Document:

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                                                                    Exhibit 10.6

                      FUEL SUPPLY AND MANAGEMENT AGREEMENT

                                    between

                               ELWOOD ENERGY LLC
                             ELWOOD ENERGY II, LLC
                             ELWOOD ENERGY III, LLC

                                      and

                        CINERGY MARKETING & TRADING, LLC

                            dated as of May 1, 2001
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                               TABLE OF CONTENTS

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ARTICLE I DEFINITIONS..........................................................................     2
ARTICLE II TERM AND DESIGNATED REPRESENTATIVES.................................................     6
     2.1   Term................................................................................     6
     2.2   Designated Representatives..........................................................     7
ARTICLE III RESPONSIBILITIES OF FUEL MANAGER...................................................     7
     3.1   Supply and Delivery of Gas..........................................................     7
     3.2   Contract Management and Administration..............................................     7
     3.3   Quality of Gas......................................................................     8
     3.4   Compliance..........................................................................     8
     3.5   Metering............................................................................     8
     3.6   Sale of Power to Elwood.............................................................     8
ARTICLE IV RESPONSIBILITIES OF ELWOOD..........................................................     9
     4.1   On-Site Gas Handling Equipment......................................................     9
     4.2   Notice of Facility Operations.......................................................     9
     4.3   Loaned Gas Balance..................................................................     9
     4.4   Operation of the Facility...........................................................     9
     4.5   Status of T&B Agreement.............................................................    10
ARTICLE V PAYMENTS RELATED TO GAS..............................................................    10
     5.1   Payments by Elwood..................................................................    10
     5.2   Payments by Fuel Manager............................................................    11
ARTICLE VI OFFSET RIGHTS.......................................................................    12
     6.1   Offset Rights.......................................................................    12
ARTICLE VII BILLINGS AND PAYMENT...............................................................    13
     7.1   Information from Nicor Gas..........................................................    13
     7.2   Invoices by Fuel Manager............................................................    13
     7.3   Records.............................................................................    13
     7.4   Interest............................................................................    13
     7.5   Billing Disputes....................................................................    13
     7.6   Days/Business Days..................................................................    14
ARTICLE VIII AGENCY............................................................................    14
     8.1   Grant of Agency.....................................................................    14
     8.2   Limitations on Agency...............................................................    15
     8.3   No Transfer.........................................................................    15
     8.4   Obligations of Agent................................................................    15
     8.5   Notice of Agency....................................................................    15
ARTICLE IX ADDITIONAL COVENANTS................................................................    15
     9.1   Assignment..........................................................................    15
     9.2   Taxes on Gas........................................................................    17
     9.3   Fuel Manager Guaranty...............................................................    18
     9.4   Elwood Guaranties...................................................................    18
ARTICLE X DEFAULT AND TERMINATION..............................................................    18
     10.1  Termination of Agency...............................................................    18
</TABLE>

                                       i
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<TABLE>
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     10.2  Termination upon Enforcement Action.................................................    18
     10.3  Fuel Manager Default................................................................    18
     10.4  Elwood Default......................................................................    20
     10.5  Release of Obligations..............................................................    20
ARTICLE XI INDEMNITY...........................................................................    21
     11.1  Fuel Manager Indemnity..............................................................    21
     11.2  Elwood Indemnity....................................................................    21
     11.3  Survival............................................................................    22
ARTICLE XII LIMITATION OF LIABILITY............................................................    22
     12.1  Limitation of Liability.............................................................    22
ARTICLE XIII REPRESENTATIONS AND WARRANTIES....................................................    23
     13.1  By Fuel Manager.....................................................................    23
     13.2  By Elwood...........................................................................    23
ARTICLE XIV FORCE MAJEURE......................................................................    24
     14.1  Force Majeure Generally.............................................................    24
     14.2  Definition of Force Majeure.........................................................    25
     14.3  Exclusions from Force Majeure.......................................................    26
     14.4  Extended Force Majeure..............................................................    26
ARTICLE XV MISCELLANEOUS.......................................................................    26
     15.1  Notices.............................................................................    26
     15.2  Governing Law.......................................................................    27
     15.3  Copies..............................................................................    28
     15.4  Non Waiver..........................................................................    28
     15.5  Headings............................................................................    28
     15.6  Binding Effect......................................................................    28
     15.7  Severability; Merger................................................................    28
     15.8  Confidentiality.....................................................................    28
     15.9  Disagreements.......................................................................    29
     15.10 Survival............................................................................    29
     15.11 Counterparts........................................................................    29
</TABLE>

Exhibits:
     Exhibit A    Communications Protocol
     Exhibit B    Fuel Manager Guaranty
     Exhibit C-1  Elwood Guaranty (Dominion Energy, Inc.)
     Exhibit C-2  Elwood Guaranty (Peoples Energy Corporation)

                                      ii
<PAGE>

                     FUEL SUPPLY AND MANAGEMENT AGREEMENT

     This AGREEMENT is made as of May 1, 2001 between ELWOOD ENERGY LLC, ELWOOD
ENERGY II, LLC and ELWOOD ENERGY III, LLC, all of which are Delaware limited
liability companies, (collectively "Elwood"), and CINERGY MARKETING & TRADING,
LLC, a Delaware limited liability company ("Cinergy" or "Fuel Manager").  Elwood
and Cinergy are sometimes referred to herein individually as a "party" or
collectively as the "parties."

                                   RECITALS
                                   --------

     A.   Elwood Energy LLC is the developer of, and owns and operates, a
nominally 600 MW gas-fired power generation facility in Elwood, Illinois.
Elwood Energy II, LLC and Elwood Energy III, LLC are in the process of
developing and constructing additional generation facilities on the existing
site of Elwood Energy LLC.  Upon the completion of this construction in the
spring of 2001, Elwood Energy II, LLC and Elwood Energy III, LLC will own and
operate 300 MW and 450 MW of gas-fired power generation, respectively.
Collectively, Elwood will own and operate 1350 MW of gas-fired power generation
in Elwood, Illinois (the "Facility").  The Facility is comprised of nine (9) GE
7FA simple cycle combustion turbines of which Units 1 through 4 are owned and
operated by Elwood Energy LLC, Units 5 and 6 are owned and operated by Elwood
Energy II, LLC and Units 7 through 9 are owned and operated by Elwood Energy
III, LLC.

     B.   Elwood has agreed to sell during the Term of this Agreement, the
capacity, energy and ancillary services from Units 1 through 4 and Unit 9 to
Exelon Generation Company, LLC and from Units 5 through 8 to Aquila Energy
Marketing Corporation and Utilicorp United, Inc.

     C.   In connection with securing Gas for the Facility, Elwood has entered
into a Gas Transportation and Balancing Agreement dated as of May 1, 2001, with
Northern Illinois Gas Company d/b/a Nicor Gas Company ("Nicor Gas" or "Nicor")
(the "Nicor T&B Agreement") under which Nicor Gas will provide transportation,
balancing and storage services for quantities of Gas (as defined herein)
delivered to Nicor Gas or The Peoples Gas Light and Coke Company ("Peoples Gas")
for the account of Elwood via the interstate pipeline facilities of Northern
Border Pipeline Company ("NBPL") , Alliance Pipeline Company ("APL") and Natural
Gas Pipeline Company of America ("NGPL") and will redeliver such quantities to
Elwood at the Facility or into storage.

     D.   Subject to the terms and conditions of this Agreement, Fuel Manager
has agreed to serve as Fuel Manager by taking on the exclusive rights and
obligation to procure, schedule and deliver to Nicor and/or Peoples Gas volumes
sufficient to meet Elwood's requirements for Gas at the Facility, including the
management and administration of the Nicor T&B Agreement and any other
agreements of Elwood specified herein.

                                       1
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                                   ARTICLE I
                                  DEFINITIONS

     Whenever capitalized terms appear in this Agreement, they shall have the
meanings set forth below:

     "Affiliate" when used with respect to any Person, means any Person
controlling, controlled by or under common control with such Person.  For the
purposes of this definition, the term "controlling" (and, with correlative
meanings, the terms "controlled by" and "under common control with") shall mean
the possession of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or agency or otherwise.

     "Agent" has the meaning set forth in Section 8.1(a).

     "APL" means Alliance Pipeline Company

     "Btu" means British Thermal Unit, as calculated in the NBPL FERC Gas
Tariff.

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

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

     "Cinergy's Forecast Burn" shall be the estimate of Facility Consumption of
Gas for the next Gas Day given by Cinergy to Nicor in accordance with Exhibit A,
                                                                      ---------
which shall be deemed to be the Forecast Burn described in the Nicor T&B
Agreement except on Special Days as provided in Exhibit A.
                                                ---------

     "Communications Protocol" has the meaning set forth in Section 4.2.

     "Confidential Information" has the meaning set forth in Section 15.8.

     "Creditor" has the meaning set forth in Exhibit B.
                                             ---------

     "Critical Day" has the meaning ascribed to it in the Nicor T&B Agreement.

     "Debtor" has the meaning set forth in Exhibit B.
                                           ---------

     "Default Rate" means a rate of interest equal to the lower of (i) the then
effective prime rate of interest published under "Money Rate" by the Wall Street
Journal, plus two per cent (2%) per annum or (ii) the maximum applicable lawful
interest rate.

     "Deferred Special Day Volumes" has the meaning set forth in Section 5.1(c).

                                       2
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     "Deferred Special Day Volume Balance" means the quantity of Gas deferred
for storage under Section 5.1(c) at any point in time

     "Delivery Point" means the facilities of Nicor that measure the Gas at the
Facility.

     "Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy
requirements submitted to Elwood by Elwood's power customers by 9:00 a.m.
Central Clock Time on a calendar day prior to the calendar day on which energy
is to be delivered.

     "Dth" means the quantity of heat energy that is one (1) MMBtu.  "Dth/d"
shall refer to the number of Dth per day.

     "Effective Degree Day" or "EDD" has the meaning associated to it in the
Nicor T&B Agreement.

     "Elwood Event of Default" has the meaning set forth in Section 10.4(a).

     "Elwood Forecast Burn" shall mean the estimate of Facility Consumption of
Gas for the next Gas Day given by Elwood to Cinergy in accordance with Exhibit
                                                                       -------
A.
-

     "Elwood Forecast Variance" shall be the absolute daily difference between
the Elwood Forecast Burn and the actual consumption of the Facility.

     "Elwood Guarantor" means the Guarantor under an Elwood Guaranty.

     "Elwood Guaranty" and "Elwood Guaranties" have the meanings set forth in
Section 9.4.

     "Facility" has the meaning set forth in Recital A.

     "Facility Consumption" means the actual amount of Gas consumed by the
Facility during a Gas Day, except as otherwise provided in Section 5.1(c).

     "FERC" means the Federal Energy Regulatory Commission.

     "FERC Gas Tariff" means the FERC-approved tariff, as it may be revised from
time-to-time, of the interstate pipeline on which Gas is being transported.

     "Force Majeure" has the meaning set forth in Section 14.2(a) as to Elwood
and has the meaning set forth in Section 14.2(b) as to Fuel Manager.

     "Forfeited Gas" has the meaning set forth in Section 5.1(a).

     "Fuel Manager Event of Default" has the meaning set forth in Section
10.3(a).

     "Fuel Manager Guarantor" means the Guarantor under the Fuel Manager
Guaranty.

                                       3
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     "Fuel Manager Guaranty" has the meaning set forth in Section 9.3.

     "Fuel Manager T&B Charges" has the meaning set forth in Section 5.2.

     "Fuel Specifications" means the specifications for Gas set forth in the
FERC approved tariff of the interstate pipeline on which the Gas is being
transported.

     "Gas" means natural gas that conforms to the Fuel Specifications.

     "Gas Daily Average Price" means the price equal to the "Midpoint" price per
MMBtu published in Gas Daily in the table entitled Daily Price Survey, under the
                   ---------
entry for "Citygates, Chicago LDCs, large e-us" for the date of consumption at
the Facility (or the date on which the Gas is deemed to be sold to Elwood for
storage under Section 4.3).  The Gas Daily Average Price for any day for which
the "Midpoint" price is not published shall be equal to the next published
"Midpoint" price for a subsequent day first published after such day of non-
publication.

     "Gas Day" has the meaning ascribed to it in Nicor Gas' Schedule of Rates.

     "Gas Inventory" means the quantity of Gas stored at a particular point in
time under the Nicor T&B Agreement.

     "Guarantor" has the meaning, with respect to any Guaranty, set forth in
Exhibit B, Exhibit C-1 or Exhibit C-2, as applicable.
---------  -----------    -----------

     "Guaranty" means Exhibit B, Exhibit C-1 or Exhibit C-2.
                      ---------  -----------    -----------

     "kWh" means kiloWatthour.

     "Lenders" has the meaning set forth in Section 9.1.

     "Loaned Gas Balance" has the meaning set forth in Section 4.3.

     "Maximum Daily Quantity" or "MDQ" means the maximum quantity of Gas that
Fuel Manager shall be obligated to sell and deliver to Elwood for consumption at
the Facility on any Gas Day.  The MDQ during the Summer Months is 362,400
MMBtu/d; of which 241,600 MMBtu/d is the Firm MDQ and 120,800 MMBtu/d is the
Non-Firm MDQ.  The Firm MDQ during the Non-Summer Months is the lesser of
213,300 MMBtu/d or 88,875 MMBtu/d plus Fuel Manager's nominated volumes to flow
on any Gas Day (Next Day Flowing Gas per Exhibit A) plus any Requested
Authorized Use volumes.  The Non-Firm MDQ on a Non-Summer Gas Day shall be Fuel
Manager's obligation, using reasonable efforts, to sell and deliver remaining
quantities above the Firm MDQ up to 426,600 MMBtu/d in total.

                                       4
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     "Maximum Hourly Quantity" or "MHQ" means the maximum quantity of Gas that
Elwood may consume at the Facility during any hour.  The MHQ during the Summer
Months is 15,100 MMBtu/hour and the MHQ during the Non-Summer Months is 17,775
MMBtu/hour.

     "MMBtu" means One Million British Thermal Units.

     "MMDth" means One Million Dth.

     "NBPL" means Northern Border Pipeline Company.

     "NGPL" means Natural Gas Pipeline Company of America.

     "Nicor Gas" or "Nicor" has the meaning set forth in Recital C.

     "Nicor Gas Outage Condition" has the meaning set forth in Section 14.2(b).

     "Nicor  Gas' Schedule of Rates" has the meaning set forth in the Nicor T&B
Agreement.

     "Nicor T&B Agreement" has the meaning set forth in Recital C.

     "Non-Special Day" means any Gas Day that is not a Special Day.

     "Non-Summer Months" means the months of October, November, December,
January, February, March, April and May.

     "Peoples Gas" has the meaning set forth in Recital C.

     "Peoples Gas T&B Agreement" means companion transportation and balancing
agreement between Nicor Gas and Peoples Gas which is used to support Nicor
services on behalf of Elwood herein.

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

     "Pipeline Outage Condition" has the meaning set forth in Section 14.2(b).

     "Prudent Management Practices" means acts or practices undertaken by a
prudent fuel manager assigned with the task of purchasing and managing the
supply of gas and administering balancing and transportation arrangements to
meet the prescribed daily firm obligations of a competitive non-utility power
generating facility, which acts and practices in the case of Fuel Manager (or
Agent as the case may be) shall be undertaken in a manner consistent with this
Agreement, other contracts and agreements necessary for the operation of the
Facility, and the laws, rules and regulations which may apply to the ownership
and operation of the Facility.

                                       5
<PAGE>

     "Purchase Agreement" means any contract, purchase order or other agreement
(other than the Nicor T&B Agreement) for the purchase, transportation or storage
of Gas for use or potential use, by Elwood at the Facility.

     "Receipt Point" means each point of interconnection between the system of
Nicor or Peoples Gas and the system of NBPL, APL or NGPL.

     "Representatives" has the meaning set forth in Section 15.8.

     "Revised Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy
requirements submitted to Elwood by Elwood's power customers after 9:00 a.m.
Central Clock Time on a calendar day one (1) hour prior to delivery of energy
during Summer Months and three to five (3-5) hours prior to delivery of energy
during Non-Summer Months.

     "Sellers" means, as applicable, suppliers of Gas and suppliers of
transportation and storage of Gas.

     "Short Notice" has the meaning set forth in Section 4.2.

     "Special Day" shall mean a Gas Day on which, for the entire Gas Day or any
part thereof, (a) Nicor had declared a Critical Day under the Nicor T&B
Agreement, (b) Nicor has forecasted that the Gas Day will be an Effective Degree
Day greater than or equal to 60 EDD, and an hourly delivery limitation has been
imposed by Nicor under the Nicor T&B Agreement, (c) storage withdrawal or
transportation service has been curtailed by Nicor under the Nicor T&B Agreement
or (d) Nicor has declared a force majeure under the Nicor T&B Agreement.

     "Summer Months" means the months of June, July, August and September.

     "Taxes" has the meaning set forth in Section 9.2.

     "Term" has the meaning set forth in Section 2.1.

     "Unit" means the nine (9) GE  7FA simple cycle combustion turbines
described in Recital A, any one of which is a "Unit."

     "Updated Dispatch Schedule" has the meaning set forth in Exhibit A,
                                                              ---------
Communications Protocol.

                                  ARTICLE II
                      TERM AND DESIGNATED REPRESENTATIVES

     2.1  Term.

The term of this Agreement (the "Term") shall begin as of May 1, 2001 and shall
expire on April 30, 2002, unless terminated in accordance with Article 10 or
extended by agreement of the parties hereto.

                                       6
<PAGE>

     2.2  Designated Representatives.

Any communications between the parties regarding authorizations by Elwood
required under this Agreement for actions to be taken by Fuel Manager shall be
made only by a designated representative of Elwood in accordance with the
Communications Protocol contained in Exhibit A to this Agreement.
                                     ---------

                                  ARTICLE III
                       RESPONSIBILITIES OF FUEL MANAGER

     3.1  Supply and Delivery of Gas.

          (a) Subject to Section 10.3(c) of this Agreement, during the Term,
     Fuel Manager, at its own cost and expense (except as set forth in Section
     5.1), shall supply and arrange for the delivery of Gas in accordance with
     Prudent Management Practices (as defined herein) to the Receipt Points for
     redelivery by Nicor or its designee to the Facility, on a firm basis up to
     the Firm MDQ and for the purchase price set forth in Section 5.1 hereof,
     Elwood's full Gas requirements for consumption by the Facility, subject to
     the limitations of the Nicor T&B Agreement; provided, however, that on a
                                                 -----------------
     Special Day Fuel Manager will be obligated to deliver Gas only if Fuel
     Manager and Elwood agree on a quantity (which may include an MHQ) and price
     for Gas to be delivered to the Receipt Points.  Except as provided in
     Section 10.3(c), Fuel Manager shall be the sole supplier of Gas to the
     Facility during the term of this Agreement.  If Elwood requests Gas in
     excess of the Firm MDQ, Fuel Manager's obligation to supply and arrange for
     the delivery of such Non-Firm Gas shall be on a reasonable efforts basis
     only for up to an additional daily quantity not to exceed the applicable
     Non-Firm MDQ, without any penalty for Fuel Manager's failure to do so.

          (b) Fuel Manager agrees that, during the term of the Nicor T&B
     Agreement, all Gas scheduled for consumption by the Facility, and required
     to be sold and delivered by Fuel Manager, must be (i) nominated on the
     appropriate interstate pipeline's nomination system and to the Nicor Gas
     Exchange nomination system, or such other electronic nomination system as
     Nicor may implement from time-to-time, on a timely basis and within the
     defined parameters of the Nicor T&B Agreement, (ii) met from the storage
     capacity available by the Nicor T&B Agreement and Cinergy's management of
     inventory therein, or (iii) purchased from Nicor as Requested Authorized
     Use volumes or Unauthorized Use volumes, as applicable, under the Nicor T&B
     Agreement.

          (c) In discharging its responsibilities, Fuel Manager shall be
     responsible for managing fuel supply volumes within the defined parameters
     of the Nicor T&B Agreement and for the charges assessed by Nicor for
     failure to do so, which are limited to those charges for which Fuel Manager
     is responsible under Section 5.2.

     3.2  Contract Management and Administration.

          (a) Fuel Manager shall be responsible, using Prudent Management
     Practices, twenty-four (24) hours a day, seven (7) days a week during the
     Term, for all

                                       7
<PAGE>

     communications, nominations, balancing and administration under the Nicor
     T&B Agreement. In the event that Cinergy's performance under this Agreement
     results in written notice from Nicor Gas that service may or will be
     suspended under the Nicor T&B Agreement, Elwood reserves the right to
     immediately suspend or terminate this Agreement if Fuel Manager does not
     cure the conditions that caused such notice to issue in time to prevent any
     such suspension or termination, and, in the event of termination, the
     provisions of Section 10.5 shall apply.

          (b) Fuel Manager will also report to Elwood on a weekly and monthly
     basis relevant information regarding Fuel Manager's performance under this
     Agreement, including without limitation the information set forth in
     Section 3 of Exhibit A to this Agreement, in a format that can be stored
                  ---------
     and analyzed electronically in a manner and format acceptable to Elwood,
     such as in a spreadsheet.

     3.3  Quality of Gas.

Fuel Manager covenants that all Gas provided hereunder by Fuel Manager shall be
merchantable natural gas, free of liens and encumbrances of any kind, and shall
comply with the Fuel Specifications.

     3.4  Compliance.

Fuel Manager shall comply with all applicable state, federal and local laws,
rules, orders, ordinances and regulations, shall give all required notices and
procure and shall maintain all applicable governmental permits and licenses
necessary for its performance of this Agreement, and shall pay all charges and
fees in connection with obtaining the permits and licenses.

     3.5  Metering.

For the purpose of measuring quantities of Gas delivered to the Facility, Gas
shall be metered and measured by Nicor Gas at its meters located at the
"Delivery Point" as defined in the Nicor T&B Agreement, and such meters shall be
tested and an adjustment to such measurements shall be made in accordance with
the specifications and standards set forth in Nicor Gas' Schedule of Rates.  In
the event any such meter is not operating or is out of service, Gas delivered to
the Facility shall be measured for the purposes of this Agreement by using
reasonable proxies, such as the Elwood turbine meters for each Unit or the
electric revenue meters with a heat rate conversion factor of 10,900 Btu/kWh
(HHV) at 85 and 60% humidity, subject to adjustment for actual ambient
conditions and actual load factors of each Unit.  Any such proxy must provide
the best available data in accordance with the mutual agreement of the parties.

     3.6  Sale of Power to Elwood.

Fuel Manager may offer to sell power to Elwood from time to time so that Elwood
may forgo running the Facility and taking Gas hereunder.  Elwood shall have no
obligation to accept such an offer or offers, and any acceptance thereof by
Elwood shall be subject to the consent of Elwood's power customers.  If Elwood
accepts such offer, all obligations hereunder pertaining to Gas will be
suspended during the period of such sales.

                                       8
<PAGE>

                                  ARTICLE IV
                          RESPONSIBILITIES OF ELWOOD

     4.1  On-Site Gas Handling Equipment.

Elwood shall operate and maintain the on-site equipment at the Facility for
receiving and handling Gas.

     4.2  Notice of Facility Operations.

All sales of Gas to Elwood, up to the MDQ each day, shall be on a "Short Notice"
basis, meaning that Elwood is required to use reasonable efforts to provide Fuel
Manager with notice regarding startups or shutdowns of the Facility and
estimated Gas requirements, all in accordance with Section 4 and the
Communications Protocol set forth in Exhibit A to this Agreement.
                                     ---------

     4.3  Loaned Gas Balance.

Elwood shall make available to Fuel Manager, at all times after May 31, 2001, a
gas balance of no less than 725,000 MMBtu ("Loaned Gas Balance").  The Loaned
Gas Balance is estimated to be 105,000 MMBtu on May 1, 2001, and Elwood will add
to the Loaned Gas Balance by purchasing an additional 20,000 MMBtu each day (or
such other daily amount required to achieve a Loaned Gas Balance of 725,000
MMBtu's on May 31, 2001, when purchased ratably over the month) from Fuel
Manager, during the period commencing on May 1, 2001, and continuing through May
31, 2001, (or on such other schedule as the Parties shall agree on) at the Gas
Daily Average Price plus four cents (4c), subject to Fuel Manager's discretion
as to when the volumes are actually placed into storage and subject to the
requirement that Elwood bear and pay all of Nicor's storage injection
Unaccounted-for Gas charges on the first quantities of Gas deemed to have been
injected into storage under the Nicor T&B Agreement during the term of this
Agreement up to a quantity equal to the difference between 725,000 MMBtu's of
Gas minus the Gas Inventory at the commencement of this Agreement.  Fuel Manager
shall have the right to utilize the Loaned Gas Balance, subject to the terms of
the Nicor T&B Agreement, during the term hereof.  If on the last day of the term
of this Agreement the Gas Inventory is less than 725,000 MMBtu's (the difference
being referred to herein as the "Storage Variance"), then Fuel Manager shall
either, at Elwood's option, deliver a quantity of Gas equal to the Storage
Variance to Elwood at the Receipt Point in equal daily deliveries during the
first month following the end of the term of this Agreement (currently, May 2002
unless the term is extended by mutual agreement) or financially settle with
respect thereto by Fuel Manager paying Elwood an amount equal to the product of
the Storage Variance times the price per MMBtu published by Intelligence Press,
Inc. in its NGI's Bidweek Survey, in the table entitled Spot Gas Prices, for the
month of May 2002 (or the first month after the term hereof), under the listing
for Midwest, Chicago Citygate.

     4.4  Operation of the Facility.

In operating the Facility, Elwood shall follow the following standards:

                                       9
<PAGE>

          (a)  Once a Unit is started, it shall run for a minimum of four (4)
     hours prior to shutting down, except that a Unit may be shut down sooner if
     a mechanical problem occurs.

          (b)  Once a Unit is shut down, it shall remain off-line for a minimum
     of two (2) hours.

          (c)  In the Summer Months, all nine (9) of the Units are available for
     dispatch and will be started approximately one (1) hour after notice of the
     Revised Dispatch Schedule is received by Elwood.

          (d)  In the Non-Summer Months, (i) five (5) of the Units are available
     for dispatch and will be started approximately three (3) hours after notice
     of the Revised Dispatch Schedule is received by Elwood and (ii) four (4) of
     the Units are available for dispatch during Peak Hours (6:00 a.m. - 10:00
     p.m. Central Clock Time, Monday-Friday) and will be started in accordance
     with the Dispatch Schedule established at 9:00 a.m. Central Clock Time on
     the previous Gas Day, unless a Revised Dispatch Schedule is negotiated and
     agreed to by Elwood, Nicor and Fuel Manager.

     4.5  Status of T&B Agreement.

Elwood shall maintain the Nicor T&B Agreement in full force and effect during
the term of this Agreement.   Elwood shall not agree to any changes to the Nicor
T&B Agreement with the explicit intent (or resulting effect) to alter the rights
or obligations of Fuel Manager, without Fuel Manager's express consent.  If
changes are made to the Nicor T&B Agreement to address other good faith business
purposes without Fuel Manager's express consent and such changes result in a
reduction in Fuel Manager's rights as agent under the Nicor T&B Agreement, or
increase its obligations thereunder or under this Agreement, then Fuel Manager
shall have the right to either, at Fuel Manager's sole option, terminate this
Agreement or negotiate with Elwood a different pricing structure.  Elwood will
consult with Fuel Manager prior to agreeing with Nicor to any changes in the
Nicor T&B Agreement which may reduce Fuel Manager's rights or increase its
obligations.

                                   ARTICLE V
                            PAYMENTS RELATED TO GAS

     5.1  Payments by Elwood.

          (a)  For any Non-Special Day, Elwood shall pay to Fuel Manager for
     Facility Consumption and quantities forfeited to Nicor under Section 7 of
     the Nicor T&B Agreement ("Forfeited Gas") at a price per MMBtu equal to the
     Gas Daily Average Price plus four cents (4c).  Elwood shall have no
     obligation to pay Fuel Manager for any Gas during any month except Facility
     Consumption, Forfeited Gas, purchases during May, 2001 to fill the Loaned
     Gas Balance, and Deferred Special Day Volumes described in Section 5.1(c).
     Such payments shall be made in accordance with Section 7.2 for the
     applicable month.

                                       10
<PAGE>

          (b)  Elwood shall pay to Fuel Manager five cents (5c) per MMBtu for
     the Elwood Forecast Variance for each Gas Day, up to a 241,600 MMBtu/d
     variance during the Summer Months and up to a 67,400 MMBtu/d variance
     during the Non-Summer Months. Such payments shall be made in accordance
     with Section 7.2 for the applicable month.

          (c)  For any Special Day, Elwood shall pay Fuel Manager, at a price
     negotiated by the parties, for all volumes delivered by Fuel Manager
     pursuant to the mutual agreement of the Parties under Section 3.1(a) for
     such Special Day, whether such volumes are consumed at the Facility on such
     Special Day or are deferred and injected into storage under the Nicor T&B
     Agreement ("Deferred Special Day Volumes").  Up to 20,000 MMBtu/d of
     Deferred Special Day Volumes will be withdrawn and delivered to the
     Facility as the "first Gas through the meter" and at no additional cost to
     Elwood, on immediately succeeding Non-Special Days until the Deferred
     Special Day Volume Balance is reduced to zero.  For the purposes of Section
     5.1(a), Deferred Special Day Volumes shall be excluded from Facility
     Consumption on Non-Special Days on which they are consumed.

          (d)  Elwood shall pay to Nicor Gas when due all fees and charges,
     including taxes and surcharges, due under the Nicor T&B Agreement, subject
     to Fuel Manager's obligation to reimburse Elwood for some of such charges
     as provided in Section 5.2.

          (e)  As compensation for its performance of the duties and obligations
     set forth in Section 3.2, Elwood shall pay Fuel Manager the sum of Sixty-
     Five Thousand Dollars ($65,000) per month for each of the Summer Months and
     Ten Thousand Dollars ($10,000) per month for each of the Non-Summer Months.

          (f)  If and when any amount is received, as either an actual payment
     or a credit, by Elwood from Nicor under Section 10 (reduction of MMDN
     rights) of the Nicor T&B Agreement with respect to any Month during the
     term hereof, Elwood shall pay such amounts to Fuel Manager, which shall be
     due and payable with the next payment otherwise due hereunder. Fuel Manager
     also shall receive the benefit of the limitation on application of Nicor's
     Unaccounted-for Gas percentage contained in Section 9 of the Nicor T&B
     Agreement.

     5.2  Payments by Fuel Manager.

          (a)  Fuel Manager shall reimburse Elwood in accordance with Section
     7.2 for the billed charges under the following sections of the Nicor T&B
     Agreement to the extent that (i) such charges are incurred with respect to
     Non-Special Days, (ii) Elwood has provided notices and information in
     accordance with the Communications Protocol, (iii) such charges are not the
     result of Elwood's failure to operate the Facility as provided in Section
     4.4, (iv) such charges are not the result of total quantities consumed at
     the Facility having exceeded the Firm MDQ and (v) Elwood has not declared
     an event of Force Majeure or a Unit has not "tripped" (as that term is used
     in Exhibit A):
        ---------

                                       11
<PAGE>

          (A)  Forecast Variance Charges (Section 4(e) of the Nicor T&B
     Agreement) attributable to the portion of the variance up to 241,600
     MMBtu/d in the Summer Months or 67,400 MMBtu/d in the Non-Summer Months;

          (B)  Delivery Variance Charges (Section 4(c) of the Nicor T&B
     Agreement) except to the extent such charges are attributable to volumes in
     excess of the Firm MDQ;

          (C)  Storage Inventory Overrun Charges or Excess Storage Charges but
     only those assessed because the highest daily quantity in storage is in
     excess of 951,500 MMBtu's (Sections 4(f) and 4(g) of the Nicor T&B
     Agreement); and

          (D)  Charges for Requested Authorized Use and Unauthorized Use
     (Sections 4(i) and (j) of the Nicor T&B Agreement).

     Items (A), (B), (C) and (D) are collectively referred to herein as the
     "Fuel Manager's T&B Charges."  The Fuel Manager's T&B Charges may be (i)
     applied by Elwood as a credit to Fuel Manager's invoices, effectively
     netting Fuel Manager's T&B Charges against the amounts owed Fuel Manager
     under this Agreement or (ii) invoiced by Elwood directly to Fuel Manager
     thereby requiring Fuel Manager to remit such funds to Elwood upon
     presentation of an invoice.  Fuel Manager shall be responsible for Nicor's
     Unaccounted-for Gas charges with respect to storage injections except the
     Unaccounted-for Gas charges associated with any injections of Deferred
     Special Day Volumes described in Section 5.1(c) and except the Unaccounted-
     for Gas charges to be borne by Elwood pursuant to Section 4.3.  On Special
     Days, Fuel Manager will not be responsible for Fuel Manager's T&B Charges
     except where the parties have agreed on a price and volume pursuant to
     Section 3.1(a) and to the extent that Fuel Manager's T&B Charges are
     incurred as a direct result of Fuel Manager failing to deliver to the
     Receipt Point on such Special Day the quantity of Gas agreed to by the
     Parties except to the extent such failure to deliver is caused by an event
     of Force Majeure that occurs after the Parties have agreed to a quantity
     and price for such Special Day under Section 3.1(a); provided, however,
                                                        --------------------
     that Fuel Manager shall in no event be responsible on a Special Day for the
     Fuel Manager T&B Charges described in (D) above.

          (b)  Fuel Manager shall pay when due to a Seller or reimburse Elwood
     if a Seller directly invoices Elwood, all charges under any Purchase
     Agreements entered into by Fuel Manager on its own account or as Agent.

                                  ARTICLE VI
                                 OFFSET RIGHTS

     6.1  Offset Rights.

If either party fails to pay any charges as required under this Agreement, the
other party shall have the right, in addition to any other remedies provided
herein or under law, to set-off such amounts against any payments owed by it to
such party.

                                       12
<PAGE>

                                  ARTICLE VII
                              BILLINGS AND PAYMENT

     7.1  Information from Nicor Gas.

To the extent Elwood receives from Nicor Gas information regarding actual
consumption or account data, Elwood will forward such information to Fuel
Manager and insure that Fuel Manager has joint access to any real time data
links containing such information.

     7.2  Invoices by Fuel Manager.

Within twenty (20) days after the end of each month during the Term of this
Agreement for which services are rendered hereunder, Fuel Manager shall prepare
and deliver to Elwood a statement in reasonable detail setting forth the
calculation of the amounts payable by Elwood to Fuel Manager, with respect to
the month in question and any offsets for payments due from Elwood to Fuel
Manager pursuant to Section 5.1.  Fuel Manager may send this invoice to Elwood
via facsimile or email.  Elwood shall pay all such invoiced amounts by wire
transfer or automated clearinghouse by the later of (i) ten (10) days after
receipt of such invoice or (ii) 25 days after the end of such month, to the
account specified by Fuel Manager.

     7.3  Records.

Each party shall keep complete and accurate records appropriate for proper
administration of this Agreement.  All such records shall be maintained for a
minimum of three (3) years after the creation of such records and for any
additional length of time required by a governmental authority or the Nicor T&B
Agreement or any other agreement entered into in connection with this Agreement.
Each party shall have the right, upon seven (7) days notice to the other, to
audit the books and records of the other party relating to this Agreement with
respect to the calculation of any amounts due hereunder.

     7.4  Interest.

If a party fails to pay when due any amounts payable by it under this Agreement
(excluding, however, any payments properly set-off by such party against amounts
due from it hereunder), or if, as a result of an audit by the other party or the
resolution of any dispute as to amounts payable by a party hereunder, it is
determined that a party has underpaid amounts due from it hereunder, then the
unpaid amounts shall bear interest at the Default Rate from the date such
payments were due until the date such payments are paid.

     7.5  Billing Disputes.

          (a)  If a party in good faith disputes an amount claimed to be due and
     payable hereunder by the other party, it may withhold payment of the amount
     under protest pending resolution of the dispute in accordance with
     subsection (b) of this section.

          (b)  In the event that a party, by timely notice to the other party,
     questions or contests the correctness of any charge or payment claimed to
     be due by the notified party, the notified party shall promptly review the
     questioned charge or payment and shall

                                       13
<PAGE>

     respond to the contesting party, within fifteen (15) Business Days
     following receipt of such notice, with a statement of the amount of any
     error and the amount of any reimbursement that the contesting party is
     entitled to receive in respect of such alleged error. Any disputes not
     resolved within fifteen (15) Business Days after receipt of such responding
     statement shall be resolved in accordance with Section 15.9 of this
     Agreement. Upon determination of the correct amount of any reimbursement,
     such amount shall be promptly paid by the owing party.

          (c)  Payments withheld under subsection (a), but ultimately paid under
     subsection (b), shall include interest at the Default Rate from the date
     the original payment was due until the date such withheld payments together
     with interest is made.

     7.6  Days/Business Days.

In the event any action called for in this Article 7 is due on a day that is not
a Business Day, it shall be due on the next succeeding day that is a Business
Day.

                                  ARTICLE VIII
                                     AGENCY

     8.1  Grant of Agency.

          (a)  Elwood hereby appoints Fuel Manager (in such capacity, Fuel
     Manager being referred to hereinafter as "Agent"), to act on its behalf and
     for its benefit solely for the following purposes and subject to the
     limitations set forth in Section 8.2 below:

               (i)    To take such actions as are specified in writing by Elwood
          (except to the extent such actions are in violation of law) except for
          physical or financial transactions regarding Gas supply, which actions
          may be specified by Elwood orally, with confirmation in writing before
          such actions are taken;

               (ii)   To make payment of all charges in accordance with Section
          5.2 of this Agreement;

               (iii)  To act on Elwood's behalf and for Elwood's benefit in
          managing and administering the Nicor T&B Agreement, including
          submitting nominations to Nicor Gas and to NBPL, APL and NGPL.

          (b)  The parties hereby agree, regardless of any contrary provisions
     of this Agreement, that the appointment of the Fuel Manager as Agent, and
     any agency created hereby, shall be subject to the limitations set forth in
     Section 8.2 and shall terminate automatically as and when set forth in this
     Agreement. All rights exercised by Agent shall be exercised in a manner
     consistent with applicable law, Fuel Manager's obligations under this
     Agreement (including as Agent) and Elwood's obligations under the Nicor T&B
     Agreement.

                                       14
<PAGE>

     8.2  Limitations on Agency. Notwithstanding the terms of Section 8.1 or any
other contrary terms of this Agreement, Fuel Manager as Agent shall not, and is
not granted the authority to, without the prior written consent of Elwood:

          (a)  Enter into any agreements on behalf of  or in the name of Elwood,
     except as set forth in Section 8.1;

          (b)  Enter into any physical or financial hedging or speculative
     transactions on behalf of or in the name of Elwood;

          (c)  Agree to any amendment or modification to, or waive any right
     under, any provision in the Nicor T&B Agreement or other agreements to
     which Elwood is a party (either directly or via Agency);

          (d)  Enter into any agreement or any amendment, supplement or
     modification of any agreement, in any manner inconsistent or in violation
     of applicable law, this Agreement or the Nicor T&B Agreement.

     8.3  No Transfer.

Elwood and Agent expressly agree that the creation of an agency as described in
this Agreement does not in any way constitute a pledge, transfer or assignment
to Agent of any right of Elwood in, under and to the Nicor T&B Agreement, any
Purchase Agreement or other agreements of Elwood or any good or service
purchased or provided for therein.

     8.4  Obligations of Agent. Agent shall comply with all requirements of the
Nicor T&B Agreement and all other agreements applicable to the purchase, sale,
transportation, storage, injection and withdrawal of Gas including, without
limitation, the timely remittance of payments to Sellers in accordance with the
terms and conditions of such agreements referred to in Section 5.2 of this
Agreement. Agent shall pay, from its own funds, all its expenses and costs
incurred in the course of performing Agent's duties and obligations hereunder.

     8.5  Notice of Agency. Elwood and Agent shall notify Nicor Gas, Peoples
Gas, and existing and future Sellers as applicable, of the foregoing Agency
promptly upon the effective date of this Agreement and, immediately upon
expiration of the Term or upon earlier termination, shall notify the applicable
entities that such Agency has been terminated. Notice to Sellers of the
existence of the Agency shall state that either Elwood or Fuel Manager, acting
alone, may give notice to Sellers terminating the Agency.

                                  ARTICLE IX
                             ADDITIONAL COVENANTS

     9.1  Assignment.

          (a)  Except as provided in this Section 9.1, neither party shall
     assign, pledge or otherwise transfer this Agreement or any right or
     obligation under this Agreement without first obtaining the other party's
     written consent, which consent shall not be

                                       15
<PAGE>

     unreasonably withheld or delayed. Except as specifically provided for in
     this Section 9.1, any assignment or transfer of this Agreement or any
     rights, duties or interests hereunder by any party without the written
     consent of the other party shall be void and of no force or effect.

          (b)  So long as no material event of default with respect to Elwood
     has occurred and is continuing, Elwood shall be permitted to assign or
     otherwise transfer this Agreement in whole by operation of law or
     otherwise, with prior written notice to Fuel Manager but without Fuel
     Manager's consent, (i) to Elwood Marketing, LLC, (ii) any Affiliate of
     Dominion Energy, Inc. (50% indirect owner of Elwood) or any Affiliate of
     Peoples Energy Resources Corp. (50% indirect owner of Elwood) or (iii) to
     any assignee succeeding to the ownership of the Facility; provided,
                                                               --------
     however, that any proposed assignee hereunder is determined by Fuel
     -------
     Manager, in its reasonable discretion, to be creditworthy.  Upon the
     assumption by any such permitted assignee of Elwood's rights, duties and
     obligations hereunder, Elwood shall be released and discharged from any
     future obligation hereunder but not any past obligation.

          (c)  So long as no material event of default with respect to Fuel
     Manager has occurred and is continuing, Fuel Manager shall be permitted to
     assign or otherwise transfer this Agreement in whole by operation of law or
     otherwise, with prior written notice to Elwood but without Elwood's
     consent, to any Affiliate of Fuel Manager; provided, however, that any
                                                --------  -------
     proposed assignee hereunder is determined by Elwood, in its reasonable
     discretion, to be creditworthy and to be at least as well qualified to
     fulfill the obligations of Fuel Manager under this Agreement.  Upon the
     assumption by any such permitted assignee of Fuel Manager's rights, duties
     and obligations hereunder, Fuel Manager shall be released and discharged
     from any future obligation hereunder but not any past obligation.

          (d)  Fuel Manager hereby consents to Elwood's assignment of this
     Agreement to any and all Lenders (as defined below) or the granting to any
     or all Lenders of a lien or security interest in any right, title or
     interest in part or all of the Facility or any or all of Elwood's rights
     under this Agreement for the purpose of the financing or refinancing of the
     Facility.  In order to facilitate the obtaining of financing or refinancing
     of the Facility without Fuel Manager's consent, Fuel Manager shall
     cooperate with Elwood and execute consents, agreements or similar documents
     with respect to the assignment hereof to any Lender as customary for
     comparable transactions in connection with the financing or refinancing of
     the Facility; provided, however, that such assignment shall recognize and
                   --------  -------
     shall not impair or otherwise adversely affect Fuel Manager's rights under
     this Agreement.  Fuel Manager recognizes that such consent may grant
     certain rights to such Lenders, which shall be fully developed and
     described in said consent documents, including that (i) this Agreement
     shall not be amended or terminated (except for termination pursuant to the
     terms of this Agreement) without the consent of Lenders; (ii) without
     extending the cure period set forth in this Agreement, Lenders shall be
     given notice of, and the same opportunity to cure, any Elwood breach or
     default of this Agreement, provided that notwithstanding the foregoing
     Lender(s) may have in addition to the cure periods set forth herein an
     additional thirty (30) days from the expiration of such cure period to cure
     any breach or default of this Agreement; (iii) if a Lender

                                       16
<PAGE>

     forecloses, takes a deed in lieu or otherwise exercises its remedies
     pursuant to any security documents, that Fuel Manager shall, at Lender's
     request, continue to perform all of its obligations hereunder, and Lender
     or its nominee may perform in the place of Elwood, and may assign this
     Agreement to another party in place of Elwood (provided either (A) such
     proposed assignee is creditworthy in the reasonable discretion of Fuel
     Manager, or (B) Fuel Manager consents to the assignment to such proposed
     assignee, which consent shall not be unreasonably withheld or delayed), and
     enforce all of Elwood's rights hereunder; (iv) that Lender(s) shall have no
     liability under this Agreement except during the period of such Lender(s)'
     ownership and/or operation of the Facility and any defaults from payment
     existing immediately prior to such period; (v) that Fuel Manager shall
     accept performance in accordance with this Agreement by Lender(s) or its
     (their) nominee; and (vi) that Fuel Manager shall make representations and
     warranties to Lender(s) as Lender(s) may reasonably request, including, but
     not limited to, (A) Fuel Manager's corporate existence, (B) Fuel Manager's
     corporate authority to execute, deliver and perform this Agreement, (C) the
     binding nature of this Agreement on Fuel Manager, (D) receipt of such
     regulatory approvals by Fuel Manager as required by law with respect to its
     performance under this Agreement, and (E) whether any defaults by Elwood
     are known by Fuel Manager then to exist under this Agreement and shall upon
     request of Elwood cause Fuel Manager's counsel to issue an opinion to
     Elwood and any Lender affirming in customary form the representations of
     Fuel Manager in this Section 9.1 and in Section 13.1.

          (e)  As used in this Agreement, the term "Lender(s)" means (i) any
     individual, governmental authority, corporation, limited liability company,
     partnership, limited partnership, trust, association or other entity
     ("Person") that from time to time enters into loans with Elwood, its
     successors or permitted assigns for the financing or refinancing of the
     Facility or any part thereof or which are secured by the Facility
     (including a sale-leaseback transaction), (ii) the holders of indebtedness
     evidencing any such loans, or (iii) any Person acting on behalf of such
     lender(s) to whom any lenders' rights under such loans have been
     transferred, any trustee on behalf of any such lenders, and any Person
     subrogated to the rights of such lenders.

     9.2  Taxes on Gas. Fuel Manager shall pay, or shall cause to be paid, all
taxes, fees, levies, penalties, licenses or charges imposed by any governmental
authority ("Taxes") on or with respect to the Gas prior to the Receipt Point.
Elwood shall pay or cause to be paid all Taxes on or with respect to the Gas at
or after the Receipt Point. If a party is required to remit or pay Taxes that
are the other party's responsibility hereunder, the party responsible for such
Taxes shall promptly reimburse the other party for such Taxes. Any party
entitled to an exemption from any such taxes or charges shall furnish the other
party any necessary documentation thereof; provided, however, that exemption of
                                           -----------------
interstate sourced supplies from application of the Illinois Gas Revenue Tax is
assumed by the parties, and Fuel Manager agrees not to bill Elwood for such
taxes until such time as Fuel Manager is required by the taxing authority having
jurisdiction, after exhaustion of all appeals and other remedies available to
Elwood, to pay the Illinois Gas Revenue Tax. Each party shall use reasonable
efforts to notify the other party of any legal or administrative proceeding
which could modify the State's application of the Illinois Gas Revenue Tax to
the goods provided and services rendered under this Agreement.

                                       17
<PAGE>

     9.3  Fuel Manager Guaranty. Fuel Manager shall deliver to Elwood, at the
time this Agreement is executed, the Fuel Manager Guaranty in the form attached
hereto as Exhibit B, executed by Cinergy Corp., as Guarantor.
          ---------

     9.4  Elwood Guaranties. Elwood shall deliver to Fuel Manager, at the time
this Agreement is executed, the parent guaranties in the form of Exhibit C-1 and
                                                                 -----------
Exhibit C-2 (each of which, an "Elwood Guaranty" and collectively, "Elwood
-----------
Guaranties").

                                   ARTICLE X
                            DEFAULT AND TERMINATION

     10.1 Termination of Agency. If this Agreement is terminated with or without
cause, then from and upon Agent's receipt of notice of such termination as
provided in Section 15.1, the Agency granted to Fuel Manager under this
Agreement shall immediately cease, and Fuel Manager will no longer act or be
entitled to act as Elwood's Agent under the Nicor T&B Agreements or the Purchase
Agreements, or any other agreement, or to hold itself out as Elwood's Agent
thereafter.

     10.2 Termination upon Enforcement Action. This Agreement has been
structured to comply fully with any applicable federal or state law, or any
regulations issued thereunder. However, if the FERC or any other federal or
state agency or authority asserts, rules or determines that any of the terms of
this Agreement or the conduct of the parties hereunder or in connection with the
transactions contemplated hereunder, are in violation of the terms of the
Natural Gas Act or any other federal or state law, or any regulations issued
thereunder, or the terms of any applicable FERC Gas Tariff, then either party
shall have the right to terminate this Agreement upon the first to occur of the
date required by applicable law or thirty (30) days after notice given to the
other party. In the event of such termination, all costs associated with
unwinding or terminating Purchase Agreements shall be borne equally by the
parties.

     10.3 Fuel Manager Default.

          (a)  Each of the following shall constitute a "Fuel Manager Event of
     Default":

               (i)    Fuel Manager shall default in the performance of any of
          its covenants or obligations under this Agreement (other than those
          specified in Section 10.3(a)(iv), which shall be exclusively governed
          by that Section, and other than a Gas delivery obligation which shall
          be exclusively governed by Section 10.3(c)) and shall fail to cure
          such default within five (5) days after receiving written notice from
          Elwood;

               (ii)   Default occurs under the Fuel Manager Guaranty;

               (iii)  Liquidation (not as defined in this Agreement),
          dissolution, receivership, insolvency, bankruptcy, assignment for the
          benefit of creditors, reorganization, arrangement, composition or
          readjustment or other similar proceeding affecting the status,
          composition, identity, existence, assets or obligations of Fuel
          Manager or Fuel Manager Guarantor, or the disaffirmance or

                                       18
<PAGE>

          termination of any of Fuel Manager's or Fuel Manager Guarantor's
          covenants or obligations under this Agreement, or the Fuel Manager
          Guaranty, as applicable, in or as a result of any such proceeding;

               (iv)   Fuel Manager shall fail to make any payment when due or
          cure such failure within the lesser of ten (10) days or such time
          period as would result in loss of Gas supply or delivery to Elwood if
          not cured within such period; and

               (v)    Any representation or warranty made by Fuel Manager or
          Fuel Manager Guarantor herein, or in the Fuel Manager Guaranty, as
          applicable, should prove to be materially untrue or breached as of the
          date the Term of this Agreement commences.

          (b)  Upon the occurrence of a Fuel Manager Event of Default other than
     an Event of Default that is subject to Section 10.3(c), Elwood shall have
     the right to do any or all of the following: (i) cure such default and seek
     reimbursement of any costs incurred by Elwood in effecting such cure, or
     offset such costs against any amounts thereafter payable by Elwood to Fuel
     Manager under this Agreement; (ii) terminate this Agreement as of the date
     specified in such termination notice; provided, however, that Fuel Manager
                                           --------  -------
     shall remain fully responsible and liable for performance of its
     obligations that arose prior to such termination date; or (iii) exercise
     all other rights and remedies available at law or in equity.  Elwood shall
     provide notice to Fuel Manager of Elwood's intent to exercise its rights
     under the previous sentence, but Elwood's exercise of such rights shall in
     no way be conditioned upon the provision of such notice to Fuel Manager.
     In the event of any termination of this Agreement pursuant to this Section
     10.3(b), Fuel Manager shall not be entitled to unwind any agreements
     entered into pursuant to this Agreement without the consent of Elwood.

          (c)  Notwithstanding the foregoing, and the notice and cure periods
     provided for above, if Fuel Manager defaults in the performance of any of
     its obligations to deliver the Firm MDQ on any Non-Special Day or the
     quantity of Gas agreed upon by the Parties for a Special Day under Section
     3.1(a) and such default prevents Elwood, or in Elwood's sole judgment is
     reasonably likely to prevent Elwood, from meeting its obligations to
     deliver power to its power customers, then Elwood shall have the right, as
     its sole remedy therefor, to procure replacement Gas for the Facility from
     Sellers or other sources on commercially reasonable terms and conditions
     and may utilize the Nicor T&B Agreement and the Gas Inventory (Elwood shall
     still be obligated to pay Fuel Manager for any of the Gas Inventory taken
     by Elwood in accordance with Section 5.1) to effectuate delivery of such
     Gas.  Fuel Manager shall reimburse Elwood for any reasonable incremental
     costs incurred by Elwood in purchasing such replacement Gas and related
     services (including without limitation charges under the Nicor T&B
     Agreement covered by Section 5.2) within fifteen (15) days after demand
     therefor, together with interest thereon at the Default Rate and accrued
     from the date of such purchase until the date reimbursement is made.  If
     Fuel Manager fails to reimburse Elwood for such costs within such fifteen
     (15) day period, then, in addition to all other rights, Elwood shall be
     entitled to offset such costs (including interest) against any amounts
     thereafter payable by Elwood to Fuel Manager under this Agreement.

                                       19
<PAGE>

     10.4 Elwood Default.

          (a)  Each of the following shall constitute an "Elwood Event of
     Default":

               (i)    If Elwood shall default in the performance of any of its
          obligations under this Agreement and Elwood shall fail to cure such
          default within five (5) days after receiving written notice from Fuel
          Manager.

               (ii)   Default occurs under either of the Elwood Guaranties;

               (iii)  Liquidation (not as defined in this Agreement),
          dissolution, receivership, insolvency, bankruptcy, assignment for the
          benefit of creditors, reorganization, arrangement, composition or
          readjustment or other similar proceeding affecting the status,
          composition, identity, existence, assets or obligations of Elwood or
          an Elwood Guarantor, or the disaffirmance or termination of any of
          Elwood's or an Elwood Guarantor's covenants or obligations under this
          Agreement or an Elwood Guaranty in or as a result of any such
          proceeding.; and

               (iv)   Any representation or warranty made by Elwood or an Elwood
          Guarantor herein, or in the Elwood Guaranties, as applicable, should
          prove to be materially untrue or breached as of the date this Term of
          this Agreement commences.

          (b)  Upon the occurrence of an Elwood Event of Default, Fuel Manager
     shall have the right, upon seven (7) days notice to Elwood, to do any or
     all of the following:  (i) terminate this Agreement; (ii) terminate the
     Agency granted to Fuel Manager pursuant to Section 8.1 hereof; and (iii)
     exercise all other rights and remedies available at law or in equity
     including, without limitation the right to recover from Elwood any future
     amounts due under Section 5.1(e) for any future months remaining in the
     term as if this Agreement had not been terminated pursuant to this Section.
     If Fuel Manager terminates this Agreement pursuant to clause (i) above,
     then Fuel Manager shall use its reasonable efforts to minimize the costs
     associated with unwinding Purchase Agreements; provided, however, that Fuel
                                                    --------  -------
     Manager shall not, without the consent of Elwood, unwind or terminate any
     such Purchase Agreements entered into by Fuel Manager pursuant to Article 8
     with respect to which Elwood has financial exposure.  In addition, in the
     event of such termination, Elwood shall reimburse Fuel Manager for all
     costs incurred by Fuel Manager to unwind any and all agreements entered
     into by Fuel Manager pursuant to Article 8.

     10.5 Release of Obligations.

Notwithstanding anything herein to the contrary, in the event either party
terminates this Agreement pursuant to this Article X or any other provisions of
this Agreement, the parties shall be released from all of their future
obligations hereunder except any obligation (i) to make payments due hereunder
with respect to the period prior to the effective date of the termination, (ii)
if and as applicable, to pay damages with respect to a Fuel Manager Event of
Default or Elwood Event of Default, to the extent such damages are expressly
permitted as a remedy in

                                       20
<PAGE>

addition to the right to terminate, (iii) to indemnify the other party under
Article XI, and (iv) of Fuel Manager under the last sentence of Section 4.3.

                                  ARTICLE XI
                                   INDEMNITY

     11.1    Fuel Manager Indemnity.

             (a)    Without limiting Elwood's rights or remedies under Article
     10, Fuel Manager agrees to indemnify, defend and hold Elwood, its members,
     officers, directors, employees and agents harmless from and against all
     claims, demands, suits, losses, liabilities, penalties, actions and
     expenses (including reasonable attorneys' fees and litigation costs) with
     respect to claims by third parties arising out of, resulting from or caused
     by:

                    (i)     Claims associated with title to gas or liens
             therein;

                    (ii)    Balancing, storage, or transportation costs,
             charges, penalties or fees resulting from Fuel Manager's sale of
             Gas to Persons other than Elwood;

                    (iii)  Fines or penalties assessed by any governmental
             authority on account of Fuel Manager's actions;

                    (iv)   Claims arising out of or relating to Fuel Manager's
             failure to comply with the requirements of Article 8 hereof;

                    (v)    Claims arising out of or relating to Purchase
             Agreements or other agreements entered into by Fuel Manager on its
             own behalf or as Agent;

                    (vi)   Claims arising out of or related to Taxes which Fuel
             Manager is obligated to pay or cause to be paid under Section 9.2;
             and

                    (vii)  Any and all claims, demands, actions, losses,
             liabilities, expenses (including reasonable legal fees and
             expenses), suits and proceedings of any nature whatsoever for
             personal injury, death or property damage to third parties caused
             by the negligence or willful misconduct of the indemnifying Party
             that arise out of or are in any manner connected with the
             performance of this Agreement, except to the extent such injury or
             damage is attributable to the gross negligence or willful
             misconduct of, or breach of this Agreement by, the Party seeking
             indemnification hereunder.

     11.2    Elwood Indemnity.

             (a)    Without limiting Fuel Manager's rights or remedies under
     Article 10, Elwood agrees to indemnify, defend and hold Fuel Manager, its
     members, officers, directors, employees and agents harmless from and
     against all claims, demands, suits, losses, liabilities, penalties, actions
     and expenses (including reasonable attorneys' fees

                                       21
<PAGE>

     and litigation costs) with respect to claims by third parties arising out
     of, resulting from or caused by:

                    (i)     Claims associated with the consumption of the Gas by
             the Facility including any environmental claims;

                    (ii)    Fines or penalties assessed by any governmental
             authority on account of Elwood's actions;

                    (iii)   Claims arising out of or relating to Elwood's
             failure to comply with the requirements of Article 8 hereof;

                    (iv)    Claims arising out of or relating to Purchase
             Agreements or other agreements entered into by Elwood on its own
             behalf;

                    (v)     Claims arising out of or related to Taxes which
             Elwood is obligated to pay or cause to be paid under Section 9.2;
             and

                    (vi)    Any and all claims, demands, actions, losses,
             liabilities, expenses (including reasonable legal fees and
             expenses), suits and proceedings of any nature whatsoever for
             personal injury, death or property damage to third parties caused
             by the negligence or willful misconduct of the indemnifying Party
             that arise out of or are in any manner connected with the
             performance of this Agreement, except to the extent such injury or
             damage is attributable to the gross negligence or willful
             misconduct of, or breach of this Agreement by, the Party seeking
             indemnification hereunder.

     11.3    Survival.

The foregoing indemnity provisions shall survive expiration of the Term or
termination of this Agreement.

                                  ARTICLE XII
                            LIMITATION OF LIABILITY

     12.1    Limitation of Liability.  IN NO EVENT OR UNDER ANY CIRCUMSTANCES
SHALL EITHER PARTY (INCLUDING SUCH PARTY'S MEMBERS AND THEIR RESPECTIVE
AFFILIATES AND SUCH PARTY'S AND ITS MEMBERS' AND SUCH AFFILIATES' RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE TO THE OTHER PARTY
(INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATE'S
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) FOR ANY SPECIAL,
INCIDENTAL, EXEMPLARY, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES IN
THE NATURE OF LOST PROFITS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY OR
TORT (INCLUDING INTENTIONAL ACTS, ERRORS OR OMISSIONS, NEGLIGENCE, INDEMNITY,
STRICT LIABILITY OR OTHERWISE), EXCEPT TO THE EXTENT SUCH

                                       22
<PAGE>

TYPE OF DAMAGES ARE EXPRESSLY PROVIDED FOR HEREIN. A PARTY'S LIABILITY UNDER
THIS AGREEMENT SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES, OR IF LIQUIDATED
DAMAGES ARE EXCLUSIVELY SPECIFIED HEREIN, TO SUCH LIQUIDATED DAMAGES, AND ALL
OTHER DAMAGES AT LAW OR IN EQUITY ARE WAIVED.

                                 ARTICLE XIII
                        REPRESENTATIONS AND WARRANTIES

     13.1    By Fuel Manager.  Fuel Manager hereby represents and warrants that:

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

             (b)    The execution, delivery and performance by Fuel Manager of
     this Agreement have been duly authorized by all necessary company action,
     and do not and will not require any consent or approval of Fuel Manager's
     members or any third party (including any governmental authority) other
     than that which has been obtained.

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

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

             (e)    There is no pending or, to the knowledge of Fuel Manager,
     threatened action or proceeding affecting Fuel Manager before any
     governmental agency that purports to affect the legality, validity or
     enforceability of this Agreement.

     13.2    By Elwood.

Each of Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC
hereby represents and warrants with respect to itself that:

                                       23
<PAGE>

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

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

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

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

             (e)    There is no pending or, to its knowledge, threatened action
     or proceeding affecting Elwood before any governmental agency that purports
     to affect the legality, validity or enforceability of this Agreement.

                                  ARTICLE XIV
                                 FORCE MAJEURE

     14.1    Force Majeure Generally.  Except with respect to payment
obligations due from one party to the other hereunder, neither party shall be
responsible or liable for its failure to perform any obligation hereunder, or be
deemed in breach hereof, to the extent such failure to perform is due to the
occurrence of an event of "Force Majeure," as that term is defined in Section
14.2 as applicable to such party, provided that:

             (a)    The non-performing party (i) gives the other party prompt
     verbal notice of the occurrence and (ii) within forty-eight (48) hours of
     the beginning of the occurrence or by 5:00 p.m. Central Clock Time on the
     next Business Day after the beginning of the occurrence, whichever is the
     later to occur, gives the other party written notice describing the
     particulars of the occurrence;

                                       24
<PAGE>

             (b)    The suspension of performance is of no greater scope and of
     no longer duration than is required by the Force Majeure;

             (c)    The non-performing party uses its reasonable efforts to
     remedy its inability to perform;

             (d)    When the non-performing party is able to resume performance
     of its obligations under this Agreement, that party shall give the other
     party written notice to that effect; and

             (e)    The Force Majeure was not caused by or connected with any
     negligent or intentional acts, errors, or omissions, or failure to comply
     with any law, rule, regulation, order or ordinance by the party invoking
     the Force Majeure.

     14.2    Definition of Force Majeure.

             (a)    In the case of Elwood, "Force Majeure" under this Agreement
     means any delay in the performance of its obligations hereunder due solely
     to circumstances beyond its reasonable control, and that could not have
     been prevented by due diligence, of Elwood, including without limitation:
     acts of God; weather-related events affecting an entire geographic region;
     strikes or other labor difficulties; war; riots; requirements, actions, or
     failures to act on the part of governmental authorities or changes in the
     law or applicable regulations subsequent to the date hereof preventing
     performance; inability despite due diligence to obtain or renew required
     licenses; accident; earthquake, sabotage; or fire.

             (b)    In the case of Fuel Manager, "Force Majeure" under this
     Agreement means only and is limited to declarations of force majeure by
     Nicor Gas under the Nicor T&B Agreement, or by any of NBPL, APL, NGPL or
     any pipeline upstream of such pipelines under its tariff or transportation
     agreement, or by Peoples Gas under the Peoples Gas T&B Agreement, as the
     term "force majeure" is defined and applied in those documents, or a
     default by Nicor Gas under the Nicor T&B Agreement not due to Fuel
     Manager's failure to fulfill its responsibilities under this Agreement, if
     and only to the extent that such declaration(s) result(s) in a curtailment
     of transportation or storage service that directly impact Fuel Manager's
     ability to execute its responsibilities under this Agreement and are beyond
     the reasonable control of, and could not have been prevented by the due
     diligence of, Fuel Manager; provided, however, that if a declaration of
                                 --------  -------
     force majeure by any of NBPL, APL, NGPL is based on an outage of its
     pipeline system upstream of its interconnection with the facilities of
     Peoples Gas or Nicor Gas ("Pipeline Outage Condition") or if a declaration
     of force majeure by Nicor Gas is based on an outage of its pipeline system
     used to provide service to Elwood ("Nicor Gas Outage Condition") the
     parties agree that such Pipeline Outage Condition or Nicor Gas Outage
     Condition, as applicable, shall have the effect of converting Fuel
     Manager's obligation to provide a firm gas supply into a reasonable efforts
     obligation for the duration of the Pipeline Outage Condition or Nicor Gas
     Outage Condition, as applicable, and Fuel Manager shall be entitled to
     recover from Elwood (but only to the extent such costs have been approved
     by Elwood in advance) Fuel Manager's costs relating to Fuel Manager's

                                       25
<PAGE>

     performance during such Pipeline Outage Condition or Nicor Gas Outage
     Condition, as applicable. Notwithstanding the foregoing, if Fuel Manager
     uses its reasonable efforts to perform during a Pipeline Outage Condition
     or Nicor Gas Outage Condition, as applicable and, despite Fuel Manager's
     reasonable efforts and the exercise of Fuel Manager's due diligence, is
     unable to provide firm gas supply pursuant to this Agreement due to such
     Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable,
     then such event shall qualify as a "Force Majeure" for Fuel Manager under
     this Agreement, subject to the other limitations on Force Majeure set forth
     in this Section 13 of this Agreement. Notwithstanding the foregoing
     provisions of this subsection (b), the Parties agree that if a declaration
     of force majeure by Nicor Gas under the Nicor T&B Agreement results in the
     occurrence of a Special Day, such Nicor Gas declaration will not excuse the
     Parties' obligations to deliver and receive on such Special Day the
     quantity of Gas subsequently agreed upon pursuant to Section 3.1(a), but
     that such obligations may be excused by a subsequent declaration of force
     majeure by Nicor Gas.

     14.3    Exclusions from Force Majeure.  Notwithstanding the foregoing, the
term Force Majeure does not include (i) changes in market conditions that affect
the cost of Gas or any alternate supplies of Gas or (ii) Gas supply or
transportation interruptions, except to the extent that Gas is unavailable
generally on the NBPL, APL, NGPL, Nicor Gas or Peoples Gas systems at any price.

     14.4    Extended Force Majeure.  In no event will any condition of Force
Majeure extend this Agreement beyond its stated Term. If any condition of Force
Majeure delays a party's performance for a time period greater than thirty (30)
days, the party not delayed by such Force Majeure may terminate this Agreement,
without further obligation; provided, however, that if the Force Majeure cannot
                            --------  -------
be overcome within such thirty (30) days with the exercise of reasonable
diligence, the party not delayed shall grant an additional reasonable period of
time in which to overcome such Force Majeure. In no event will such additional
reasonable period of time exceed three (3) months.

                                  ARTICLE XV
                                 MISCELLANEOUS

     15.1    Notices.  All notices, requests, demands or statements provided for
in this Agreement shall be in writing and shall be sent by registered or
certified mail, by nationally recognized air courier service or by telecopy (if
confirmed by hard copy delivery by overnight air express). All such notices
shall be deemed given when received; provided, however, if a party refuses
                                     --------  -------
receipt of a notice, then such notice shall be deemed given when receipt is so
refused. Notices shall be sent to the following addresses:

                                       26
<PAGE>

     Fuel Manager:

          Cinergy Marketing & Trading, LLC
          1100 Louisiana, Suite 4900
          Houston, Texas 77002
          Attention: Contract Administration
          Telephone No.: 713-393-6813
          Fax No.: 713-890-3129

     with a copy to:

          Cinergy Marketing & Trading, LLC
          1100 Louisiana, Suite 4900
          Houston, Texas 77002
          Attention: Vice President-Marketing
          Telephone No.: 713-393-6854
          Fax No.: 713-890-3137

     Elwood:

          Elwood Energy LLC
          c/o Dominion Energy, Inc.
          5000 Dominion Blvd
          Glen Allen, Virginia 23060
          Attention: General Manager
          Fax No.: 804-273-2303
          Telephone No.: 804-273-3269

     with a copy to:

          Peoples Energy Resources Corporation
          150 North Michigan, 39/th/ Floor
          Chicago, IL 60601
          Attention: Elwood Energy Commercial Manager
          Telecopy No.: (312) 762-1635
          Telephone No.: (312) 762-1616

Each party shall have the right to change such notice address or add notice
parties, by a notice given as aforesaid.

     15.2    Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS. ELWOOD AND FUEL MANAGER EACH HEREBY
IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN HOUSTON, TEXAS WITH
REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION,
DELIVERY OR

                                       27
<PAGE>

PERFORMANCE OF THIS AGREEMENT, AND HEREBY IRREVOCABLY WAIVES ANY AND ALL
OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS
OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE
ELSE.

     15.3    Copies.  The parties shall provide copies to each other of any
filings they make to FERC or to any state or other federal regulatory agency
having jurisdiction if such filing relates to the subject of this Agreement.

     15.4    Non Waiver.  The failure of either party to insist in any one or
more instances upon strict performance of any provisions of this Agreement, or
to take advantage of any right hereunder shall not be construed as a waiver of
any such provisions or the relinquishment of any such right or any other right
hereunder.

     15.5    Headings.  The headings contained in this Agreement are used solely
for convenience and do not constitute a part of the Agreement between the
parties, nor should they be used to aid in the construction of the Agreement or
to limit meaning of any provision.

     15.6    Binding Effect.  This Agreement shall benefit and bind the parties
hereto and their permitted successors and assigns.

     15.7    Severability; Merger.  The various provisions and clauses of this
Agreement are severable, and the invalidity of any portion of this Agreement
shall not affect the validity of the remainder of the Agreement. This Agreement
constitutes the entire agreement and supersedes any prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.

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

                                       28
<PAGE>

required to be disclosed under applicable law or judicial, administrative or
regulatory process, but only to the extent it must be disclosed or (iv) was
previously known to the receiving party.

     15.9    Disagreements.

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

             (b)    The Parties agree that no written statements of position or
     offers of settlement made in the course of the negotiations described in
     Section 15.9(a) above will be offered into evidence for any purpose in any
     litigation or arbitration between the parties, nor will any such written
     statements or offers of settlement be used in any manner against either
     party in any such litigation or arbitration. Further, no such written
     statements or offers of settlement shall constitute an admission or waiver
     of rights by either party in connection with any such litigation or
     arbitration. At the request of either party, any such written statements
     and offers of settlement, and all copies thereof, shall be promptly
     returned to the party providing the same.

             (c)    If a disagreement should arise on any matter which is not
     resolved as provided in Section 15.9(a), then, pending the resolution of
     the disagreement, Fuel Manager shall continue to perform in a manner
     consistent with the applicable provisions of this Agreement and Elwood
     shall continue to pay all charges and perform all other obligations
     required in accordance with the applicable provisions of this Agreement.

     15.10   Survival.  Any provisions hereof which relate to the period after
the termination of this Agreement shall survive the termination of this
Agreement.

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

                                       29
<PAGE>

     IN WITNESS WHEREOF, the undersigned have executed this Agreement.

ELWOOD ENERGY LLC                          CINERGY MARKETING & TRADING, LLC
By:   /s/ Tony W. Belcher                  By:   /s/ Douglas N. Schomtz
   --------------------------                  ------------------------------
Name:  Tony W. Belcher                     Name: Douglas N. Schomtz
     ------------------------                   -----------------------------
Title: General Manager                     Title: Vice President
      -----------------------                    ----------------------------

ELWOOD ENERGY II, LLC
By: /s/ Ronald D. Usher
   --------------------------
Name:  Ronald D. Usher
     ------------------------
Title: General Manager
      -----------------------

ELWOOD ENERGY III, LLC
By: /s/ Ronald D. Usher
   --------------------------
Name:  Ronald D. Usher
   --------------------------
Title: General Manager
   --------------------------

                                       30<PAGE>

                                                                    Exhibit 10.7

CONFIDENTIAL

                            GAS TRANSPORTATION AND
                            ----------------------
                              BALANCING AGREEMENT
                              -------------------

     This Agreement, dated as of May 1, 2001, between Northern Illinois Gas
Company d/b/a Nicor Gas Company ("Nicor Gas" or "Company") and Elwood Energy
LLC, Elwood Energy II, LLC, and Elwood Energy III, LLC (referred to collectively
as "Elwood Energy" or "Customer").

     WHEREAS, Elwood Energy is expanding its natural gas-fired electric power
generation facility in or near Elwood, Illinois (the "Generation Facilities"
described in more detail below), on a site located within the geographic area to
which Nicor Gas provides gas distribution service; but within such distance of
interstate natural gas pipeline facilities of Northern Border Pipeline Company
("NBPL") and Alliance Pipeline Company ("APL") that bypass of Company's gas
distribution facilities is economically feasible and practical;

     WHEREAS, Elwood Energy has provided an affidavit to Nicor Gas stating
Elwood Energy's intent to bypass Company's facilities absent the transportation
and balancing service from Nicor Gas called for under this Agreement and other
evidence required by and satisfactory to Nicor Gas to verify the investment
required by Elwood Energy in order to bypass Company's facilities;

     WHEREAS, gas to be received by Elwood Energy at its Generation Facilities
from Nicor Gas under this Agreement beginning on or about May 1, 2001 will be
delivered to Nicor Gas for the account of Elwood Energy from interconnects with
approved interstate pipeline facilities and redelivered by Nicor Gas to the gas
pipeline facilities of The Peoples Gas Light and Coke Company ("Peoples Gas" or
"PGLC") and transported via Peoples Gas' pipeline facilities to an
interconnection directly (or indirectly via Elwood Energy gas pipeline
facilities) with Nicor Gas' gas meters serving the Generation Facilities, where
it will be delivered to Nicor Gas for redelivery to Elwood Energy; and

                                       1
<PAGE>

     WHEREAS, Elwood Energy has entered into this Agreement with Nicor Gas for
contract service under Rate 17 of Nicor Gas' Schedule of Rates for Gas Service,
and Nicor Gas has contracted with Peoples Gas to receive certain transportation
and balancing services necessary for Nicor Gas to provide to Elwood Energy the
services called for in this Agreement.

     NOW, THEREFORE, the parties agree as follows:

     1.  Definitions.  Unless a clear contrary intention appears, the following
terms, where used in this Agreement, and in all exhibits, recitals, appendices
and amendments related to this Agreement, shall have the following meaning:
          (a)  "APL" shall mean Alliance Pipeline Company.
          (b)  "Balancing and Storage Service" shall mean a service under which
               Company (i) accepts quantities of gas delivered for the account
               of Customer at the Receipt Point when and to the extent such
               quantities are in excess of the Generation Facilities' metered
               requirements, or (ii) delivers gas to Customer at the Delivery
               Point when and to the extent the Generation Facilities' metered
               requirements exceed quantities of gas delivered to Nicor Gas for
               the account of Customer at the Receipt Point.
          (c)  "Balancing Service Account Balance" shall mean the quantity of
               gas at any time in the account which is, for accounting purposes,
               the quantity of gas delivered to Company at the Receipt Point
               under the Balancing and Storage Service in excess of the quantity
               of gas delivered to Customer at the Delivery Point under the
               Balancing and Storage Service.

                                       2
<PAGE>

          (d)  "Billing Month" shall mean the period between two consecutive
               meter readings taken as nearly as practicable to thirty (30)-day
               intervals.
          (e)  "Business Day" shall mean any day on which Company is open for
               the conduct of business with the public, and each such day shall
               commence at 8:00 a.m. CCT and end at 5:00 p.m. CCT.
          (f)  "Buy-Out Amount" shall have the meaning set forth in Section 14.
          (g)  "Central Clock Time" or "CCT" shall mean local time in Chicago,
               Illinois.
          (h)  "Company" shall mean Northern Illinois Gas Company d/b/a Nicor
               Gas Company or any successor or permitted assign.
          (i)  "Contract Quantity" shall mean Customer's MDCQ, MHQ, MMDN, MFBQS
               and MFBQnS entitlements under this Agreement.
          (j)  "Contract Year" shall mean the twelve-month period beginning
               April 1 of each year during the term of this Agreement except for
               the first Contract Year which shall mean an eleven (11) month
               period beginning on May 1, 2001 through March 31, 2002, inclusive
               of the commencement and ending dates.
          (k)  "Critical Day" shall have, with respect to gas requested to be
               injected into or withdrawn from storage in Company's facilities,
               the meaning ascribed to it in Company's Schedule of Rates and
               shall have, with respect to gas requested to be injected into or
               withdrawn from storage in Peoples Gas' facilities in connection
               with this Agreement, the meaning ascribed to it in the Peoples
               Gas Agreement.
          (l)  "Customer" shall mean Elwood Energy LLC, Elwood Energy II, LLC,
                and Elwood Energy III, LLC or any successor or permitted

                                       3
<PAGE>

assignee of these companies.
          (m)  "Customer's Purchase Option" shall have the meaning set forth in
               Section 31.
          (n)  "Delivery Point" shall mean the outlet side of the
               interconnection between Nicor Gas' meter(s) serving the
               Generation Facilities and Elwood Energy's facilities for
               receiving the gas from Nicor Gas for use in the Generation
               Facilities.
          (o)  "Delivery Variance" shall have the meaning set forth in Section
               41.
          (p)  "Dispatch Schedule" shall have the meaning set forth in Exhibit
               B.
          (q)  "Effective Degree Day" or "EDD" shall be derived from (i) the
               Degree Day meaning ascribed to it in Company's Schedule of Rates
               and (ii) wind and langley correction factors. Each variable shall
               be determined using Company's then existing weather service
               resources.
          (r)  "Excess Storage Charge" shall have the meaning set forth in
               Section 4(g).
          (s)  "Exercise Price" shall have the meaning set forth in Section 31.
          (t)  "Force Majeure" shall have the meaning set forth in Section 11.
          (u)  "Forecast Burn" shall be Customer's estimate of plant consumption
               for the next calendar day(s) and shall have the meaning set forth
               in Exhibit B, Communications Protocol.
          (v)  "Forecast Variance" shall have the meaning set forth in Section
               42.
          (w)  "Gas Cost" or "GC" shall have the meaning ascribed to it in
               Company's Schedule of Rates.
          (x)  "Gas Day" shall have the meaning ascribed to it in Company's
               Schedule of Rates.

                                       4
<PAGE>

          (y)  "Generation Facilities" shall mean Customer's Phase I and Phase
               II electric power generating facilities comprised of nine (9)
               simple-cycle natural gas turbine units with a combined installed
               generating capacity of approximately 600 MW for Phase I (4-units)
               and 775 MW for Phase II (5-units) at Customer's premises located
               near the intersection of Noel and Patterson Roads in Elwood,
               Illinois.
          (z)  "Global Point Agreement(s)" or "GPAs" shall mean a Global Point
               Agreement between Company and NBPL, or other interstate
               pipelines, to aggregate and treat interconnection locations
               between Company and these pipelines as one nomination point
               location in order to maximize the hourly delivery flexibility to
               be provided to Customer or its authorized agents.
          (aa) "Lender," "Lenders" and "Lender(s)" shall have the meaning set
               forth in Section 16.
          (bb) "Market Price" shall mean the price, converted to the
               corresponding price per therm, set forth in Gas Daily under the
               heading Daily Price Survey, Chicago-LDCs, Large e-use, midpoint
               of the range for the flow date. Market Price for any Gas Day for
               which Gas Daily is not published shall be determined by the issue
               of Gas Daily first published after such Gas Day.
          (cc) "Maximum Balancing Service Account Balance" or "MBAB" shall have
               the meaning set forth in Section 2(b).
          (dd) "Maximum Daily Contract Quantity" or "MDCQ" shall mean the
               maximum quantity of gas that Company shall receive at the Receipt
               Point and deliver to Customer at the Delivery Point on any Gas
               Day. During the Summer Months, Customer's MDCQ

                                       5
<PAGE>

               shall be 2,416,000 therms per Gas Day. During the Non-Summer
               Months, Customer's MDCQ shall be 2,844,000 therms per Gas Day.
          (ee) "Maximum Firm Balancing Quantity Non-Summer" ("MFBQnS") shall
               mean the Non-Summer maximum Forecast Variance quantity Company
               shall have the firm obligation to receive from or deliver to
               Customer as Balancing and Storage Service (Injection/Withdrawal)
               on any Gas Day.
          (ff) "Maximum Firm Balancing Quantity Summer" ("MFBQS") shall mean the
               Summer Month maximum Forecast Variance quantity Company shall
               have the firm obligation to receive from or deliver to Customer
               as Balancing and Storage Service (Injection/Withdrawal) on any
               Gas Day.
          (gg) "Maximum Hourly Quantity" or "MHQ" shall mean the maximum
               quantity of gas that Company shall deliver to Customer at the
               Delivery Point in any hour. During the Summer Months the MHQ
               shall be 151,000 therms per hour. During the Non-Summer Months,
               the MHQ shall be 177,750 therms per hour.
          (hh) "Minimum-Maximum Daily Nomination" or "MMDN" shall have the
               meaning set forth in Section 2(a).
          (ii) "NBPL" shall mean Northern Border Pipeline Company.
          (jj) "NBPL's Gas Tariff" shall mean NBPL's FERC Gas Tariff (First
               Revised Volume No. 1) on file and in effect, as it may be revised
               from time to time, with the Federal Energy Regulatory Commission
               or any successor to that agency.
          (kk) "NGPL" shall mean Natural Gas Pipeline Company of America.
          (ll) "Non-Summer Months" shall mean the months of October, November,
               December, January, February, March, April and May.
          (mm) "Notices" shall have the meaning set forth in Section 33.

                                       6
<PAGE>

          (nn) "Operational Balancing Agreement(s)" or "OBAs" shall have the
               meaning ascribed to it in NBPL's, NGPL's and APL's respective gas
               tariffs.
          (oo) "Operational Flow Order" or "OFO" shall have the meaning ascribed
               to it in NBPL's, NGPL's, APL's and Company's respective gas
               tariffs.
          (pp) "Option Equipment" shall have the meaning set forth in Section
               31.
          (qq) "Peoples Gas" or "PGLC" shall mean The Peoples Gas Light and Coke
               Company.
          (rr) "Peoples Gas Agreement" shall have the meaning set forth in
               Section 28.
          (ss) "Person" shall have the meaning set forth in Section 16.
          (tt) "Phase I Term" shall mean the period of time beginning May 1,
               2001 and ending September 30, 2004 and shall apply to Customer's
               initial four (4) gas turbine units in commercial operation prior
               to the effective date of this Agreement (Elwood Units 1-4).
          (uu) "Phase II Term" shall mean the period of time beginning May 1,
               2001 and ending March 31, 2006 and shall apply to Customer's
               additional five (5) gas turbine units (Elwood Units 5-9).
          (vv) "Receipt Point" shall mean the interconnection(s) between NBPL,
               NGPL and APL interstate pipeline facilities and Peoples Gas'
               and/or Nicor Gas' LDC facilities, as applicable.
          (ww) "Requested Authorized Use" shall have the meaning ascribed to it
               in Company's Schedule of Rates.
          (xx) "Schedule of Rates" shall mean Company's Schedule of Rates for
               Gas Service (Ill.C.C. No. 16) on file and in effect, as it may be
               revised from time to time, with the Illinois Commerce

                                       7
<PAGE>

                Commission or any successor to that agency.

          (yy)  "Storage Inventory Overrun Charge" shall have the meaning set
                forth in Section 4(f).

          (zz)  "Summer Months" shall mean the months of June, July, August and
                September.

          (aaa) "Transportation Service" shall mean a service under which Nicor
                Gas receives gas delivered to Nicor Gas for the account of
                Elwood Energy at a Receipt Point, causes the gas to be
                transported via Peoples Gas' pipeline facilities to the Delivery
                Point, and redelivers the gas to Elwood Energy at the Delivery
                Point.

          (bbb) "Unauthorized Use" shall have the meaning ascribed to it in
                Company's Schedule of Rates.

     2.        Services. Except as otherwise provided in this Agreement, the
services provided by Company shall be firm and not subject to interruption,
except for reason of Force Majeure. Company agrees to provide, and Customer
agrees to pay for, the following services at Customer's Generation Facilities.

          (a)       Except as otherwise provided for in this Agreement, on any
               Gas Day during the Summer Months and the Non-Summer Months during
               the term of this Agreement, Customer shall have the right to firm
               Transportation Service within the "Minimum-Maximum Daily
               Nomination" or "MMDN" available, not to exceed the applicable
               MDCQ, subject to the terms and conditions of this Agreement.
               Company shall not be obligated to deliver gas to Customer at an
               hourly rate in excess of the MHQ. Company will use its reasonable
               efforts to deliver gas to Customer at an hourly rate in excess of
               the MHQ and MDCQ as requested by Customer. Such use of gas at a
               rate in

                                       8
<PAGE>

               excess of the Customer's MHQ and MDCQ, when requested by Customer
               and subsequently approved by Company, shall not be deemed as
               Unauthorized Use.

          (b)        Customer shall be entitled to receive Balancing and Storage
               Service during the Summer Months and the Non-Summer Months
               subject to the terms and conditions of this Agreement. The
               Balancing Service Account Balance at any time shall not exceed a
               maximum of 7,250,000 therms ("Maximum Balancing Service Account
               Balance" or "MBAB"). Any Balancing Service Account Balance in
               excess of the MBAB shall be subject to either (i) the Storage
               Inventory Overrun Charge or (ii) the Excess Storage Charge.
               During the Summer Months, Customer's Maximum Firm Balancing
               Quantity Summer ("MFBQS") shall be limited to 1,812,000 therms
               per Gas Day. During the Summer Months, Balancing and Storage
               Service in excess of Customer's MFBQS (1,812,000 therms) per Gas
               Day shall be interruptible by Company. During the Non-Summer
               Months, Customer's Maximum Firm Balancing Quantity Non-Summer
               ("MFBQnS") shall be limited to 888,750 therms per Gas Day. During
               the Non-Summer Months, Balancing and Storage Service and Forecast
               Variances in excess of Customer's MFBQnS (888,750 therms) per Gas
               Day shall be interruptible by Company. During the Non-Summer
               Months, Customer withdrawals from storage may be further limited
               by Company on any Gas Day that Company forecasts that it will
               experience sixty (60) or more Effective Degree Days or when
               Company or Peoples Gas declares a Critical Day. On any Gas Day
               that Company forecasts that it will experience sixty (60) or more
               Effective Degree Days, Customer withdrawals from storage will

                                       9
<PAGE>

               be interruptible, based on reasonable operating limitations.
               Nicor Gas may require Customer to nominate flowing supplies, if
               necessary, to ensure firm service under this Agreement. On any
               Gas Day that Company forecasts that it will experience sixty (60)
               or more Effective Degree Days, Company shall have the right to
               limit Company's firm deliveries to Customer's Generation
               Facilities to Customer's corresponding firm city-gate deliveries
               on applicable interstate pipelines for such day(s). However,
               Company agrees that it will not unreasonably reduce Customer's
               MFBQS and MFBQnS injection and withdrawal storage rights in order
               for Company to provide incremental interruptible services. On
               Critical Days declared by Company or Peoples Gas and on days that
               Company forecasts that it will experience sixty-five (65) or more
               Effective Degree Days, Customer's MFBQS and MFBQnS withdrawals
               from storage will be interruptible, subject to reasonable
               operating limitations, and Company's firm deliveries to the
               Generation Facilities will be limited to Customer's corresponding
               hourly confirmed city-gate volumes delivered on NBPL, APL and
               NGPL as applicable. Company's forecast of Effective Degree Days,
               and any corresponding reduction in transportation or storage
               rights pursuant to this section, shall be made no later than the
               time by which Company is required to declare a Critical Day
               pursuant to Company's Schedule of Rates, but in any case no later
               than 8:00 A.M. CCT on the calendar day prior to adjustment of the
               Contract Quantities.

          (c)        Except as otherwise provided in this Agreement, Company's
               Unaccounted-for Gas percentage shall not apply to any service
               under this Agreement.

                                       10
<PAGE>

     3.    Customer Responsibility. Acquisition and delivery of Customer-owned
gas to the Receipt Point(s) shall be the sole responsibility of Customer.

     4.    Charges for Services. Notwithstanding anything to the contrary in
Company's Schedule of Rates, charges for services under this Agreement shall be
limited to the following:

          (a)          Reservation Charge payable for each Summer Month at the
               rate of $0.045 per therm of M DCQ in such Billing Month.
          (b)          Volumetric Charge payable for each Billing Month at the
               rate of $0.0037 per therm delivered by Company to Customer during
               each Summer Month and $0.0092 per therm delivered by Company to
               Customer during each Non-Summer Month.
          (c)          Delivery Variance Charge assessed at the rate of $0.05
               per therm on each occurrence and for each Delivery Variance
               greater than or equal to 50,000 therms on non-Critical and non-
               OFO days as ascribed to in Section 41.
          (d)          Balancing and Storage Service Reservation Charge assessed
               and payable for each Summer Month at the rate of $0.335 per therm
               of Customer's Maximum Firm Balancing Quantity Summer ("MFBQS")
               (1,812,000 therms) during such Billing Month .
          (e)          Forecast Variance Charge assessed daily and payable at
               the end of the Billing Month at the following rates for the
               absolute positive or negative variance, expressed in therms,
               between the total daily quantity of gas delivered by Company to

                                       11
<PAGE>

               the Generation Facilities versus Customer's Forecast Burn as
               described in Section 42.

                                 Summer Months
                                 -------------
<TABLE>
<CAPTION>
                    <S>                                            <C>
                    Greater of +/- 20% of Forecast Burn or
                    200,000 therms                                 $0.000/therm
                    * above & **= 1,208,000 therms                 $0.005/therm
                    * 1,208,000 & **= 1,812,000 therms             $0.010/therm
                    * 1,812,000 & **= 2,416,000 therms             $0.048/therm
                    * 2,416,000 therms (non-firm)                  Negotiable
</TABLE>
                    (* = more than)                    (** = less than)

                               Non-Summer Months
                               -----------------
<TABLE>
<CAPTION>
                    <S>                                            <C>
                    Greater of +/- 20% of Forecast Burn or
                    200,000 therms                                 $0.000/therm
                    * above & **= 474,000 therms                   $0.005/therm
                    * 474,000 & **= 888,750 therms                 $0.055/therm
                    * 888,750 - 1,180,000 therms (non-firm)        $0.055/therm
                    * 1,180,000 (non-firm)                         Negotiable
</TABLE>

                    (* = more than)                    (** = less than)

          (f)          Storage Inventory Overrun Charge assessed monthly, at the
               rate of $0.05 per therm, on each occurrence where the highest
               daily quantity in storage is in excess of 7,250,000 therms, but
               not to exceed 9,515,000 therms.
          (g)          Excess Storage Charge assessed monthly, at the rate of
               $0.10 per therm, on each occurrence where the highest daily
               quantity in storage is in excess 9,515,000 therms, or assessed
               daily where Balancing and Storage Service on any day exceeds
               2,416,000 therms but is less than 3,020,000 therms in the Summer
               Months or where Balancing and Storage Service injections on any
               day exceeds 1,180,000 therms but less than 1,475,000 therms in
               the Non-Summer Months.
          (h)          Upstream Transportation Charges.
               (i)  Reservation Charge payable for each Summer Month at

                                       12
<PAGE>

                    the rate of $0.0737 per therm of MDCQ (2,416,000) during
                    such Billing Month.
               (ii) Volumetric Charge, inclusive of fuel, payable for each
                    Billing Month at the rate of $0.0044 per therm on quantities
                    delivered by Company to Customer during such Billing Month.
          (i)  Requested Authorized Use shall be a volumetric charge, at the
               rate set forth in Section 7, on the quantities of gas requested
               by Customer and authorized by Company for any such day.
          (j)  Unauthorized Use shall be a volumetric charge, at the rate set
               forth in Section 7, on the last gas measured for such days.
          Customer recognizes that charges authorized under this Agreement are
          subject to Company's Rider 8, Adjustment of Municipal and State
          Utility Taxes, of Company's Schedule of Rates, as in effect from time-
          to-time.  Customer further recognizes that should a taxing authority
          having appropriate jurisdiction over Customer levy a tax on the use of
          natural gas ("Gas Use Tax"), and subsequently require Company to
          collect such a tax, Customer shall reimburse Company for any
          applicable charges resulting from the invoked Gas Use Tax, provided
          however, to the extent Company has the authority or discretion under
          its Schedule of Rates to discount or waive the invoked tax, Company
          shall use all reasonable means to mitigate the invoked tax liability
          and through any appropriate discounts or exemptions, pass such
          benefits on to Customer.

     5.        Billing and Payment.
          (a)            Each month during the term of this Agreement, Company
               shall tender to Customer an invoice for services rendered during
               the preceding month. Pipeline deliveries,

                                       13
<PAGE>

               Customer gas usage, determination of storage volume balances,
               Forecast Variances, Delivery Variances, Requested Authorized Use,
               and Unauthorized Use and balancing overruns will, however, be
               calculated on a daily basis. Company may send its invoice to
               Customer via facsimile. Customer shall remit payment to Company
               by wire transfer or automated clearinghouse no later than
               fourteen (14) days after Customer's receipt of such invoice.
          (b)            If Customer fails to remit the full amount payable by
               it when due, interest on the unpaid portion shall accrue at a
               rate equal to the lower of (i) the then-effective prime rate of
               interest published under "Money Rate" by the Wall Street Journal,
               plus one percent (1%) per annum from the due date until the date
               of payment, or (ii) the maximum applicable lawful interest rate.
          (c)            If Customer fails to remit the full amount payable by
               it when due, Company may, in the absence of a good faith dispute
               as to the amount due and owing, suspend its performance under
               this Agreement on ten (10) days' written notice to Customer.
               Company may not suspend its performance under this Agreement for
               any reason other than set forth in this subsection (c) of this
               section.
          (d)            Minimum Monthly and Annual Bill. The minimum monthly
               bill for each Summer Month shall be the sum of (i) the
               Reservation Charge set forth in Section 4(a), (ii) the Balancing
               and Storage Service Reservation Charge set forth in Section 4(d),
               and (iii) the Reservation Charge set forth in Section 4(h)(i),
               adjusted for applicable taxes. The minimum annual bill for each
               Contract Year shall be $4.35 million, excluding any Storage

                                       14
<PAGE>

               Inventory Overrun, Excess Storage, Delivery Variance, Requested
               Authorized Use, Unauthorized Use, Buy-Out-Amounts, incremental
               GPA/OBA charges and applicable taxes. The Phase I and Phase II
               contract term extensions shall result in the minimum monthly
               billing and minimum annual billing being adjusted in a pro rata
               manner consistent with Exhibit C.

     6.                  Requested Authorized Use. From time to time, Company
  and Customer may agree to negotiate: 1) authorized overrun levels of daily
  Balancing and Storage Service to inject or withdraw Customer-owned supplies
  and/or Forecast Variance charges; or 2) for purchase of Company-owned supplies
  (Requested Authorized Use). Authorized overruns of Balancing and Storage
  Service and/or Forecast Variance charges shall be in writing and shall be
  permitted only after a prior request by Customer and upon approval by Company,
  subject to the mutual agreement of the parties to any negotiated charges.
  Requested Authorized Use gas supplies shall be available during the Summer
  Months upon prior request from Customer and during the Non-Summer Months only
  upon prior request from Customer and authorization by Company. All requests
  for Requested Authorized Use shall be confirmed in writing by Company.
  Requests for Requested Authorized Use made prior to the Gas Day, during the
  Summer Months when requested and during the Non-Summer Months when requested
  and approved, shall be available only on a daily basis in volumes not to
  exceed Customer's MDCQ. Requests for Requested Authorized Use made during the
  Gas Day, during the Summer Months if requested and during the Non-Summer
  Months if requested and approved, shall be granted only on a daily basis in
  volumes not to exceed Customer's MDCQ multiplied by the number of remaining
  hours in the Gas Day divided by twenty-four (24) hours. Requested Authorized
  Use shall be accounted for as the first gas delivered on any Gas Day for which
  it

                                       15
<PAGE>

CONFIDENTIAL

     has been requested. Unauthorized Use shall be the last volume delivered on
     any Gas Day. If the volume of Requested Authorized Use is greater than
     Customer's metered usage on any Gas Day, the difference shall be accounted
     for as injections into storage. The Company's Unaccounted-for Gas
     percentage will not apply to any Requested Authorized Use unless such
     volumes are injected into storage.

     7.    Charges for Requested Authorized Use, Unauthorized Use and Authorized
  Overruns. Requested Authorized Use of Company gas supplies, when approved,
  will be charged at the higher of (a) the Company's GC, or (b) the Market Price
  plus $0.02 per therm. Use of Company gas supplies without requested
  authorization and subsequent approval, will be considered Unauthorized Use.
  Unauthorized Use will be charged at $6.00 per therm plus the higher of (c) the
  Company's GC, or (d) the Market Price plus $0.02 per therm. Prior to the
  beginning of the Gas Day, Company and Customer may agree to a negotiated
  Forecast Variance Charge and/or authorized overruns of the Balancing and
  Storage Se rvice. Such negotiated volumes shall be confirmed in writing and
  any such negotiated charges shall be applied as the last rate tier and
  quantities billed for purposes of computing the daily Forecast Variance charge
  and for overrun of Balancing and Storage Service. Injections and withdrawals
  from storage which exceed Customer's MFBQS and MFBQnS limitations or any
  agreed upon authorized overrun quantities shall be interruptible by Company.
  During the Summer Months, injections into and withdrawals from storage in
  excess of 1,812,000 therms (the MFBQS) shall be interruptible but overrun
  charges equal to the Excess Storage Charge shall only apply to quantities in
  excess of the Summer Month MDCQ. Unless otherwise agreed upon in writing,
  Balancing and Storage Service injections exceeding 3,020,000 therms per day in
  the Summer Months and 1,475,000 therms per day in the Non-Summer Months shall
  be subject to forfeiture of the excess gas to Company plus any applicable OFO
  charges. During the Summer Months, Balancing and Storage

                                       16
<PAGE>

Service withdrawals exceeding 3,020,000 therms per day shall be negotiable.
During the Summer Months, unauthorized Balancing and Storage Service withdrawals
exceeding 3,020,000 therms shall be subject to a per therm charge of $1.00 plus
the higher of (i) Company's GC or (ii) the Market Price plus $0.02 per therm.
During the Non-Summer Months, injections into and withdrawals from storage in
excess of 888,750 therms and less than 1,180,000 therms shall be interruptible
and overrun charges shall be assessed a rate of five and five-tenths cents
(5.5c) per therm plus any applicable Forecast Variance charges. During the Non-
Summer Months, withdrawals from storage which exceed 1,1800,000 therms or any
agreed upon authorized overrun of Balancing and Storage Service shall be deemed
as Unauthorized Use of Gas and shall also be subject to any applicable Forecast
Variance charges; conversely, injections to storage which exceed 1,180,000
therms but not to exceed 1,475,000 therms or any agreed upon authorized overrun
of Balancing and Storage Service shall be subject to the Excess Storage Charge
plus any applicable Forecast Variance charges.

     8.   Incorporation of Rate 77.  The parties agree to incorporate Rate 77 of
Company's Schedule of Rates, as it may be revised from time to time and except
as modified by this Agreement, as part of this Agreement for contract service
under Rate 17.  All other applicable provisions of the Company's Schedule of
Rates as in effect from time-to-time shall apply, unless specifically modified
by this Agreement.  Company and Customer understand and agree that the
obligations under this Agreement and the applicable provisions of Company's
Schedule of Rates may change due to orders of the Illinois Commerce Commission
or to applicable law.  The parties agree to comply with any such changes.

     9.   Storage. If on any Gas Day Customer-owned gas nominated to Company
exceeds Customer's metered gas deliveries to the Generation Facilities, the
difference in volumes shall be the volume of gas injected into storage and added

                                       17
<PAGE>

to Customer's Balancing Service Account Balance. If on any Gas Day Customer-
owned gas nominated to Company is lower in volume than Customer's metered gas
deliveries to the Generation Facilities, the balance of any gas held in storage
will be applied against such metered deliveries. Customer shall have the firm
right to injections and withdrawals from storage, subject to the terms herein,
up to Customer's MFBQS and MFBQnS contract quantities. Customer-owned gas
injected into storage will be net of the Company's Unaccounted-for Gas
percentage as in effect from time-to-time, provided that, Company's Unaccounted-
for Gas percentage shall not be assessed on injection quantities which exceed a
cumulative volume of seventy (70) million therms in any Contract Year. On any
Gas Day, should the volume of gas delivered to the plant exceed the sum of (a)
Requested Authorized Use, (b) Customer's daily nominations plus (c) any volumes
available from storage, the Unauthorized Use provisions of this Agreement will
apply. Withdrawals from storage are firm, subject to the reasonable, operational
limitations of Nicor Gas and other conditions set forth in this Agreement.

     10.        Use of NBPL, APL and NGPL.  Gas supplies nominated by Customer,
or its authorized agent, for delivery to Customer's Generation Facilities or
into storage must be transported on NBPL, APL and NGPL interstate pipelines.
Customer, or its authorized agent, shall routinely inform Company of its
forecasted hourly and daily usage in accordance with Exhibit B.  In addition,
Customer shall supply Company its Forecast Burn by 7:00 A.M. on business days
and Nicor Gas shall, using reasonable operating practices and given Company's
other firm obligations, make available to Customer at 8:00 A.M. on business
days, the minimum and maximum quantities that can be reasonably accepted as
Customer's MMDN.  During the months of June, July and August of each Contract
Year, Company shall make available as the MMDN no less than the minimum
quantities shown on Exhibit D as allowed receipts from NBPL, APL, and NGPL.
Conversely, during the months of June, July and August of each Contract Year,
Company shall

                                       18
<PAGE>

not require as a part of the MMDN receipts by Customer of more than the
quantities shown on Exhibit D. During all other days and months of the year,
Company's MMDN limits shall be reasonably applied from Customer's Forecast Burn,
MFBQS, MFBQnS, and Company's other firm service obligations. In the event
Company's operational conditions require it to reduce MMDN rights of Customer
during this period to less than the parameters shown on Exhibit D, a 4.8 cent
($.048) per therm credit shall be granted to Customer for the quantity affected;
provided that, such reduction of Customer's MMDN rights are not the result of
any OFO or Critical Day restrictions invoked by Company or any applicable
interstate pipelines.

     11.  Force Majeure. In the event any obligation imposed by this Agreement
on either party, except for the payment of money when it becomes due and owing
hereunder (including, without limiting the generality of the foregoing, the
payment by Customer of the charges calculated pursuant to Section 4 hereof),
cannot be performed, on account of an act of God, strike, labor dispute, fire,
war, civil disturbances, explosion, breakage or accident to machinery or lines
of pipe, quarantine, epidemic, severe storms, act or interference of any
governmental authority or agency including failure to grant any permit, or by
any similar cause reasonably beyond the control of the party otherwise required
to perform such obligation ("Force Majeure"): (a) the party so required to
perform shall do all things reasonably possible to remove the cause of such
interference as expeditiously as is reasonably possible; (b) during the
continuance of such interference, and while the party so required to perform is
attempting removal of the interference, the obligation imposed on such party
shall be suspended to the extent that the interference prohibits such
performance; and (c) any directly corresponding obligation imposed on the other
party to this Agreement shall, during this period, likewise be suspended pro
                                                                         ---
tanto. It is expressly understood and agreed that Force Majeure does not
-----
include scheduled outages of equipment served hereunder for turnarounds or
normal maintenance. In order to invoke the suspension in whole or in part by
reason of

                                       19
<PAGE>

Force Majeure of any obligation imposed by this Agreement, the party
claiming such cause shall give notice in writing, including by facsimile, or by
telephone confirmed in writing, to the other party after the initial occurrence
of the cause relied on.  Neither party shall at any time be required against its
will to adjust or settle any labor dispute.

     Under Force Majeure conditions invoked by Customer, defined as non-
economic, should Customer incur an unauthorized overrun of its Contract
Quantities as per this Agreement, Customer shall reimburse Company an amount
equal to the higher of (i) the actual interstate pipeline penalties incurred by
Company that were directly related to Customer's unauthorized overrun of its
Contract Quantities ("Pipeline Penalties") or (ii) a volumetric charge of $0.048
per therm during the Summer Months or $0.055 per therm during the Non-Summer
Months multiplied by the quantity of unauthorized overrun.

     12.      Cooperation. Customer and Company agree that they will cooperate
to the fullest extent in the administration of this Agreement and operation
hereunder. Company and Customer shall each provide the other with a twenty-four
hour contact for operational matters. The parties shall work together to
schedule planned outages of their respective facilities at mutually agreeable
times, but in no event will Company conduct a planned outage of its facilities
serving the Generation Facilities during the Summer Months if such planned
outage could cause, or does cause Company to fail to perform any of its
obligations hereunder.

     13.      Regulatory Approvals. Upon request by either party, the other
party agrees to cooperate in obtaining any necessary regulatory approval of this
Agreement. Neither party shall be responsible for any filing fees or costs
incurred by the other, its agent or any third party respecting this Agreement.

     14.      Term and Cancellation.  Except as provided in this Agreement, this
Agreement shall be effective on May 1, 2001 and shall remain in full force and

                                       20
<PAGE>

CONFIDENTIAL

effect until March 31, 2006, for a period of fifty-nine (59) consecutive months,
inclusive of the beginning and ending dates.  Effective May 1, 2001, this
Agreement supercedes and cancels the Gas Transportation and Balancing Agreement
dated May 1, 1999 between Northern Illinois Gas Company d/b/a Nicor Gas Company
and Elwood Energy LLC, subject to any outstanding obligations between the
parties.  Customer shall have the option of canceling this Agreement beginning
with the end of the second Summer Month period, or September 30, 2002, and at
the end of each successive Summer Month period thereafter, during the initial
fifty-nine (59) month term, upon giving one (1) year prior written notice to
Company and upon delivering to Company on or before such anniversary date the
following "Buy-Out Amount" for each of the corresponding anniversary years.
Company and Customer agree that the following "Buy-Out-Amount(s)" shall be
determined by calculating the remaining unamortized portions of (i) termination
fee of $1.575 million at September 30, 2002 and shall be reduced by amortizing
at a rate of $0.525 million per year thereafter, (ii) Company and PGL&C's
facilities investment of $1.787 million at September 30, 2002, $1.239 million at
September 30, 2003, $0.645 million at September 30, 2004, and zero thereafter,
and (iii) NBPL GPA/OBA fixed costs of $0.750 million at September 30, 2002, and
amortized at a rate of $0.250 million per year thereafter.  In the event of a
buy-out, Customer shall separately have the right to purchase from the Company
on-site meters and related equipment located at Company's Station 144, serving
Elwood's Phase I turbines, pursuant to section 31(b).  Customer recognizes that
the Buy-Out-Amounts listed below may change or adjust upward dependent on the
unamortized fixed cost of other Global Point and Operational Balancing
agreements in place at the time of termination.  Customer agrees to reimburse
Company for any such incremental unamortized GPA/OBA fixed costs.  Customer's
termination rights do not apply to extension terms provided for in this
Agreement beyond March 31, 2006.

---------------------------------------------------------------------------
                 Anniversary                      Buy-Out Amount
---------------------------------------------------------------------------
         Second (September 30, 2002)                 $4,112,000
---------------------------------------------------------------------------

                                       21
<PAGE>

-------------------------------------------------------------------------
Third (September 30, 2003)                               $2,789,000
-------------------------------------------------------------------------
Fourth (September 30, 2004)                              $1,420,000
-------------------------------------------------------------------------

     15.       Order of Delivery. On any Gas Day, the order of gas delivered to
the Customer shall be: (a) Requested Authorized Use gas supplies of Company, (b)
Customer-owned gas nominated to Company on NBPL, APL and NGPL (confirmed
Transportation Service within the "MMDN") and (c) Balancing and Storage Services
for injection or withdrawal up to the MFBQS or MFBQnS, as applicable, of
Customer-owned gas, (d) interruptible injections or withdrawals, as applicable,
of Customer-owned gas, and (e) Unauthorized Use.

     16.       Assignment.

          (a)            Except as provided in this Section 16, neither party
               shall assign, pledge or otherwise transfer this Agreement or any
               right or obligation under this Agreement without first obtaining
               the other party's written consent, which consent shall not be
               unreasonably withheld or delayed. Except as specifically provided
               for in this Section 16, any assignment or transfer of this
               Agreement or any rights, duties or interests hereunder by any
               party without the written consent of the other party shall be
               void and of no force or effect.

          (b)            Company shall be permitted to assign or otherwise
               transfer this Agreement or its rights, duties and obligations
               hereunder, in whole or in part, by operation of law or otherwise,
               without Customer's consent, to any successor to or transferee of
               the direct or indirect ownership or operation of all or part of
               the pipeline system to which the Generation Facilities are
               connected that can fully perform Company's obligations under this
                                       22
<PAGE>

                    Agreement, provided the proposed assignee is creditworthy,
                    and upon the assumption by any such permitted assignee of
                    Company's rights, duties and obligations hereunder, Company
                    shall be released and discharged therefrom to the extent
                    provided in the assignment agreement.

               (c)       So long as no material event of default with respect to
                    Customer has occurred and is continuing, Customer shall be
                    permitted to assign or otherwise transfer this Agreement in
                    whole, by operation of law or otherwise, without Company's
                    consent, (i) to Elwood Marketing, LLC, or (ii) to any
                    assignee succeeding to the ownership of the Generation
                    Facilities, provided the proposed assignee is creditworthy,
                    and upon the assumption by any such permitted assignee of
                    Customer's rights, duties and obligations hereunder,
                    Customer shall be released and discharged therefrom to the
                    extent provided in the assignment agreement.

               (d)       Company hereby consents to Customer's assignment of
                    this Agreement to any and all Lenders (as defined below) or
                    the granting to any or all Lenders of a lien or security
                    interest in any right, title or interest in part or all of
                    the Generation Facilities or any or all of Customer's rights
                    under this Agreement for the purpose of the financing or
                    refinancing of the Generation Facilities. In order to
                    facilitate the obtaining of financing or refinancing of the
                    Generation Facilities without Company's consent, Company
                    shall cooperate with Customer and execute consents,
                    agreements or similar documents with respect to the
                    assignment hereof to any Lender as customary for comparable
                    transactions in connection with the financing or refinancing
                    of the Generation Facilities, provided that such

                                       23
<PAGE>

                    assignment shall recognize and shall not impair or otherwise
                    adversely affect Company's rights under this Agreement.
                    Company recognizes that such consent may grant certain
                    rights to such Lenders, which shall be fully developed and
                    described in said consent documents, including that (i) this
                    Agreement shall not be amended or terminated (except for
                    termination pursuant to the terms of this Agreement) without
                    the consent of Lenders; (ii) without extending the cure
                    period set forth in this Agreement, Lenders shall be given
                    notice of, and the same opportunity to cure, any Customer
                    breach or default of this Agreement, provided that
                    notwithstanding the foregoing Lender(s) may have in addition
                    to the cure periods set forth herein an additional sixty
                    (60) days from the expiration of such cure period to cure
                    any breach or default of this Agreement; (iii) if a Lender
                    forecloses, takes a deed in lieu or otherwise exercises its
                    remedies pursuant to any security documents, that Company
                    shall, at Lender's request, continue to perform all of its
                    obligations hereunder, and Lender or its nominee may perform
                    in the place of Customer, and may assign this Agreement to
                    another party in place of Customer (provided either (A) such
                    proposed assignee is creditworthy or (B) Company consents to
                    the assignment to such proposed assignee, which consent
                    shall not be unreasonably withheld or delayed), and enforce
                    all of Customer's rights hereunder; (iv) that Lender(s)
                    shall have no liability under this Agreement except during
                    the period of such Lender(s)' ownership and/or operation of
                    the Generation Facilities and any defaults for non-payment
                    existing immediately prior to such period; (v) that Company
                    shall accept performance in accordance with this Agreement
                    by Lender(s) or its (their)

                                       24
<PAGE>

                    nominee; and (vi) that Company shall make representations
                    and warranties to Lender(s) as Lender(s) may reasonably
                    request, including, but not limited to, (A) Company's
                    corporate existence, (B) Company's corporate authority to
                    execute, deliver, and perform this Agreement, (C) the
                    binding nature of this Agreement on Company, (D) receipt of
                    such regulatory approvals by Company as are required by law
                    with respect to its performance under this Agreement,
                    subject to such continuing jurisdiction as the Illinois
                    Commerce Commission may have over this Agreement, and (E)
                    whether any defaults by Customer are known by Company then
                    to exist under this Agreement and shall, upon request of
                    Customer, cause Company's counsel to issue an opinion to
                    Customer and any Lender affirming in customary form the
                    representations of Company in subsections (a)(i), (a)(ii),
                    (a)(iii)(A), (iv) and (v) of Section 17.

               (e)       As used in this Agreement, the term "Lender(s)" means
                    (i) any individual, governmental authority, corporation,
                    limited liability company, partnership, limited partnership,
                    trust, association or other entity ("Person") that from time
                    to time enters into loans with Customer, its successors or
                    permitted assigns for the financing or refinancing of the
                    Generation Facilities or any part thereof or which are
                    secured by the Generation Facilities (including a sale-
                    leaseback transaction), (ii) the holders of indebtedness
                    evidencing any such loans, or (iii) any Person acting on
                    behalf of such lender(s) to whom any lenders' rights under
                    such loans have been transferred, any trustee on behalf of
                    any such lenders, and any Person subrogated to the rights of
                    such lenders.

                                       25
<PAGE>

     17.       Representations and Warranties

        (a)              Company hereby makes the following representations and
               warranties to Customer:

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

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

               (iii)  (A) The execution and delivery of this Agreement, the
                      consummation of the transactions contemplated hereby and
                      the fulfillment of and compliance with the provisions of
                      this Agreement, do not and will not conflict with or
                      constitute a breach of or a default under, any of the
                      terms, conditions or provisions of any legal requirements,
                      or any organizational documents, agreement, deed of trust,
                      mortgage, loan agreement, other evidence of indebtedness
                      or any other agreement or

                                       26
<PAGE>

                      instrument to which Company is a party or by which it or
                      any of its property is bound, or result in a breach of or
                      a default under any of the foregoing, and (B) Company has
                      obtained all permits, licenses, approvals and consents of
                      governmental authorities required for the lawful
                      performance of its obligations hereunder, subject to such
                      continuing jurisdiction as the Illinois Commerce
                      Commission may have over this Agreement.

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

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

          (b)            Customer hereby makes the following representations and
               warranties to Company:

               (i)    Customer is a Delaware limited liability corporation duly
                      organized, validly existing and in good standing under the
                      laws of the State of Delaware, and has the legal power and
                      authority to own its

                                       27
<PAGE>

                      properties, to carry on its business as now being
                      conducted and to enter into this Agreement and carry out
                      the transactions contemplated hereby and perform and carry
                      out all covenants and obligations on its part to be
                      performed under and pursuant to this Agreement.

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

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

               (iv)   This Agreement constitutes the legal, valid and binding
                      obligation of Customer enforceable in accordance with its
                      terms, except as such enforceability may be limited by
                      bankruptcy,

                                       28
<PAGE>

                      insolvency, reorganization or similar laws relating to or
                      affecting the enforcement of creditors' rights generally
                      or by general equitable principles, regardless of whether
                      such enforceability is considered in a proceeding in
                      equity or at law.

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

     18.       Interference with Company's Service. Whenever any of the
Customer's utilization equipment has characteristics which, in the sole
reasonable judgment of Company, will cause interference with the service to any
other customer or interfere with the proper metering, suitable facilities shall
be provided by Company at Customer's expense to preclude such interference.

     19.       Monitoring of Usage. Company shall not be responsible for
monitoring Customer's daily usage or notifying Customer of potential storage
inventory overrun, excess storage, Delivery Variance, Forecast Variance, or
unauthorized use of gas conditions. However, at Customer's request, Company
shall provide to Customer or its authorized agent, via facsimile or electronic
file, Customer's daily flow data and storage balances on a daily basis no later
than the Gas Day after flow.

     20.       Negotiations for Additional Service. It is understood and agreed
that, upon expiration or termination of this Agreement, Company and Customer may
enter into good faith negotiations for additional transportation and storage
services.

                                       29
<PAGE>

     21.       Bypass. Except as provided in Section 27, Customer agrees not to
take deliveries of natural gas directly from any interstate pipeline or any
other intrastate gas pipeline or any other service provider for the purposes of
bypassing Company's local distribution system while this Agreement remains in
effect.

     22.       Confidentiality. Company and Customer recognize the proprietary
nature of this Agreement and agree to treat the contents of this Agreement on a
confidential basis in the same manner as each treats its own proprietary
information of a similar nature.

     23.       Gas Specifications. The quality of Customer-owned gas delivered
to Company on behalf of Customer shall meet or exceed the specifications
contained in 83 Illinois Administrative Code Section 530.10 and Section 530.15
and the FERC-approved gas tariffs of APL, NBPL and NGPL. Customer-owned gas that
does not meet such specifications may be refused by Company and Customer will
indemnify Company against any loss or damage resulting from delivery of such
gas, for the account of Customer, which does not meet such specifications.

     24.       Additional Company Facilities. Should a change in Customer's
equipment or operations require Company to install additional Company facilities
to deliver Customer-owned gas to Customer's Generation Facilities, Company shall
provide Customer with a written estimate of the facilities cost prior to
incurring any costs or commencing any construction. Customer shall notify
Company, in writing, within sixty (60) days if it wishes for Company to proceed
with the facility upgrade. Customer shall reimburse Company for all reasonable
and verifiable costs associated with any facilities upgrade approved by
Customer, in writing, in accordance with Company's Schedule of Rates.

                                       30
<PAGE>

     25.  Pressure and Back-Up Services. Company will provide gas pressure at
the outlet of Company's meter(s) serving Customers no lower than the lowest
delivery pressure provided at the regulator outlet(s) of the NBPL and APL
Receipt Point(s), less 20 pounds per square inch gauge (psig). During a service
interruption on interstate pipelines serving Company, should back-up services be
provided to Customer's Generation Facilities by Company, such services would be
provided by the Company on a reasonable efforts basis.

     26.  OFOs. Should interstate pipelines serving Company issue an Operational
Flow Order ("OFO"), (a) Company agrees to accept Customer's pipeline nominations
in volumes not to exceed Customer's daily-metered usage, provided that such
Customer nomination does not proportionally exceed any limitations imposed on
other similarly affected customers, and (b) injections into storage may be
prorated and will be subject to the reasonable operational limitations of the
Company.

     27.  Company Non-Performance.

       (a)    If, on any Gas Day, Company shall fail to perform under this
          Agreement, for any reason other than Force Majeure, then, Company
          agrees to hold Customer harmless from any damages (including without
          limitation any penalties imposed by interstate pipelines and any
          amount by which Customer's cost to obtain and receive gas from other
          suppliers under subsection (a)(ii) of this section exceeds Customer's
          costs under this Agreement attributable to the service not performed
          by Company) resulting from Company's failure to perform and, at the
          sole option of Customer, Customer may pursue the additional remedies
          set forth in either subsection (a)(i) or subsection (a)(ii) of this
          section: (i) Company shall owe

                                       31
<PAGE>

          Customer, and be liable to Customer for, the product of: (quantity of
          nominated gas not delivered or received) x (the Market Price); or (ii)
          Customer shall have the right to obtain and receive gas from sources
          other than Company for the period of such failure by Company and to
          take any and all actions necessary to obtain and receive such gas,
          including without limitation submitting all nominations to interstate
          pipelines (including the next-available intra-day nomination or
          emergency intra-day nomination) in accordance with interstate
          pipelines respective gas tariff(s) necessary to have such gas
          delivered to Customer, and Company will reasonably cooperate with
          Customer's actions and will not prevent or delay Customer from
          exercising its rights under this subsection (a)(ii) of this section.

       (b)    The remedies set forth in this Section 27 are Customer's sole and
          exclusive remedies for Company's failure to perform under this
          Agreement.

       (c)    In no event shall either party be liable to the other for
          consequential, punitive, exemplary, special or indirect damages in
          tort, contract or otherwise.

     28.  Peoples Gas Agreement. As part of this Agreement, Company has
contracted with Peoples Gas to provide a portion of Customer's transportation
and balancing services as provided by Company under this Agreement. As such, the
Agreement between Company and Peoples Gas, dated May 1, 2001, is attached as
Exhibit A ("Peoples Gas Agreement"). Company and Customer agree that, if Peoples
Gas exercises its rights under the Peoples Gas Agreement to give notice of its
intent to suspend or terminate service to Company as a result of Company's
failure to pay an amount due and payable to Peoples Gas thereunder, Company
shall transmit such notice, by telephone, confirmed in writing, or by facsimile
or e-

                                       32
<PAGE>

mail, to Elwood Energy no less than one (1) Business Day after receipt from
Peoples Gas. Elwood Energy may elect to cure the default in order to prevent the
suspension or termination of service under the Peoples Gas Agreement, and
Company shall then be liable to Elwood Energy for compensation for reasonable
costs incurred by Elwood Energy in curing the payment default, including payment
of the amount remitted by Elwood Energy to Peoples Gas, plus interest from
Elwood Energy's date of payment, with the interest rate to be determined in
accordance with Company's Schedule of Rates. Any such action by Elwood Energy to
cure a payment default is not intended to prevent Company from disputing any
payment default claimed by Peoples Gas, including any amount that Peoples Gas
asserts is due and owing under the Peoples Gas Agreement, and should any such
dispute be resolved in Company's favor following cure of such default by Elwood
Energy, then Elwood Energy shall be entitled to receive the amount paid or
refunded by Peoples Gas in resolution of the dispute to the extent that Company
has not already reimbursed Elwood Energy.

     29.  OBA and GPA. Company shall maintain a Global Point Agreement (GPA) and
an Operational Balancing Agreement (OBA) with NBPL combining the Elwood Delivery
Point on NBPL with receipt points where Company interconnects with NBPL. Company
and Customer agree that the annual charges associated with NBPL's GPA/OBA are
embedded in Section 4 herein. Company further agrees to use "reasonable efforts"
to secure additional flexible Global Point and Operational Balancing agreements
with APL thus enabling greater optionality by and between the parties. Should
Company incur additional charges to facilitate agreements with APL, Customer
shall have the option and ability to add supplies sourced from APL at the
incremental cost to Company (net of any potential reduction in NBPL GPA/OBA
costs), or Customer may elect to defer the ability to utilize additional APL
points as sources for gas supply.

                                       33
<PAGE>

     30.  Gas Flow. Company recognizes Customer's hourly use of gas will not
occur evenly throughout the Gas Day. Subject to the Customer's hourly and daily
limitations, or other limitations set forth in this Agreement, Company agrees to
arrange for the twenty-four (24) hour, or "daily", receipt of transportation gas
and re-deliver gas to Customer, subject to the MHQ, as needed, over a portion of
the Gas Day.

     31.  Company's Facilities and Customer Purchase Option.

       (a)    Company shall permit Customer to connect data feed wires to
          Company's Daniel flow computer to be located adjacent to the Company's
          meters for the purpose of enabling Customer the ability to monitor
          fuel information generated by Company's Daniel flow computer,
          including, without limitation, flow rate, temperature and pressure.

       (b)    Upon termination of this Agreement for any reason, Customer shall
          have the right and option ("Customer's Purchase Option") in its sole
          discretion to purchase the following equipment from Company located or
          to be located at the inlet flanges of the Generation Facilities (the
          "Option Equipment"): (i) Phase I, two 16-inch meter runs, (ii) Phase
          I, upstream and downstream measurement headers, (iii) Phase I, orifice
          or turbine metering, (iv) Phase II, 12-inch ultrasonic and 6-inch
          turbine meters, (v) any Company-owned Daniel flow computer(s), (vi)
          any Company-owned Electrical SCADA, and (vii) any Company-owned gas
          chromatograph(s) or similar Btu analyzer(s) located at the Generation
          Facilities. In the event Customer exercises its Customer's Purchase
          Option, Company will take whatever action is necessary to acquire such
          equipment in order to carry out its obligation hereunder to sell such

                                       34
<PAGE>

          equipment to Customer, free and clear of any claims of third parties.
          The purchase price for the Option Equipment shall be two hundred
          eighty-five thousand dollars ($285,000) which shall cover Company's
          investment in metering and related equipment at Station 144 serving
          Customer's Phase I turbines. Company and Customer agree that purchase
          price for the Option Equipment related to Company's investment in any
          metering and related equipment serving Customer's Phase II turbines
          are embedded in the Buy-Out-Amount(s) ascribed to in Section 14.
          Customer shall exercise Customer's Purchase Option by giving written
          notice to Company no later than thirty (30) days after termination of
          this Agreement.

       (c)    Within fifteen (15) days after receiving Customer's notice of its
          intent to exercise Customer's Purchase Option, Customer shall pay
          Company $285,000 as consideration and Company shall transfer and
          convey title to the Option Equipment to Customer by special warranty
          deed or bill of sale, as appropriate, free and clear of any and all
          liens, claims, mortgages and other encumbrances. Each party shall be
          responsible for paying its own attorneys' fees incurred in connection
          with said transfer and conveyance.

     32.  Communication Protocol and Change in Usage. Communications between
Company and Customer shall be as defined and ascribed to in the Communications
Protocol contained in Exhibit B to this Agreement.

     33.  Notices. All communications, statements and payments ("Notices")
required under this Agreement shall be in writing and shall be considered duly
delivered when sent by facsimile, a nationally recognized overnight courier

                                       35
<PAGE>

service, first class mail or hand delivered.

               (a)       Notices to Nicor Gas shall be sent to:

--------------------------------------------------------------------------------
                         Notices Except Operating Communications
--------------------------------------------------------------------------------
                Nicor Gas
                P.O. Box 190
                Aurora, Illinois 60507-0190
--------------------------------------------------------------------------------
Attn:           Kristin Mosier, Rate Administration
--------------------------------------------------------------------------------
Facsimile:      (630) 983-3810
--------------------------------------------------------------------------------
Telephone:      (630) 983-8676, ext. 2135
e-mail:         kmosier@nicor.com
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                Operating Communications
--------------------------------------------------------------------------------
                As specified in Exhibit B
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                                        Payments
--------------------------------------------------------------------------------
                As specified on Company's invoice
--------------------------------------------------------------------------------

               (b)       Notices to Elwood Energy shall be sent to:

--------------------------------------------------------------------------------
                                       All Notices
--------------------------------------------------------------------------------
                Elwood Energy LLC
                c/o Dominion Energy, Inc.
                5000 Dominion Blvd
                Glen Allen, Virginia 23060
--------------------------------------------------------------------------------
Attn:           General Manager
--------------------------------------------------------------------------------
Facsimile:      (804) 273-2303
--------------------------------------------------------------------------------
Telephone:      (804) 273-3269
--------------------------------------------------------------------------------
                With a copy to:
--------------------------------------------------------------------------------
                    Peoples Energy Resources Corporation
                    150 North Michigan Avenue
                    Suite 3900
                    Chicago, IL  60601
--------------------------------------------------------------------------------
Attn:               Elwood Energy Commercial Manager
--------------------------------------------------------------------------------
Facsimile:          (312) 762-1635
--------------------------------------------------------------------------------
Telephone:          (312) 762-1616
--------------------------------------------------------------------------------

               (c)       Each party agrees to notify the other in writing of any
                    changes of address or change of designated person for the

                                       36
<PAGE>

             purposes hereof. Such changes are not subject to Section 36.

     34.     Waiver of Defaults.  A waiver by either party of any one or more
defaults by the other in the performance of any provisions of this Agreement
shall not operate as a waiver of any future default or defaults, whether of a
like or different character.

     35.     Entire Agreement.  This Agreement contains the entire agreement
between the parties, and except as stated in this Agreement, there are no oral
or written promises, agreements, warranties, obligations, assurances, or
conditions precedent or otherwise affecting it.

     36.     Amendments.  Any change, modification, or alteration of this
Agreement shall be in writing, signed by the parties to this Agreement, and no
course of dealing between the parties shall be construed to alter the terms
hereof, except as stated in this Agreement.

     37.     No Third Party Beneficiary.  The parties agree that there is no
third party beneficiary of this Agreement and that the provisions of this
Agreement do not impart enforceable rights to anyone who is not a party.

     38.     Choice of Law.  This Agreement shall be construed and enforced in
accordance with the laws of the State of Illinois without regard to principles
of conflicts of law.  The parties agree that the forum of any litigation shall
be in a state or federal court located within the State of Illinois.

     39.     Preparation of Agreement.  This Agreement was prepared by all
parties to this Agreement and not by any party to the exclusion of any other.

                                       37
<PAGE>

     40.     Captions.  The captions in this Agreement are inserted for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.

     41.     Delivery Variance.  On any Gas Day, the Delivery Variance shall be
the quantity of gas delivered to Company at the Receipt Point(s) by Customer or
its authorized agent that is greater than the maximum or less than the minimum
quantity defined by Company for the MMDN on NBPL, APL, or NGPL, and in total,
for a Gas Day. The Delivery Variance Charge set forth in Section 4(c) shall
apply to any Delivery Variance quantities greater than or equal to 50,000 therms
for each non-Critical and non-OFO Gas Day occurrence, however, no such Delivery
Variance Charge shall apply to the first six (6) billable Delivery Variance
events unless the cumulative volume of Delivery Variances greater than or equal
to 50,000 therms, occurring on non-Critical and non-OFO days, exceeds 600,000
therms in a Contact Year. During the Contract Year, should the cumulative volume
of Delivery Variances greater than or equal to 50,000 therms, occurring on non-
Critical and non-OFO days, exceeds 600,000 therms, all prior and subsequent
Delivery Variances greater than or equal to 50,000 therms shall be assessed the
Delivery Variance Charge. On Critical Days and OFO days, the Delivery Variance
Charge shall apply to all quantities of gas delivered to Company at the Receipt
Point(s) by Customer or its authorized agent that is different in quantity from
the minimum or maximum or specific volume of gas requested by Company for
Customer delivery. Customer shall be obligated to use "reasonable-efforts" to
prevent the continued reoccurrence of Delivery Variances charges incurred by
itself, its authorized agent(s) or fuel manager(s). Should Customer fail to
utilize "reasonable-efforts" to prevent reoccurring Delivery Variances, Company
shall have the ability to request termination of Customer's fuel management
arrangements. Company shall be held harmless for any termination or exit fees
imposed on Customer resulting from termination of Customer's fuel management
arrangements.

                                       38
<PAGE>

     42.     Forecast Variance.  On any Gas Day, the Forecast Variance shall be
the quantity of gas delivered by Company to the Generation Facilities that is
different in quantity, by more or less, than the Forecast Burn of Customer, or
its authorized agent, as communicated to Company on or before the 7:00 AM CCT on
the Business Day prior to the Gas Day. The applicable Summer Month and Non-
Summer Month Forecast Variance Charge(s) set forth in Section 4(e) shall apply
to any Forecast Variance which exceeds the greater of 200,000 therms or a
quantity equal to plus or minus twenty (20) percent of Customer's daily Forecast
Burn of gas as communicated to Company. During the Summer Months, Company shall
not be obligated to provide Balancing and Storage Service under this Agreement
in excess of 1,812,000 therms per day, Customer's Maximum Firm Balancing
Quantity Summer. During the Non-Summer Months, Company shall not be obligated to
provide Balancing and Storage Service under this Agreement if Customer's
Forecast Variances exceeds 888,750 therms per day, Customer's Maximum Firm
Balancing Quantity Non-Summer.

     43.     Phase I Primary Term.  Except as provided for in this Agreement,
the primary term for Customer's Phase I generating equipment shall be a forty-
one (41) month period beginning May 1, 2001 and ending September 30, 2004,
inclusive of the beginning and ending dates. Upon expiration of the forty-one
(41) month term, the initial demand charge(s) in this Agreement shall adjust
downward by thirty (30) percent while the volumetric charges shall remain
unchanged. Upon expiration of the Phase I term, Company and Customer agree that
specific contract quantities in this Agreement shall adjust downward while the
specific contract demand rates in this Agreement shall adjust upward as ascribed
to in Exhibit C of this Agreement, "Expiration of Phase I".

     44.     Phase I Primary Term Extension.  Customer shall have the

                                       39
<PAGE>

option of extending the primary term of this Agreement for Customer's Phase I
generating equipment, given one hundred eighty (180) days written notice to
Company. The extension term for Phase I shall be an eighteen (18) month period
beginning October 1, 2004 and ending March 31, 2006, inclusive of the beginning
and ending dates. Should Customer elect to extend the Phase I term, Company and
Customer agree that the initial demand charges in this Agreement shall adjust
upward by thirty (30) percent for four-ninths (4/9) of the contract quantities
as ascribed to in Exhibit C of this Agreement, "Extension of Phase I Primary
Term".

     45.     Phase II Term Extension.  Customer shall have the option of
extending the term of this Agreement for Customer's Phase II generating
equipment, given one hundred eighty (180) days written notice to Company,
providing such term extension is allowable within applicable law. The extension
period for Phase II shall be a five (5) year term beginning April 1, 2006 and
ending March 31, 2011, inclusive of the beginning and ending dates. Should
Customer elect to extend the Phase II term, Company and Customer mutually agree
that the "then-existing" demand charges, absent any Phase I primary term
extension, in this Agreement, shall adjust upward by thirty (30) percent as
ascribed to in Exhibit C of this Agreement, "Extension of Phase II". Company and
Customer further agree that specific contract quantities in this Agreement shall
adjust downward while specific demand rates in this Agreement shall adjust
upward, dependant on Customer's decision to extend the Phase I primary term.
Should Company and Customer agree to an extension of Phase II or an extension of
Phase I and Phase II for the period of April 1, 2006 to March 31, 2011 and
should Company incur incremental costs for any Global Point or Operational
Balancing Agreements necessary to support such an term extension, Customer shall
reimburse Company for any such reasonable incremental GPA/OBA costs.

     46.     Phase I and Phase II Term Extension.  Customer shall have

                                       40
<PAGE>

the option of extending the term of this Agreement for Customer's Phase I and
Phase II generating equipment, given one hundred eighty (180) days written
notice to Company, providing such term extension is allowable within applicable
law. The extension period for Phase I and Phase II shall be a five (5) year term
beginning April 1, 2006 and ending March 31, 2011, inclusive of the beginning
and ending dates. Should Customer elect to extend the Phase I and Phase II term,
Company and Customer mutually agree that the initial demand charges in this
Agreement shall adjust upward by thirty (30) percent as ascribed to in Exhibit C
of this Agreement, "Extension of Phase I and Phase II". Company shall not be
obligated to extend the Phase I term beyond the primary term extension of March
31, 2006 absent the Phase II term extension. Should Company and Customer agree
to an extension of Phase I and Phase II for the period of April 1, 2006 to March
31, 2011 and should Company incur incremental costs for any Global Point or
Operational Balancing Agreements necessary to support such an term extension,
Customer shall reimburse Company for any such reasonable incremental GPA/OBA
costs.

     47.     Flowing Gas Requirements.  Should Company and Customer agree to
the extension of this Agreement, either in whole or in part, for a term
extending beyond March 31, 2006 as ascribed herein, Company shall have the right
to require Customer, its authorized agent(s) or fuel manager(s), to nominate and
deliver pipeline supplies each Gas Day in quantities equal in volumes to
Customer's hourly gas requirements at the Generation Facilities should
Customer's Generation Facilities be dispatched.  Company will notify Customer
prior to extension of the Agreement, if Company will exercise this right for
service beyond March 31, 2006.

     48.     Rebate of Charges.  Company agrees to a twenty-five (25) percent
rebate of charges billed to Customer, excluding any Storage Inventory Overrun,
Excess Storage, Delivery Variance, Requested Authorized Use, Unauthorized Use,
Buy-Out-Amounts, incremental GPA/OBA charges and applicable

                                       41
<PAGE>

taxes, which exceed $5.75 million in a Contract Year. Company further agrees to
a fifty (50) percent rebate of charges billed to Customer, excluding any Storage
Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use,
Unauthorized Use, Buy-Out-Amounts incremental GPA/OBA charges and applicable
taxes, which exceed $6.75 million in a Contract Year. Company and Customer agree
that the rebate threshold amounts, above which Company shall rebate such
percentages as stated herein, shall adjust, in a prorate manner, for the
applicable Phase I and Phase II contract term extensions as ascribed to in
Exhibit C.

                                       42
<PAGE>

       IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate effective as of the date first written above.

ELWOOD ENERGY LLC                                Northern Illinois Gas Company
                                                    d/b/a Nicor Gas Company
By: /s/ Tony Belcher
   -------------------------------------
Name:   Tony Belcher                         By: /s/ Theodore Lenart
Title:  General Manager                         --------------------------------
                                             Name:   Theodore Lenart
                                                   -----------------------------
                                             Title:  Asst. VP / Supply Ventures
                                                    ----------------------------

ELWOOD ENERGY II, LLC

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

ELWOOD ENERGY III, LLC

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

                                       43
<PAGE>

                                   Exhibit A

                             Peoples Gas Agreement

                                       44
<PAGE>

                                   Exhibit B
                            Communications Protocol
                            -----------------------

Customer agrees that it shall notify Company of its estimated hourly and daily
forecasted usage and its daily gas nominations.  Subject to other mutually
agreed upon circumstances or conditions, the communication protocol between
Customer and Company shall be as follows:

     (a)       Forecasted Usage. On or before 7:00 A.M. CCT on the Business Day
          prior to the beginning of each Gas Day, Customer, or its authorized
          agent, shall notify Company of Customer's forecasted burn for the next
          Gas Day expressed as hourly and daily forecasted use of gas. Such
          forecasted use by Customer shall be Customer's Forecast Burn for the
          next Gas Day(s). If Customer fails to submit a Forecast Burn, then the
          quantity shall be zero. Customer, or its authorized agent, may update
          this forecast but the 7:00 A.M. Forecast Burn shall be binding on
          Customer in determining Customer's Forecast Variance as ascribed to in
          Section 42 of this Agreement. Customer's 7:00 A.M. notification shall
          include Customer's requested range of gas deliverability for the Gas
          Day(s) both in aggregate and by individual pipeline for Transportation
          Service. Customer's 7:00 A.M. notification shall also include a
          confirmation or update of Customer's anticipated hourly and daily flow
          of gas for the Gas Day beginning at 9:00 A.M. CCT of that day.
          Notification to Company shall be by telephone (confirmed by facsimile
          or by e-mail) or by facsimile or e-mail, to Company's Gas Control
          Department. Customer shall send, by facsimile or e-mail, a
          confirmation of Customer's Forecast Burn to Company's Rate
          Administration Department as ascribed to in Section 33(a). Customer's
          Forecast Burn is not required to equal the most recent hourly and
          daily forecasted power run schedules ( Dispatch Schedule) but

                                       45
<PAGE>

          differences in excess of the MFBQS or MFBQnS, as applicable, permit
          the Company to set reasonable limits on the MMDN. Customer's Dispatch
          Schedules, including updates and revised schedules, shall be non-
          binding on Customer. Updated Dispatch Schedules, and its associated
          natural gas consumption, shall be revised by Customer and provided to
          Company for any changes communicated to Customer throughout the
          Business Day. Communication of Customer's Forecast Burn and forecasted
          power dispatch schedules shall be provided to Company in a format
          agreeable to both parties and shall include the planned loading and
          unloading of Customer's nine (9) generating units. Excluding weekends
          and holidays, normal business hours for Company's Gas Control
          Department are Monday through Friday, 7:00 A.M. to 3:30 P.M. CCT.
          During normal business hours, Customer shall contact Company's Gas
          Control Department by phone at (630) 983-8676, extension 2222, by
          facsimile at (630) 983-0053, or by e-mail at gascont@nicor.com.
          Outside of normal business hours, Customer shall contact Company's Gas
          Control Department by phone at (800) 942-6011(24-hours), or by
          facsimile at (630) 983-0053 (24 hours).

     (b)       Updated Dispatch Schedules and Forecasted Use Changes. In the
          event of a significant change in Customer's hourly and daily
          forecasted usage, Customer, shall use "reasonable-efforts" to give
          Company's Gas Control Department thirty (30) minutes notification, by
          telephone, and confirmed by facsimile or e-mail, of any planned
          revision to Customer's hourly and daily forecasted usage. A
          significant change will be defined as, but not limited to, any change
          which will result in a twenty percent (20%) variation in the hourly
          and/or daily forecasted usage, or other equivalent variation, such as
          the loading or unloading of an additional generating unit(s).
          Unanticipated changes in Customer's hourly and daily forecasted

                                       46
<PAGE>

          usage and/or actual metered deliveries shall be communicated to
          Company as expeditiously as is reasonably possible. Notification of
          changes shall not alter the Forecast Burn as the basis for billing of
          the Forecast Variance Charge unless accompanied by an accepted and
          confirmed nomination change by Company.

     (c)       Nomination and Receipt of Customer Gas. On or before 8:00 A.M.
          CCT on the Business Day prior to the beginning of each Gas Day,
          Company shall notify Customer of 1) Customer's (or its authorized
          agent's) minimum right to nominate and deliver to Company gas supplies
          from NBPL, APL, and NGPL individually and in total for the next Gas
          Day(s); and 2) the maximum obligation of Customer (or its authorized
          agent) to deliver gas supplies from the same pipelines for the next
          Gas Day(s). These parameters shall be set forth in the 8:00 A.M.
          notification of the daily MMDN by Company to Customer (or its
          authorized agent) and shall be determined using Customer's Forecast
          Burn, MFBQs, and Company's other firm service obligations. Company
          agrees to use "reasonable efforts" to permit Customer (or its
          authorized agent) the ability to nominate pipelines supplies in
          quantities sufficient to cover Customer's 1) Forecast Burn or 2) last
          forecasted power dispatch schedule prior to any nomination deadlines.
          Company and Customer anticipate that in most instances Customer shall
          be given a range-of-volume for nomination purposes with an "up-to"
          limitation; however, based on operational conditions and Company's
          obligations to other firm customers, Company reserves the right to
          request an absolute nomination volume by pipeline. Specifically,
          subject to daily gas operating conditions, Company shall have the
          right to set the MMDN; however, Company agrees that Customer's
          nomination(s) of pipeline supplies shall not be unreasonably denied or
          restricted by Company in order for Company to provide incremental
          interruptible storage

                                       47
<PAGE>

          (injection) services. Company may set the MMDN at more than the
          Forecast Burn and shall have the right to require Customer, its
          authorized agent or fuel manager, to deliver (nominate) pipeline
          supplies sufficient to cover Customer's last power dispatch schedule
          if Customer's storage bank volume is less than fifteen-percent of
          capacity. In setting the daily MMDN, Company may also restrict or
          require Customer, as applicable, to nominate certain minimum or
          maximum quantities where the Customer's Forecast Burn and the latest
          Dispatch Schedule vary by more than the MFBQS or MFBQnS, as
          applicable. Customer's failure to deliver pipeline supplies within the
          defined daily parameters of the MMDN, as determined by Company, shall
          result in the applications of the Delivery Variance charge as ascribed
          to in Section 41 of this Agreement. Should Company's setting of the
          MMDN at more or less than Customer's (or its authorized agent's)
          requested gas deliverability for a Gas Day cause Customer to incur any
          Storage Inventory Overrun, Excess Storage and Unauthorized Use charges
          as per this Agreement, Company agrees to the waiver of such charges.
          Company shall have the ability to determine the timing of any Customer
          repayment of deficit storage volumes or the withdrawal of storage
          overruns and excess storage.

     (d)       Nominations. Prior to each Gas Day and in accordance with the
          applicable interstate pipeline nomination protocols, Customer, or its
          authorized agent, shall submit notifications and subsequent
          nominations to Customer's pipeline suppliers for the corresponding Gas
          Day. Nominations to each pipeline shall be pursuant to an agreed upon
          procedure. Customer shall notify Company by 8:30 A.M. CCT of its
          reasonable estimate of the quantity of gas to be delivered by
          pipelines and in total, within the MMDN parameters for the next Gas
          Day. Customer shall advise Company at 9 A.M. of its daily nominations
          of pipeline

                                       48
<PAGE>

          supplies to be electronically nominated at 11:30 A.M. for the next Gas
          Day(s). Nominations will be accepted by Company if received
          electronically by Company's Gas Transportation Department no later
          than 11:30 A.M. CCT on the business day prior to the Gas Day the
          nomination is to be effective. Customer's daily nominations, submitted
          by Customer or its authorized agent, will be accepted by Company if
          received via facsimile by Company's Gas Transportation Department no
          later than 8:00 A.M. CCT on the business day prior to the Gas Day the
          nomination is to be effective. Company agrees that to the extent, and
          only to the extent, that "late" or "intra-day" nomination services are
          available to similarly situated power plants, Customer shall have the
          right and ability to make "late" or "intra-day" nominations.
          Nominations, submitted by Customer and received by Company
          electronically, shall be made via Company's "GAS EXCHANGE" nomination
          system protocol or any replacement protocol provided by Company to
          Customer. Nominations, submitted by Customer and received by Company
          via facsimile, shall be made by faxing such nomination to Company's
          Gas Transportation Nomination Desk at (630) 983-8135. During normal
          business hours, Company's Gas Transportation Nomination Desk may be
          contacted by telephone at (630) 983-4040, Option 2. On or before 3:15
          P.M. CCT, on the Business Day prior to the beginning of the Gas Day,
          Customer and Company shall review a daily summary of Customer's gas
          nominations and Company's corresponding pipeline confirmations for the
          following Gas Day or applicable weekend or holiday period. Customer's
          summary of gas nominations and Company's resulting confirmations shall
          detail the volume of gas supplies to be delivered on each
          interconnecting pipeline with Company.

     (e)       Weekend Nomination Changes. For the Gas Day(s) of Saturday,
          Sunday, and Monday, Customer's nominations shall be made in

                                       49
<PAGE>

          accordance with the aforementioned protocol. For the Gas Days of
          Sunday and Monday, Customer shall be permitted to change its daily
          nomination on applicable interstate pipelines, and such change will be
          accepted by Company, if submitted by Customer or its authorized agent
          and received by Company's Gas Control Department via facsimile no
          later than 11:30 A.M. CCT on the calendar day prior to the Gas Day the
          nomination is to be effective and providing such change is mutually
          agreeable between Company and Customer. During normal business hours,
          Company's Gas Control Department shall be contacted by telephone at
          (630) 983-8676, extension 2222, by facsimile at (630) 983-0053 or by
          e-mail at gascont@nicor.com. Outside of normal business hours,
          Company's Gas Control Department shall be contacted by telephone at
          (800) 942-6011 (24 hours) and confirmed by facsimile at (630) 983-0053
          (24 hours). Following a nomination change made on the weekend for the
          Gas Days of Sunday or Monday, Customer or its authorized agent shall,
          on the first business day following the weekend, work with Company's
          Gas Transportation Department to account for such change.

     (f)       Holiday Nominations and Changes. Should a holiday fall on a
         traditional business day, Customer or its authorized agent shall have
         the right to change its daily nomination for the subsequent Gas Day(s),
         providing such changes are made no later than 11:30 A.M. CCT on the
         calendar day prior to the Gas Day the nomination is to be effective and
         within the protocols described in items (d) and (e) of Exhibit B.

     (g)       Critical Day Notification. The declaration of Critical Day shall
         be by telephone, facsimile or email notification to Customer by Company
         and

                                       50
<PAGE>

         may be verified by telephoning Company's Gas Transportation Department
         at (630) 983-4040, Option 3. The declaration of a Critical Day by
         Peoples Gas with respect to gas stored in Peoples Gas' facilities in
         connection with this Agreement may be verified by telephoning Peoples
         Gas at (312) 240-4828. Company shall notify Customer, on or before 8:00
         A.M. CCT on the calendar day prior to the Gas Day, of Company's
         invocation of a Critical Day and/or curtailment of Customer's access to
         gas withdrawals from storage. Under such curtailment, Company agrees to
         reasonably cooperate with Customer to allow Customer the ability
         arrange Transportation Service to ensure the firm delivery of the MHQ
         provided for under this Agreement.

                                       51
<PAGE>

                                   Exhibit C
           Contract Term Reduction And Extension Contract Quantities
           ---------------------------------------------------------

Unless specifically modified in Exhibit C of this Agreement, all applicable
charges and contract quantities in this Agreement shall remain unchanged.

Expiration of Phase I, effective October 1, 2004

     Summer Month MDCQ        1,342,250 therms
     Non-Summer Month MDCQ    1,580,000 therms
     Summer Month MHCQ        84,000 therms
     Non-Summer Month MHCQ    98,750 therms

     Summer Month Demand Charge               $0.0567/therm      $ 76,106
     (1,342,250 therms  x $0.0567/therm)
     Summer Month Bal. Res. Charge            $0.4220/therm      $425,376
     (84,000 therms x 12 hrs. x $0.422/therm)
     Summer Month Upstream Res. Chrg.         $0.0929/therm      $124,695
     (1,342,250 therms x $0.0929/therm)

     Balancing Storage Capacity               4,032,000 therms
     (84,000 therms  x  12 hrs.  x  4 Days)
     Storage Inventory Overrun Quantities     >4,032,000,  <=5,291,700 therms
     Excess Storage Quantities                >5,291,700 therms

     Forecast Variance Quantities
         Summer Months
     >of +/- 20% or 200,000 therms            $0.000/therm
     >above and <=672,000 therms              $0.005/therm
     >672,000 and <=1,008,000 therms          $0.010/therm
     >1,008,000 and <=1,342,250 therms        $0.048/therm
     >1,342,250 therms                        Negotiable         (Interruptible)

         Non-Summer Months
     >of +/- 20% or 200,000 therms            $0.000/therm
     >above and <=263,300 therms              $0.005/therm
     >263,300 and <=493,750 therms            $0.055/therm
     >493,750 and <=655,550 therms            $0.055/therm       (Interruptible)
     >655,550 therms                          Negotiable         (Interruptible)

     Balancing Overrun
         Summer Months
     >1,342,250 and <= 1,680,000 therms       $0.100/therm       (Interruptible)
     >1,680,000 therms                        Negotiable         (Interruptible)

                                       52
<PAGE>

         Non-Summer Months
     >493,750 and <=655,550 therms              $0.055/therm     (Interruptible)
     >655,550 and <=819,440 therms (Inj)        $0.100/therm     (Interruptible)
     >655,550 therms (Withdrawal)               Negotiable       (Interruptible)

     Minimum Bill Summer Months                 $626,177
     Minimum Annual Bill                        $2,862,000
     (Oct. '04 - Sept. '05)
      (600,000/4,950,000*3,256,930)-3,256,930

     Rebate of Charges             25% Rebate Exceeding $3,701,000
     (800,000*5/9+3,256,930)
     (Oct. '04 - Sept. '05)        50% Rebate Exceeding $4,257,000
     (1,800,000*5/9+3,256,930)

Extension of Phase I Primary Term, effective October 1, 2004 - March 31, 2006

     Summer Month MDCQ        2,416,000 therms
     Non-Summer Month MDCQ    2,844,000 therms
     Summer Month MHCQ        151,000 therms
     Non-Summer Month MHCQ    177,750 therms

     Summer Month Demand Charge                 $0.0510/therm    $123,216
     (2,416,000 therms  x $0.0510/therm)
     Summer Month Bal. Res. Charge              $0.3800/therm    $688,560
     (151,000 therms x 12 hrs. x $0.3800/therm)
     Summer Month Upstream Res. Chrg.           $0.0835/therm    $201,736
     (2,416,000 therms x $0.0835/therm)

     Balancing Storage Capacity                 7,250,000 therms
     (151,000 therms  x  12 hrs.  x  4 Days)
     Storage Inventory Overrun Quantities       >7,250,000,  <=9,515,000 therms
     Excess Storage Quantities                  >9,515,000 therms

     Forecast Variance Quantities
          Summer Months
     >of +/- 20% or 200,000 therms              $0.000/therm
     >above and <=1,208,000 therms              $0.005/therm
     >1,208,000 and <=1,812,000 therms          $0.010/therm
     >1,812,000 and <=2,416,000 therms          $0.048/therm
     >2,416,000 therms                          Negotiable       (Interruptible)

          Non-Summer Months
     >of +/- 20% or 200,000 therms              $0.000/therm
     >above and <=474,000 therms                $0.005/therm
     >474,000 and <=888,750 therms              $0.055/therm

                                       53
<PAGE>

     >888,750 and <=1,180,000 therms             $0.055/therm    (Interruptible)
     >1,180,000 therms                           Negotiable      (Interruptible)

     Minimum Bill Summer Months                  $1,013,512
     Minimum Annual Bill                         $4,829,000
     (Oct. '04 - Sept. '05) (1,013,512-893,799)*4+4,350,000

     Rebate of Charges                 25% Rebate Exceeding $6,229,000
     (1,013,512-893,799)*4+4,950,000+800,000
     (Oct. '04 - Sept. '05)            50% Rebate Exceeding $7,229,000
     (1,013,512-893,799)*4+4,950,000+1,800,000

Extension of Phase II, effective April 1, 2006 - March 31, 2011

     Summer Month MDCQ        1,342,250 therms
     Non-Summer Month MDCQ    1,580,000 therms
     Summer Month MHCQ        84,000 therms
     Non-Summer Month MHCQ    98,750 therms

     Summer Month Demand Charge                  $0.0737/therm   $98,924
     (1,342,250 therms  x $0.0737/therm)
     Summer Month Bal. Res. Charge               $0.5490/therm   $553,392
     (84,000 therms  x  12 hrs.  x $0.5490/therm)
     Summer Month Upstream Res. Chrg.            $0.1207/therm   $162,010
     (241,600*.737*.7*1.3)
     (1,342,250 therms x $0.1207/therm)

     Balancing Storage Capacity                  4,032,000 therms
     (84,000 therms  x  12 hrs.  x  4 Days)
     Storage Inventory Overrun Quantities        >4,032,000,  <=5,291,700 therms
     Excess Storage Quantities                   >5,291,700 therms

     Forecast Variance Quantities
          Summer Months
     >of +/- 20% or 200,000 therms               $0.000/therm
     >above and <=672,000 therms                 $0.005/therm
     >672,000 and <=1,008,000 therms             $0.010/therm
     >1,008,000 and <=1,344,000 therms           $0.048/therm
     >1,344,000 therms                           Negotiable      (Interruptible)

          Non-Summer Months
     >of +/- 20% or 200,000 therms               $0.000/therm
     >above and <=263,300 therms                 $0.005/therm

                                       54
<PAGE>

     >263,300 and <=493,750 therms               $0.055/therm
     >493,750 and <=655,550 therms               $0.055/therm    (Interruptible)
     >655,550 therms                             Negotiable      (Interruptible)

     Balancing Overrun
          Summer Months
     >1,342,250 and <= 1,680,000 therms          $0.100/therm    (Interruptible)
     >1,680,000 therms                           Negotiable      (Interruptinle)

          Non-Summer Months
     >493,750 and <=655,550 therms               $0.055/therm    (Interruptible)
     >655,550 and <=819,440 therms (Inj)         $0.100/therm    (Interruptible)
     >655,550 therms (Withdrawal)                Negotiable      (Interruptible)

     Minimum Bill Summer Months                  $814,326
     Minimum Annual Bill                         $3,615,000
     (814,326-626,177)*4+2,862,000
     (April '06 - March '11)

     Rebate of Charges              25% Rebate Exceeding $4,454,000
     (800,000*5/9+4,009,526)
     (April '06 - March '11)        50% Rebate Exceeding $5,010,000
     (1,800,000*5/9+4,009,526

Extension of Phase I and Phase II, effective April 1, 2006 - March 31, 2011

     Summer Month MDCQ        2,416,000 therms
     Non-Summer Month MDCQ    2,844,000 therms
     Summer Month MHCQ         151,000 therms
     Non-Summer Month MHCQ       177,750 therms

     Summer Month Demand Charge                  $0.0585/therm   $141,336
     (2,416,000 therms  x $0.0585/therm)
     Summer Month Bal. Res. Charge               $0.4360/therm   $790,032
     (151,000 therms x 12 hrs. x $0.4360/therm)
     Summer Month Upstream Res. Chrg.            $0.0958/therm   $231,453
     (2,416,000 therms x $0.0958/therm)

     Balancing Storage Capacity                  7,250,000 therms
     (151,000 therms  x  12 hrs.  x  4 Days)
     Storage Inventory Overrun Quantities        >7,250,000,  <=9,515,000 therms
     Excess Storage Quantities                   >9,515,000 therms

     Forecast Variance Quantities

                                       55
<PAGE>

          Summer Months
     >of +/- 20% or 200,000 therms               $0.000/therm
     >above and <=1,280,000 therms               $0.005/therm
     >1,280,000 and <=1,812,000 therms           $0.010/therm
     >1,812,000 and <=2,416,000 therms           $0.048/therm
     >2,416,000 therms                           Negotiable      (Interruptible)

          Non-Summer Months
     >of +/- 20% or 200,000 therms               $0.000/therm
     >above and <=474,000 therms                 $0.005/therm
     >474,000 and <=888,750 therms               $0.055/therm
     >888,750 and <= 1,180,000 therms            $0.055/therm    (Interruptible)
     >1,180,000 therms                           Negotiable      (Interruptible)

     Minimum Bill Summer Months                  $1,162,821
     Minimum Annual Bill                         $5,426,000
     (1,162,821-893,799)*4+4,350,000
     (April `06 - March `11)

     Rebate of Charges              25% Rebate Exceeding $6,436,000
     (5,635,654+800,000)
     (April '06 - March '11)        50% Rebate Exceeding $7,436,000
     (5,635,654+1,800,000)

                                       56

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