acceptable to the senior executives.

(c)

If the senior executives are unable to resolve the Dispute within 20 Business Days of their first meeting or such later date as the senior executives may mutually agree, then the Dispute shall, subject to Section 17.3(d), be resolved solely and exclusively by the state courts situated in Milwaukee County, Wisconsin or the United States District Court for the Eastern District of Wisconsin (the “Approved Courts”).  

(d)

Notwithstanding anything to the contrary in Section 17.3(c), the Parties acknowledge and agree that a Dispute over which a Governmental Authority has exclusive jurisdiction shall, in the first instance, be brought before and resolved by such Governmental Authority.

(e)

Each Party consents to and accepts for itself and in respect of its property, generally and unconditionally, but subject to Section 17.3(d), the exclusive jurisdiction of the Approved Courts and appellate courts from any appeal thereof, and irrevocably waives any objection which it may now or hereafter have to the jurisdiction of the Approved Courts.  Each Party further irrevocably waives any objection that it may now or hereafter have to the laying of venue of any suit, proceeding or other action brought pursuant to this Section 17.3 in any of the Approved Courts, and irrevocably waives and agrees not to plead or claim in any such Approved Court that any suit, proceeding or other action brought therein has been brought in an inconvenient forum.  

17.4

Continued Performance.  During the pendency of any Dispute, each Party shall continue to perform all of its respective obligations under this Agreement.

17.5

Consolidation of Proceedings.  If (a) a Dispute under this Agreement and one or more disputes under one of the other Elm Road Documents involves common issues of fact or law, (b) consolidating the disputes into one proceeding would be more efficient than separate proceedings and (c) no party to any of the disputes would be prejudiced as a result of such consolidation through undue delay or otherwise, then the Parties to the Dispute shall use commercially reasonable efforts to consolidate such disputes into one proceeding to facilitate the comprehensive resolution of the disputes. 

ARTICLE XVIII:  MISCELLANEOUS

18.1

Applicable Law.  The rights and obligations of the Parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Wisconsin, without regard to conflicts of law doctrines.

18.2

Jury Trial.  EACH OF THE PARTIES WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

18.3

Notices.  Unless otherwise expressly provided for in this Agreement, all communications and notices to a Party in connection with this Agreement shall be in writing, by facsimile or by email, and any such notice shall become effective (a) upon personal delivery thereof, including, by overnight mail or next Business Day or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, (c) in the case of notice by facsimile, upon transmission thereof, provided that in addition to such transmission a confirmation copy of the notice is also provided promptly by either of the methods set forth in clause (a) or (b) above, or (d) in the case of email, upon transmission thereof, provided that in addition to such transmission a confirmation copy of the notice is also provided by either of the methods set forth in clause (a) or (b) above.  All notices provided by the means described in clauses (a), (b), (c) or (d) above shall be addressed as provided in Schedule 18.3, or to such other address as any Party may designate by written notice to the other Parties.

18.4

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

18.5

Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law; but if any provision of this Agreement shall be prohibited by or deemed invalid under any applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

18.6

Parties Bound.  This Agreement shall be binding upon the Parties and their respective successors and permitted assigns.  

18.7

Third-Party Beneficiaries.  Except as expressly provided herein, none of the provisions of this Agreement are intended for the benefit of any Person other than the Parties, their respective successors and permitted assigns.  

18.8

Entire Agreement.  This Agreement states the rights of the Parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, oral or written, with respect thereto, including the Participation Agreements and the Mutual Confidentiality Agreements, but excluding the Phase II Confidentiality Agreement, dated as of May, 2003, between WEC and WPPI and the Phase II Confidentiality Agreement, dated as of May, 2003, between WEC and MGE. 

 

18.9

Headings and Table of Contents.  Section headings and the table of contents used in this Agreement (including headings used in the Schedules, Annexes and Exhibits attached hereto) are for convenience of reference only and shall not affect the construction of this Agreement.

18.10

Schedules and Exhibits.  The Schedules and Exhibits together with all attachments referenced therein, are incorporated herein by reference and made a part hereof.

18.11

Amendments and Waivers.  

(a)

This Agreement may not be amended, supplemented or otherwise modified, other than pursuant to an instrument or instruments in writing executed by the Parties.  

(b)

No waiver by any Party of any one or more defaults by any other Party or Parties in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults whether of a like kind or different nature.  Any delay, less than any applicable statutory period of limitations, in asserting or enforcing any rights under this Agreement shall not be deemed a waiver of such rights.  Failure of any Party to enforce any provisions hereof shall not be construed to waive such provision, or to affect the validity of this Agreement or any part thereof, or the right of any Party thereafter to enforce each and every provision thereof. 

18.12

No Joint Venture.  Any intention to create a joint venture or partnership relation between or among the Parties is hereby expressly waived. 

18.13

Survival.  Except for Articles I, VI, VII, XII, XV, XVI, XVII and XVIII and Sections 2.3, 3.2(b), 3.2(c), 4.2, 4.4, 9.4(a), 9.4(b) and 10.3 which shall survive termination of this Agreement and except as otherwise expressly provided in this Agreement, the representations, warranties and obligations of each Party contained in this Agreement or in any certificate delivered by a Party pursuant to the terms of this Agreement shall not survive the termination of this Agreement either in its entirety or as to a particular Party in accordance with its terms.

18.14

Waiver of Immunity.  WPPI agrees that in response to any Dispute to which WPPI is a party or any suit, proceeding or other action against WPPI under this Agreement, WPPI will not assert, and hereby waives, (a) the rights and protections that it or its assets may have, (b) any limitation on a Party to bring a suit, proceeding or other action, or to recover or enforce a judgment against WPPI or any of its assets under this Agreement and (c) any limitation on the amount of recovery or award of damages under this Agreement, in each case, only to the extent that such rights, protections, and limitations arise from immunity (including immunity under Sections 66.0825(7) or 893.80, Wisconsin Statutes) which WPPI or its assets enjoy as a consequence of WPPI’s status as a public body politic and corporate of the State of Wisconsin.

18.15

Further Assurances.  Each Party shall promptly and duly execute and deliver such further documents and assurances for and take such further actions reasonably requested by the other Parties, all as may be reasonably necessary to carry out the purposes of this Agreement.

[SIGNATURES FOLLOW ON NEXT PAGE]

IN WITNESS WHEREOF, each of the Parties has caused its duly authorized officer to execute this New Common Facilities Ownership Agreement as of the date first above written.

		
	ERGS SC

ELM ROAD GENERATING STATION 

SUPERCRITICAL, LLC

By: /s/ Tom Metcalfe

Title: Vice President

	MGE POWER

MGE POWER ELM ROAD, LLC

By:  /s/ Gary J. Wolter 

Title:  Manager

	WPPI

WISCONSIN PUBLIC POWER INC.

By:  /s/ J. Leroy Thilly

Title:  President and CEO

	PROJECT MANAGER

ELM ROAD SERVICES, LLC,

as agent for the Unit 1 Owners

By:  /s/ Robert P. Tutkowski

Title:  Vice President

	Signing solely for purposes of Section 18.16 of the Elm Road I Ownership Agreement:

WE POWER

W.E. POWER LLC

By:  /s/ Tom Metcalfe 

Title:  Vice President

	 

EXHIBIT A

Description of Unit 1, Unit 2 and the New Common Facilities

1.1

Description of Unit 1.  Unit 1 shall consist of the following:

(a)

an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (including all facilities, components, equipment and materials that make up Unit 1), as further described in the EPC Agreement; and

 

(b)

All Capital Improvements (as such term is defined in the Unit 1 Ownership Agreement) to Unit 1 that may be made from time to time. 

 

“Unit 1” shall not include the Existing Units, Unit 2, the transmission facilities of the American Transmission Company LLC, all real property rights to a fee or leasehold interest in the Elm Road Site (including ERGS SC’s leasehold interests in the Elm Road Site), the New Common Facilities, the Existing Common Facilities, all facilities, equipment, materials, improvements and property the costs of which are Project Costs (as such term is defined in the Unit 1 Ownership Agreement), but which by their nature or otherwise are to be owned by third parties (e.g., transmission equipment, railroad infrastructure, road improvements, accommodations to land-owners, etc.), and all other facilities, equipment, improvements and property owned by WEPCO and located at the Elm Road Site.

1.2 

Description of Unit 2.  Unit 2 shall consist of the following:

(a)

an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (including all facilities, components, equipment and materials that make up Unit 2), as further described in the EPC Agreement; and

 

(b)

All Capital Improvements (as such term is defined in the Unit 2 Ownership Agreement) to Unit 2 that may be made from time to time. 

 

“Unit 2” shall not include the Existing Units, Unit 1, the transmission facilities of the American Transmission Company LLC, all real property rights to a fee or leasehold interest in the Elm Road Site (including ERGS SC’s leasehold interests in the Elm Road Site), the New Common Facilities, the Existing Common Facilities, all facilities, equipment, materials, improvements and property the costs of which are Project Costs (as such term is defined in the Unit 2 Ownership Agreement), but which by their nature or otherwise are to be owned by third parties (e.g., transmission equipment, railroad infrastructure, road improvements, accommodations to land-owners, etc.), and all other facilities, equipment, improvements and property owned by WEPCO and located at the Elm Road Site.

1.3

Description of New Common Facilities.  The New Common Facilities shall consist of the following components (collectively, the “Components”):

(a)

a circulating water system, including water intake structure, central distribution system, pumps and all facilities, components, equipment and materials that make up the circulating water system (as further described in the EPC Agreement, “Component 1”);

(b) 

fuel delivery and handling systems, including railroad infrastructure, central coal unloading, central storage, central conveying systems and all facilities, components, equipment and materials that make up the fuel delivery and handling systems (as further described in the EPC Agreement, “Component 2”);

(c) 

common operating systems for Unit 1 and Unit 2, including control room, administration building, limestone/gypsum delivery, storage and handling systems and all facilities, components, equipment and materials that make up the common operating systems (as further described in the EPC Agreement, “Component 3”); 

(d)

balance of site-wide common facilities and systems, including roads, training/visitors center, security systems and all facilities, components, equipment and materials that constitute a part of such site-wide common systems (as further described in the EPC Agreement, “Component 4”); and 

(e)

All Capital Improvements to the Components that may be made from time to time. 

 

“New Common Facilities” shall not include the Existing Units, the New Units, the transmission facilities of the American Transmission Company LLC, all real property rights to a fee or leasehold interest in the Elm Road Site (including ERGS SC’s leasehold interests in the Elm Road Site), the Existing Common Facilities, all facilities, equipment, materials, improvements and property the costs of which are Project Costs (as such term is defined in the Unit 1 Ownership Agreement), but which by their nature or otherwise are to be owned by third parties (e.g., transmission equipment, railroad infrastructure, road improvements, accommodations to land-owners, etc.), and all other facilities, equipment, improvements and property owned by WEPCO and located at the Elm Road Site.

EXHIBIT B

Form of Bill of Sale

THIS BILL OF SALE (this “Bill of Sale”) is made as of the [__] day of [_____], 20[__] by [_______________], a [_______________] (“Seller”), for the benefit of [_______________], a [_______________] (“Buyer”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain New Common Facilities Ownership Agreement, dated as of December 17, 2004 (as amended, supplemented or otherwise modified from time to time, the “Ownership Agreement”), among Seller, Buyer and [Elm Road Generating Station Supercritical, LLC][MGE Power Elm Road, LLC][Wisconsin Public Power Inc.], Seller has agreed to sell, assign, convey, transfer and deliver to Buyer, and Buyer has agreed to purchase, assume and acquire from Seller, [all][a portion] of Seller’s [Unit 1 Component Ownership Interests] [and] [Unit 2 Component Ownership Interests]; and

WHEREAS, pursuant to the Ownership Agreement, Seller has entered into this Bill of Sale to evidence such conveyance to Buyer.

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

1.

Defined Terms.  Capitalized terms which are used but not defined in this Bill of Sale shall have the meaning ascribed to such terms in the Ownership Agreement.

2.

Assignment.  Seller does hereby sell, assign, convey, transfer and deliver to Buyer, and Buyer does hereby purchase, assume and acquire from Seller:

(a)

All of Seller’s right, title and interest in and to [a [___]%1 Unit 1 Component Ownership Interest in Component 1] [and] [a [___]%1 Unit 2 Component Ownership Interest in Component 1];

(b)

All of Seller’s right, title and interest in and to [a [___]%1 Unit 1 Component Ownership Interest in Component 2] [and] [a [___]%1 Unit 2 Component Ownership Interest in Component 2];

(c)

All of Seller’s right, title and interest in and to [a [___]%1 Unit 1 Component Ownership Interest in Component 3] [and] [a [___]%1 Unit 2 Component Ownership Interest in Component 3]; and

(d)

All of Seller’s right, title and interest in and to [a [___]%1 Unit 1 Component Ownership Interest in Component 4] [and] [a [___]%1 Unit 2 Component Ownership Interest in Component 4].

(collectively, the “Transferred New Common Facilities Ownership Interest”)

3.

No Liens.  Seller represents and warrants to Buyer that (a) it is duly authorized to execute and deliver this Bill of Sale and (b) it has good and marketable title to the Transferred New Common Facilities Ownership Interest, free and clear of all Liens other than those specified in paragraphs (a) through (f) of the definition of Permitted Encumbrances. 

4.

Disclaimers.  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES IN SECTION 3 OF THIS BILL OF SALE AND THOSE SET FORTH IN THE OWNERSHIP AGREEMENT OR IN CERTIFICATES DELIVERED BY SELLER PURSUANT THERETO, THE TRANSFERRED NEW COMMON FACILITIES OWNERSHIP INTEREST IS BEING SOLD AND TRANSFERRED “AS IS, WHERE IS”, AND SELLER MAKES NO REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY OR OTHERWISE, WITH RESPECT TO THE NEW COMMON FACILITIES OR THE TRANSFERRED NEW COMMON FACILITIES OWNERSHIP INTEREST (OR ANY COMPONENT OWNERSHIP INTEREST) OR THE PROJECT, INCLUDING WITH RESPECT TO (A) THE MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE NEW COMMON FACILITIES OR THE TRANSFERRED NEW COMMON FACILITIES OWNERSHIP INTEREST (OR ANY COMPONENT OWNERSHIP INTEREST) OR THE WORKMANSHIP THEREOF OR THE ABSENCE OF DEFECTS THEREIN, WHETHER LATENT OR PATENT, (B) THE BUSINESS, FINANCIAL CONDITION, PROSPECTS (FINANCIAL OR OTHERWISE), LIABILITIES OR RISKS OF THE NEW COMMON FACILITIES OR THE TRANSFERRED NEW COMMON FACILITIES OWNERSHIP INTEREST (OR ANY COMPONENT OWNERSHIP INTEREST) OR THE PROJECT, OR (C) THE PHYSICAL CONDITION, QUALITY OR VALUE OF THE NEW COMMON FACILITIES OR THE TRANSFERRED NEW COMMON FACILITIES OWNERSHIP INTEREST (OR ANY COMPONENT OWNERSHIP INTEREST) OR THE PROJECT, AND ANY SUCH OTHER REPRESENTATION OR WARRANTY IS HEREBY EXPRESSLY DISCLAIMED.

5.

Binding Effect; Assignment.  This Bill of Sale and all of the provisions hereof shall be binding upon Seller and its successors and permitted assigns and shall inure to the benefit of Buyer and its successors and permitted assigns.

6.

No Third Party Beneficiary.  Nothing in this Bill of Sale is intended to confer upon any other person except Buyer and Seller any rights or remedies hereunder or shall create any third party beneficiary rights in any person.

7.

Governing Law.  This Bill of Sale shall be governed by, and construed and interpreted in accordance with, the laws of the State of Wisconsin.

8.

Construction.  This Bill of Sale is delivered pursuant to Section 4.1(b)(i) of the Ownership Agreement and is subject to the terms of the Ownership Agreement.  In the event of any conflict or ambiguity between the terms of the Ownership Agreement and the terms of this Bill of Sale, the terms of the Ownership Agreement shall control.

9.

Counterparts.  This Bill of Sale may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, this Bill of Sale has been duly executed and delivered by Seller as of the date first above written.

SELLER

[_______________________]

By:

Name:

Title:

ACCEPTED AND AGREED TO

THIS [_____] DAY OF [__________], 20[__]:

BUYER

[_______________________]

By:

Name:

Title:

EXHIBIT C

Form of Assignment and Assumption Agreement

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”) dated as of [__________], 20[__], is between [insert name of New Common Facilities Owner Assignor], a [_______________] (“Assignor”), and [__________], a [_______________] (“Assignee”).  Assignor and Assignee are referred to individually as a “Party,” and collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, Assignor has agreed to Transfer [insert description of Assignor’s Component Ownership Interests to be Transferred] (the “Transferred New Common Facilities Ownership Interest”) to Assignee in accordance with Article IV of that certain New Common Facilities Ownership Agreement, dated as of December 17, 2004 (as amended, supplemented or otherwise modified from time to time, the “Ownership Agreement”), among Elm Road Generating Station Supercritical, LLC, MGE Power Elm Road, LLC and Wisconsin Public Power Inc.; and

WHEREAS, in connection with the Transfer, Assignor desires to sell, assign, convey, transfer and deliver to Assignee, and Assignee desires to purchase and assume from Assignor, all of Assignor’s right, benefits, obligations and liabilities under the Ownership Agreement in respect of the Transferred New Common Facilities Ownership Interest.

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1.

Capitalized Terms.  Capitalized terms which are used but not defined in this Agreement shall have the meaning ascribed to such terms in the Ownership Agreement.

2.  

Assignment and Assumption.  Assignor hereby sells, assigns, conveys, transfers and delivers to Assignee, and Assignee hereby purchases and assumes from Assignor, all of the rights, benefits, obligations and liabilities that Assignor has in the Ownership Agreement in respect of the Transferred New Common Facilities Ownership Interest.

3.

Waiver and Release.  Other than Assignee becoming a party to the Ownership Agreement pursuant to this Agreement, neither the making nor the acceptance of this Agreement shall enlarge, restrict or otherwise modify the terms of the Ownership Agreement or constitute a waiver or release by either Party of any liabilities, duties or obligations imposed upon either of them by the terms of the Ownership Agreement.

4.

Bound By Ownership Agreement.  Assignee acknowledges that it has received a copy of the Ownership Agreement and agrees that it will be bound by and perform in accordance with its terms all of the obligations which by the terms of the Ownership Agreement are required to be performed by it as a New Common Facilities Owner.  [In addition, Assignee agrees to be bound by and perform all of the obligations in Annex A attached hereto.]2

5.

Representations and Warranties.  

(a)

Assignee Representations and Warranties.  Assignee represents and warrants to Assignor and to each other New Common Facilities Owner, as of the date hereof, as follows:

 

(i)

Due Organization.

(A) 

It is duly formed, validly existing and in good standing under the Laws of the State of [__________]3.

(B) 

It has all requisite power necessary to own its assets and carry on its business as now being conducted or as proposed to be conducted under each of this Agreement and the Ownership Agreement.

(ii)

Due Authorization.  It has all necessary corporate power and authority to execute, deliver and perform its obligations under each of this Agreement and the Ownership Agreement, and the execution, delivery and performance by it of each of this Agreement and the Ownership Agreement have been duly authorized by all necessary corporate action on its part.

(iii)

Non-Contravention.  The execution, delivery and performance by it of each of this Agreement and the Ownership Agreement do not and shall not:

(A)

violate its Organic Documents;

(B)

violate any Law or Government Approval applicable to it or its property;

(C)

result in a breach of or constitute a default of any of the Elm Road I Project Documents or Elm Road II Project Documents to which it is a party or any other material agreement to which it is a party; or

 

(D)

result in, or require the creation or imposition of, any Lien (other than a Permitted Encumbrance) on any of its properties.

(iv)

Enforceability.  Assuming the due authorization, execution and delivery of each of this Agreement and the Ownership Agreement by the other parties hereto and thereto, each of this Agreement and the Ownership Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other similar Laws affecting creditors’ rights generally and by general principles of equity.

(v)

Litigation.  Except as disclosed in writing to Assignor and the other New Common Facilities Owner, there is no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending or, to its knowledge, threatened in writing against or affecting it or any of its properties, rights or assets which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under each of this Agreement and the Ownership Agreement or the validity or enforceability of each of this Agreement or the Ownership Agreement.  

 

(vi)

Government Approvals.  Except as disclosed in writing to Assignor and the other New Common Facilities Owners, all material Government Approvals required by applicable Law to have been obtained by it prior to the date of this representation and warranty in connection with (A) owning its assets and carrying on its business as now being conducted or as proposed to be conducted under each of this Agreement and the Ownership Agreement and (B) the due execution and delivery of, and performance by it of its obligations and the exercise of its rights under, each of this Agreement and the other Elm Road I Project Documents and Elm Road II Project Documents to which it is a party have been duly obtained or made and are in full force and effect, are held in its name and are free from conditions or requirements (i) compliance with which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under each of this Agreement and the Ownership Agreement or the validity or enforceability of each of this Agreement or the Ownership Agreement or (ii) which it does not reasonably expect to be able to satisfy. 

 

(vii)

No Breach.  It is not in breach of any material obligation under each of this Agreement and the Ownership Agreement or any other Elm Road I Project Document or Elm Road II Project Document to which it is a party.

(b)

Assignor Representations and Warranties.  Assignor represents and warrants to Assignee as of the date hereof, as follows:

 

(i)

Due Organization.

(A) 

It is duly formed, validly existing and in good standing under the Laws of the State of [__________]4.

(B) 

It has all requisite power necessary to own its assets and carry on its business as now being conducted or as proposed to be conducted under this Agreement.

(ii)

Due Authorization.  It has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement, and the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action on its part.

(iii)

Non-Contravention.  The execution, delivery and performance by it of this Agreement do not and shall not:

(A)

violate its Organic Documents;

(B)

violate any Law or Government Approval applicable to it or its property;

(C)

result in a breach of or constitute a default of any of the Elm Road I Project Documents or Elm Road II Project Documents to which it is a party or any other material agreement to which it is a party; or

 

(D)

result in, or require the creation or imposition of, any Lien (other than a Permitted Encumbrance) on any of its properties.

(iv)

Enforceability.  Assuming the due authorization, execution and delivery of this Agreement by the other parties hereto and thereto, this Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other similar Laws affecting creditors’ rights generally and by general principles of equity.

(v)

Litigation.  Except as disclosed in writing to Assignee, there is no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending or, to its knowledge, threatened in writing against or affecting it or any of its properties, rights or assets which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement or the validity or enforceability of this Agreement.  

 

(vi)

Government Approvals.  Except as disclosed in writing to Assignee, all material Government Approvals required by applicable Law to have been obtained by it prior to the date of this representation and warranty in connection with (A) owning its assets and carrying on its business as now being conducted or as proposed to be conducted under this Agreement and (B) the due execution and delivery of, and performance by it of its obligations and the exercise of its rights under this Agreement have been duly obtained or made and are in full force and effect, are held in its name and are free from conditions or requirements (i) compliance with which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement or the validity or enforceability of this Agreement or (ii) which it does not reasonably expect to be able to satisfy. 

 

(vii)

No Breach.  It is not in breach of any material obligation under each of this Agreement and the Ownership Agreement or any other Elm Road I Project Document or Elm Road II Project Document to which it is a party.

6.

Effectiveness.  This Agreement shall be effective as of the date hereof5. 

7.  

Conflicts with Ownership Agreement.  If any provision of this Agreement shall be construed to conflict with a provision in the Ownership Agreement, the provision in the Ownership Agreement shall control.

8.  

Successors and Assigns.  This Agreement shall bind and shall inure to the benefit of the Parties and their respective successors and permitted assigns.

9.  

Third Party Beneficiaries.  Except as provided below, nothing in this Agreement is intended to confer upon any other Person except Assignor and Assignee any rights or remedies hereunder or shall create any third party beneficiary rights in any person.  The New Common Facilities Owners under the Ownership Agreement are intended third-party beneficiaries of this Agreement.

10.  

Governing Law.  The rights and the obligations of the Parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Wisconsin.

11.  

Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been duly executed and delivered by the Parties as of the date first above written.

ASSIGNOR

[_____________________________]

By:

Name:

Title:

ASSIGNEE

[_____________________________]

By:

Name:

Title:

ANNEX A to EXHIBIT C

Bankruptcy Remoteness Obligations

Assignee agrees to be bound by and perform the following covenants:

1.

Change in Business.  It shall not engage in any business other than business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of one or both of the New Units, the New Common Facilities and any electric generating unit that uses some or all of the New Common Facilities (“Future Unit”), as contemplated by the Ownership Agreement, the other Elm Road  Documents and any other agreements relating to the Future Unit, in each case, to which it is a party and activities incidental thereto.

2.

Ownership of Assets.  It shall not acquire any assets other than those relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of one or both of the New Units and the Future Unit and the New Common Facilities, as contemplated by the Ownership Agreement, the other Elm Road Documents and any other agreements relating to the Future Unit, in each case, to which it is a party and activities incidental thereto.

3.

No Subsidiaries.  It shall not have any subsidiaries and shall not beneficially own the whole or any part of the issued share capital or other ownership interest of any Person.

4.

Other Indebtedness.  It shall not incur any indebtedness other than that permitted or required by the Ownership Agreement, the other Elm Road Documents and any other agreements relating to the Future Unit, in each case, to which it is a party or otherwise incurred in the ordinary course of business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of one or both of the New Units and the Future Unit and the New Common Facilities.  It shall not assume or guarantee or become obligated for the debts of any other Person other than as required or permitted by the Ownership Agreement, the other Elm Road Documents or any other agreements relating to the Future Unit, in each case, to which it is a party.

5.

Amendments to Constituent Documents.  It shall not amend or permit to be amended its constituent documents or the rights attaching to membership interests in it if such amendment could reasonably be expected to have a material adverse effect on its ability to perform its obligations under the Ownership Agreement, the other Elm Road Documents or any other agreements relating to the Future Unit, in each case, to which it is a party or the validity or enforceability of the Ownership Agreement, the other Elm Road Documents or any other agreements relating to the Future Unit, in each case, to which it is party.

6.

Maintenance of Accounts; Maintenance of Records; Commingling of Funds; Arms-Length Transactions.

(a)

It shall maintain its accounts, books and records separate from any other Person and in accordance with GAAP.

(b)

It shall not commingle its funds or assets with those of any other Person and will hold its assets and conduct business in its own name.

(c)

It shall not enter into or be party to any transactions or agreements with its members, partners or Affiliates (other than the Elm Road Documents or any other agreements relating to the Future Unit, in each case, to which it is a party) and those agreements contemplated thereby) except in the ordinary course of its business and on terms that are reasonably fair and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party.

7.

Independent Director.  It shall ensure that its constituent documents require the favorable vote of one independent director or independent member, as the case may be, before it can take any of the following voluntary actions in anticipation of insolvency or bankruptcy:

(a)

apply for or consent to the appointment of a receiver, trustee or liquidator of it or of all or a substantial part of its assets;

(b)

file a voluntary petition in bankruptcy, or admit in writing its inability to pay its debts as they come due;

(c)

make a general assignment for the benefit of its creditors;

(d)

file a petition or an answer seeking reorganization or arrangement with its creditors or take advantage of any insolvency Law;

(e)

file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceedings; or

(f)

agree to be the subject of an order, judgment or decree entered by any court of competent jurisdiction, approving a petition seeking reorganization of it or appointing a receiver, trustee or liquidator of it or of all or a substantial part of its assets.

EXHIBIT D

Elm Road Ownership Computations

[A hard copy printout will be included here of the electronic version of this Exhibit D which will be distributed by ERGS SC to the other Parties on the execution date of this Agreement.]

EXHIBIT E

Form of Consent and Agreement

This CONSENT AND AGREEMENT (this “Consent”), dated as of [__________], 200[_], among [_______________], a [_______________]6 (“Consenting Party” or “[ERGS SC][MGE Power][WPPI]”), [_______________], a [_______________]1 (“Borrower” or “[ERGS SC][MGE Power][WPPI]”), and [_______________], in its capacity as [__________]7 Agent (together with its successors in such capacity, the “Agent”) for the financial institutions which are or from time to time may become a party to the Credit Agreement (as defined below) (the “Lenders”).8

RECITALS

WHEREAS, Consenting Party, Borrower and [_______________], a [_______________]1 (“[ERGS SC][MGE Power][WPPI]”), have entered into that certain New Common Facilities Ownership Agreement, dated as of December 17, 2004 (as amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof and hereof, the “New Common Facilities Ownership Agreement”; also referred to herein as the “Assigned Agreement”);

WHEREAS, ERGS SC has elected to proceed with the development, design, engineering, permitting, construction and commissioning of (i) an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (“Unit 1”)9, (ii) an approximately 615 MW (net) supercritical pulverized coal electric generating facility and related facilities (“Unit 2”)10 and (iii) certain facilities utilized in the operation and maintenance of Unit 1 and Unit 25,6 (the “New Common Facilities”) to be located on property owned by Wisconsin Electric Power Company, a Wisconsin corporation and affiliate of ERGS SC; 

WHEREAS, the New Common Facilities Ownership Agreement provides for the terms and conditions by which Consenting Party, Borrower and [[ERGS SC][MGE Power][WPPI]]1 shall jointly own the New Common Facilities after completion of construction;

WHEREAS, Borrower, the Agent and the Lenders have entered into a Credit Agreement, dated as of [__________], 200[_] (as amended, restated, modified or otherwise supplemented from time to time, the “Credit Agreement”), pursuant to which the Lenders will make loans to Borrower for the purpose of financing Borrower’s share of the cost of developing, designing, engineering, permitting, constructing and commissioning the New Common Facilities, and certain related expenses (the “Loans”);

WHEREAS, as security for the Loans and all other obligations of Borrower under the Credit Agreement, Borrower has assigned all of its right, title and interest in, to and under, and granted a security interest in, the Assigned Agreement to the Agent pursuant to the Security Agreement, dated as of [__________], 200[_], between Borrower and the Agent (as amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof, the “Security Agreement”); and

WHEREAS, it is a condition precedent to the Lenders' obligations to make the Loans under the Credit Agreement that Consenting Party execute and deliver this Consent.

NOW, THEREFORE, as an inducement for the Lenders to make the Loans, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:

SECTION 1.  DEFINITIONS AND RULES OF INTERPRETATION.  

1.1

Definitions.  Each capitalized term used in this Consent shall have the following meaning:

“Agent” has the meaning given to such term in the Preamble to this Consent.

“Assigned Agreement” has the meaning given to such term in the Recitals to this Consent.

“Assigned Interest” has the meaning given to such term in Section 2.1 of this Consent.

“Borrower” has the meaning given to such term in the Preamble to this Consent.

“Consent” has the meaning given to such term in the Preamble to this Consent.

“Consenting Party” has the meaning given to such term in the Preamble to this Consent.

“Control” means the possession, directly or indirectly, through one or more intermediaries, of the following:

(a) (i)

in the case of a corporation, 50% or more of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to 50% or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, 50% or more of the beneficial interest therein; and (iv) in the case of any other entity, 50% or more of the economic or beneficial interest therein; and

(b)

in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

“Credit Agreement” has the meaning given to such term in the Recitals to this Consent.

“Lenders” has the meaning given to such term in the Preamble to this Consent.

“Loans” has the meaning given to such term in the Recitals to this Consent.

“New Common Facilities” has the meaning given to such term in the Recitals to this Consent.

“New Common Facilities Ownership Agreement” has the meaning given to such term in the Recitals to this Consent.

“Parent” means, with respect to any Person, the Person that Controls such Person and that is not itself Controlled by any other Person.

“Person” shall mean an individual, a corporation, a partnership, a limited liability company, an association, a joint-stock company, a trust, an unincorporated organization and any government or political subdivision thereof.

“Security Agreement” has the meaning given to such term in the Recitals to this Consent.

“Substitute Owner” means any Person (a) who is the transferee of the Assigned Interest from the Agent or Borrower or who is a purchaser of the Assigned Interest in a judicial or nonjudicial foreclosure sale, (b)(i) whose senior unsecured long-term debt is rated at least “A-” by Standard and Poor’s Rating Services or its successor or “A3” by Moody’s Investors Service or its successor or (ii) whose Parent’s senior unsecured long-term debt is rated at least “A-” by Standard and Poor’s Rating Services or its successor or “A3” by Moody’s Investors Service or its successor and whose Parent guarantees such Person’s obligations under the Assigned Agreement, (c) who has at least five years experience in the United States electric generating power industry and (d) who assumes all obligations of Borrower under the Assigned Agreement in an instrument in form and substance reasonably satisfactory to Consenting Party.11

“Unit 1” has the meaning given to such term in the Recitals to this Consent.

1.2

Rules of Interpretation and Construction.

(a)

Interpretation.  In this Consent, 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, if applicable, only if such successors and assigns are permitted by this Consent, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

(iii)

reference to either gender includes the other gender;

(iv)

reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

(v)

reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law means that provision of such law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or re-enactment of such section or other provision;

(vi)

reference to any Preamble, Recital, Article, Section or Exhibit herein means such Article or Section of this Consent or Preamble, Recital or Exhibit to this Consent;

(vii)

“hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this Consent as a whole and not to any particular Article, Section or other provision of this Consent;

(viii)

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

(ix)

with respect to any rights and obligations of the parties under this Consent, all such rights and obligations shall be construed to the extent permitted by applicable law.

(b)

Computation of Time Periods.  For purposes of computation of periods of time under this Consent, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.  

(c)

Accounting Terms and Determinations.  Unless otherwise specified in this Consent, all terms of an accounting character used therein shall be interpreted, all accounting determinations thereunder shall be made, and any financial statements required to be delivered thereunder shall be prepared, in accordance with generally accepted accounting principles in the United States as in effect from time to time applied on a consistent basis.

(d)

Legal Representation of the Parties.  This Consent was negotiated by the parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Consent to be construed or interpreted against any party as the drafter shall not apply to any construction or interpretation thereof.

(e)

Payments.  All payments permitted or required to be made by or on behalf of the parties under the terms of this Consent shall be made to the account or accounts designated by the party to which the payment is owned, by wire transfer (in immediately available funds in the lawful currency of the United States).

SECTION 2.  CONSENT TO ASSIGNMENT

2.1

Consent to Assignment.  Consenting Party (a) acknowledges that the Lenders are entering into the Credit Agreement and extending credit to Borrower in reliance upon the execution and delivery by Consenting Party of this Consent, (b) consents in all respects to the pledge and assignment to the Agent pursuant to the Security Agreement of all of Borrower’s right, title and interest in, to and under the Assigned Agreement including all of Borrower’s rights to receive payment under or with respect to the Assigned Agreement and all payments due and to become due to Borrower under or with respect to the Assigned Agreement, whether as contractual obligations, damages, indemnity payments or otherwise (the “Assigned Interest”), and (c) acknowledges the right, but not the obligation, of the Agent or any designee of the Agent, in the exercise of the Agent’s rights and remedies under the Security Agreement, to make all demands, give all notices, take all actions and exercise all rights of Borrower under the Assigned Agreement, and agrees that in such event Consenting Party shall continue to perform its obligations under the Assigned Agreement in accordance with the terms of the Assigned Agreement; provided, however, that nothing in this Section 2.1 shall limit the ability of Consenting Party to exercise or enforce its rights under the Assigned Agreement, subject to Section 2.3.  The parties hereto acknowledge and agree that Consenting Party shall be entitled to assume that any exercise or purported exercise by the Agent or any of its designees of any rights or remedies of Borrower under the Assigned Agreement is authorized or permitted by Borrower and the Credit Agreement.

2.2  

Substitute Owner.  

(a)

Consenting Party agrees that if the Agent shall notify Consenting Party that an event of default under the Credit Agreement has occurred and is continuing and that the Agent has elected to exercise its rights and remedies set forth in the Security Agreement, then (i) the Agent or a Substitute Owner shall be substituted for Borrower under the Assigned Agreement upon prior written notice to such effect to Consenting Party, and (ii) Consenting Party will recognize the Agent or Substitute Owner, as the case may be, and will continue to perform its obligations under the Assigned Agreement in favor of the Agent or Substitute Owner, as the case may be, in accordance with the terms of the Assigned Agreement; provided, however, that nothing in this Section 2.2(a) shall limit the ability of Consenting Party to exercise or enforce its rights under the Assigned Agreement, subject to Section 2.3.

(b)

The Agent, individually and on behalf of the Lenders, agrees that following substitution pursuant to Section 2.2(a), the Agent shall become bound by the terms and conditions of the Assigned Agreement and shall be subject to the obligations of Borrower thereunder.

(c)

If the Agent or any Substitute Owner is substituted for Borrower under the Assigned Agreement pursuant to Section 2.2(a), then the Agent or any such Substitute Owner, as the case may be, shall be liable under the Assigned Agreement for any unperformed payment obligations (including damages previously reduced to a payment obligation) existing as of the date of substitution and for performance of the obligations of Borrower to be performed after the date of such substitution, but only to the extent of the Agent’s or such Substitute Owner’s interest in the New Common Facilities and all revenues and proceeds derived therefrom.   

2.3  

Right to Cure.  In the event of a default or breach by Borrower in the performance of any of its obligations under the Assigned Agreement, or upon the occurrence or non-occurrence of any event or condition under the Assigned Agreement which would immediately or with the passage of any applicable grace period or the giving of notice, or both, enable Consenting Party to terminate the Assigned Agreement (each such default or breach,  a “default”), Consenting Party will not terminate the Assigned Agreement until it first gives prompt written notice of such default to the Agent and affords the Agent the greater of (a) the periods provided for in the Assigned Agreement to cure such default or (b) a period of at least 60 days in respect of a non-payment default and at least 10 days with respect to a payment default to cure such default; provided, however, that with respect to any default other than a payment default, if such default cannot reasonably be cured during such 60 day period, Consenting Party will not terminate such Assigned Agreement for a period not to exceed 180 days so long as the Agent or its designee has commenced action reasonably designed to cure such default and diligently continues to pursue such action until such default is cured; provided, further, that if the Agent or its designee is prohibited from curing any such default by any process, stay or injunction issued by any governmental authority or pursuant to any bankruptcy or insolvency proceeding or similar proceeding involving Borrower, then the time period specified herein for curing a default shall be extended for the period of such prohibition.  Any curing of or attempt to cure any of Borrower's defaults under the Assigned Agreement shall not be construed as an assumption by the Agent or any of the Lenders of any covenants, agreements or obligations of Borrower under the Assigned Agreement.

2.4  

Replacement Agreement.  If the Assigned Agreement is terminated as a result of any bankruptcy or insolvency proceeding or other similar proceeding affecting Borrower, then Consenting Party will, at the option of the Agent, enter into a new agreement with the Agent or its transferee or nominee having terms substantially the same as the terms of the terminated Assigned Agreement for the performance of all obligations and services to be performed or provided under the Assigned Agreement after such termination, subject to the obtainment of any required approvals.

2.5  

No Liability.  Consenting Party acknowledges and agrees that neither the Agent, its designees nor the Lenders shall have any liability or obligation under the Assigned Agreement as a result of this Consent or the Security Agreement, nor shall the Agent, its designees or the Lenders be obligated or required (a) to perform any of Borrower’s obligations under the Assigned Agreement, or (b) to take any action to collect or enforce any claim for payment assigned under the Security Agreement.

2.6  

Delivery of Notices.  Consenting Party shall deliver to the Agent, concurrently with the delivery thereof to Borrower, a copy of any written notice given by Consenting Party to Borrower regarding a breach or default pursuant to the Assigned Agreement. 

SECTION 3.  PAYMENTS UNDER THE ASSIGNED AGREEMENT

3.1  

Payments.  Notwithstanding anything in the Assigned Agreement to the contrary, until all Loans and other obligations under the Credit Agreement have been indefeasibly satisfied in full in cash or cash equivalents, Consenting Party will pay all amounts payable by it to Borrower under the Assigned Agreement in the manner and as and when required by the Assigned Agreement directly into the appropriate account specified on Exhibit A, or to such other person or account as shall be specified from time to time by the Agent to Consenting Party in writing.  Borrower hereby authorizes and directs Consenting Party to make such payments as aforesaid during the term of this Consent.

3.2  

No Offset.  All payments required to be made by Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, other than that expressly allowed by the terms of the Assigned Agreement.

SECTION 4.  REPRESENTATIONS AND WARRANTIES OF CONSENTING PARTY

Consenting Party hereby represents and warrants to the Agent and the Lenders, as of the date hereof, that:

4.1  

Organization.  Consenting Party is a [Wisconsin limited liability company/Wisconsin municipal electric company] duly organized and validly existing under the laws of the state of its formation and has all requisite power and authority to enter into and to perform its obligations hereunder and under the Assigned Agreement, and to carry out the terms hereof and thereof and the transactions contemplated hereby and thereby.

4.2  

Authorization.  The execution, delivery and performance by Consenting Party of this Consent and the Assigned Agreement have been duly authorized by all necessary action on the part of Consenting Party and do not require any approval or consent of any holder (or any trustee for any holder) of any indebtedness or other obligation of (a) Consenting Party or (b) any other person or entity, except approvals or consents which have previously been obtained.

4.3  

Execution and Delivery; Binding Agreements.  As of the date hereof, each of this Consent and the Assigned Agreement has been duly executed and delivered on behalf of Consenting Party by the appropriate officers of Consenting Party, and constitutes the legal, valid and binding obligation of Consenting Party, enforceable against Consenting Party in accordance with its terms except as enforceability may be limited by (a) applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) the application of general principles of law (regardless of whether such enforceability is considered in a proceeding at law or in equity).

4.4  

Litigation.  There is no litigation, action, suit, proceeding or investigation pending or, to Consenting Party’s knowledge, threatened against Consenting Party before or by any court, administrative agency, arbitrator or governmental authority, body or agency which, if adversely determined, individually or in the aggregate, (a) could reasonably be expected to have a material adverse effect on the performance by Consenting Party of its obligations hereunder or under the Assigned Agreement, or (b) questions the validity, binding effect or enforceability hereof or of the Assigned Agreement, any action taken or to be taken pursuant hereto or thereto or any of the transactions contemplated hereby or thereby. 

4.5  

Compliance with Other Instruments.  The execution, delivery and performance by Consenting Party of this Consent and the Assigned Agreement and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in any violation of, breach of or default under any term of its formation or governance documents, or of any contract or agreement to which it is a party or by which it or its property is bound, or of any license, permit, franchise, judgment, writ, injunction, decree, order, charter, law, ordinance, rule or regulation applicable to it, except for any such violations which, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on the performance by Consenting Party of its obligations under this Consent and the Assigned Agreement.

4.6  

Government Consent.  No consent, order, authorization, waiver, approval or any other action, or registration, declaration or filing with, any person, board or body, public or private (collectively, the “Approvals”), is required to be obtained by Consenting Party in connection with the execution, delivery or performance of this Consent or the Assigned Agreement or the consummation of the transactions contemplated hereunder or thereunder, except as listed on Exhibit B.  All such Approvals listed on Exhibit B, except for those set forth in Part II thereof (the “Deferred Approvals”), are Final (as defined below).  An Approval shall be “Final” if it has been validly issued, is in full force and effect, is not subject to any condition precedent to its effectiveness (other than compliance with the terms thereof), does not impose restrictions or requirements inconsistent with the terms of the Assigned Agreement, and is final and not subject to any appeal.  Consenting Party reasonably believes that each Deferred Approval will be obtained in the ordinary course of business prior to the time when such Deferred Approval is required to be Final.  

4.7  

No Default or Amendment.  Neither Consenting Party nor, to Consenting Party’s knowledge, any other party to either Assigned Agreement is in default of any of its obligations thereunder.  To Consenting Party’s knowledge, no event or condition exists which would either immediately or with the passage of any applicable grace period or giving of notice, or both, enable either Consenting Party or Borrower to terminate or suspend its obligations under either Assigned Agreement.  The Assigned Agreement has not been amended, modified or supplemented in any manner.  This Consent and the Assigned Agreement, and any other agreement specifically contemplated herein or therein, constitute and include all agreements entered into by Consenting Party and Borrower relating to, and required for the consummation of, the transaction contemplated by the Assigned Agreement.

4.8  

No Previous Assignments.  Consenting Party has no notice of, and has not consented to, any previous assignment by Borrower of all or any part of its rights under either Assigned Agreement.

SECTION 5.  TRANSFER RESTRICTIONS

Consenting Party hereby agrees and covenants that it shall not sell, lease, assign, transfer, convey or otherwise dispose of in any manner, directly or indirectly, all or any part of its rights, obligations, benefits, advantages, titles and interest in the Assigned Agreement or the New Common Facilities in any manner prohibited by the Assigned Agreement.

SECTION 6.  MISCELLANEOUS

6.1  

Notices.  All notices and other communications hereunder shall be in writing, shall be deemed given upon receipt thereof by the party or parties to whom such notice is addressed, shall refer on their face to the Assigned Agreement, as relevant (although failure to so refer shall not render any such notice of communication ineffective), shall be sent by first class mail, by personal delivery or by a nationally recognized courier service, and shall be directed as provided in Exhibit C, or to such other address or addressee as any such party may designate by written notice given pursuant hereto.

6.2  

Governing Law; Submission to Jurisdiction.  

(a)

THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF WISCONSIN (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW). 

(b)

Any legal action or proceeding with respect to this Consent and any action for enforcement of any judgment in respect thereof may be brought in the state courts situated in Milwaukee County, Wisconsin or the United States District Court for the Eastern District of Wisconsin.  By execution and delivery of this Consent, each of the parties hereto accept for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof, and irrevocably waives any objection which it may now or hereafter have to the jurisdiction of the aforementioned courts.  Each party hereto further irrevocably waives any objection which it may now or hereafter have to the laying of venue of any suit, proceeding or other action brought pursuant to this Section 6.2 in any of the aforementioned courts, and irrevocably waives and agrees not to plead or claim in any such court that any suit, proceeding or other action brought in such court has been brought in an inconvenient forum.  

6.3  

Counterparts.  This Consent may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

6.4  

Headings Descriptive.  The headings of the several sections and subsections of this Consent are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Consent.

6.5  

Severability.  In case any provision in or obligation under this Consent shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

6.6  

Amendment, Waiver.  Neither this Consent nor any of the terms hereof may be terminated, amended, supplemented, waived or modified except by an instrument in writing signed by the parties hereto.  Any waiver under this Consent shall be effective only for the specified purpose for which it is given.

6.7  

Termination.

(a)

Consenting Party’s obligations hereunder are absolute and unconditional, and Consenting Party has no right, and shall have no right, to terminate this Consent or to be released, relieved or discharged from any obligation or liability hereunder until all Loans and other obligations under the Credit Agreement have been indefeasibly satisfied in full in cash or cash equivalents.  The Agent shall notify Consenting Party in writing when all such obligations have been satisfied (the “Termination Notice”).

(b) 

If the Agent delivers the Termination Notice to Consenting Party pursuant to this Section 6.7, this Consent shall terminate for all purposes as to the Agent and the Credit Agreement, and the Agent and the Lenders shall have no further rights or obligations under this Consent; provided, however, that Consenting Party agrees that this Consent shall continue to apply for the benefit of Borrower and the providers of new credit facilities to replace the Credit Agreement (the "New Lender") provided that (i) within five (5) days following delivery by the Agent to Consenting Party of the Termination Notice pursuant to this Section 6.7, the New Lender or agent, trustee or other representative of the New Lender, shall have notified Consenting Party that it agrees to be bound by the terms and conditions of this Consent and provides Consenting Party the information for Section 6.1 and new payment instructions (countersigned on behalf of Borrower) for Exhibit A, (ii) the amount of the new credit facilities does not exceed the original amount of commitment by the Lenders to make Loans under the original Credit Agreement, (iii) the replacement of the Credit Agreement occurs on a date not later than thirty (30) years after the date the New Common Facilities become available for commercial operation, and (iv) thereafter (A) the term "Loans" in this Consent shall be deemed to refer to the new credit facilities, (B) the term "Agent" or "Lenders" in this Consent shall be deemed to refer to the New Lender or any agent or trustee for the New Lender, (C) the term "Credit Agreement" in this Consent shall be deemed to refer to the credit agreement, indenture or other instrument providing for the new credit facilities and (D) the term "Security Agreement" in this Consent shall be deemed to refer to the security agreement under which the Assigned Agreement is assigned as collateral to secure performance of the obligations by Borrower under the new credit facilities.

6.8  

Successors and Assigns.  This Consent shall be binding upon Consenting Party and its permitted successors and assigns and shall inure to the benefit of the Agent and the Lenders, its designees and their respective successors and assigns.

6.9  

Further Assurances.  Consenting Party hereby agrees to execute and deliver all such instruments and take all such action as may be necessary to effectuate fully the purposes of this Consent.

6.10 

Waiver of Trial by Jury.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, CONSENTING PARTY, BORROWER AND THE AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT OR ANY MATTER ARISING HEREUNDER.

6.11  

Survival.  All agreements, statements, representations and warranties made by Consenting Party herein shall be considered to have been relied upon by the Agent and the Lenders and shall survive the execution and delivery of this Consent.

6.12  

Entire Agreement.   This Consent embodies the complete agreement between the parties hereto with respect to the subject matter hereof and supersedes all other oral or written understandings or agreements.

[Signatures follow on the next page]

IN WITNESS WHEREOF, each of the parties hereto has caused this Consent and Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written.

[CONSENTING PARTY]

By:

________________________

   

Name:

   

Title:

[AGENT],

as Agent

By:

_________________________

  

Name:

   

Title:

ACKNOWLEDGED AND AGREED TO BY:

[BORROWER]

By:

________________________

   

Name:

Title:

Exhibit A to

Consent and Agreement

[INSERT PAYMENT INSTRUCTIONS FOR APPROPRIATE ACCOUNT(S)]

Exhibit B to

Consent and Agreement

Approvals

Part I:

Existing Final Approvals

[INSERT APPROVALS, IF ANY]

Part II:

Deferred Approvals

Deferred Approval       

Date Required to be Final

[INSERT DEFERRED APPROVALS, IF ANY]

Exhibit C to

Consent and Agreement

Notice Information

If to Consenting Party:

[Consenting Party]

[________________________]

[________________________]

Attention:  [_______________]

Telephone: [_______________]

Facsimile: [________________]

If to Borrower:

[Borrower]

[________________________]

[________________________]

Attention:  [_______________]

Telephone: [_______________]

Facsimile: [________________]

If to Agent:

[Agent]

[________________________]

[________________________]

Attention:  [_______________]

Telephone: [_______________]

Facsimile: [________________]

SCHEDULE 7.4A

Tax Matters (Tax Exempt New Common Facilities Owner)

ARTICLE 1:  DEFINITIONS

Capitalized words and phrases used in this Schedule 7.4A and not otherwise defined in this Article 1 shall have the meaning set forth in Article I of the New Common Facilities Ownership Agreement (the “Ownership Agreement”).  The rules of interpretation and construction set forth in Section 1.2 of the Ownership Agreement are incorporated by reference herein.

1.1

“Affiliate” shall mean with respect to any Person, (a) each entity that such Person Controls, (b) each Person that Controls such Person, and (c) each entity that is under common Control with such Person.  For the purposes of this Schedule 7.4A, an Affiliate of a Person shall include any entity that is required to report the income, gains, losses, or deductions of such Person for federal or state income tax purposes and any member of an affiliated group of corporations of which such Person is or shall become a member if consolidated returns are or will be filed for such affiliated group for U.S. federal income tax purposes.

1.2

“After Tax Basis” shall mean on a basis such that any payment to be received or receivable actually, or constructively, or accrued by an Indemnitee is supplemented by a further payment or payments to such Indemnitee so that the sum of all such payments, after deducting all Taxes payable by such Indemnitee in respect of the receipt or accrual of such amount under any Law or Governmental Authority, is equal to the payment due to such Indemnitee pursuant to this Schedule 7.4A or Section 7.2 of the Ownership Agreement.  In making such calculations, it shall be assumed that the recipient is fully taxable for all income tax purposes at the highest marginal rate applicable to corporations at the time such amount is received or accrued.

1.3

“Controlling Party” shall have the meaning set forth in Section 3.2(d) hereof.

1.4

“Noncontrolling Party” shall have the meaning set forth in Section 3.2(d) hereof.

1.5

“Tax Indemnitee” shall mean a New Common Facilities Owner (other than a Tax Exempt New Common Facilities Owner) or any Affiliate thereof.

ARTICLE 2:  TAX LIABILITY AND TRANSFERS

2.1

Liability for Taxes.

Subject to Article 3 hereof, each Tax Exempt New Common Facilities Owner shall indemnify and hold harmless each Tax Indemnitee, on an After-Tax Basis, from and against any Taxes imposed on such Tax Indemnitee, the New Common Facilities or any part thereof resulting from a breach or inaccuracy by such Tax Exempt New Common Facilities Owner of any covenant, representation or warranty under the Elm Road I Project Documents.  

All calculations with respect to the amount of any indemnity payable hereunder shall be made initially by such Tax Indemnitee, and such Tax Indemnitee shall set forth any such amount or adjustment in a statement furnished to the Tax Exempt New Common Facilities Owner.  

2.2

Tax Exempt New Common Facilities Owner as Primary Obligor.  A Tax Exempt New Common Facilities Owner’s obligations under this Schedule 7.4A are those of a primary obligor and each Tax Indemnitee may proceed directly against such Tax Exempt New Common Facilities Owner without first seeking to enforce any other right of indemnification or reimbursement.  All amounts payable by a Tax Exempt New Common Facilities Owner pursuant to this Schedule 7.4A shall be treated as obligations of such Tax Exempt New Common Facilities Owner.

ARTICLE 3:  CONTESTS AND DISPUTES

3.1

Notice.  If a Tax Indemnitee receives a formal written notice of a claim or, if at the conclusion of an audit by the Internal Revenue Service or other Governmental Authority, there is Tax imposed on the New Common Facilities or any part thereof or a proposed adjustment in any item of income, deduction or credit of such Tax Indemnitee which if agreed to or accepted by such Tax Indemnitee would result in a Tax for which such Tax Indemnitee would seek reimbursement from a Tax Exempt New Common Facilities Owner pursuant to this Schedule 7.4A or Section 7.2 of the Ownership Agreement, then such Tax Indemnitee shall, (a) within 30 days prior to the date on which such Tax Indemnitee is required to act or (b) promptly after the conclusion of an audit, notify such Tax Exempt New Common Facilities Owner thereof in writing.  

3.2

Contests.

(a)

Control.  If requested by a Tax Exempt New Common Facilities Owner in writing, within 30 days of receipt of the notice described in Section 3.1 hereof, the Tax Indemnitee, if permitted by applicable Law either (i) in the case of any Tax that may be procedurally segregated and contested independently from any Tax that is not subject to indemnification by such Tax Exempt New Common Facilities Owner, unless an adverse determination of such contest would, in such Tax Indemnitee’s good faith judgment, have an adverse effect on such Tax Indemnitee’s tax liability arising out of transactions unrelated to this transaction, shall permit such Tax Exempt New Common Facilities Owner to contest (such contest to be conducted in the name of such Tax Exempt New Common Facilities Owner, if permitted by Law, or, otherwise, in the name of such Tax Indemnitee, provided, that, if such Tax Indemnitee determines at any time, in its sole discretion, that permitting such Tax Exempt New Common Facilities Owner to conduct or continue to conduct such contest is reasonably likely to have adverse business or other consequences to such Tax Indemnitee, such Tax Indemnitee shall have the right to control (or reassert control over) such contest) or (ii) in the case of a Tax which cannot be procedurally segregated and contested independently from Taxes not subject to indemnification by such Tax Exempt New Common Facilities Owner, shall itself, contest at the expense of such Tax Exempt New Common Facilities Owner (or shall request such Tax Exempt New Common Facilities Owner to contest) in good faith (including, without limitation, by pursuit of judicial appeals and administrative procedures), the validity, applicability or amount of such Taxes by (A) resisting payment thereof, (B) not paying the same except under protest if protest shall be necessary and proper or (C) if payment shall be made, seeking a refund thereof in appropriate administrative and/or judicial proceedings; provided, however, that in no event shall such contest be required or permitted or continued unless:

(1)

the amount at issue (taking into account all similar and logically related issues) exceeds $50,000;

(2)

prior to taking such action, such Tax Exempt New Common Facilities Owner shall have agreed in writing to pay such Tax Indemnitee, and shall pay on demand, all reasonable costs and expenses that such Tax Indemnitee shall incur in connection with contesting such claim (including, without limitation, all legal, investigatory and accounting fees and disbursements);

(3)

in the good faith judgment of such Tax Indemnitee, the action to be taken will not result in any danger of sale, forfeiture or loss of its Composite Component Ownership Interest, the New Common Facilities or any part or interest therein or the creation of any Lien (except for Permitted Encumbrances) on the Composite Component Ownership Interest, the New Common Facilities or any part or interest therein;

(4)

with respect to the action to be taken, there is no risk of criminal liability or criminal penalties or fines that may be imposed with respect to such Tax Indemnitee;

(5)

if such contest is to be initiated by the payment of, and the claiming of a refund for, such Taxes, such Tax Exempt New Common Facilities Owner shall advance the amount thereof plus interest, penalties and additions to Tax with respect thereto to such Tax Indemnitee on an interest-free basis with no additional net after-tax cost to such Tax Indemnitee to make such payment and shall indemnify such Tax Indemnitee in form and substance satisfactory to such Tax Indemnitee against any adverse tax consequences arising from such advance;

(6)

independent tax counsel selected by such Tax Exempt New Common Facilities Owner and reasonably acceptable to such Tax Indemnitee shall have furnished such Tax Indemnitee (unless waived in writing by such Tax Indemnitee) with an opinion prepared at such Tax Exempt New Common Facilities Owner’s expense, to the effect that there is a reasonable basis under Code Section 6662 and the Treasury Regulations thereunder to contest such claim);

(7)

such Tax Exempt New Common Facilities Owner shall have acknowledged in writing its obligation to indemnify such Tax Indemnitee in respect of such contested Tax in the event such contest is unsuccessful; provided, that such Tax Exempt New Common Facilities Owner shall not be bound by such acknowledgment if and to the extent that there is a final resolution of the contest from which it can be established that such Tax Exempt New Common Facilities Owner would not be liable for such Tax in the absence of such acknowledgment; and

(8)

in no event shall a Tax Indemnitee be required, or a Tax Exempt New Common Facilities Owner be permitted, to appeal an adverse judicial determination to the United States Supreme Court.

(b)

Waiver and Conditions to Contest.  Notwithstanding anything contained herein to the contrary, (i) a Tax Indemnitee will not be required to contest (and such Tax Exempt New Common Facilities Owner shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Tax Indemnitee waives its right to indemnification under this Schedule 7.4A or Section 7.2 of the Ownership Agreement, as applicable, with respect to such claim and repays such Tax Exempt New Common Facilities Owner any amounts advanced to, or on behalf of, such Tax Indemnitee pursuant to Section 3.2(a)(5) hereof (relating to amounts advanced to pay such Taxes), by such Tax Exempt New Common Facilities Owner with respect to such claim and (ii) such Tax Indemnitee will not be required to contest any claim if the subject matter thereof shall be of a continuing nature and the relevant legal issue shall have previously been decided adversely unless such Tax Exempt New Common Facilities Owner shall have delivered an opinion of tax counsel selected by such Tax Indemnitee and reasonably acceptable to such Tax Exempt New Common Facilities Owner that based on a change in Law after such previous decision, and taking into account such previous decision, it is more likely than not that such Tax Indemnitee will prevail on such claim.

(c)

Failure to Comply with Contest Provisions.  If such Tax Indemnitee fails to perform its obligations pursuant to this Section 3.2, such failure shall not diminish or relieve a Tax Exempt New Common Facilities Owner of any liability for indemnification except to the extent the contest of a claim is effectively precluded as a result of such failure.

(d)

Conduct.  The party conducting a contest pursuant to Section 3.2 hereof (“Controlling Party”) shall consult in good faith with the other party (“Noncontrolling Party”) and its counsel with respect to the contest of such claim for Taxes (or claim for refund) and shall provide copies of all material documents (or the relevant excerpts thereof) or notices received from the relevant Governmental Authority to the extent relating to the contest of a claim hereunder, but the decisions regarding any actions to be taken shall be made by the Controlling Party in its good faith judgment.  The Noncontrolling Party shall be permitted, to the extent practicable, to review and comment on any material written submissions made by the Controlling Party, but solely to the extent relating to such claim for Taxes.  The Controlling Party shall have the right to select counsel to conduct the contest subject to the reasonable consent of the Noncontrolling Party, provided, however that the rights of the Controlling Party pursuant to this Section 3.2(d) shall not be subject to the reasonable consent of the Noncontrolling Party in an income tax contest.

3.3

Disputes.  If a Dispute arises between a Tax Exempt New Common Facilities Owner and a Tax Indemnitee or between Tax Indemnitees regarding the application of any provision of this Schedule 7.4A (excluding any dispute that is governed by Section 3.2 hereof), such Dispute shall be governed by Article XVII of the Ownership Agreement.

SCHEDULE 7.4B

Tax Matters (New Common Facilities Owner)

ARTICLE 1:  DEFINITIONS

Capitalized words and phrases used in this Schedule 7.4B and not otherwise defined in this Article 1 shall have the meaning set forth in Article I of the New Common Facilities Ownership Agreement (the “Ownership Agreement”).  The rules of interpretation and construction set forth in Section 1.2 of the Ownership Agreement are incorporated by reference herein.

1.1

“ABA Standards” shall have the meaning set forth in Section 3.2(b) hereof.

1.2

“Adjustment Notice” shall have the meaning set forth in Section 5.1 hereof.

1.3

“Affiliate” shall mean (i) any member of an affiliated group of corporations of which WEC or MGE is or shall become a member if consolidated returns are or will be filed for such affiliated group for U.S. federal income tax purposes and (ii) any Person that a member of such consolidated group is required to report the income, gains, losses or deductions of for federal or state income tax purposes (i.e., any disregarded entity subsidiaries); provided, however, that for the purpose of calculating any indemnity payment under Section 3.2 hereof, the Taxes attributable to any Affiliate shall be determined on a non-consolidated basis.

1.4

“After Tax Basis” shall mean on a basis such that any payment to be received or receivable, actually or constructively, or accrued by a Tax Indemnitee is supplemented by a further payment or payments (such further payment or payments, the “Gross-Up” as defined in Section 4.2(a) hereof) to such Tax Indemnitee so that the sum of all such payments, after deducting all Taxes (based on the Tax Assumptions and taking into account any related current credits or current deductions) payable by such Tax Indemnitee in respect of the receipt or accrual of such amount under any Law or Governmental Authority, is equal to the payment due to such Tax Indemnitee (based on the Tax Assumptions).  

1.5

“Applied Amount” shall have the meaning set forth in Section 5.4 hereof.

1.6

“Assignment” shall have the meaning set forth in Section 5.7 hereof.

1.7

“Code” shall mean the Internal Revenue Code of 1986, as amended.

1.8

“Final Determination” shall mean: (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals (other than appeals to the U.S. Supreme Court) by either party to the action have been exhausted or the time for filing such appeals has expired; (b) a closing agreement entered into in connection with an administrative or judicial proceeding and with the consent of a Tax Indemnifying Party or as permitted by Section 5.3 hereof; (c) the expiration of the time for instituting suit with respect to the claimed deficiency; (d) the expiration of the time for instituting a claim for refund, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto; or (e) in any case where judicial review shall at the time be unavailable because the proposed adjustment involves a decrease in net operating loss carry forward or business credit carry forward, a declaratory judgment, decree of other order of an administrative official or agency of competent jurisdiction, which decision, judgment, decree or other order has become final.

1.9

“Gross-up” shall have the meaning set forth in Section 4.2(a) hereof.

1.10

“Inclusion” shall have the meaning set forth in Section 3.2(a) hereof.

1.11

“Inclusion Event” shall have the meaning set forth in Section 3.2 hereof.

1.12

“Lessee” shall mean any lessee or sublessee, if any, of an Owner whether or not such lessee is properly characterized as a lessee for U.S. federal income tax purposes.

1.13

“Owners” shall mean a New Common Facilities Owner other than a Tax Exempt New Common Facilities Owner.

1.14

“Reasonable Basis” shall have the meaning set forth in Section 3.2(b) hereof.

1.15

“Tax Assumptions” shall have the meaning set forth in Article 2 hereof.

1.16

“Tax Indemnifying Party” shall have the meaning set forth in Sections 3.1 hereof.

1.17

“Tax Indemnifying Party Act” shall have the meaning set forth in Section 3.1 hereof.

1.18

“Tax Indemnitee” shall have the meaning set forth in Sections 3.1 hereof.

1.19

“Tax Savings” shall have the meaning set forth in Section 4.2(c) hereof.

ARTICLE 2:  ASSUMPTIONS AND COVENANTS

The transactions contemplated by the Elm Road I Project Documents have been entered into on the basis of the following tax assumptions for both U.S. federal and state tax purposes (the “Tax Assumptions”):

2.1

Corporate Status.  For the purposes of this Schedule 7.4B, it is assumed that each Owner: (a) except as provided in Section 2.1(b) hereof, is subject to tax at the highest marginal federal and state rate applicable to Subchapter C corporations in effect at the time an obligation arises under this Schedule 7.4B; and (b) any Owner, or entity that is treated as the “owner” of the Owner’s interest in the New Common Facilities for U.S. federal income tax purposes, that is exempt from tax under the Code shall be deemed to be exempt from U.S. federal and state income tax for all purposes of this Schedule 7.4B.  

2.2

Method of Accounting.  Each Owner is a calendar-year taxpayer and will report all items of income, gain, loss, deduction, or credit relating to the transactions effected by the Elm Road I Project Documents using the accrual method of accounting.

2.3

Tax Reporting Status.  No Owner will be subject to any minimum tax or alternative minimum tax imposed under the Code. 

ARTICLE 3:  TAX INDEMNITY

3.1

Tax Indemnity.  Except with respect to Taxes indemnified pursuant to Section 3.2 hereof (which shall not also be subject to indemnification pursuant to this Section 3.1), and subject to the exceptions described in Section 3.3 hereof, each Owner (a “Tax Indemnifying Party”) shall indemnify and hold harmless each other Owner and its respective Affiliates (each, a “Tax Indemnitee”) on an After-Tax Basis from and against, any and all Taxes, however imposed, whether levied or imposed upon such Tax Indemnitee, a lessee, the New Common Facilities or any part thereof, by any Governmental Authority, or otherwise paid by any of the foregoing, to the extent such Taxes are attributable to:

(a)

the inaccuracy or breach by such Tax Indemnifying Party of any of its covenants, representations or warranties under the Elm Road I Project Documents;

(b)

any act or omission of such Tax Indemnifying Party (other than an act required or expressly permitted by the Elm Road I Project Documents) or such Tax Indemnifying Party’s Lessee;

(c)

any failure by such Tax Indemnifying Party to take any action expressly required to be taken under the Elm Road I Project Documents; 

(d)

the Gross Negligence or willful misconduct of such Tax Indemnifying Party (other than Gross Negligence imputed to a Tax Indemnifying Party solely by reason of its interest in the New Common Facilities) or such Tax Indemnifying Party’s Lessee; 

(e)

the payment of any warranties, refunds, insurance proceeds or similar items or requisition, condemnation or similar proceeds attributable to such Tax Indemnifying Party to the extent not retained by, or applied for the benefit of such Tax Indemnitee in accordance with its Composite Component Ownership Interest; or

(f)

any destruction, damage, loss, condemnation, non-use or requisition of the New Common Facilities or any part thereof, to the extent attributable to such Tax Indemnifying Party or such Tax Indemnifying Party’s Lessee,

each such event described in (a) - (f), an “Tax Indemnifying Party Act”.

3.2

Income Tax Indemnity.  Subject to Section 3.3 hereof, if, as a result of an Tax Indemnifying Party Act, a Tax Indemnitee,

(a)

is required by any Governmental Authority to include any amount in gross income for income tax purposes in connection with its Composite Component Ownership Interest (an “Inclusion”), or 

(b)

(i) is unable to exclude an Inclusion from its gross income for income tax purposes (based upon the receipt by such Tax Indemnitee not later than the filing date of the related tax return of such Tax Indemnitee of an opinion of independent tax counsel selected by such Tax Indemnitee to the effect that there is no reasonable basis under the standards set forth in ABA Formal Opinion 85-352 or successor thereto (the “ABA Standards”) or, in the case of a U.S.  federal income tax, a reasonable basis under Code Section 6662 and the Treasury Regulations thereunder (such a basis a “Reasonable Basis”) for excluding such Inclusion (which opinion shall set forth in reasonable detail the basis for the conclusions set forth therein)) or (ii) such claim would be inconsistent with a prior Final Determination of a contest and there has been no change in Law or interpretation thereof after such Final Determination, such Tax Indemnitee shall have suffered an “Inclusion Event” and Tax Indemnifying Party shall pay to such Tax Indemnitee, as an indemnity a lump-sum amount which, after giving effect to the Gross-Up, shall be sufficient to ensure that such Tax Indemnitee is in the same tax position that it would have been in had no such Inclusion Event occurred  (such indemnity to be computed in accordance with the Tax Assumptions).

3.3

Exclusions.  Notwithstanding Sections 3.1 or 3.2 hereof, no Tax Indemnifying Party shall be obligated to indemnify any Tax Indemnitee for any Taxes or Inclusion Events pursuant to either Sections 3.1 or 3.2 hereof, to the extent such amounts are attributable to any of the following events or circumstances:

(a)

with respect to any period following the later of (i) the expiration or earlier termination of the Tax Indemnifying Party’s obligations under the Elm Road I Project Documents, or (ii) the payment by a Tax Indemnifying Party of all amounts due and payable under the Elm Road I Project Documents;

(b)

a breach or inaccuracy by such Tax Indemnitee of any of its covenants, representations or warranties under the Elm Road I Project Documents;

(c)

such Tax Indemnitee’s transfer or other disposition of (i) all or a portion of its interest in the Elm Road I Project Documents, the New Common Facilities or any part thereof, or (ii) any interest in such Tax Indemnitee; 

(d)

the Gross Negligence, fraud or willful misconduct of such Tax Indemnitee (other than Gross Negligence imputed to such Tax Indemnitee solely by reason of its Composite Component Ownership Interest) or such Tax Indemnitee’s Lessee; 

(e)

any event whereby such Tax Indemnitee’s Lessee is required pursuant to the Operating Agreement to indemnify or otherwise reimburse such Tax Indemnitee or any other events pursuant to which such Tax Indemnitee is otherwise reimbursed or made whole;

(f)

the failure of such Tax Indemnitee or such Tax Indemnitee’s Lessee to provide any certification, documentation, or other evidence required as a condition to the allowance of a reduction of a Tax or Inclusion which, if properly complied with, would have resulted in an exemption from, or a reduced rate of such Tax, or a smaller Inclusion but, in the case of a Tax Indemnitee, only if such Tax Indemnitee was eligible to comply with such requirement and such Tax Indemnitee has determined in good faith that compliance with such requirements would not have a materially adverse effect on such Tax Indemnitee;

(g)

interest, penalties, or additions to tax imposed on such Tax Indemnitee as a result of a failure of such Tax Indemnitee or such Tax Indemnitee’s Lessee to file any return, tax report or statement properly or timely, unless such failure is caused by such Tax Indemnifying Party’s or such Tax Indemnifying Party Lessee’s failure to fulfill its obligations, if any, to provide such information required under Section 3.4 hereof or Section 7.3 of the Ownership Agreement; 

(h)

the failure of such Tax Indemnitee to contest a claim in accordance with the contest provisions herein to the extent such Tax Indemnifying Party’s or such Tax Indemnifying Party Lessee’s ability to contest a claim is adversely affected in any material respect;

(i)

the failure of such Tax Indemnitee (or Transferee thereof) to be a “United States person” (as defined in Code Section  7701(a)(30));

(j)

any amendment or modification to the Elm Road I Project Documents that is not requested or consented to by Tax Indemnifying Party or is not required by the Elm Road I Project Documents;

(k)

Taxes payable pursuant to Section 3.1 hereof to the extent such Taxes are imposed as a result of the situs of organization or incorporation, place of management or control, a place of business, or a permanent establishment of such Tax Indemnitee or such Tax Indemnitee’s Lessee or caused by a connection between such Tax Indemnitee or such Tax Indemnitee’s Lessee and the taxing jurisdiction; 

(l)

Taxes to the extent liability for such Tax could have been reduced or provided through “prudent” action, as defined by Wisconsin Public Service Corp. v. Public Serv. Comm., 156 Wis. 2nd 611 (Ct. App. 1990), and as may be interpreted from time to time; 

(m)

Taxes imposed on any Transferee of the interests held by such Tax Indemnitee (or of the direct or indirect interests of such Tax Indemnitee) (i) if such Tax would not have been imposed on the original Tax Indemnitee, or (ii) to the extent such Tax exceeds the amount of Tax that would have been imposed on the original Tax Indemnitee; 

(n)

Taxes imposed as a result of such Tax Indemnitee’s transfer of its Composite Component Ownership Interest;

(o)

any change in such Tax Indemnitee’s taxable year or method of accounting or the application of the short taxable year provisions of the Code;

(p)

Taxes to the extent such Tax Indemnifying Party separately pays such Taxes to the applicable Governmental Authority, or otherwise reimburses such Tax Indemnitee for Taxes pursuant to Section 3.1 hereof;

(q)

the application of Code Sections 55, 59A, 183, 291, 465, 469, 501, 542, 552, 593, 851, 856, 1272, 1361, 4975, the provisions of Subchapter K of the Code or the Treasury Regulations thereunder or the imposition of any Taxes imposed pursuant to ERISA;

(r)

the sale of any interest in the New Common Facilities pursuant to Article XIII of the Ownership Agreement; 

(s)

such Tax Indemnitee’s failure to properly exclude income unless such Tax Indemnitee shall have received a written opinion of its independent tax counsel that no Reasonable Basis exists for excluding such income (and for this purpose, such counsel may take into account the failure of such Tax Indemnifying Party, or such Tax Indemnifying Party Lessee, to provide necessary information requested in writing by such Tax Indemnitee to the extent such Tax Indemnifying Party or such Tax Indemnifying Party’s Lessee is required to provide such information pursuant to this Schedule 7.4B or Section 7.3 of the Ownership Agreement) or there has been a Final Determination with respect to such items; or 

(t)

Taxes payable pursuant to Section 3.1 hereof to the extent such Taxes are imposed on such Tax Indemnitee by withholding or otherwise, based upon, measured by or with respect to net or gross income, net or gross receipts, minimum and/or alternative minimum tax, capital, franchise, net worth, excess profits, value added or conduct of business, accumulated earnings Taxes or any capital gains, personal holding company, estate or succession Taxes or other similar Taxes of any Tax Indemnitee imposed by the United States or by any state, local or foreign jurisdiction (other than sales, use, license, ad valorem, or property Taxes, and other than value-added Taxes to the extent such value-added Taxes are not imposed in direct and clear substitution for an income Tax). 

3.4

Receipts and Records.  Each Tax Indemnitee shall use reasonable efforts to obtain official receipts indicating the payment of all Taxes that are subject to indemnification under Section 3.1 hereof and that are paid by such Tax Indemnitee, and shall promptly on request send to each Tax Indemnifying Party each such receipt or other such reasonably available evidence of payment as is reasonably acceptable to Tax Indemnifying Party.  

ARTICLE 4:  PAYMENTS AND GROSS-UPS

4.1

Payment Terms.

(a)

General.  Payments pursuant to this Schedule 7.4B or Section 7.2 of the Ownership Agreement shall be made in immediately available funds and in United States dollars at such bank or to such account as specified by the payee in written directives at least five Business Days prior to the due date thereof to the payor, or, if no such direction is given, by check of the payor payable to the order of the payee and mailed to the payee by certified mail, postage prepaid at its address as set forth in Schedule 15.3 to the Ownership Agreement.

(b)

Time of Payment by Tax Indemnifying Party.  Any indemnity payment due under this Schedule 7.4B or Section 7.2 of the Ownership Agreement to a Tax Indemnitee shall be paid by Tax Indemnifying Party within 30 days after receipt of a written demand therefor from the Tax Indemnitee, provided, however, a Tax Indemnifying Party shall not be required to make such payment earlier than (a) in the case of a Tax that is not being contested pursuant to Article 5 herein, five Business Days prior to the date that (i) such Tax Indemnitee files with the applicable Governmental Authority its income tax return, estimated or final as the case may be, which would first properly reflect the additional income tax that would become due as a result of an Inclusion, or in another case, the time such Tax is due, or (b) in the case of an Inclusion or other Tax that is being contested pursuant to Article 5 hereof, 30 days after the date of the Final Determination of such contest.

(c)

Time of Payment by Tax Indemnitee.  Any payment due by Tax Indemnitee to a Tax Indemnifying Party shall be paid within 30 days after the date on which such Tax Indemnitee files with the applicable Governmental Authority its income tax return, estimated or final as the case may be, on which the credits, deductions, or other tax benefits giving rise to such payment could first properly be reflected, or in the case of a Tax other than an income tax, within 30 days of receipt or accrual of such refund, credit or other tax benefit.  Any payment due hereunder from such Tax Indemnitee to a Tax Indemnifying Party on account of the receipt of any refund of tax shall be paid within 30 days after the receipt of such refund. 

4.2

Calculations of Payments and Gross-Ups.  All payments and calculations made under this Section 4.2 shall be made taking into account the Tax Assumptions.

(a)  Gross-Up.  Each payment and indemnity under Article 3 hereof shall be made on an After-Tax Basis.  For the purposes of this Section 4.2(a) and the definition of “After-Tax Basis”, “Gross-Up” means the portion of any payment due from a Tax Indemnifying Party to a Tax Indemnitee pursuant to Sections 3.1 and 3.2 hereof that is calculated to indemnify such Tax Indemnitee, or the portion of any reverse payment from such Tax Indemnitee to such Tax Indemnifying Party, on an After-Tax Basis.  As such, the amount payable to a Tax Indemnitee pursuant to Sections 3.1 and 3.2 hereof shall be an amount determined after (i) giving effect to any interest, penalties, or additions to tax attributable to the Tax or Inclusion Event (except for any penalties and additions to Tax excluded under Section 3.3(g) hereof); and (ii) taking into account any tax detriments and benefits reasonably expected to be realized by the Tax Indemnitee by reason of the corrections or adjustments giving rise to such Tax or Inclusion Event as applicable, (the net effect of items (i) and (ii), the “Gross-Up”).  

(b)

Calculations.  The amount of any indemnity payable by a Tax Indemnifying Party to a Tax Indemnitee pursuant to Article 3 hereof and any Gross-Up shall be calculated on the basis of the tax detriments and benefits incurred or to be incurred (for the purposes of Section 3.2 hereof as a result the same event giving rise to the Inclusion Event) by such Tax Indemnitee and such amounts shall be computed in accordance with the rates assumed in Section 2.1 hereof and the other Tax Assumptions.  Any Tax or Inclusion Event which does not result in an increase in such Tax Indemnitee’s U.S. federal, state and local income tax liability (or a decrease in such Tax Indemnitee’s refund of such income taxes) in the year of such Tax or Inclusion Event but which reduces any net operating loss, business credit, foreign tax credit carryover or other tax attribute of such Tax Indemnitee shall be treated as giving rise to an increase in U.S. federal, state or local income tax liability in the year for which such tax attribute if not reduced thereby would have given rise to an increase in such Tax Indemnitee’s U.S. federal, state or local tax liability.  Subject to Section 7.1 hereof, all calculations with respect to the amount of any indemnity payable hereunder (whether by lump-sum payment or otherwise) shall be made initially by such Tax Indemnitee, and such Tax Indemnitee shall set forth any such amount or adjustment in a statement furnished to Tax Indemnifying Party.  Such a statement shall accompany any notice furnished to, or demand made upon, Tax Indemnifying Party by such Tax Indemnitee pursuant to this Schedule 7.4B.

(c)

Reverse Indemnity.  If, as a result of a Tax or Inclusion Event indemnified hereunder, such Tax Indemnitee for any taxable year actually realizes any credits, deductions, or other tax benefits ("Tax Savings") not otherwise taken into account in computing any payment or indemnity by a Tax Indemnifying Party hereunder (or as a result thereof such Tax Indemnitee shall be entitled to a refund of income tax (or an offset, against other tax liability not indemnified hereunder) or interest on such refund (or offset) taking into account the rates assumed in Section 2.1 hereof and the other Tax Assumptions, then the Tax Indemnitee shall pay to Tax Indemnifying Party the amount by which such Tax Savings reduce the U.S. federal, state or local taxes of such Tax Indemnitee (and the amount of any such refund, offset, or interest to which such Tax Indemnitee is entitled), plus a “gross-up” for any additional U.S. federal, state or local income tax savings such Tax Indemnitee realizes as a result of such payment (including such “gross-up”).  The amount of any Tax Savings with respect to a Tax or Inclusion Event indemnified hereunder shall be computed on the basis of the tax benefits actually realized by such Tax Indemnitee, the rates assumed in Section 2.1 hereof and the other Tax Assumptions.  A Tax Indemnitee shall not be obligated to make any payment pursuant to this Section 4.2(c) to the extent that the amount of such payment would exceed (i) the aggregate amount of all prior payments by Tax Indemnifying Party to such Tax Indemnitee pursuant to this Schedule 7.4B, less (ii) the aggregate amount of all prior payments by such Tax Indemnitee to such Tax Indemnifying Party under this Section 4.2(c), but any such excess shall be carried forward and reduce such Tax Indemnifying Party’s obligations to make subsequent payments to such Tax Indemnitee pursuant to this Schedule 7.4B.  Any subsequent disallowance or loss of all or any portion of a reduction in such Tax Indemnitee’s tax liability which reduction was taken into account under this Section 4.2(c) (as a result of a redetermination of the claim giving rise to such payment by such Tax Indemnitee to a Tax Indemnifying Party by any taxing authority or as a result of a judicial proceeding with respect to such claim) shall be treated as a loss subject to indemnification under this Schedule 7.4B without regard to Section 3.3 hereof.

4.3

Tax Indemnifying Party a Primary Obligor.  A Tax Indemnifying Party’s obligations under this Schedule 7.4B are those of a primary obligor and each Tax Indemnitee seeking payment, reimbursement or indemnification from a Tax Indemnifying Party may proceed directly against such Tax Indemnifying Party without first seeking to enforce any other right of indemnification or reimbursement.  All amounts payable by a Tax Indemnifying Party pursuant to this Schedule 7.4B shall be treated as obligations of such Tax Indemnifying Party.

ARTICLE 5:  CONTEST PROVISIONS

5.1

Notice.  If a Tax Indemnitee receives a formal written notice of a claim or, if at the conclusion of an audit by the Internal Revenue Service or other Governmental Authority, there is a proposed adjustment in any item of income, deduction or credit of such Tax Indemnitee which if agreed to or accepted by such Tax Indemnitee would result in a Tax or an Inclusion Event for which such Tax Indemnitee would seek reimbursement or indemnification from a Tax Indemnifying Party pursuant to this Schedule 7.4B or Section 7.2 of the Ownership Agreement, then such Tax Indemnitee shall, (a) within 15 days prior to the date on which such Tax Indemnitee is required to act or (b) promptly after the conclusion of an audit, notify Tax Indemnifying Party thereof in writing (“Adjustment Notice”), provided, that the failure to so notify Tax Indemnifying Party or provide such materials to Tax Indemnifying Party shall not relieve Tax Indemnifying Party of its indemnity obligations hereunder except to the extent that such failure materially and adversely affects Tax Indemnifying Party’s ability to conduct a contest in any material respect.

5.2

Contest Provisions.  If requested by a Tax Indemnifying Party within 30 days after receipt of the Adjustment Notice, such Tax Indemnitee shall in good faith contest, or (if desired by such Tax Indemnitee) permit a Tax Indemnifying Party to contest the validity, applicability, and amount of any proposed adjustment that would give rise to a Tax or Inclusion Event by (a) not making payment thereof for at least 30 days after providing the Adjustment Notice, unless otherwise required by applicable Law, (b) not paying same except under protest, if protest is necessary and proper, or (c) if payment is made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings; provided, that (i) in the case of an income tax contest, as a condition to the commencement of such contest, such Tax Indemnitee shall have received a written opinion of its independent tax counsel selected by such Tax Indemnitee and reasonably acceptable to Tax Indemnifying Party to the effect that there is a Reasonable Basis for contesting such proposed adjustment, (ii) such Tax Indemnitee shall not be required to contest such proposed adjustment if the aggregate amount of the indemnity, on a before-tax basis, together with the amounts payable with respect to any future related claim, would be less than $100,000 in the case of an administrative contest or less than $250,000 in the case of a judicial contest, (iii) Tax Indemnifying Party shall have agreed in writing to pay to such Tax Indemnitee, on demand, all reasonable out-of-pocket costs and expenses which such Tax Indemnitee incurs in connection with and reasonably allocable to contesting such adjustment, including all reasonable legal, accountants’, and investigatory fees and disbursements; (iv) the Tax Indemnitee has determined, in good faith, that the contest will not result in a material risk of the loss or forfeiture of its Composite Component Ownership Interest (unless Tax Indemnifying Party has provided to such Tax Indemnitee a bond or other sufficient protection against such risk of loss or forfeiture reasonably satisfactory to such Tax Indemnitee) or the imposition of criminal penalties; (v) if such contest is to be initiated by the payment of, and the claiming of a refund for such Taxes, Tax Indemnifying Party shall advance the amount thereof plus, interest, penalties and additions to Tax with respect thereof to such Tax Indemnitee on an interest free basis with no additional after-tax cost to such Tax Indemnitee to make such payment and shall indemnify such Tax Indemnitee against any adverse tax consequences arriving from such advance (and if such contest is finally determined adversely, the amount of such loan shall be applied against Tax Indemnifying Party’s obligation to indemnify such Tax Indemnitee for a Tax which was the subject of such contest), and (vi) in the case of an income tax contest, Tax Indemnifying Party shall have acknowledged in writing its liability to indemnify the Tax Indemnitee in respect of such contested Tax in the event such contest is unsuccessful; provided, that Tax Indemnifying Party shall not be bound by such acknowledgment to the extent there is a Final Determination of the contest which clearly demonstrates that the Tax Indemnitee is not liable for such Tax.

If requested by Tax Indemnifying Party in writing, such Tax Indemnitee will appeal (or, if desired by such Tax Indemnitee, permit Tax Indemnifying Party to appeal) any adverse judicial determination, provided that such Tax Indemnitee shall receive an opinion of its independent tax counsel selected by such Tax Indemnitee and reasonably acceptable to such Tax Indemnifying Party to the effect that it is more likely than not under the ABA Standards and within the meaning of Code Section 6662 that a favorable result will result from such appeal.  A Tax Indemnitee shall not be required to appeal any adverse judicial determination to the United States Supreme Court. 

5.3

Compromise or Settlement.  A Tax Indemnitee shall have the right to settle or compromise a contest if such Tax Indemnitee has provided Tax Indemnifying Party with a reasonable opportunity to review a copy of that portion of the settlement or compromise proposal which relates to the claim for which such Tax Indemnitee is seeking indemnification hereunder; provided that if (a) such Tax Indemnitee fails to provide such Tax Indemnifying Party such a reasonable opportunity to review such portion of such proposal, or (b) after such reasonable opportunity to review such proposal such Tax Indemnifying Party in writing reasonably withholds its consent to all or part of such settlement or compromise proposal, then Tax Indemnifying Party shall not be obligated to indemnify such Tax Indemnitee hereunder to the extent of the amount attributable to the Tax or Inclusion Event to which such settlement or compromise relates as to which such Tax Indemnifying Party has reasonably withheld its consent, or with respect to any other Tax or Inclusion Event for which a successful contest is foreclosed because of such settlement or compromise as to which such Tax Indemnifying Party has reasonably withheld its consent.  

5.4

Refunds.  If such Tax Indemnitee receives a repayment or a refund of all or any part of any amount paid with respect which a Tax Indemnifying Party has indemnified such Tax Indemnitee pursuant to this Schedule 7.4B (or if an amount which otherwise would have been a refund was used to offset another liability of such Tax Indemnitee (an “Applied Amount”)), then such Tax Indemnitee shall pay to Tax Indemnifying Party an amount equal to the sum of the amount of such repayment or refund (or Amount), plus any interest received on such repayment or refund (or that would have been received if such Applied Amount had been refunded to such Tax Indemnitee) attributable to any taxes paid by Tax Indemnifying Party to or for such Tax Indemnitee net of any taxes incurred on such refund or Applied Amount (plus any tax benefit received or that would have been received by such Tax Indemnitee on account of such payment, as determined under Section 4.2(c) hereof).  If such Tax Indemnitee receives an award of attorneys’ fees in a contest for which Tax Indemnifying Party has paid an allocable portion of the contest expenses, such Tax Indemnitee shall pay to Tax Indemnifying Party the same proportion of the amount of such award as the amount of such Tax Indemnitee’s attorneys’ fees paid or reimbursed by such Tax Indemnifying Party bears to the total amount of attorneys’ fees actually incurred by such Tax Indemnitee in conducting such contest, up to the amount of attorneys’ fees paid or borne by such Tax Indemnifying Party in connection with such contest.  Any subsequent disallowance or loss of such refund (as a result of a redetermination of the claim giving rise to such payment by such Tax Indemnitee to a Tax Indemnifying Party by any taxing authority or as a result of a judicial proceeding with respect to such claim) shall be treated as a loss subject to indemnification under this Schedule 7.4B without regard to Section 3.3 hereof.

5.5

Failure to Contest.  Notwithstanding anything to the contrary contained in this Article 5 and subject to the exclusion contained in Section 3.3(h) hereof such Tax Indemnitee may at any time decline to take any further action with respect to a proposed adjustment by notifying Tax Indemnifying Party in writing that it has waived its right to any indemnity payment that would otherwise be payable by such Tax Indemnifying Party pursuant to this Schedule 7.4B in respect of such adjustment and with respect to any other amount for which a successful contest is foreclosed because of such failure to contest (if such failure adversely affects a contest in any material respect) or to permit a contest.  If such Tax Indemnitee fails to contest or to permit a contest hereunder, such Tax Indemnitee will not be required to pay over to a Tax Indemnifying Party any amount representing tax benefits which result from any amount as to which such Tax Indemnitee has been deemed to have waived its right to any indemnity payment hereunder.

5.6

Disputes.  If a Dispute arises between a Tax Indemnitee and a Tax Indemnifying Party regarding the application of any provision of this Schedule 7.4B (excluding any dispute that is governed by Sections 5.1, 5.2, and 5.3 hereof), such Dispute shall be governed by Article XVII of the Ownership Agreement.  

5.7

Assignment of Rights.  Upon written notice to a Tax Indemnitee, the rights of a Tax Indemnifying Party under this Schedule 7.4B shall be assigned to a Tax Indemnifying Party Lessee (the “Assignment”).  Upon receipt of a notice of Assignment, any obligation of the Tax Indemnitee to Tax Indemnifying Party shall become an obligation of the Tax Indemnitee to Tax Indemnifying Party Lessee.

5.8

Previously Contested Matters.  Notwithstanding the foregoing, a Tax Indemnitee shall not be required to contest any claim if the subject matter thereof shall be of a continuing nature and shall have previously been the subject of a Final Determination pursuant to the contest provisions of this Article 5, unless there shall have been a change in the relevant circumstances or in the Law (including, without limitation, amendments to statutes or regulations, administrative rulings and court decisions) after such Final Determination and as a result of such change in circumstances or in the Law, it is more likely than not within the meaning of the ABA Standards and Code Section 6662 that the claim would be resolved in favor of Tax Indemnifying Party, as evidenced by an opinion of independent counsel, selected by Tax Indemnifying Party and reasonably acceptable to the Tax Indemnitee. 

ARTICLE 6:  [INTENTIONALLY OMITTED]

ARTICLE 7:  RECOMPUTATIONS

7.1

Verification of Calculations.  At a Tax Indemnifying Party’s request, the accuracy of any calculation of amount(s) payable pursuant to this Schedule 7.4B shall be verified by independent public accountants selected by the Tax Indemnitee and reasonably satisfactory to Tax Indemnifying Party and such verification shall bind such Tax Indemnitee and such Tax Indemnifying Party.  In order, and to the extent necessary, to enable such independent accountants to verify such amounts, such Tax Indemnitee shall provide to such independent accountants (for their confidential use and not to be disclosed to a Tax Indemnifying Party or any other person) all information (other than its tax returns and workpapers) reasonably necessary for such verification, including any computer program, related files, or reports used by such Tax Indemnitee in originally determining a Tax or Inclusion.  Verification shall be at the expense of Tax Indemnifying Party, unless, as the result of such verification, the Tax Indemnitee’s calculation of the applicable amount payable is adjusted by 3% or more in favor of Tax Indemnifying Party, in which case the expense shall be borne by such Tax Indemnitee.

               SCHEDULE 18.3

Notice Information

If to ERGS SC:

Elm Road Generating Station Supercritical, LLC

c/o W.E. Power LLC

301 W. Wisconsin Avenue, Suite 600

Milwaukee, Wisconsin 53203

Attention: Vice President and Project Director, Tom Metcalfe

Telephone:  (414) 274-4442

Facsimile:  (414) 274-4495

Email: tom.metcalfe@wepowerllc.com 

If to MGE Power:

MGE Power-Elm Road LLC

P.O. Box 1231

133 South Blair Street 53703

Madison, WI 

Attention:  Manager

Telephone: 608-252-7149

Facsimile: 608-252-4794

E-mail:  jnewman@mge.com

  keuclide@mge.com

If to WPPI:

Wisconsin Public Power Inc.

1425 Corporate Center Drive

Sun Prairie, WI 53590-9109

Attention:   Senior Vice President - Legal & Regulatory 

       Senior Vice President - Power Supply 

       

Telephone: (608) 834-4500

Facsimile: (608) 837-0274

E-mail:  mstuart@wppisys.org

  psteitz@wppisys.org

Footnotes

1

Insert applicable percentage determined pursuant to Ownership Agreement.

2

This sentence and Annex A attached hereto are only applicable when Assignee is an Acceptable Assignee (as such term is defined in the Unit Ownership Agreements) and not an Affiliate or an Acceptable Assignee that is a WPPI Member, or a Person Controlled by WPPI or one or more WPPI Members.

3

Insert state in which Assignee is organized.

4

Insert state in which Assignor is organized.

5

This assumes that Assignor and Assignee have satisfied or waived all of the conditions to Transfer of the Transferred New Common Facilities Ownership Interest in accordance with Article IV of the Ownership Agreement.

6

Insert applicable name of party to the New Common Facilities Ownership Agreement.

7 

Insert applicable name of Agent under the Credit Agreement.

8

References to “Lenders” and “Credit Agreement” herein and the Recitals may be modified as appropriate to reflect credit arrangements which are not loan facilities.

9

This recital assumes that ERGS SC has elected to proceed with the construction of Unit 1 and the New Common Facilities pursuant Section 2.3(a) of the Elm Road I Ownership Agreement; otherwise there would be no basis for any party to enter into this Consent.

10

This recital assumes that ERGS SC has elected to proceed with the construction of Unit 2 pursuant to Section 2.3(a) of the Elm Road II Ownership Agreement.

11

For purposes of applying this definition in respect of WPPI, “unsecured long-term debt” shall mean “long-term debt which is not secured by a lien on any tangible assets”.

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