Document:

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                                                                   Exhibit 10.35

              OPERATIONS AND MAINTENANCE AGREEMENT FOR ELK RIVER
              RESOURCE RECOVERY FACILITY AND BECKER ASH LANDFILL

THIS OPERATIONS AND MAINTENANCE AGREEMENT (the "Agreement") is made as of this
1st day of November, 1996 by and between Northern States Power Company, a
Minnesota corporation ("Owner") and NRG Energy, Inc., a Delaware corporation
("Operator").

                                   RECITALS:

      WHEREAS, Owner is a public utility which serves retail customers in
Minnesota, South Dakota and North Dakota, and which is subject to regulation by
the Minnesota Public Utilities Commission ("MPUC"), among other agencies;

      WHEREAS, Operator is a wholly-owned subsidiary of Owner engaged in the
business of owning and operating electric generating facilities and facilities
for the transportation and processing of municipal solid waste into
refuse-derived fuel ("RDF");

      WHEREAS, Owner owns an undivided 85% interest in the fixed assets and 100%
interest in the mobile assets of a facility located in Elk River, Minnesota for
the receipt and processing of municipal solid waste into RDF as more
particularly described on Exhibit A (the "Facility");

      WHEREAS, Owner owns an ash landfill facility in Becker, Minnesota, as more
particularly described on Exhibit B (the "Ash Landfill");

      WHEREAS, the County of Anoka ("Anoka County") and Owner entered into a
Loan Agreement, as defined herein (the "Loan Agreement"), pursuant to which
Anoka County agreed to loan to Owner the proceeds of its Floating/Fixed Rate
Resource Recovery Revenue Bonds (Northern States Power Company Project), Series
1985 (the "Series 1985 Bonds") for the purpose of financing costs of the
Facility to be acquired, constructed and equipped and thereafter owned and
operated by Owner;

      WHEREAS, Anoka County and Owner entered into a service agreement dated
November 26, 1985 as amended and restated on March 10, 1987 ("Anoka Service
Agreement");

      WHEREAS, the County of Hennepin and Owner entered into a service agreement
dated December 30, 1987 ("Hennepin Service Agreement");

      WHEREAS, the County of Sherburne and Owner entered into a service
agreement in March, 1987 ("Sherburne Service Agreement");

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      WHEREAS, The Tri-County Solid Waste Management Commission ("Tri-County
Commission") and Owner entered into a service agreement in March, 1987
("Tri-County Service Agreement);

      WHEREAS, Hennepin County, Anoka County, Sherburne County, the Tri-County
Commission and Owner entered into an Ash Management Services Agreement dated
June 15, 1989 ("Ash Management Service Agreement") pursuant to which Owner
agreed to transport, dispose of and store various ash;

      WHEREAS, Anoka County and Owner entered into a design and construction
agreement dated November 26, 1985, as amended and restated on March 10, 1987
("Construction Agreement");

      WHEREAS, Owner and United Power Association ("UPA") entered into an
agreement dated February 10, 1987 as amended on March 15, 1991 ("UPA
Agreement"), pursuant to which UPA and Owner defined their respective rights and
obligations with respect to management, administration, ownership, revenues and
responsibilities with respect to the Facility;

      WHEREAS, Owner and Operator have entered into an Administrative Services
Agreement dated February 24, 1992 (the "Administrative Agreement") approved by
the MPUC under which either entity may provide services to the other and setting
forth the means by which compensation for any such services is to be computed;
and

      WHEREAS, Owner desires that Operator continue to operate and maintain the
Facility and Ash Landfill, pursuant to an agreement independent of the
Administrative Agreement;

      NOW THEREFORE, in consideration of the premises and the mutual promises
and agreements of the parties, the parties agree as follows:

1.    DEFINITIONS

      The following terms shall have the meaning set forth herein:

      1.1   Agreement: This contract, including all appendices, exhibits and
            schedules attached or incorporated, as it may be amended,
            supplemented or modified by the Parties from time to time in
            accordance with this Agreement.

      1.2   Annual Operating Budget: The budget materials and information
            prepared by Operator each year of the Term as set forth in Section
            5.1.

      1.3   Ash Landfill: The real property, fixtures, equipment, personal
            property, improvements and other items described on Exhibit B.

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      1.4   Ash Landfill Equipment: All equipment, fixtures and machinery used
            in the operation or maintenance of the Ash Landfill.

      1.5   Base Management Fee: The amount Owner is to pay Operator as provided
            in Section 6.5.

      1.6   Commencement Date: The date on which Operator commenced the
            provision of operation and maintenance services for the Facility and
            Ash Landfill, which is agreed to be January 1, 1994.

      1.7   Contract Year: From January 1 to December 31 of any given calendar
            year.

      1.8   Effective Date: The date on which this Agreement takes effect, as
            set forth in Section 9.1.

      1.9   Emergency: Any condition, situation or event relating to or
            affecting the Facility, the Ash Landfill, or any part thereof which
            (i) imminently endangers or might endanger the life or safety of
            persons or result in damage to property; or (ii) adversely affects
            or might adversely affect the ability of the Facility or Ash
            Landfill to meet any material obligation of the Loan Agreement or
            might create an Event of Default under the Loan Agreement or any RDF
            Facility Agreement; or (iii) creates, or might create, a material
            violation of any Law or Permit.

      1.10  Event of Default: Any occurrence defined in Section 14.1.

      1.11  Facility: The real property, fixtures, improvements, equipment,
            personal property and other items located on Exhibit A.

      1.12  Facility Equipment: All equipment, fixtures and machinery used in
            the operation or maintenance of the Facility.

      1.13  Final Non-appealable Order: An order from the MPUC or from any other
            judicial, quasi-judicial, administrative or legislative body from
            which all rights to seek reconsideration and appeal have been
            exhausted or from which the time limits applicable to seeking
            reconsideration and appeal have expired.

      1.14  Force Majeure: An event or events as defined in Article XII.

      1.15  Governmental Authority: The United States of America, the State of
            Minnesota, or any state or other political subdivision thereof,
            including, without limitation, any municipality, township, or
            county, and any entity exercising executive, legislative, judicial,
            regulatory or administrative functions

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            of or pertaining to government, including, but not limited to, any
            corporation or other entity owned or controlled by any of the
            foregoing.

      1.16  Law(s): Any constitution, charter, act, statute, ordinance, code,
            rule, regulation, order, permit, condition, specified standards or
            objective criteria contained in any applicable permit, approval,
            order, decision, determination or ruling of any Governmental
            Authority having jurisdiction, all as in effect from time to time,
            including without limitation, environmental laws pertaining to air
            and water emissions relating to the Facility and Ash Landfill, and
            the operation thereof, which standards or criteria must be met in
            order for the Facility or Ash Landfill to be operated lawfully, or
            other legislative, administrative or judicial action, decree,
            judgment or Final Non-appealable Order of any Governmental Authority
            having jurisdiction relating to the Facility or Ash Landfill.

      1.17  Lien: Any security interest, mortgage, pledge, lien (statutory or
            otherwise), claim, hypothecation, assignment, preference, priority,
            charge, encumbrance, title, retention agreement, or Lessor's
            interest under a capital lease or analogous instrument, or any other
            agreement of any kind or nature which has substantially the effect
            of constituting a security interest in, of, against or on any
            portion of the Facility, Ash Landfill, Facility Equipment or Ash
            Landfill Equipment.

      1.18  Materials: All supplies, spare parts, materials, tools, consumables,
            chemicals and equipment necessary for the operation and maintenance
            of the Facility or Ash Landfill.

      1.19  MPUC: The Minnesota Public Utilities Commission and any successor
            agency.

      1.20  Operation and Maintenance Manuals: The operating manuals for the
            Facility and Ash Landfill, including the operating data and
            parameters, design drawings, specifications, vendor manuals,
            manufacturer manuals or warranties and similar materials for the
            Facility, Ash Landfill, Facility Equipment and Ash Landfill
            Equipment.

      1.21  Operator: NRG Energy, Inc. and its successors and assignees.

      1.22  Owner: Northern States Power Company and its successors and
            assignees.

      1.23  Parties: Owner and Operator and their respective successors and
            assignees.

      1.24  Party: Owner or Operator and any successor or assignee of either
            Owner or Operator, respectively.

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      1.25  Permits: All federal, state and local authorizations, certificates,
            licenses, permits, consents, rights, exemptions, orders,
            concessions, determinations, franchises, and approvals required by
            any Governmental Authority for the construction, operation or
            maintenance of the Facility, the Ash Landfill, the Facility
            Equipment, or the Ash Landfill Equipment or otherwise applicable.

      1.26  Person: Any individual, partnership, corporation, business trust,
            limited liability company, joint stock company, trust,
            unincorporated association, joint venture, Governmental Authority or
            other entity.

      1.27  Potential Event of Default: An event which, but for the passage of
            time or the giving of notice or both, would constitute an Event of
            Default.

      1.28  Prudent Operating Practice: Those practices, designs, means,
            techniques, equipment, methods, specifications and standards of
            safety and performance, as the same may change from time to time, as
            would be used by experienced, knowledgeable and professional firms
            performing operation and maintenance services on facilities of the
            type and size similar to the Facility or Ash Landfill, which, in the
            exercise of reasonable judgment and in the light of the facts known
            or which reasonably should have been known, are considered to be
            sound, safe and prudent practice in connection with the operation
            and maintenance of RDF processing facilities and ash landfill
            facilities, and similar facilities, at the time a decision is made
            or an action taken or not taken, and which are consistent with all
            applicable laws, permits, the RDF Facility Agreements, the Loan
            Agreement, the UPA Agreement and relevant standards for reliability,
            safety, environmental protection, efficiency and economy.

      1.29  RDF Facility Agreements: Collectively the Anoka Service Agreement,
            Hennepin Service Agreement, Tri-County Service Agreement, Ash
            Management Service Agreement, Construction Agreement, and UPA
            Agreement.

      1.30  Reimbursable Costs: The costs and expenses set forth in Section 6.2.

      1.31  Requests for Payment: The periodic written invoices and requests
            from Operator to Owner prepared in accordance with Section 6.7(a)
            for payment of the Management Fee, Reimbursable Costs and other
            amounts due from Owner to Operator.

      1.32  Standards of Performance: The standards for Operator's performance
            of the services to be provided as set forth in Section 3.2.

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      1.33  Supplies: Lubricants, hand tools, office and laboratory supplies,
            protective clothing and any other consumable items required for
            operation and maintenance of the Facility, Facility Equipment, Ash
            Landfill and Ash Landfill Equipment.

      1.34  Term: The Period of time during which this Agreement is in effect.

                                   ARTICLE 11

                                  SCOPE OF WORK

      2.1   Scope of Work: Operator will operate and maintain the Facility, Ash
            Landfill, Facility Equipment and Ash Landfill Equipment
            (collectively the "RDF Facilities") and perform certain other duties
            as set forth in this Agreement, including, but not limited to, all
            operation and maintenance services defined in Section 3.1 (the
            "Contract Services"). Operator shall operate and maintain the RDF
            Facilities in a clean, safe, efficient and environmentally
            responsible manner. The Contract Services shall be performed in
            accordance with the Standards of Performance set forth in Section
            3.2.

      2.2   RDF Facility Agreements and Permits: Prior to execution of this
            Agreement, Owner has provided Operator with copies of the RDF
            Facility Agreements and Permits. Upon execution or receipt by Owner
            of any new RDF Facility Agreements, Permits, or any amendments to
            RDF Facility Agreements or Permits previously transmitted to
            Operator, Owner shall provide Operator with executed copies. The
            Parties recognize and agree that this Agreement is intended, in
            part, to fulfill Owner's operation and maintenance obligations under
            the RDF Facility Agreements and, after compliance with the Permits,
            Standards of Performance, Prudent Operating Practice, and Laws, to
            optimize the operation of the RDF Facilities consistent with Owner's
            objective to achieve its expected return.

      2.3   Compliance with RDF Facility Agreements and Permits: Operator shall
            abide by all terms and conditions of the RDF Facility Agreements and
            Permits applicable to the operation and maintenance of the RDF
            Facilities in performing any part of the Contract Services. If
            Operator's compliance with this Agreement would cause Owner to be in
            default or otherwise in breach or violation of any of its
            obligations under any RDF Facility Agreement, the Loan Agreement, or
            any Permit, the requirements of such agreements or permits shall
            control Operator's performance hereunder to the extent necessary to
            avoid such default, breach or violation, subject to Operator's
            obligation to comply with all Laws. Each Party shall notify the
            other as soon as it knows or believes that compliance with this
            Agreement may result in such a default, breach or violation.

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                                  ARTICLE III

                            OPERATOR RESPONSIBILITIES

      3.1   On and after the Commencement Date and subject to approval by Owner
            of the Annual Operating Budget and any other expenses Operator shall
            be responsible for the operation and maintenance of the Ash
            Landfill, Ash Landfill Equipment, Facility and Facility Equipment,
            including, but not limited to, the following:

            A.    Performance of all operation and maintenance of the Ash
                  Landfill, Ash Landfill Equipment, Facility and Facility
                  Equipment, including the procurement of all Ash Landfill
                  Equipment, Facility Equipment, Materials, Supplies and related
                  services required to ensure operation and maintenance in
                  accordance with the provisions of this Agreement and industry
                  standards and to accomplish the objectives of maximizing
                  useful life and minimizing damage to the RDF Facilities and
                  outages or unavailability due to lack of maintenance.

            B.    Performance of all preventive maintenance, in accordance with
                  applicable Operation and Maintenance Manuals and
                  manufacturers' and vendors' warranties and recommendations;
                  the performance of routine maintenance such as lubrication,
                  oil changes, adjustments, and scheduled replacements; and the
                  performance of corrective maintenance such as repairs after
                  the occurrence of a problem, breakdown or failure.

            C.    Performance of all services required by the UPA Agreement, Ash
                  Management Services Agreement, Tri-County Service Agreement,
                  Anoka Service Agreement, Hennepin Service Agreement, and
                  Sherburne Service Agreement to operate and maintain the RDF
                  Facilities, including, but not limited to, all necessary
                  communication with the respective parties to such agreements,
                  and preparation of notices, reports and supporting data for
                  Owner's review and submittal under such agreements, and all
                  necessary administration of such agreements.

            D.    Applying for and maintaining all Permits necessary for the
                  operation of the RDF Facilities.

            E.    Administration and coordination of all municipal solid waste
                  supplies received at the Facility, including, but not limited
                  to, management of

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                  contract trucking services and landfill operator's contracts
                  and operations.

            F.    Preparing and revising site procedures, budgets, logs, records
                  and technical and administrative reports as may be required or
                  advisable.

            G.    Identifying the need for the procurement of subcontractors for
                  performance of portions of the Contract Services subject to
                  Owner approval, and scheduling, coordinating and supervising
                  any such subcontractors.

            H.    Preparing the Annual Operating Budget required in accordance
                  with Section 5.1.

            I.    Preparing and submitting, or providing to Owner for submittal,
                  with the appropriate Person or Governmental Authority, all
                  reports, data and other information required by the Permits
                  and RDF Facility Agreements.

            J.    Responding in a timely manner to written requests from Owner
                  for information about the Contract Services.

            K.    Performing all other responsibilities assigned to Operator
                  pursuant to this Agreement.

      3.2   Standards of Performance: Operator shall perform each item of the
            Contract Services in a careful, professional, prudent and efficient
            manner at a level of care consistent with that expected from
            similarly situated professional operation and maintenance providers,
            and in accordance with the following requirements (collectively
            "Standards of Performance"):

            (a)   Prudent Operating Practice;

            (b)   the terms of the Operation and Maintenance Manuals and other
                  operating instructions provided by Anoka County or its agents
                  pursuant to the Construction Agreement or provided by any
                  other vendors, suppliers or contractors (and, with regard to
                  any Facility Equipment acquired subsequent to the Commencement
                  Date, in accordance with the operating instructions provided
                  by the respective equipment suppliers, vendors or
                  manufacturers) or other appropriate practices, whichever are
                  more stringent;

            (c)   all operational and maintenance obligations imposed on the
                  Owner pursuant to any RDF Facility Agreement;

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            (d)   the requirements of the providers of insurance described in
                  Article VII, and any and all insurance coverage documents
                  maintained by Owner for the protection of the RDF Facilities
                  and their revenues, copies of which are provided to Operator;

            (e)   any and all warranties received from Anoka County or its
                  agents or any manufacturer of the Facility Equipment or
                  Materials, which are not part of any RDF Facility Agreements,
                  copies of which have been provided to Operator;

            (f)   the Permits and all applicable Laws;

            (g)   the site procedures, and all other procedures devised by
                  Operator for operation and maintenance of the RDF Facilities;

            (h)   after compliance with all relevant Laws, Permits, RDF Facility
                  Agreements and Standards of Performance, operation of the RDF
                  Facilities consistent with Owner's objective to achieve its
                  expected return from the operation of the Facility.

      In the case of any conflict between any such standards, the most stringent
applicable standard shall govern.

      3.3   Procurement of equipment, materials, services and supplies:

            (a)   Subject to the limitations set forth in Section 5.2, Operator
                  shall identify, select, schedule, procure and receive all
                  equipment, materials, supplies and services necessary to
                  perform the Contract Services. Operator shall identify all
                  such items needed, establish technical and commercial
                  requirements, develop qualified bid lists, request bids or
                  proposals from prospective vendors and subcontractors,
                  evaluate bids or proposals received and select appropriate
                  vendors and subcontractors. Operator shall use its best
                  efforts to procure all equipment, services and supplies at
                  competitive rates, and to make all purchases at the lowest
                  evaluated price available for the appropriate type and quality
                  of equipment, services and supplies. Operator shall use its
                  professional judgment to determine when competitive bidding is
                  appropriate.

            (b)   Operator shall receive, inspect and inventory all Equipment,
                  Materials and Supplies delivered and identify and resolve any
                  defects or deficiencies, and shall sign all invoices, bills of
                  lading or other documents indicating acceptance when the
                  Equipment, Materials and

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                  Supplies meet Operator's purchase order or other
                  specifications. Operator shall be responsible for resolving
                  defects or deficiencies identified, including arrangement for
                  obtaining replacements, modifying or withholding payment, or
                  otherwise processing any claim or dispute arising under a
                  purchase order.

            (c)   In no event shall Operator take title to any Equipment,
                  Materials or Supplies received for the RDF Facilities. All
                  purchase orders, bills of lading and other title and shipping
                  documents with respect to the Equipment, Materials and
                  Supplies shall specify that Owner is to take title directly
                  from the manufacturer, vendor or supplier. Title to all
                  Equipment, Materials and Supplies or other services or items
                  purchased by Operator in connection with the Contract Services
                  shall pass directly to Owner from the manufacturer, vendor or
                  supplier free of all liens of Operator.

            (d)   Operator shall be responsible for supervising, coordinating
                  and administering the work of all subcontractors providing
                  services.

3.4   Inventory. Operator shall maintain an inventory of Materials adequate to
      support the continuous and successful operation of the RDF Facilities. The
      procurement of such inventory, including replacement Materials, shall be
      made in accordance with the provisions of Section 3.3. Operator shall
      provide necessary security for such inventory, and establish and manage an
      inventory control system.

3.5   Personnel.

      (a)   Operator shall employ at the Facility and the Ash Landfill the
            appropriate number of properly qualified and trained personnel to
            perform the Operator's obligations under this Agreement as approved
            under the Annual Operating Budget. Operator shall be solely
            responsible for the development of a staffing plan and the selection
            and training of all personnel employed by Operator at the Facility
            and the Ash Landfill following the Commencement Date.

      (b)   All personnel shall be qualified (including holding all appropriate
            valid licenses required by Law) and fully trained for their
            respective positions. All individuals utilized by Operator to
            perform Contract Services shall be employees of the Operator or
            workers or independent contractors under Operator's direction.
            Working hours, rates of compensation, and all other matters relating
            to such personnel shall be determined by Operator (subject to
            Owner's approval with respect to budget items.)

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      (c)   Operator shall retain sole responsibility and control of labor
            matters pertaining to its personnel. Operator shall provide Owner
            with such information regarding the selection of its personnel as
            Owner may reasonably request. With respect to hiring of personnel
            and its employment policies, Operator shall comply with all
            applicable federal and state labor and employment Laws and shall
            exercise control over labor relations in a reasonable manner
            consistent with the intent and purpose of this Agreement, including
            the laws and policies set forth in Exhibit C.

      (d)   Operator acknowledges and agrees that it does not have the authority
            to enter into any contracts or collective bargaining agreements
            which bind or purport to bind or obligate Owner.

3.6   Training.

      (a)   Operator shall insure that its personnel are trained in a
            satisfactory manner so as to enable each of the personnel to perform
            their assigned functions and as required to enable Operator to
            comply with its obligations under this Agreement. Operator shall
            establish and maintain a regular ongoing training program for the
            personnel. This training program shall be designed to train new
            personnel, keep existing personnel familiar with all existing site
            procedures and informed of all new revisions. Owner may at any time,
            upon reasonable notice, review Operator's regular training program
            in order to assess its adequacy and compliance with this Section
            3.6.

      (b)   If this Agreement is scheduled to terminate for any reason, Operator
            will cooperate with Owner and any replacement operator, at Owner's
            expense, in training replacement personnel for the RDF Facilities,
            including permitting such replacement personnel to participate in
            the training program described in Section 3.6(a).

3.7   Taxes. Operator shall pay all federal, state and local taxes which it is
      obligated to pay with respect to wages, salaries and benefits paid or
      provided by it to its employees, including, but not limited to: (i) all
      payroll-related or consumer taxes of its employees, federal, state and
      local tax withholdings, Federal Insurance Contribution Act taxes, and
      federal and state unemployment taxes and; (ii) all federal, state and
      local corporate income taxes on income earned by Operator. Owner shall pay
      real and tangible real estate and personal property taxes for property
      owned, leased, or rented by Owner. Operator shall forward to Owner any tax
      bills for which Owner is responsible immediately upon receipt by Operator.
      Operator shall maintain

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      all appropriate records reflecting its tax obligations, withholdings and
      payments.

3.8   Safety. Operator shall take all necessary and advisable precautions for
      the safety and security of its personnel and other persons at the Facility
      and the Ash Landfill and in connection with the performance of the
      Contract Services, and shall comply with all applicable safety laws and
      requirements, necessary to prevent accidents or injury to persons or
      damage to property at the Facility or the Ash Landfill. Operator shall
      promptly and continuously update its safety and security procedures to
      ensure safe, secure and efficient operation of the Facility and Ash
      Landfill.

3.9   Administration. Operator shall administer and be responsible for all cost
      accounting, purchasing, personnel, insurance and payroll functions
      relating to the performance of the Contract Services. All accounting shall
      be in accordance with generally accepted accounting principles. Operator
      shall pay all bills related to the Contract Services in a timely manner so
      as to take advantage of any available discounts and to avoid any
      penalties, except for those bills which are the obligation of Owner to
      pay.

3.10  Licenses and Permits.

      (a)   Operator shall cause each of its personnel to procure and maintain
            their respective licenses as required to perform the Contract
            Services.

      (b)   Operator shall maintain each of the Permits and procure any
            renewals, revisions, waivers or new Permits necessary or desirable
            for the operation and maintenance of the RDF Facilities. Operator
            shall retain all original Permits received or obtained by Operator
            for the Facility and Ash Landfill from time to time as such Permits
            are received or obtained during the term of this Agreement,
            including any renewals, revisions, waivers, or amendments and
            deliver copies of all such Permits to Owner.

      (c)   Operator shall perform Owner's obligations under the Permits and any
            renewals thereof and shall give all notices required by, and
            otherwise comply with, all applicable Permit terms and shall keep
            the Permits in full force and effect. In the event any Permit shall
            be violated by the operation or maintenance of the Facility or Ash
            Landfill by Operator or otherwise, Operator shall promptly notify
            Owner and all other applicable Persons and take all necessary action
            required to place the Facility and Ash Landfill into compliance with
            the Permit as soon as practicable. The provisions of this section
            shall apply to any Permit

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            required in connection with the transportation, handling,
            processing, storage or disposition of any Hazardous Materials.

3.11  Compliance with Laws. Operator shall at all times operate and maintain the
      RDF Facilities in a manner which complies in every material respect with
      all applicable Laws and Permits, as amended from time to time. In the
      event any of the RDF Facilities, Contract Services, or Operator shall
      violate any Law, Operator shall promptly notify Owner and all other
      applicable Persons and take all necessary action to place the RDF
      Facilities into compliance with the applicable Laws.

3.12  Emergencies In the case of an Emergency, Operator shall, as soon as
      reasonably practicable, notify Owner of the nature of such Emergency, the
      proposed remedial measures and its probable duration. Operator shall act
      immediately as required to prevent or overcome any risk of injury to
      Persons or material damage to property and to otherwise minimize the
      likelihood and degree of adverse consequences from the Emergency.

3.13  Improvements. Operator shall identify any alterations, additions,
      modifications or other changes to the RDF Facilities ("Improvements")
      which would improve the overall operation, output, safety or efficiency of
      the RDF Facilities, and advise Owner in writing of such proposed
      Improvements. Upon the written approval of Owner, the Operator shall
      arrange for the procurement and integration of all such equipment,
      materials and other resources necessary to implement such Improvements at
      the RDF Facilities. Except as set forth in the Annual Operating Budget,
      the Operator shall make no Improvements other than Improvements made in
      accordance with this Section 3.13.

3.14  Books and Record.

      (a)   Operator shall maintain operating logs, records and reports
            documenting the operation of the RDF Facilities, including those
            logs, records and reports required by any RDF Facility Agreement or
            MPUC, maintain current revisions of Facility and Ash Landfill
            drawings, equipment manuals, instruction books, and the Operation
            and Maintenance Manuals; and maintain accurate cost ledgers and
            accounting records regarding the Contract Services in accordance
            with generally accepted accounting principles for review by Owner.
            Operator shall also prepare all reports required for Governmental
            Authorities, or by the Permits, and provide same to Owner for its
            review. Upon termination of this Agreement, the Operator shall turn
            over a copy of all such books, logs, ledgers, manuals, reports and
            records to Owner.

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      (b)   Operator shall establish and maintain an information system
            reasonably satisfactory to Owner to provide storage and ready
            retrieval of Facility and Ash Landfill operating data, including
            such information necessary to verify and support calculations for
            preparation of documents pursuant to the RDF Facility and Loan
            Agreements.

      (c)   Operator shall prepare and maintain, on a current basis, proper,
            accurate, and complete books and records and accounts of all
            transactions related to the Facility and Ash Landfill, including
            information necessary to verify calculations made pursuant to this
            Agreement.

      (d)   At all reasonable times Owner shall have access to the records
            maintained pursuant to this Section and may audit the recordkeeping
            practices and systems used to generate the data required by this
            Section. Owner shall have the right to determine whether such
            practices and systems are in accordance with generally accepted
            accounting principles and may cause Operator to make such changes as
            necessary to conform with such principles. Operator's records shall
            also include all data required by the MPUC and shall be in a form
            which satisfies all data requirements of the MPUC. This provision
            does not require Operator to utilize the Uniform System of Accounts
            of the MPUC.

      (e)   Owner's right of access to the records described in this Section
            3.14 and Operator's obligation to maintain and preserve the same
            shall survive for a six (6) year period following the termination of
            this Agreement.

      (f)   With the exception of information relating to Operator's training
            program, all reports, data and other documents prepared by Operator
            in connection with the Facility, Ash Landfill or Contract Services
            shall be the property of Owner as and when the same are prepared and
            shall be used by Operator only in the performance of Contract
            Services.

3.15  Custody and Access. After the Commencement Date, Operator shall assume
      responsibility for the care, custody and control of the Facility and the
      Ash Landfill. Upon reasonable notice, Operator shall allow Owner and its
      agents and designees full, unrestricted access to the Facility and the Ash
      Landfill and all reports, data, information and documents related to the
      RDF Facilities and Contract Services in Operator's possession at the
      Facility and Ash Landfill, provided that Owner and its agents and
      designees agree to comply with all

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      applicable safety and security procedures which Operator deems necessary
      or advisable.

3.16  Enforcement of Warranties. Operator shall preserve and maintain all
      warranties or guarantees of which Owner is beneficiary regarding the
      Facility, Facility Equipment, Ash Landfill, Ash Landfill Equipment,
      Equipment, and Materials or any component thereof and shall notify Owner
      of any claims which Owner may have under such warranties or guarantees of
      which Operator becomes aware during the performance of Contract Services.
      Operator shall manage and operate the Facility and Ash Landfill consistent
      with the conditions applicable to all such warranties and guarantees so as
      to preserve their effectiveness and shall take no action which may
      adversely affect any claim under any warranty or guarantee without the
      express written consent of the Owner.

3.17  No Liens or Encumbrances. Operator shall keep and maintain the Facility,
      Ash Landfill, Facility Equipment and Ash Landfill Equipment free and clear
      of all Liens and encumbrances (other than Liens created or permitted by
      Owner) resulting from acts or omissions of Operator or its subcontractors
      or work done at the request of Operator or its subcontractors. In the
      event any Lien is imposed and unless (i) execution and enforcement are
      effectively stayed, (ii) all claims which the Lien secures are being
      actively contested in good faith, with due diligence and by appropriate
      proceedings and (iii) Operator has posted a bond or created a financial
      reserve sufficient to fully satisfy and release any contested Lien,
      Operator shall immediately take whatever actions are necessary to satisfy
      and release the Lien. Operator agrees to indemnify and hold Owner harmless
      from all claims, judgments, losses, damages, and defense costs, including
      reasonable attorneys' fees, incurred or suffered by Owner as a result of
      the imposition or pendency of any Lien (other than Liens created or
      permitted by Owner) or Owner's reasonable response to any such Lien,
      including, but not limited to, all costs incurred to remove or satisfy any
      such Lien if Operator fails to do so as required by this Agreement.

3.18  Facility Performance. If any significant deficiency in performance of the
      Facility or Ash Landfill occurs, including, but not limited to, a failure
      to meet any warranty or obligation under the RDF Facility Agreements, or
      if such a deficiency is projected, Operator shall notify Owner of the
      deficiency or projected deficiency and shall state Operator's opinion as
      to the cause of the deficiency or projected deficiency and prepare a
      report in detail, as required, together with a plan to remedy the problem.
      Upon Owner's request, Operator shall make available those of its personnel
      necessary to review and assess the cause of the deficiency or projected
      deficiency with Owner.

                                       15
<PAGE>   16
3.19  Periodic and Annual Review

      (a)   Status meetings shall be held quarterly between Owner's
            Representative and Operator's Representative, or more frequently as
            may be necessary for the purpose of reviewing Operator's provision
            of the Contract Services.

      (b)   At least (10) ten days before each quarterly status meeting,
            Operator shall submit to Owner (i) a progress report, in detail
            acceptable to Owner, covering all operations conducted during the
            quarter with respect to operations and maintenance, procurement,
            Improvements, labor relations, significant interactions with UPA and
            any Governmental Authorities, and other significant matters, which
            report shall include (with respect to quantitative items) a
            comparison of such items to corresponding values for the then
            preceding quarter and year and listing of any significant operation
            problems along with remedial actions planned and a brief summary of
            major activities planned for the next reporting period.

      (c)   As soon as available, and in any event within forty-five (45) days
            after the end of each Contract Year, Operator shall submit to Owner
            an annual report certified by the Operator's Representative
            describing in detail substantially similar to that contained in the
            quarterly reports referred to in Section 3.19(b) above, all of the
            Facility and Ash Landfill operations for the preceding Contract Year
            and presenting a comparison of the Facility and Ash Landfill
            operations with the Annual Operating Budget for the Contract Year
            and with those obtained for the preceding Contract Year, if any (the
            "Annual Report"). Within thirty (30) days after the submission of
            each Annual Report, the Operator's Representative shall meet with
            Owner's Representative to review and discuss the report and to
            report upon any other aspects of the operations at the Facility and
            Ash Landfill that Owner may request.

      (d)   Operator shall prepare any additional reports required by the RDF
            Facility Agreements, Permits, Laws or any Governmental Authority in
            a timely and complete manner.

3.20  Litigation; Permit Lapses. Upon obtaining notice or knowledge thereof,
      Operator shall submit prompt written notice to Owner of: (i) any
      litigation, or material claim, dispute or action, threatened in writing or
      filed, concerning the Facility, the Ash Landfill, the RDF Facility
      Agreements, or the Contract Services; (ii) any written refusal or
      threatened refusal to grant, renew or extend or any pending or written
      threatened action that might affect the granting, renewal or extension of,
      any license, permit, approval, authorization

                                       16
<PAGE>   17
      or consent concerning the Facility or Ash Landfill or the Contract
      Services; and (iii) any dispute with any Governmental Authority concerning
      the Facility or Ash Landfill or the Contract Services, any Permit, or any
      dispute with respect to any RDF Facility Agreement.

                                   ARTICLE IV

                             OWNER RESPONSIBILITIES

4.1   Access. Owner shall provide and grant to Operator right of access to the
      Facility and the Ash Landfill, throughout the term of this Agreement.

4.2   Accommodations. Owner shall make available such offices, storage
      facilities, unloading docks, restrooms, office equipment and facilities as
      are reasonably necessary to perform the Contract Services, and as are
      reasonably practicable, at the Facility and Ash Landfill. This section
      does not require Owner to invest in Improvements or to expend funds for
      items which are properly included in Operator's overhead expenses.

4.3   Manuals and Drawings. Owner shall provide Operator with all current
      Operating Manuals and with all as built drawings, specifications,
      warranties, diagrams, test results and other documents and information
      which Owner may have with respect to the RDF Facilities, which is
      necessary to Operator's provision of the Contract Services. Should any
      such information be classified as confidential or proprietary, Owner shall
      seek to obtain all necessary authorizations, releases, acknowledgments or
      other approvals necessary to provide Operator access to and use of such
      information. Operator shall comply with all reasonable requests to protect
      the confidential and proprietary nature of such information, including,
      but not limited to, any requirements contained in any RDF Facility
      Agreement.

4.4   Cooperation. Without limiting Operator's obligations hereunder, Owner
      shall make reasonable efforts to cooperate with Operator in its
      performance of the Contract Services.

4.5   Representatives.

      Each Party shall designate a representative who shall be principally
      responsible for administration of this Agreement and for communications
      between the Parties. The designation of the representative for each Party
      may be changed at any time by written notice.

                                       17
<PAGE>   18
                                   ARTICLE V

                             ANNUAL OPERATING BUDGET

5.1   Preparation of Budget. No later than ninety (90) days prior to the
      beginning of each Contract Year, Operator shall submit for Owner's review
      and approval, a proposed budget on a monthly basis, for the Contract
      Services to be performed in the next succeeding Contract Year. The
      proposed Annual Operating Budget shall be based on Operator's assessment
      of the necessary Contract Services for the next Contract Year and shall
      reflect the most economical and reasonable means of performing such
      activities in accordance with the Standards of Performance. The proposed
      Annual Operating Budget shall include:

      (i)   the proposed amount to be spent annually for Reimbursable Costs and
            the Management Fee then in effect;

      (ii)  the proposed amounts to be spent for the purchase of Equipment,
            Materials, Supplies and services in accordance with Section 3.3,
            identifying the items to be purchased;

      (iii) a proposed inventory plan;

      (iv)  proposed Improvements, with a statement describing the purpose and
            necessity of each Improvement and the estimated cost of each
            Improvement; and

      (v)   the estimated Performance Incentive, including a schedule detailing
            its calculation in accordance with Section 6.6.

5.2   Owner's Review.

      (a)   Within thirty (30) days after Owner receives Operator's proposed
            Annual Operating Budget, Owner shall notify Operator in writing of
            Owner's approval or of any proposed revisions to the proposed Annual
            Operating Budget. Within 30 days following receipt of Owner's
            revisions, Operator shall either confirm to Owner its ability and
            agreement to perform the Contract Services during the Contract Year
            in question in accordance with the proposed Annual Operating Budget
            as revised by Owner, or Operator shall object to Owner's revisions
            in writing stating in detail the reason for each objection. Owner
            and Operator shall use their best efforts to agree upon an Annual
            Operating Budget, which shall be approved in writing by both
            Parties, approval for which shall not be unreasonably withheld. If
            Owner and

                                       18
<PAGE>   19
            Operator are unable to agree upon an Annual Operating Budget, Owner
            and Operator shall present the dispute for dispute resolution in
            accordance with Article VIII. In the event an Annual Operating
            Budget has not been agreed upon by the first day of any Contract
            Year, the Annual Operating Budget shall be the Annual Operating
            Budget used for the preceding Contract Year. Each Annual Operating
            Budget shall remain in effect throughout the applicable Operating
            Year, subject to updating, revision and amendment as may be proposed
            by either Party and consented to in writing by the other Party,
            consent for which may not be unreasonably withheld.

      (b)   If, during any Contract Year, Operator determines that any category
            within an Annual Operating Budget will vary for the Contract Year by
            more than ten percent (10%) or one hundred thousand dollars
            ($100,000), whichever is greater, Operator shall immediately notify
            Owner and shall follow Owner's instructions regarding further
            expenditures for the operation and maintenance of the Facility and
            Ash Landfill pursuant to this Agreement. Until such time as Operator
            receives such instructions, Operator shall continue to operate and
            maintain the Facility and Ash Landfill according to the terms of
            this Agreement as permitted under the Annual Operating Budget then
            in effect. At no time, without Owner consent, shall Operator be
            entitled to make expenditures in any Annual Operating Budget
            category which exceed the amount allocated for such category;
            provided, however, that the foregoing limitation shall not apply in
            the case of Emergencies, which shall be governed by Section 3.12.

                                   ARTICLE VI

                                     PAYMENT

6.1   As the sole and exclusive compensation and reimbursement to Operator for
      the performance of the Contract Services Owner shall pay Operator, in the
      manner and at the times specified, the Reimbursable Costs, the Management
      Fee and the Performance Incentive, adjusted as necessary in accordance
      with Sections 6.3, 6.4, 6.9, and 6.10.

6.2   Reimbursable Costs. Subject to any limitations on expenditures in this
      Agreement, Owner shall reimburse Operator for the following costs incurred
      by Operator in performing the Contract Services, to the extent properly
      incurred by Operator pursuant to this Agreement and supported by adequate
      documentation (the "Reimbursable Costs"):

                                       19
<PAGE>   20
      (a)   the actual payroll cost for its personnel to the extent involved in
            the performance of the Contract Services, including, but not limited
            to, necessary overtime, plus the actual cost of associated payroll
            taxes, unemployment and disability insurance, worker's compensation
            insurance, benefits and other statutory compensation;

      (b)   the actual cost of Materials, Equipment and Supplies and services
            provided by Operator or any subcontractor;

      (c)   the actual cost of any insurance paid by Operator to provide the
            coverages set forth in Section 7.2, except for payments for
            deductibles to be paid by Operator pursuant to Section 6.4, and any
            claims not covered by insurance as described in Section 7.2(b).

      (d)   the actual fees and costs necessary to obtain and maintain Permits,
            including fees and costs arising from any changes in Laws or Permits
            after the execution of this Agreement;

      (e)   the actual cost of any Improvements approved by Owner, as incurred;

      (f)   any other cost or expense designated as a Reimbursable Cost in this
            Agreement; and

      (g)   All other costs necessary for conducting the business of the
            Facility and Ash Landfill.

6.3   Adjustments for Owner Provided Services. To the extent Operator obtains or
      utilizes any Equipment, Materials, Supplies or services of any type from
      Owner for its performance of the Contract Services ("Owner Provided
      Services"), the value of the Owner Provided Services shall be computed in
      accordance with procedures established in the Administrative Agreement and
      approved by the MPUC as set forth in Exhibit D. Owner shall have the right
      to set off or recoup the value of Owner Provided Services against amounts
      due to Operator each month for Reimbursable Costs as invoiced by Operator
      pursuant to Section 6.7. When Owner exercises its right to set off or
      recoup for the value of Owner Provided Services, Owner shall provide
      Operator with documentation, in reasonable detail, showing the basis for
      the set off or recoupment and the calculation of the amount due Owner. Any
      such set off or recoupment shall be without prejudice to Operator's right
      to contest the amount claimed by Owner or the basis for that claim.

                                       20
<PAGE>   21
6.4   Exclusions from Reimbursable Costs.

      (a)   Operator shall be responsible for payment of any fines or penalties
            (or settlements in lieu of fines or penalties) payable to any
            Governmental Authority, to the extent caused by the negligent acts
            or omissions or willful misconduct of Operator, or Operator's
            failure to comply with any Law, Permit or any provision of this
            Agreement, and such fines or penalties shall not be considered
            Reimbursable Costs or otherwise result in any increase in the costs
            to be borne by Owner. Owner shall be responsible for the payment of
            any other fines or penalties (or settlements in lieu of fines or
            penalties) payable to any Governmental Authority as a result of the
            failure of the Facility or Ash Landfill to comply with applicable
            Laws or Permits. Operator also shall be responsible for payment of
            all costs and expenses (including reasonable attorneys' fees and
            expenses) incurred by Owner which arise from any negligent acts or
            omissions or willful misconduct of Operator or Operator's failure to
            comply with any Law, Permit or any provision of this Agreement, and
            Owner shall be entitled to offset or recoup such amounts in the same
            manner as provided in Section 6.3.

      (b)   Owner shall not be liable for any additional costs incurred by
            Operator, or related fees, to the extent such costs are incurred by
            Operator as a result of (i) performance of Contract Services in a
            manner inconsistent with the Standards of Performance; (ii) Contract
            Services performed to remedy a problem, fault or deficiency created
            or aggravated by Operator's failure to conform to the Standards of
            Performance, or Equipment, Materials, Supplies or services procured
            from any other Person to remedy any such problem, fault or
            deficiency; or (iii) Operator's negligent acts or omissions, willful
            misconduct or failure to comply with any Law, Permit or any
            provision of this Agreement. Any such additional costs or expenses
            shall not be included as Reimbursable Costs.

6.5   Base Management Fee.

      Owner shall pay to Operator an annual Base Management Fee of two hundred
      fifty thousand dollars ($250,000) for each Contract Year, adjusted as set
      forth in Section 6.10, commencing on the Effective Date and continuing for
      each Contract Year thereafter. The Base Management Fee shall be earned in
      monthly installments of one-twelfth of the annual Base Management Fee for
      that Contract Year and paid along with incurred Reimbursable Costs as
      provided in Section 6.7. If Operator provides Contract Services at any
      time for only a portion of a month, the Base Management Fee shall be
      prorated accordingly. The Base Management Fee shall constitute full

                                       21
<PAGE>   22
      payment for the services described in Article III, all Operator overhead
      and profit for the Contract Services and general and administrative costs
      incurred by Operator.

6.6   Performance Incentive.

      In addition to the Base Management Fee and Reimbursable Costs, Owner shall
      pay Operator a Performance Incentive, calculated independently for each
      Contract Year, based on Actual Pretax Income Before Management Fees of the
      Facility and the Ash Landfill, minus Specified Owner Return adjusted to a
      pretax basis, minus the Base Management Fee. The components of this
      calculation shall be determined as follows:

      (a)   Actual Pretax Income Before Management Fees shall be determined as:
            (i) the sum of all revenues and income items other than income
            taxes of the Facility and the Ash Landfill, computed in accordance
            with generally accepted accounting principles (GAAP), minus (ii) the
            sum of all expenses other than income taxes of the Facility and the
            Ash Landfill, computed in accordance with GAAP, plus (iii) the Base
            Management Fee, and Performance Incentive amounts. Such amount shall
            exclude cumulative effect adjustments recorded as a result of
            implementing changes in accounting principles or methods of applying
            such principles, as defined by generally accepted accounting
            principles, attributable to periods prior to the first Contract Year
            for which a Performance Incentive is payable to Operator.

      (b)   Specified Owner Return shall be calculated as the product of Average
            Owner Equity for the Contract Year multiplied by the Approved
            Utility Return.

      (c)   Average Owner Equity shall be calculated based on the thirteen-month
            average of the Owner Equity invested in the Facility and the Ash
            Landfill for the Contract Year. The thirteen monthly Owner Equity
            amounts to be averaged shall be the consecutive month-end balances,
            as described in (d), beginning with December prior to the start of
            the Contract Year and ending with December of the Contract Year.

      (d)   Subject to audit verification under Section 6.9, Owner Equity shall
            be presumed to be represented by the balance included in Account
            20.01.03 (Division 60) of the Owner's accounting records (related to
            the Facility and the Ash Landfill). Owner Equity shall include the
            cumulative amount of Owner cash invested in the Facility and the Ash
            Landfill, assuming: (i) monthly distribution to the Owner of all net
            income earned by the Facility and Ash Landfill, computed in

                                       22
<PAGE>   23
            accordance with GAAP; (ii) monthly distribution to the Owner of 60%
            of the depreciation expense and 100% of the deferred income tax
            expense of the Facility and Ash Landfill, such amounts computed in
            accordance with GAAP; (iii) reduction of monthly distributions to
            the Owner under (i) and (ii) for 60% of Improvements, equipment or
            other items to be capitalized in the property, plant and equipment
            accounts of the Facility and Ash Landfill, such amounts computed in
            accordance with GAAP; and (iv) no other equity contributions from or
            distributions to the Owner unless approved in writing by both
            Parties.

      (e)   Approved Utility Return shall be the rate of return on common equity
            approved by the MPUC in the most recent general rate proceeding of
            the Owner for which a Final Nonappealable Order has been issued.
            This rate of return shall be expressed as a percentage, and will be
            rounded to the nearest one-hundredth of one percent.

      (f)   If the net numerical result of the calculated Performance Incentive
            is less than zero for any Contract Year, the actual Performance
            Incentive due to the Operator from the Owner shall be zero for that
            year.

      (g)   For purposes of monthly payments of the Performance Incentive during
            each Contract Year, an estimate of Performance Incentive amounts
            shall be made using revenues and expenses (as defined in paragraph
            6.6(a)) included in the final Annual Operating Budget agreed to by
            the Operator and Owner under Sections 5.1 and 5.2. No later than the
            March 31 following the end of each Contract Year, estimated
            Performance Incentive amounts shall be trued-up to actual amounts
            based on actual revenues and expenses of the Facility and Ash
            Landfill (as defined in 6.6(a)) and the actual Owner Equity for the
            Contract Year. Subject to audit verification under Section 6.9, such
            revenues and expenses shall be presumed to be represented by the
            corresponding revenues and expenses recorded in the Owner's
            accounting records related to the Facility and the Ash Landfill.

6.7   Payments.

      (a)   By the twentieth day following the end of each month, Operator shall
            present an invoice to Owner reflecting amounts due for Reimbursable
            Costs incurred and due for the preceding month, the monthly portions
            of the Base Management Fee and Performance Incentive and the
            appropriate adjustments. The precise format of the invoice and the
            required amount of documentation in support of the invoice shall be
            established by agreement of the Parties, but in any event shall be
            sufficient to accurately and completely describe the Contract
            Services

                                       23
<PAGE>   24
            provided and each significant Reimbursable Cost so as to allow for
            meaningful review by Owner and, if necessary, MPUC, parties to the
            RDF Facilities Agreements, or any Government Authority. The invoice
            shall also state whether or not the Facility and Ash Landfill
            operation conformed to the applicable Annual Operating Budget during
            the billing period and, if not, the extent and reason for any
            material deviation and any related remedial action. No Reimbursable
            Costs shall be invoiced by Operator unless they were incurred in
            accordance with the applicable Annual Operating Budget, as amended,
            supplemented or modified. Except for costs and expenses arising from
            an Emergency, any cost or expense incurred or to be incurred by
            Operator in order to perform the Contract Services which is not
            contemplated or included in the Annual Operating Budget, or which
            exceeds the amount included for that cost or expense in the Annual
            Operator Budget, and which will cause an increase in the Annual
            Operating Budget of more than $100,000, shall be submitted to Owner
            separately for approval and, if approved, the Annual Operating
            Budget shall be amended accordingly and the increase allowed as a
            Reimbursable Cost.

      (b)   Upon receipt of an invoice from Operator, Owner shall apply any
            setoff, recoupment or adjustments pursuant to Sections 6.3 and 6.4
            or otherwise appropriate. The balance due Operator shall be due and
            payable within 30 days after receipt of the invoice by Owner. If the
            due date falls on a weekend or legal holiday, the due date shall be
            the next working day.

      (c)   Owner shall make payment of bills via wire transfer of funds if
            requested in writing by Operator, or other similar means at
            Operator's sole Expense, and if the request contains adequate
            payment information. Owner shall be entitled to conclusively
            presume, without any liability whatsoever, that the payment
            information furnished by Operator (including name, financial
            institution, account numbers, payee, etc.) is accurate. In no event
            will Owner be required to pay any bill more than once where the
            invoice was first paid in accordance with Operator's instructions.

6.8   In addition to any setoff, recoupment or adjustment otherwise made by
      Owner, if Owner disputes the validity, reasonableness or accuracy of any
      invoice submitted to it for payment, it shall provide Operator an
      explanation of the reasons for its dispute within the time provided for
      payment by Section 6.6(b).

      If Owner disputes only part of a statement submitted to it for payment,
      then it shall pay to Operator the undisputed portion of such statement in

                                       24
<PAGE>   25
      accordance with Section 6.6 and notify Operator in writing of the amount
      disputed in accordance with this Section. All such disputes shall be
      resolved pursuant to Article VIII of this Agreement.

6.9   Audit Rights.

      Notwithstanding the payment of any amount pursuant to Sections 6.6 and
      6.7, Owner shall remain entitled at Owner's expense to conduct an audit
      and review of all payments made to Operator on a time and material or cost
      reimbursable basis, together with any supporting documentation in
      accordance with the provisions of Section 6.2 for a period of three (3)
      years from and after the close of each Contract Year. Any audit and review
      may be conducted by Owner or by its designee and the person conducting the
      audit and review shall be entitled to inspect, copy and audit any of
      Operator's financial books, records, accounts, and ledgers relating to the
      Facility, Ash Landfill or the Contract Services. Operator shall cooperate
      with auditors and promptly respond to any questions relating to any audit.
      Operator shall retain all information described above for a period of six
      (6) years. If, pursuant to any audit and review, it is determined that
      any amount previously paid by Operator within the prior three years did
      not constitute a due and payable item hereunder, including without
      limitation, a properly payable Reimbursable Cost, Operator shall repay
      Owner such amount immediately upon demand, with interest determined in
      accordance with Section 6.11, or Owner may offset or recoup such amount
      for any payment that subsequently may become due to Operator pursuant to
      this Agreement. If, pursuant to any such audit or review, it is determined
      that Operator is entitled to additional payment or reimbursement, Owner
      shall pay Operator such amount immediately upon demand, with interest in
      accordance with Section 6.11.

6.10  Management Fee Adjustment.

      If the calculation of the Performance Incentive pursuant to Section 6.6
      should produce a result which is less than zero, the Owner and Operator
      agree that the Management Fee arrangements will be reevaluated to
      determine if the definitions of Performance Incentive and/or Specified
      Owner Return should be modified in order to provide the Owner with a
      reasonable return on equity invested and the Operator with fair
      compensation for services provided. Such modifications shall be made, in
      the form of an amendment to this Agreement, only if agreed to by both
      Parties.

6.11  Interest.

      Any amount owed to either Party by the other Party shall accrue interest
      each day from the date the amount is due until the date received at the
      rate equal

                                       25
<PAGE>   26
      to the rate established by the First Bank National Association,
      Minneapolis, Minnesota as its prime rate plus one percent per annum,
      computed and compounded daily.

                                  ARTICLE VII

                                    INSURANCE

7.1   Standards.

      All insurance carried and maintained by Operator pursuant to this
      Agreement shall be with insurance companies which are authorized to
      transact insurance business and cover risks in the State of Minnesota and
      which are rated "Excellent" or better by Best's Insurance Guide and Key
      Ratings or other insurance companies of recognized responsibility and
      satisfactory to the Owner, and, to the extent applicable, the parties to
      the Service Agreements, Ash Management Agreement, Loan Agreement and UPA
      Agreement, except to the extent Operator qualifies to self-insure the
      required coverages.

7.2   Operator Provided Insurance.

      (a)   Coverages - Operator shall at all times throughout the Term of this
            Agreement carry and maintain or cause to be maintained, at its own
            expense, insurance with coverage as follows:

      i.    Worker's Compensation and Employer's Liability Coverage Operator
            shall maintain or cause to be maintained Worker's Compensation
            insurance written in accordance with statutory limits and Employer's
            Liability in an amount not less than $1,000,000 per occurrence and
            in the annual aggregate. The Employer's Liability coverage shall not
            contain an occupational disease exclusion. Such policy or policies
            shall contain an all states endorsement or stop gap endorsement and
            alternate employer coverage.

      ii.   Comprehensive Automobile Liability Coverage - Operator shall
            maintain or cause to be maintained Comprehensive Automobile
            Liability insurance covering all owned, non-owned and hired vehicles
            used by Operator or its permissive users in connection with Contract
            Services. Such coverage shall be written in an amount not less than
            $1,000,000 per occurrence.

      iii.  Excess (or Umbrella) Liability Coverage - Operator shall maintain
            Excess (or Umbrella) Liability insurance written on an occurrence
            basis or on an acceptable claims-made basis providing coverage for a
            limit

                                       26
<PAGE>   27
            of $9,000,000 per occurrence and annual aggregate in excess of the
            insurance required in Sections 7(a)(ii) and 7(a)(v).

      iv.   Subcontractor Insurance - Operator shall require all of Operator's
            subcontractors to obtain, maintain and keep in force during the time
            in which they are engaged in performing services hereunder
            reasonably adequate coverage in accordance with Operator's normal
            practice (but not less than Worker's Compensation insurance written
            in accordance with statutory limits and Employer's Liability,
            Comprehensive Automobile Liability and Commercial General Liability
            each with limits of not less than $1,000,000 per occurrence and in
            the aggregate) and furnish Owner with acceptable evidence of such
            insurance upon its request.

      v.    Commercial General Liability Coverage. Commercial or Comprehensive
            General Liability insurance with a combined single limit of not less
            than $1,000,000 per occurrence and in the annual aggregate. Such
            coverage shall also include premises/operations, explosion,
            collapse and underground hazard, broad form contractual,
            products/completed operations, independent contractors, broad form
            property damage and personal injury.

      vi.   Property and Boiler and Machinery Coverage. Property and Boiler and
            Machinery insurance on an "all risk" replacement cost basis with
            extended coverages, providing coverage for the Facility and Ash
            Landfill, Facility Equipment and Ash Landfill Equipment, which shall
            include coverage for removal of debris and shall insure the
            buildings, structures, boiler and machinery, equipment, facilities,
            fixtures and other properties constituting a part of the Facility
            and Ash Landfill in an amount satisfactory to Owner with a
            deductible of not greater than $1,000,000.

(b)   Deductibles. All deductibles or self-insured retentions for the coverages
      specified in Section 7(a) shall be the sole responsibility of Operator.

(c)   Endorsements. Any insurance policies provided in accordance with Section
      7(a) shall be endorsed to provide that if any insurance policy is canceled
      for any reason whatsoever, or any substantial change is made in the
      coverage that affects the interest of Owner, UPA, Anoka County, Hennepin
      County, Sherburne County or the Tri-County Commission, the cancellation or
      change shall not be effective as to Owner until thirty (30) days after
      receipt by Owner of written notice sent by registered mail from the
      insurer of such cancellation or change or ten (10) days in the event of
      nonpayment of premiums. In

                                       27
<PAGE>   28
      addition, any insurance provided in accordance with Sections 7(a) (ii),
      (iii), (iv), (v), and (vi) shall be endorsed to provide that:

      i.    Owner, UPA, Anoka County, Sherburne County, Hennepin County and the
            Tri-County Commission shall be additional insureds in each case with
            the understanding that any obligation imposed upon Operator
            (including the liability to pay premiums) shall be the sole
            obligation of Operator and not that of Owner or the other additional
            insureds.

      ii.   The insurer waives all rights of subrogation against Owner or any
            other additional insured and any other right to deduction due to
            outstanding premiums, whether by attachment or otherwise. This
            provision shall apply to the insurance provided under Section
            7.2(a)(i) as well.

      iii.  The insurance shall be primary without right of contribution of any
            other insurance carried by or on behalf of Owner, or any other
            additional insured with respect to its interest as such in the
            Facility or Ash Landfill.

      iv.   To the extent the policies are written to cover more than one
            insured, all terms, conditions, insuring agreements and endorsements
            (other than the limits of liability) shall operate in the same
            manner as if there were a separate policy covering each insured.

            Any insurance provided in accordance with Section 7(a)(i) shall be
            endorsed to provide that the insurer thereunder waives all rights of
            subrogation against Owner and the additional insureds and any other
            right to deduction due to outstanding premiums, whether by
            attachment or otherwise.

      (d)   On the Effective Date, and each Contract Year thereafter, the
            Parties shall arrange to furnish each other with an approved
            certificate reflecting all required insurance and copies of
            policies, if requested. Such certification shall be executed by each
            insurer or by an authorized representative of each insurer. Such
            certificate or notice, as the case may be, shall identify insurers,
            the type of insurance, the insurance limits, the policy term and
            shall specifically list the special provisions enumerated for such
            insurance required by this Article VII.

                                       28
<PAGE>   29
7.3   Owner Provided Insurance.

      (a)   Owner shall carry and maintain, or cause to be maintained,
            throughout the Term of this Agreement, at its own expense, insurance
            with coverage as follows:

            i.    Excess (or Umbrella) Liability Coverage. Owner shall maintain
                  excess (or Umbrella) Liability Insurance providing coverage
                  for a limit of $9,000,000 per occurrence and in the annual
                  aggregate in excess of any Commercial General Liability
                  insurance carried by Owner.

            ii.   Worker's Compensation and Employer's Liability Coverage Owner
                  shall maintain or cause to be maintained Worker's Compensation
                  insurance written in accordance with statutory limits and
                  Employer's Liability in an amount not less than $1,000,000 per
                  occurrence and in the annual aggregate. The Employer's
                  Liability coverage shall not contain an occupational disease
                  exclusion. Such policy or policies shall contain an all states
                  endorsement or stop gap endorsement and alternate employer
                  coverage.

            iii.  Comprehensive Automobile Liability Coverage - Owner shall
                  maintain or cause to be maintained Comprehensive Automobile
                  Liability insurance covering all owned, non-owned and hired
                  vehicles used by Owner or its permissive users in connection
                  with Contract Services. Such coverage shall be written in an
                  amount not less than $1,000,000 per occurrence.

      (b)   Deductibles. All deductibles for the coverages specified in Section
            7.3.(a), (i), (ii), and (iii) shall be the sole responsibility of
            Owner, except that Operator shall be responsible for such
            deductibles to the extent the claim arises out the negligence or
            willful misconduct of Operator, or Operator's breach of this
            Agreement, in the performance of the Contract Services not to exceed
            $100,000 per occurrence pursuant to Section 7.3(a) (i) or $200,000
            per occurrence pursuant to Section 7.3 (a)(ii) and (iii). Any such
            deductible or self-insured retention paid by Operator shall not be
            deemed to be a Reimbursable Cost hereunder.

      (c)   Endorsements. Any insurance provided in accordance with Section
            7.3(a) shall be endorsed to provide that Operator shall be an
            insured for losses occurring at the Facility or Ash Landfill with
            the understanding that, except as expressly provided in Section
            7.3(b), any

                                       29
<PAGE>   30
            obligation imposed upon Owner (including the liability to pay
            premiums) shall be the sole obligation of Owner and not that of
            Operator. To the extent policies are written to cover more than one
            insured, all terms, conditions, insuring agreements and endorsements
            (other than the limits of liability) shall operate in the same
            manner as if there were a separate policy covering each insured.

7.4   Optional Insurance Responsibilities.

      If requested by Owner in writing, Operator shall assist Owner in obtaining
      for its own account the insurance Owner is required to maintain pursuant
      to Section 7.3(a) subject to Owner reimbursing Operator for its reasonable
      costs incurred in providing such assistance.

                                  ARTICLE VIII

                               DISPUTE RESOLUTION

8.1   Arbitration and Mediation Standards.

      (a)   Any controversy or claim arising out of or relating to the
            Agreement, or the breach thereof, shall be subject to resolution by
            mediation or binding arbitration as set forth in this Article VIII.

      (b)   Prior to initiation of mediation and arbitration, the Owner
            Representative and Operator Representative designated under Article
            16.3 or other persons designated by the Parties shall meet for the
            purposes of discussing and resolving the controversy or claim. If
            the dispute is not resolved within 30 days, the Parties agree to
            submit the dispute to mediation in accordance with the commercial
            mediation rules of the American Arbitration Association, or other
            mediation procedures agreed to by the Parties, before proceeding to
            arbitration. The Parties agree to each pay one-half the costs of the
            mediation.

8.2   Mediation Procedure.

      (a)   The Parties shall have ten days to agree upon a mutually acceptable
            and neutral mediator and, if the parties cannot so agree, they shall
            jointly request the American Arbitration Association or other agreed
            mediation service to propose potential mediators and to assist in
            the selection of a disinterested mediator.

                                       30
<PAGE>   31
      (b)   The Parties shall, with the mediator, devise procedures appropriate
            for negotiating a resolution of the dispute(s). The Parties agree to
            participate in good faith in the mediation and related negotiations,
            and to expeditiously exchange information and documents necessary
            for the fair and full discussion of the dispute(s).

      (c)   The mediator shall be disqualified as a witness, consultant, expert,
            or counsel for either party with respect to the dispute(s) and any
            related matters. The Parties agree that the mediator shall not be
            liable to either party for any statement, action or omission related
            to the mediation. The mediator shall keep confidential all
            information disclosed in private discussions with either Party when
            that Party has requested that the information be kept confidential.

      (d)   The Parties agree that the mediation procedure is a compromise
            negotiation for purposes of the Federal Rules of Evidence and any
            State rules of evidence. The entire procedure is confidential, and
            no stenographic, visual or audio record shall be made. All conduct,
            statements, promises, offers, views and opinions, whether oral or
            written, made in the course of the mediation by either of the
            Parties, their agents, employees, representatives or other invitees
            and by the mediator (who will be the Parties' joint agent for
            purposes of these compromise negotiations) are confidential and
            shall, in addition and where appropriate, be deemed to be work
            product and privileged. Such conduct, statements, promises, offers,
            views and opinions shall not be discoverable or admissible for any
            purposes, including impeachment, in any litigation or other
            proceeding involving the Parties, and shall not be disclosed to
            anyone not an agent, employee, expert, witness, or representative of
            either of the Parties; provided, however, that evidence otherwise
            discoverable or admissible is not excluded from discovery or
            admission as a result of its use in the mediation.

      (e)   The Parties agree to participate in the mediation for a period of 30
            days, which period may be extended by agreement. If the Parties are
            not successful in resolving the dispute(s) through mediation, then
            they agree to submit the unresolved dispute(s) or portions thereof
            to binding arbitration as provided in Section 8.3.

                                       31
<PAGE>   32
8.3   Arbitration Procedure.

      All disputes arising between the Parties which relate to the validity,
      interpretation or performance of this Agreement, and which are not
      successfully resolved by the Parties or through the mediation process
      prescribed in Article 8.2, shall be submitted to arbitration at the
      request of either party to the dispute, in accordance with the Commercial
      Arbitration Rules of the American Arbitration Association then in effect,
      and with the following provisions.

      (a)   The demand for arbitration shall be filed in writing with the other
            party to this Agreement and with the Minneapolis, Minnesota office
            of the American Arbitration Association within ten days of the
            conclusion of mediation. No arbitration initiated by the Parties
            shall include by consolidation, joinder or in any other manner, any
            other person unless such person and both Parties agree to the
            inclusion and unless such person is substantially involved in a
            common question of law or fact or its presence is required if
            complete relief is to be accorded in the arbitration. This agreement
            to arbitrate between the Parties, and any fully executed subsequent
            agreement to arbitrate with a third party, shall be specifically
            enforceable under the Minnesota or federal arbitration act,
            whichever is applicable.

      (b)   If the dispute(s) submitted to arbitration is identified as
            involving claims whose total value exceeds $250,000, the Parties
            shall be entitled to utilize the discovery provisions contained in
            Minnesota Rules of Civil Procedure 26-37 and 45 with the following
            exceptions:

            (1)   Each party shall be limited to three depositions unless
                  approval of the arbitrator(s) is obtained for additional
                  depositions, which approval shall only be granted upon a
                  showing of good cause;

            (2)   Each party shall be restricted to no more than 25
                  interrogatories, with subparts counted as separate
                  interrogatories.

            (3)   All discovery issues shall be determined by order of the
                  arbitrators upon motion made to them by either Party. When a
                  Party is asked to reveal material which the Party considers to
                  be proprietary information or trade secrets, the Party shall
                  bring the matter to the attention of the arbitrators who shall
                  make such protective orders as are reasonable and necessary or
                  as are otherwise provided by law.

                                       32
<PAGE>   33
      (c)   The arbitrators shall have jurisdiction and authority to interpret,
            apply, or determine compliance with the provisions of this Agreement
            insofar as shall be necessary to the determination of issues
            properly before the arbitrators. In making the decision, the
            arbitrators shall issue appropriate findings and conclusions
            regarding the issues. The arbitrators shall not have jurisdiction or
            authority to alter the provisions of this Agreement or any
            applicable law or rule of civil procedure. The arbitrators shall
            have the authority to require either Party to specifically perform
            its obligations under this Agreement. The arbitrators shall render a
            decision within sixty (60) days after the completion of the hearing
            on the matter.

      (d)   The arbitration shall be closed to observation or monitoring by
            third parties.

      (e)   The award rendered by the arbitrator(s) shall be final and judgment
            may be entered upon it in accordance with applicable law in any
            court having jurisdiction. Any decision (including orders arising
            out of disputes as to the scope or appropriateness of a request for,
            or a response to, discovery) of the arbitrators may be enforced in
            state or federal district court, whichever is applicable, with all
            costs, including attorneys fees, paid by the losing Party. Nothing
            in Article VIII shall prohibit a Party from instituting litigation
            to enforce a final decision of the arbitrators.

      (f)   The administrative expense of any arbitration, including
            compensation for the arbitrator(s), shall be borne and paid equally
            by the Parties unless the arbitrator(s) finds that the position
            taken by either Party on any issue is not substantially justified,
            in which case all or part of the costs and fees of the Party
            prevailing on that issue shall be awarded to it. Except as provided
            herein, each Party shall bear its own costs and fees.

      (g)   All arbitration proceedings under this Article 8 shall take place in
            Minneapolis, Minnesota at a location agreed upon by the Parties and,
            in the event of failure to agree, the arbitrators shall determine
            the most convenient location based on the location of the majority
            of the documentary evidence and prospective witnesses.

      (h)   Pending the final decision of the arbitrators, the Parties agree to
            diligently proceed with the performance of all obligations,
            including the payment of all sums, required by this Agreement. To
            the extent practicable and consistent with all Laws and Permits, RDF
            Facility Agreements and Loan Agreement the interpretation or
            decision of the

                                       33
<PAGE>   34
            nonaggrieved party shall take precedence until the dispute is
            resolved, but shall not relieve the nonaggrieved Party from any
            liability resulting from such interpretation or decision to the
            extent it is ultimately determined to be wrong by the arbitrators.

      (i)   Nothing in this Article VIII shall preclude a Party from seeking
            specific performance of this Agreement or similar injunctive relief
            in state or federal court if the Party seeking such equitable relief
            would otherwise be irreparably harmed by the passage of time
            involved for the completion of the mediation and arbitration
            processes set forth in this Article. Any judicial decree or order
            granting such specific performance shall be effective only to the
            extent and for the time period necessary to prevent the irreparable
            harm specifically found by the court. Final resolution of any
            underlying dispute, or related issues, shall still occur pursuant to
            the provisions of this Article VIII.

8.4   Compromise and Settlement.

      (a)   Except as may be necessary for (i) any review by the MPUC, FERC, or
            other Governmental Authority; or (ii) any enforcement proceeding
            under Section 8.3(e), no communications sent or documents delivered
            by either Party because of a proceeding under Article VIII shall be
            disclosed by the other Party to a third person if that communication
            or document contains the caption "Privileged and Confidential;
            Settlement Proceedings" or similar caption.

      (b)   Except as may be necessary for (i) any review by the MPUC, FERC or
            other rate regulatory agency of any matter determined to be within
            its exclusive jurisdiction; or (ii) any enforcement proceeding, the
            arbitrators' decision shall be deemed to be a settlement between the
            Parties and the decision shall be treated as a settlement for all
            purposes in the future.

8.5   Effect of Termination.

      This Article VIII shall survive the termination of the Agreement as
      necessary to resolve any disputes arising out of, in connection with, or
      relating to the Agreement.

                                       34
<PAGE>   35
                                   ARTICLE IX

                                      TERM

9.1   Effective Date.

      This Agreement shall not become effective until the Effective Date, which
      shall be the first day after all conditions precedent identified in this
      Section 9.1 have been fully and satisfactorily performed and satisfied:

      (a)   The Agreement has been executed by authorized representatives of
            Owner and Operator.

      (b)   Any consent to this Agreement which is required from a party to any
            RDF Facility Agreement, the Loan Agreement, or the UPA Agreement has
            been received in writing by Owner in a form executed by an
            authorized representative of the party. Operator and Owner are not
            aware of any such necessary consent at this time.

      (c)   The MPUC approves the Agreement in a Final Nonappealable Order,
            pursuant to Minnesota Statutes Chapter 216B, in which the MPUC finds
            that the amounts to be paid to Seller under the Agreement are
            reasonable and in the public interest. In the event NSP is unable to
            obtain a Final Nonappealable Order of the MPUC specifically
            approving the Agreement without significant modification to the
            Agreement by the MPUC, the Agreement shall terminate unless NSP and
            Seller mutually agree in writing to accept the modification.

9.2   Term.

      This Agreement shall remain in full force and effect until December 31,
      2003, or until the expiration or termination of all of the RDF Facility
      Agreements and UPA Agreement, whichever is earlier.

9.3   Options to Extend.

      Owner shall have the option to extend the term of this Agreement for up to
      two additional three (3) year terms. To exercise its options, Owner shall
      provide written notice to Operator of its intent to exercise the option no
      later than 180 days prior to the expiration of the Term.

                                       35
<PAGE>   36
9.4   Services Prior to Effective Date.

      Services provided by Operator since the Commencement Date and prior to
      January 1, 1996 shall be paid for and performed in accordance with the
      Administrative Agreement, including appropriate compensation or offsets
      for Owner Provided Services. To the extent practicable and approved by the
      MPUC the Parties shall begin performance of this Agreement as of January
      1, 1996 and the First Contract Year shall be deemed to be calendar year
      1996. If the MPUC fails to approve this Agreement, including the
      provisions for Operator's fees, for any portion of the period between
      January 1, 1996 and the Effective Date, Operator shall be entitled only to
      reimbursement as allowed by the Administrative Agreement and the MPUC.

9.5   Termination.

      This Agreement may be terminated only by mutual written agreement of the
      Parties, pursuant to the default provisions of Article XV, or under the
      following circumstances:

      (a)   Upon damage to, or destruction of, a substantial portion of the
            Facility or Ash Landfill, which cannot reasonably be expected to be
            repaired or rebuilt within one calendar year;

      (b)   if the Effective Date does not occur within six months of the date
            this Agreement is executed.

9.6   Termination Procedure.

      (a)   Upon the effective date of termination of this Agreement authorized
            under Section 9.5, the Operator shall (i) discontinue performance of
            the Contract Services, (ii) place no further orders or subcontracts
            for Materials, Equipment, Supplies, services, or labor, except as
            authorized in advance by Owner or required of Operator to avoid
            giving rise to an Event of Default under this Agreement, (iii) make
            every reasonable effort to obtain cancellation of affected
            subcontracts or, at Owner's request, cause the assignment of any
            such contracts to Owner or its replacement operator upon terms
            satisfactory to Owner, and (iv) take such other action as may be
            reasonably requested by Owner for the orderly closeout and
            transition of Operator's operation and maintenance activities,
            including cooperation with any replacement operator. After deduction
            of any amounts owed by Operator to Owner, upon termination pursuant
            to this Article, Owner shall pay, or cause to be paid, to Operator
            (A) the amount, if any due and payable to Operator pursuant to this
            Agreement up to and including the date of

                                       36
<PAGE>   37
            termination, and (B) except in the case of a termination of Operator
            pursuant to Article X, all reasonable documented costs incurred by
            Operator for its own efforts to implement termination and the
            resulting reasonable costs actually incurred for turnover and
            demobilization, excluding any loss of anticipated profit. Such
            payments to Operator shall not duplicate any other payments
            hereunder made to Operator. Operator and Owner shall use reasonable
            efforts to minimize all termination costs.

      (b)   Other than as set forth in this Section 9.6, Owner shall have no
            liability to Operator for costs, expenses or losses of any kind or
            nature incurred by Operator as a result of such termination. In no
            event shall the aggregate payments of Owner hereunder exceed the
            amount due for the then-current Contract Year, pro-rated for any
            partial Contract Year. Within sixty (60) Days following the
            effective date of termination, Operator shall submit to Owner its
            final invoice statement which Owner shall review and make payments
            on in accordance with the provisions of Article VI. Upon Operator's
            receipt of final payment in full from Owners, this Agreement shall
            terminate and neither Party shall have any further obligation to the
            other Party except with respect to those provisions of this
            Agreement which by their terms survive.

                                   ARTICLE X

                                 INDEMNIFICATION

10.1  Indemnity.

      Operator and Owner agree to defend, indemnify, and hold each other, and
      their respective officers, directors, employees, and agents, harmless from
      and against all claims, demands, losses, liabilities, and expenses
      (including reasonable attorneys' fees) (collectively "Damages") for
      personal injury or death to persons and damage to each other's physical
      property or facilities or the property of any other person or corporation
      to the extent arising out of, resulting from, or caused by the negligent
      or intentional acts, errors, or omissions of the indemnifying Party.
      Furthermore, each Party shall defend, indemnify, and hold the other
      harmless from and against all damages that are or were incurred or
      suffered by the indemnified Party and which relate to the indemnifying
      Party's breach or failure to perform any of the covenants, agreements,
      obligations, representations, or warranties contained in the Agreement,
      except as provided in Section 10.2. Nothing in this section shall relieve
      Operator or Owner of any liability to the other for any breach of the
      Agreement. This indemnification shall apply notwithstanding the active or
      passive negligence of the indemnitee. Neither Party shall be indemnified
      to

                                       37
<PAGE>   38
      the extent its Damages result from its sole negligence or willful
      misconduct. These indemnity provisions shall not be construed to relieve
      any insurer of its obligation to pay claims consistent with the provisions
      of a valid insurance policy.

10.2  Limitation of Liability.

      (a)   For all claims, causes of action and damages the Parties shall be
            entitled to the recovery of actual damages allowed by law unless
            otherwise limited by the Agreement.

      (b)   Except as otherwise specifically and expressly provided in the
            Agreement, no Party shall be liable to the other Party under the
            Agreement for any indirect, special, or consequential damages,
            including but not limited to, loss of use, loss of revenue, loss of
            profit, interest charges, cost of capital, or claims of its
            customers to which service is made from any cause, except to the
            extent such damages are covered under an insurance policy for the
            benefit of the liable Party. Notwithstanding the foregoing, the
            arbitrators under Article VIII can award consequential damages
            against a Party which willfully violates its obligations under the
            Agreement with knowledge that the other Party is suffering
            consequential damages if the arbitrators determine that such an
            award appears necessary to prevent repetition of such willful
            misconduct. In no event shall one Party's liability to the other
            exceed any limit of liability established for either Party under any
            Requirement of law.

      (c)   Notwithstanding the limitation set forth in Section 10.2(b),
            Operator shall be liable for all damages, including, but not limited
            to, loss of use, loss of revenue, loss of profit, and other
            indirect, special or consequential damages suffered or incurred by
            Owner, directly or through claims or causes of actions by others,
            arising from or relating to the occurrence of any breach, event of
            default, or failure to comply with the terms of any RDF Facility
            Agreement, UPA Agreement or Loan Agreement to the extent caused by
            Operator's negligent acts or omissions, willful misconduct, or
            breach of this Agreement.

10.3  Survival.

      The indemnity obligation of Section 10.1 and any other indemnity
      obligation provided under this Agreement shall survive the expiration of
      the term or termination of this Agreement for any reason and shall remain
      in full force and effect. All waivers and disclaimers of liability,
      releases from liability and limitations on liability shall also survive
      the expiration of the Term or

                                       38
<PAGE>   39
      termination of the Agreement and shall apply at all times unless otherwise
      expressly indicated.

10.4  Notice of Litigation.

      If any Party indemnified pursuant to this Article X or otherwise under
      this Agreement (each an "Indemnified Party" and collectively the
      "Indemnified Parties") receives notice or acquires knowledge of any claim
      that may reasonably result in a claim for indemnification by such
      Indemnified Party against the other Party (the "Indemnifying Party")
      pursuant to this Article X or otherwise, the Indemnified Party shall, as
      promptly as possible, give the Indemnifying Party notice of such claim,
      including a reasonably detailed description of the facts and circumstances
      relating to such claim, and a complete copy of all notices, pleadings and
      other papers related thereto, and the basis for its potential claim for
      indemnification in reasonable detail and shall cooperate with the
      Indemnifying Party in responding to the claim.

      Subject to the limitations on the Indemnifying Party's indemnity
      obligations, the Indemnifying Party shall assume on behalf of the
      Indemnified Party, and conduct with due diligence and good faith the
      defense of, any suit against one or more of the Indemnified Parties,
      whether or not the Indemnifying Party is joined as a party. Without
      relieving the Indemnifying Party of its obligations and subject to the
      Indemnifying Party's control over the defense and settlement of any suit,
      the Indemnified Party may elect to participate in the defense of any suit,
      at its own expense. The Indemnifying Parties' indemnity is for the
      exclusive benefit of the Indemnified Parties and their assignees and in no
      event shall inure to the benefit of any other Person.

10.5  Cost Treatment.

      Any amounts paid by Operator to Owner or otherwise arising from or related
      to any indemnified claim pursuant to Section 10.1 or other indemnity
      obligations of this Agreement shall not be Reimbursable Costs and shall be
      paid at Operator's sole cost and expense.

10.6  Limitation of Liability.

      With the exception of liabilities arising from Operator's indemnity and
      similar obligations pursuant to Section 10.1, 3.17, 6.4, 6.8, 11.4 and
      13.3, and the payment of deductibles for coverage provided under Section
      7.2(b) which are expressly not governed by this Section, Operator's
      aggregate liability to Owner with respect to any and all claims arising
      out of the performance or nonperformance of its obligations under this
      Agreement, whether based in

                                       39
<PAGE>   40
      contract, tort, warranty or otherwise shall not exceed, net of all
      insurance proceeds applied to each such liability or related claim:

      (i)   For all claims arising and for which damages accrue solely within
            one Contract Year, the amount of $1,000,000 or the total of the
            Management Fee and Performance Bonus due to Operator for that
            Contract Year, whichever is less.

      (ii)  for all claims made or for which damages accrue on a continuing
            basis or over more than one Contract Year, the amount of $3,000,000
            multiplied by the number of Contract Years or the total of the
            Management Fee and Performance Bonus due to Operator for the
            affected Contract Year, less any amounts paid pursuant to the
            preceding subparagraph (i) for each of the Contract Years whichever
            is less.

                                   ARTICLE XI

                         REPRESENTATIONS AND WARRANTIES

11.1  Representations by Operator.

      Operator represents and warrants to Owner:

      (a)   (i)   Operator is duly organized, validly existing and in good
                  standing under the laws of the jurisdiction of its formation;

            (ii)  has the power and authority to own and operate its business
                  and property, to own or lease the property it occupies and to
                  conduct the business in which it is currently engaged;

            (iii) is duly qualified as a corporation in Delaware and is in good
                  standing under the laws of Minnesota and each jurisdiction
                  where its ownership, lease or operation of property or the
                  conduct of its business requires such qualification and the
                  failure to be so qualified would have a material adverse
                  affect on the business, operations, financial condition or
                  prospects of Operator;

            (iv)  is in compliance with all material Requirements of Law,
                  applicable to Operator or its operations; and

            (v)   is in compliance with all material Contractual Obligations
                  applicable to Operator or its operations.

                                       40
<PAGE>   41
      (b)   The execution, delivery, performance and observance by Operator of
            its obligations under the Agreement is within Operator's powers,
            have been duly authorized by all necessary corporate action and do
            not and will not:

            (i)   require any consent or approval of the shareholders of
                  Operator which has not been obtained;

            (ii)  contravene, conflict or violate any provision of any
                  Requirement of Law presently in effect having applicability to
                  Operator;

            (iii) require the consent or approval of or filing or registration
                  with any Governmental Authority or other Person which is not
                  specified as a condition precedent to the Agreement;

            (iv)  result in a breach of or constitute a default under any
                  Contractual Obligation.

      (c)   The Agreement is a legal, valid and binding obligation of Operator,
            is enforceable against Operator in accordance with its respective
            terms except as enforceability may be limited by applicable
            bankruptcy, insolvency, reorganization or similar laws affecting the
            enforcement of creditors' rights generally.

      (d)   No litigation, arbitration, investigation or other proceeding is
            pending or threatened against Operator, except as listed on Exhibit
            E,

            (i)   with respect to the Agreement or the transaction contemplated
                  thereby, the Facility, Ash Landfill, RDF Facility Agreements,
                  UPA Agreement or Loan Agreement; or

            (ii)  which would, if adversely determined, have a material adverse
                  effect on the business, operations, property or financial or
                  other condition of Operator taken as a whole, or the ability
                  of Operator to perform its obligations under the Agreement.

      (e)   To the best of Operator's knowledge and belief, no exhibit,
            contract, report or document furnished by Operator to Owner in
            connection with the negotiation or execution of the Agreement
            contains any material misstatement of fact or omits to state a
            material fact or any fact necessary to make the statements contained
            therein not misleading.

                                       41
<PAGE>   42
      (f)   To the best of Operator's knowledge and belief, all Permits required
            by any Governmental Authority for the operation and maintenance of
            the Facility and Ash Landfill have been obtained and are valid and
            in full force and effect. The Facility and Ash Landfill are in
            compliance with each Permit as of the date of this Agreement, and
            Operator has received no notice and is not otherwise aware of any
            default, violation or potential default or violation of any such
            Permit.

      (g)   Operator has filed or caused to be filed all tax returns which were
            required to be filed and has paid all taxes shown to be due and
            payable on said returns or on any assessments made against it or any
            of its property and all other taxes, fees or other charges imposed
            on it or any of its property by any Governmental Authority; and no
            tax liens have been filed and no claims are being asserted with
            respect to any such taxes, fees or other charges.

      (h)   The Facility and Ash Landfill have been and are currently operated
            in full compliance with all Environmental Laws and operated in full
            compliance with all Permits, licenses, rules or orders promulgated,
            issued or otherwise required by a Governmental Authority having
            jurisdiction or enforcement power over any Environmental Law.
            Operator has no knowledge of and has not received notice of any
            past, present or future actions or plans which, with respect to the
            Facility or Ash Landfill, may interfere with or prevent compliance
            or continued compliance with Environmental Laws or may give rise to
            any liability under any Environmental Law or to any common law or
            legal liability or otherwise form the basis of any claim, action,
            demand, suit, proceeding, hearing, study or investigation under the
            Environmental Laws and there is no civil, criminal or administration
            action, suit, demand, claim, hearing notice or demand letter, notice
            of violation, investigation or proceeding pending or threatened
            against Operator relating to the compliance with any Environmental
            Law of the Facility or Ash Landfill.

      (i)   Operator intends to operate and maintain the Facility and Ash
            Landfill in accordance with the Standards of Performance, applicable
            Laws and Permits, the RDF Facility Agreements, Loan Agreement, and
            the terms of this Agreement.

      (j)   No Event of Default or Potential Event of Default exists hereunder.

11.2  Owner's Representations.

      Owner represents and warrants to Operator:

                                       42
<PAGE>   43
      (a)   (i)   Owner is duly organized, validly existing and in good standing
                  under the laws of the jurisdiction of its formation;

            (ii)  has the power and authority to own and operate its business
                  and property, to own or lease the property it occupies and to
                  conduct the business in which it is currently engaged;

            (iii) is duly qualified as a corporation in Minnesota and is in good
                  standing under the laws of each jurisdiction where its
                  ownership, lease or operation of property or the conduct of
                  its business requires such qualification and the failure to be
                  so qualified would have a material adverse affect on the
                  business, operations, financial condition or prospects of
                  Owner;

            (iv)  is in compliance with all material Requirements of Law,
                  applicable to Owner or its operations; and

            (v)   is in compliance with all material Contractual Obligations
                  applicable to Owner or its operations.

      (b)   The execution, delivery, performance and observance by Owner of its
            obligations under the Agreement is within Owner's powers, have been
            duly authorized by all necessary corporate action and do not and
            will not:

            (i)   require any consent or approval of the shareholders of Owner
                  which has not been obtained;

            (ii)  contravene, conflict or violate any provision of any
                  Requirements of Law presently in effect having applicability
                  to Owner;

            (iii) require the consent or approval of or filing or registration
                  with any Governmental Authority or other Person which is not
                  specified as a condition precedent to the Agreement;

            (iv)  result in a breach of or constitute a default under any
                  Contractual Obligation.

      (c)   The Agreement is a legal, valid and binding obligation of Owner, is
            enforceable against Owner in accordance with its respective terms
            except as enforceability may be limited by applicable bankruptcy,

                                       43
<PAGE>   44
            insolvency, reorganization or similar laws affecting the enforcement
            of creditors' rights generally.

      (d)   No litigation, arbitration, investigation or other proceeding is
            pending or threatened against Owner, except as listed on Exhibit E.

            (i)   with respect to the Agreement or the transaction contemplated
                  thereby, the Facility, Ash Landfill, RDF Facility Agreements,
                  UPA Agreement or Loan Agreement; or

            (ii)  which would, if adversely determined, have a material adverse
                  effect on the business, operations, property or financial or
                  other condition of Owner taken as a whole, or the ability of
                  Owner to perform its obligations under the Agreement.

      (e)   To the best of Owner's knowledge and belief, no exhibit, contract,
            report or document furnished by Owner to Operator in connection with
            the negotiation or execution of the Agreement contains any material
            misstatement of fact or omits to state a material fact or any fact
            necessary to make the statements contained therein not misleading.

      (f)   Prior to the Commencement date, the Facility and Ash Landfill were
            operated in full compliance with all Environmental Laws and operated
            in full compliance with all Permits, licenses, rules or orders
            promulgated, issued or otherwise required by a Governmental
            Authority having jurisdiction or enforcement power over any
            Environmental Law. Owner has no knowledge of and has not received
            notice of any past, present or future actions or plans which, with
            respect to the Facility or Ash Landfill, may interfere with or
            prevent compliance or continued compliance with Environmental Laws
            or may give rise to any liability under any Environmental Law or to
            any common law or legal liability or otherwise form the basis of any
            claim, action, demand, suit, proceeding, hearing, study or
            investigation under any Environmental Law and there is no civil,
            criminal or administration action, suit, demand, claim, hearing
            notice or demand letter, notice of violation, investigation or
            proceeding pending or threatened against Owner relating to the
            compliance with any Environmental Law of the Facility or Ash
            Landfill.

11.3  Owner's and Operator's Reliance.

      Operator agrees and acknowledges that Owner is relying on and will
      continue to rely on Operator's representations and warranties and, that
      such reliance

                                       44
<PAGE>   45
      is reasonable, and that Owner will rely on such representations in its
      filings and presentations to the MPUC in connection with this Agreement.
      Owner agrees and acknowledges that Operator is relying on and will
      continue to rely on Owner's representations and warranties and that such
      reliance is reasonable.

11.4  Indemnity

      If at any time during the Term of the Agreement any of the representations
      and warranties made by either of the Parties are or become untrue, then
      the Party which made the representation or warranty agrees to indemnify
      and hold harmless the other Party against any and all claims, demands,
      suits, actions, costs, and liabilities, damages, losses or judgments
      arising out of, relating to or resulting from any such untrue
      representation or warranty, as well as against any fees, costs, charges,
      or expenses (including attorneys' fees) which the other Party might incur
      in the defense of any such claim, suit, action or similar such demand made
      or filed which may adversely affect the other Party as a consequence of
      the untrue representation or warranty.

                                   ARTICLE XII

                                  FORCE MAJEURE

12.1  Force Majeure.

      Neither Operator nor Owner shall be liable to the other for any failure
      to perform pursuant to the terms and conditions of this Agreement to the
      extent such performance was prevented by an event of Force Majeure. Force
      Majeure as used in this Agreement means any event beyond the reasonable
      control of the Party affected and which, with the exercise of due care,
      the Party could not reasonably have been expected to avoid, including, but
      not limited to, acts of God, explosions or fires, floods, hurricanes,
      tornadoes, lightning, earthquakes, drought, epidemics, blight, famine,
      quarantine, blockade, acts or inactions of Governmental Authorities, war,
      insurrection or civil strife, rebellion, sabotage or strike. To be excused
      from performance pursuant to this provision, however, the Party affected
      must (i) give notice to the other Party, including full details of the
      event of Force Majeure and its creation of an inability to perform, as
      soon as practicable after the occurrence relied upon and (ii) exercise due
      diligence to remove its inability to perform with all reasonable speed and
      using all reasonable measures. The burden of proof to establish the
      existence of an event of Force Majeure and any resulting inability to
      perform on its part shall be on the Party seeking an excuse from
      performance due to Force Majeure.

                                       45
<PAGE>   46
12.2  Exclusions from Definition of Force Majeure.

      Notwithstanding anything in the Agreement to the contrary, "Force Majeure"
      shall not mean:

      (a)   Inclement weather affecting operation or maintenance of the Facility
            or Ash Landfill.

      (b)   Changes in market conditions, governmental action, or weather
            conditions that affect the cost of Operator's Contract Services,
            Equipment, Materials, or Supplies.

      (c)   Unavailability of equipment, repairs or spare parts for the
            Facility, Facility Equipment, Ash Landfill or Ash Landfill
            Equipment, except where due to a strike against a third person which
            was not reasonably foreseeable, and the consequences of which could
            not be avoided by due care and planning.

      (d)   Inability to obtain, maintain or renew any Permit or any delay in
            obtaining, maintaining, or renewing any Permit for any reason within
            the control of the Party.

      (e)   Litigation or administrative or judicial action pertaining to the
            Agreement, to the RDF Facilities, the acquisition, maintenance or
            renewal of financing or any Permits, or the maintenance or operation
            of the RDF Facilities.

      (f)   Any event to the extent caused by the negligence, willful misconduct
            or breach of this Agreement by the Party claiming Force Majeure.

      (g)   Any event to the extent it could have been prevented by reasonable
            diligence or was otherwise within the control of the Party claiming
            Force Majeure.

      (h)   Any breakdown or failure of any mechanical or other component of the
            Facility, Ash Landfill, Facility Equipment or Ash Landfill Equipment
            which fully or partially curtails operations to the extent caused by
            the design or construction of the component or the failure to
            properly operate and maintain the component, irrespective of whether
            the failure is attributable to the negligence or fault of the Party
            asserting Force Majeure.

                                       46
<PAGE>   47
      (i)   Failure to perform by any subcontractor, vendor, manufacturer,
            supplier, provider or other third party unless the failure is also
            caused by a qualifying event of Force Majeure as defined in this
            Agreement. In this respect, the compliance of any Person contracting
            with Operator or Owner with the terms of the applicable contract,
            purchase order or other agreement shall be deemed to be within the
            control of Owner or Operator, as applicable.

                                  ARTICLE XIII

                               HAZARDOUS MATERIALS

13.1  Environmental Laws.

      Any terms mentioned in the following subsections which are defined in
      state local, or federal environmental statutes and/or regulations
      promulgated in relation thereto shall have the meaning subscribed to such
      terms in said statutes and regulations. These state, local and federal
      environmental statutes, rules and regulations include, without limitation,
      (1) the Comprehensive Environmental Response, Compensation, and Liability
      Act (CERCLA), 42 U.S.C. Sections 9601-9657; (2) the 1986 Superfund
      Amendments and Reauthorization Act (SARA), codified as a part of 41 U.S.C.
      Section 9601 et seq.; (3) the Minnesota Environmental Response and
      Liability Act (MERLA), Minn. Stat. Sections 115B.01-115B.17; (4) the
      Resource Conservation and Recovery Act (RCRA), 42 U.S.C. Sections
      6901-6987; (5) legislation and regulations governing underground storage
      tanks (UST), including applicable federal laws and the Minnesota Petroleum
      Tank Release Clean-Up Act, Minn. Stat. Sections 115C.01-115C.10; and (6)
      state and federal laws creating any liens for clean-up costs, including
      applicable provisions of SARA and comparable Minnesota laws, Minn. Stat.
      Sections 514.671-514.676; (7) Groundwater Protection Act, Minn. Stat.
      Sections 103H.001-103H.280; (8) the Clean Air Act, 42 U.S.C. Sections 7401
      et seq.; (9) the federal Clean Water Act, 33 U.S.C. Sections 1321 et seq.;
      (10) the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1802
      et seq.; (11) the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et
      seq.; (12) the federal Water Pollution Control Act, 15 U.S.C. Sections
      2601 et seq.; and (13) any federal, state, county, municipal, local or
      other statute, law, ordinance or regulation enforcing, governing or
      related to the creation, handling, release, containment, transport or
      disposal of any pollutant, contaminant, hazardous or unhealthy substance
      or to human health or the environment; and any regulations interpreting,
      applying or complementing each of the statutes described in clauses (1)
      through (13). These statutes, rules and regulations, as amended from time
      to time, are referred to collectively as the "Environmental Laws."

                                       47
<PAGE>   48
      The term "release" shall have the meaning specified in CERCLA and MERLA,
      and the terms "solid waste" and "disposal" (or "disposed") shall have the
      meanings specified in RCRA; provided, in the event CERCLA, SARA, RCRA,
      MERLA or MPTRCA is amended so as to broaden the meaning of any term
      defined thereby, such broader meaning shall apply subsequent to the
      effective date of such amendment. "Hazardous Materials" means asbestos,
      ureaformaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or
      material, chemical waste, radioactive material, explosives, known
      carcinogens, petroleum products and by-products and other dangerous, toxic
      or hazardous pollutants, contaminants, chemicals, materials or substances
      listed or identified in, or regulated by, any Environmental Laws.

13.2  Owner's Indemnity.

      Owner agrees to indemnify, defend and hold Operator harmless from and
      against any claim, suit, loss, cost, liability, fine or damage (including
      reasonable attorneys' fees) arising from or assessed or incurred as a
      result of any release or other violation of any Environmental Law based on
      conditions existing at the Facility Site or Ash Landfill Site or created
      prior to the Commencement Date, made or asserted by any Person, and
      whether or not supported by fact or law.

13.3  Operator's Indemnity.

      Operator agrees to indemnify, defend and hold Owner harmless from and
      against any claim, suit, loss, cost, liability, fine or damage (including
      reasonable attorneys' fees) arising from or assessed or incurred as a
      result of any release or other violation of any Environmental Law based on
      releases or other conditions occurring or created at the Facility Site or
      Ash Landfill Site after the Commencement Date, including, but not limited
      to, any negligent or culpable handling of Hazardous Materials in the
      course of performing the Contract Services, made or asserted by any
      Person, and whether or not supported by fact or law.

13.4  Hazardous Wastes.

      Operator shall arrange for the proper collection, removal, transportation,
      and disposal of any Hazardous Materials furnished, used, applied,
      generated or stored at the RDF Facilities or emanating from the RDF
      Facilities including, but not limited to, used oils, greases, and solvents
      from flushing and cleaning processes performed under this Agreement. All
      costs associated with the transportation and disposal of Hazardous
      Materials to or from the RDF Facilities by Operator in connection with its
      performance of the Contract

                                       48
<PAGE>   49
      Services pursuant to the terms of this Agreement shall be a Reimbursable
      Cost. Operator shall comply with all applicable Laws and Permits in
      collecting, handling, removing, transporting or disposing of any Hazardous
      Materials, and shall be responsible for determining whether any material
      or substance is a Hazardous Materials and for interpreting and applying
      any Environmental Law.

                                  ARTICLE XIV

                                    DEFAULT

14.1  Events of Default.

      The following occurrences or events, or any of them, by or against either
      Operator or Owner, shall constitute an Event of Default under this
      Agreement.

      (a)   A material breach of any of the terms, conditions, warranties,
            covenants, or representations expressed in this Agreement; or

      (b)   the filing of a petition commencing a voluntary case under the
            Federal Bankruptcy Code or for liquidation, reorganization or any
            similar arrangement under federal or state law relating to
            bankruptcy, insolvency, winding up or adjustment of debts; or

      (c)   the admission in writing of its insolvency or inability to pay its
            debts generally as they become due or the acquiescence in or consent
            to any involuntary case commenced as described in Section 15.1(d)
            or the declaration of such Party as bankrupt or insolvent under the
            Federal Bankruptcy code or any other federal or state law relating
            to bankruptcy, insolvency, winding up or adjustment of debts; or

      (d)   the filing of a petition against it commencing an involuntary case
            under the Federal Bankruptcy Code or proposing the adjudication of
            such Party as a debtor or bankrupt or proposing its liquidation or
            reorganization pursuant to any federal or state law relating to
            bankruptcy, insolvency, winding up or adjustment of debts; or

      (e)   the dissolution of any Party or failure to maintain such Party's
            good standing or qualification to do business in the State of
            Minnesota or state of organization; or

      (f)   an assignment for the benefit of creditors.

                                       49
<PAGE>   50
      (g)   with respect to the Operator, an Event of Default occurs under any
            of RDF Facility Agreements or Loan Agreement due to the negligent or
            intentional acts or omissions of the Operator or Operator's breach
            of this Agreement.

14.2  Notice of Event of Default and Cure Rights.

      (a)   For any Event of Default arising under Sections 15.1(a) and (e),
            the right of termination granted under Section 15.3 shall be subject
            to a written notice of the Event of Default. Unless the nature of
            the default requires more immediate action to cure, which shall be
            set forth in the notice, the defaulting Party shall be provided
            thirty (30) calendar days from the date of receipt of the notice to
            cure the Event of Default. Failure to cure the default within this
            thirty (30) day period shall constitute a material breach of the
            Agreement granting to the nondefaulting Party the right to terminate
            the Agreement pursuant to Section 15.3.

      (b)   For any Event of Default described by Sections 15.1(b), (c), (d)
            and (f), notice of default shall not be required and termination may
            be effected in accordance with Section 15.3 by the nondefaulting
            Party to the extent permitted by applicable law.

      (c)   For any Event of Default by Operator pursuant to Section 15.1(g),
            Owner shall immediately provide written notice to Operator of the
            Event of Default, along with a copy of any notice of default
            received by Owner with respect to the underlying agreement in
            default or a description of the default in reasonable detail.
            Operator shall have the balance of any cure period provided to Owner
            under the agreement in default to cure the underlying default. If
            Operator fails to cure the underlying default within the available
            cure period, Owner shall have the right to terminate this Agreement
            pursuant to Section 15.3.

14.3  Termination; Waiver.

      (a)   In the event the defaulting Party fails to correct the Event of
            Default within the period for curative action under Section 15.2 of
            the Agreement with respect to the Events of Default outlined in
            Sections 15.1(a), (e) and (g) or upon the occurrence of any other
            Event of Default set forth in Sections 15.1(b), (c), (d) and (f) or
            15.5, the nondefaulting Party may terminate the Agreement at its
            sole discretion by notifying the defaulting Party in writing of the
            nondefaulting Party's intent to terminate the Agreement and of the
            effective date of such termination.

                                       50
<PAGE>   51
      (b)   Upon the occurrence of an Event of Default or subsequent termination
            resulting from an Event of Default, the nondefaulting Party shall
            have the right to pursue any and all legal and equitable remedies,
            including specific performance and including all actual damages and
            remedies as provided under the Agreement or related documents,
            against the defaulting Party and shall be entitled to recover from
            the defaulting Party all expenses (including reasonable attorneys'
            fees) incurred by the nondefaulting Party in connection with the
            pursuit of such remedies.

      (c)   Any waiver at any time by either Party of its rights with respect to
            an Event of Default under the Agreement, or with respect to any
            other matters arising in connection with the Agreement, shall not be
            a waiver with respect to any subsequent default or other matter.

14.4  Obligations Upon Termination.

      In the event that Owner elects to terminate this Agreement as a result of
      Operator's default and without limiting any other right or remedy of
      Owner, Owner may employ any other person, firm or corporation to perform
      the Contract Services by whatever method Owner may deem expedient.
      Furthermore, Operator shall, at Owner's expense, perform the following
      services relative to the Contract Services affected by its default,
      regardless of whether or not Owner elects to terminate this Agreement as a
      result of such default:

      (a)   assist Owner in preparing an inventory of all Equipment, Materials,
            or Supplies in use or in storage at the Facility and Ash Landfill;
            and

      (b)   assign to Owner such subcontracts and other contractual agreements
            relating to Operator's performance of the Contract Services as may
            be designated by Owner. Furthermore, Operator shall execute all
            documents reasonably requested by Owner and take such other steps as
            are reasonably requested by Owner that may be required to assign and
            vest in Owner or its designee all rights, benefits, interests and
            title in connection with the contracts or obligations; and

      (c)   For a period not to exceed 90 days, assist Owner in training
            Operator's successor and effectuating the transition to a successor
            Operator.

                                       51
<PAGE>   52
                                   ARTICLE XV

                                  MISCELLANEOUS

15.1  Non-Assignment.

      The rights and obligations of this Agreement may not be assigned by either
      Party without the prior written consent of the other Party, which consent
      shall not be unreasonably withheld. Any purported assignment of this
      Agreement in the absence of the required consent shall be void.

15.2  Notices.

      Any notice, demand, request, or communication required or authorized by
      the Agreement shall be delivered either by hand, facsimile, overnight
      courier or mailed by certified mail, return receipt requested, with
      postage prepaid, to:

                  Northern States Power Company
                  414 Nicollet Mall
                  Minneapolis, MN 55401
                  Attn:______________

      on behalf of Owner; and to:

                  NRG Energy, Inc.
                  1221 Nicollet Mall, Suite 700
                  Minneapolis, MN 55403-2445
                  Attn:_____________________

      on behalf of the Operator. The designation and titles of the person to be
      notified or the address of such person may be changed at any time by
      written notice. Delivery of any such notice, demand, request, or
      communication shall be deemed delivered on receipt if delivered by hand or
      facsimile and on deposit by the sending party if delivered by courier or
      U.S. mail.

15.3  Captions.

      All titles, subject headings, section titles and similar items are
      provided for the purpose of reference and convenience and are not intended
      to be inclusive, definitive or to affect the meaning of the contents or
      scope of the Agreement or any of its provisions.

                                       52
<PAGE>   53
15.4  No Third-Party Beneficiary.

      No provision of the Agreement is intended to nor shall it in any way inure
      to the benefit of any third party, so as to constitute any such person a
      third-party beneficiary under the Agreement, or of any one or more of the
      terms hereof, or otherwise give rise to any cause of action in any person
      not a Party hereto.

15.5  Entire Agreement Modification and Waiver.

      The Agreement, together with all exhibits attached hereto, constitutes the
      entire agreement between the Parties relating to the transaction described
      and supersedes any and all prior oral or written understandings. No
      amendment, addition to, or modification of any provision hereof shall be
      binding upon the Parties, and neither Party shall be deemed to have waived
      any provision of any remedy available to it unless such amendment,
      addition, modification or waiver is in writing and signed by a duly
      authorized officer or representative of the applicable Party or Parties.

15.6  Governing law.

      The Agreement is made in the State of Minnesota and shall be interpreted
      and governed by the laws of the State of Minnesota without giving effect
      to its conflict of law provisions, and/or the laws of the United States,
      as applicable.

15.7  Contract Drafting.

      The Parties expressly agree that neither Party shall be deemed solely
      responsible for drafting all or any portion of the Agreement and, in the
      event of a dispute, responsibility for any ambiguities arising from any
      provision of the Agreement shall be shared equally by both Parties.

15.8  Form of Business Relationship.

      (a)   The duties, obligations, and liabilities of the Parties are intended
            to be several and not joint or collective. The Agreement shall not
            be interpreted or construed to create an association, joint venture,
            fiduciary relationship or partnership between Operator and Owner or
            to impose any partnership obligation or liability or any trust or
            agency obligation or relationship upon either Party. Operator and
            Owner shall not have any right, power, or authority to enter into
            any agreement or undertaking for, or act on behalf of, or to act as
            or be an agent or representative of, or to otherwise bind, the other
            Party.

                                       53
<PAGE>   54
      (b)   The relationship between Owner and Operator shall be that of
            contracting party to independent contractor. Accordingly, subject to
            the specific terms of the Agreement, Owner shall have no general
            right to prescribe the means by which Operator shall meet its
            obligations under the Agreement.

      (c)   Operator shall be solely liable for the payment of all wages, taxes,
            and other costs related to the employment of persons to perform
            Operator's obligations under the Agreement, including all federal,
            state, and local income, social security, payroll, and employment
            taxes, and statutorily mandated workers' compensation coverage. None
            of the persons employed by Operator shall be considered employees of
            Owner for any purpose; nor shall Operator represent to any person
            that he or she is or shall become an employee or agent of Owner.

15.9  Good Faith and Fair Dealing: Reasonableness.

      The Parties agree to act reasonably and in accordance with the principles
      of good faith and fair dealing in the performance of the Agreement. Unless
      expressly provided otherwise in this Agreement, (i) wherever the Agreement
      requires the consent, approval, or similar action by a Party, such
      consent, approval or similar action shall not be unreasonably withheld or
      delayed, and (ii) wherever the Agreement gives a Party a right to
      determine, require, specify or take similar action with respect to
      matters, such determination, requirement, specification or similar action
      shall be reasonable.

15.10 Severability.

      Should any provision of the Agreement be or become void, illegal, or
      unenforceable, the validity or enforceability of the other provisions of
      the Agreement shall not be affected and shall continue in force. The
      Parties will, however, use their best endeavors to agree on the
      replacement of the void, illegal, or unenforceable provision(s) with
      legally acceptable clauses which correspond as closely as possible to the
      sense and purpose of the affected provision and the Agreement as a whole.

15.11 Confidentiality.

      The Agreement and exhibits incorporated by reference, and all amendments
      shall be considered proprietary and shall not be provided to a third party
      without prior written approval of the other Party, unless a Party is
      required to disclose such information by law or court order or when such
      information is already in the public domain. In the event certain
      information must be

                                       54
<PAGE>   55
      provided pursuant to a regulatory proceeding, the Parties shall take
      reasonable steps to protect the confidentiality of proprietary
      information.

15.12 Cooperation.

      The Parties agree to reasonably cooperate with each other in the
      implementation and performance of the Agreement. Such duty to cooperate
      shall not require either Party to act in a manner inconsistent with its
      rights under the Agreement.

15.13 Successors and Assigns.

      This Agreement shall be binding upon the Parties, their successors and
      permitted assignees.

      IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the day and year first written above.

                                   NORTHERN STATES POWER COMPANY,
                                   a Minnesota corporation

                                   By:
                                      -------------------------------------
                                   Its: President, NSP Electric

                                   NRG ENERGY, INC., a Delaware corporation

                                   By:
                                      -------------------------------------
                                   Its: Vice President Ops & Engr.

                                       55<PAGE>   1
                                                                   Exhibit 10.36

                    AGREEMENT FOR THE SALE OF THERMAL ENERGY

                               AND WOOD BYPRODUCT

                                     BETWEEN

                          NORTHERN STATES POWER COMPANY

                                       AND

                               NORENCO CORPORATION

      This Agreement, effective as of the first day of December, 1986, between
Northern States Power Company, a Minnesota corporation (hereinafter referred to
as "NSP") and NORENCO Corporation, a Minnesota corporation (hereinafter referred
to as "NORENCO"), a wholly owned subsidiary of NSP.

                                   WITNESSETH

      WHEREAS, NSP owns and operates the Allen S. King Electric Generating Plant
comprised of a high pressure boiler, which supplies steam to an extraction
condensing turbine-generator, and a low pressure heating boiler; and

      WHEREAS, NSP desires to sell steam to NORENCO, and NORENCO desires to
purchase such steam from, NSP to resell to Andersen Corporation (hereinafter
"Andersen") and the State of Minnesota Correctional Facility, Stillwater
(hereinafter "State"); and

                                       -1-
<PAGE>   2
      WHEREAS, NORENCO desires to sell wood byproduct purchased from Andersen to
NSP to be used as fuel and NSP desires to purchase such wood byproduct from
NORENCO; and

      WHEREAS, it is the intention of both NSP and NORENCO that NORENCO
reimburse NSP for all of NSP's incremental costs associated with the sale of
steam to NORENCO.

      NOW THEREFORE, the parties hereby agree as follows:

                             1. Term-Effective Date

      1.1 This Agreement shall become effective on December 1, 1986, and shall
continue through December 31, 2006.

                            2. Conditions of Service

      2.1 NSP shall use its best efforts to produce and deliver to NORENCO and
NORENCO shall use its best efforts to purchase and accept from NSP all of
NORENCO's current Steam requirements at Andersen and the State.

      2.2 Steam sales from NSP's King Plant to NORENCO may at NSP's option be
interrupted during electric system emergencies and times of peak electric loads.

      2.3 NORENCO will reimburse NSP for the incremental cost associated with
replacement electric energy at all times steam is being purchased for resale.

      2.4 NORENCO shall make in a manner acceptable to NSP, all modifications,
adjustments, and additions to NSP's existing boilers, pipes, valves, meters,
controls, buildings, yards,

                                       -2-
<PAGE>   3
tracks and all other equipment and machinery (collectively called Generating
Equipment) at the King Plant necessary to produce steam of the quality specified
and in the quantity required by this Agreement (herein sometimes referred to as
Steam).

      2.5 NORENCO shall obtain all necessary franchises, licenses, permits,
rights of way or easements and purchase, construct and install a transport
system which will connect King Plant to Andersen and the State. The transport
system (herein called the Supply System) shall include all pipes, pumps, valves,
meters, controls, wires, insulation and other equipment necessary to:

            (a) transport Steam from the King Plant to Andersen and the State;

            (b) transport condensate from Andersen and the State to the King
Plant;

            (c) provide for control of Steam and communications between the King
Plant and Andersen and the State; and

            (d) transport wood byproduct from Andersen to the King Plant.

      2.6 Throughout the Term of this Agreement NORENCO shall obtain, renew, and
maintain all licenses, permits and other governmental authorizations necessary
to furnish Steam, condensate and wood byproduct through the Supply System. NSP
shall use its best efforts to change or challenge rules, regulations, laws

                                       -3-
<PAGE>   4
or ordinances which would prevent NSP from furnishing Steam hereunder or using
wood byproduct as a fuel.

      2.7 Throughout the Term of this Agreement NSP shall own, operate,
maintain, repair, and adjust the Generating Equipment. NSP will not purchase any
equipment not required for electric generation.

      2.8 At NORENCO's expense, which shall be NSP's incremental cost, NSP
shall, throughout the Term of this Agreement, operate, maintain, repair and
adjust NORENCO-purchased equipment installed on NSP property.

      2.9 NORENCO shall not, by reason of this Agreement, the termination of
this Agreement or the payments made pursuant to this Agreement, acquire title or
ownership in or to the Generating Equipment of the King Plant.

      2. 10 All Steam produced and delivered from the King Plant shall meet the
following specifications when measured at the delivery point:

            (a) Temperature: 0 to 10 degrees F above saturated steam conditions
with variations required for load control.

            (b) Pressure: 150 to 250 pounds per square inch gauge (PSIG) with
variations required for load control.

            (c) Steam flow rate: 0 to 160,000 pounds per hour.

      2.11 Delivery point as used in Article 2 of this Agreement shall be the
point where the Steam exits the Steam conditioning valve and enters the Supply
Line at the King Plant.

                                       -4-
<PAGE>   5
      2.12 During each fiscal year of the Term of this Agreement, NORENCO shall
provide 100% of the water necessary to produce Steam for NORENCO at the King
Plant by delivering to NSP the condensate return water or pay NSP for the cost
of any makeup required. NORENCO shall return the condensate in a condition
acceptable for the King boilers.

                               3. Cost of Service

      For any Steam delivered to NORENCO by NSP, the costs shall be recovered by
NSP from NORENCO as specified in this Section 3. The calculation of these costs
includes the use of coefficients which are to be updated at least annually by
NSP. The costs recovered by NSP are to be reviewed annually by NSP to ensure
that the provisions of this Agreement recover all appropriate costs. Corrections
to billings will be made if it can be demonstrated by either party to the other
party's satisfaction that the monthly payments made by NORENCO to NSP are in
error by at least plus or minus 1%. Any corrections to billings will be
consistent with the incremental cost approach.

      3.1 Cost to Provide Steam From the King Turbine Cold Reheat Extraction
Line

            The King Plant turbine-generator will be operated as required by NSP
for electric generation. When the turbine-generator is in operation, Steam will
be provided to NORENCO from the turbine cold reheat extraction line. NORENCO
will be charged for the cost of replacement energy generation (or loss of the
oppor-

                                      -5-
<PAGE>   6
tunity to sell electricity for resale) due to NORENC0's Steam requirements as
follows:

            (a) The cost of replacement energy is calculated as the difference
in the cost of NSP generation and purchases to supply NSP native requirements
with and without the supply of Steam to NORENCO. The change in NSP generation
cost will include such items as the changes in fuel and maintenance for startup
and hours of operation, and the incremental ash disposal cost. The change in
billing cost for purchases with and without the supply of Steam to NORENCO will
also be used in the calculation.

            (b) NORENCO will be charged monthly for incremental costs associated
with the loss of the opportunity to sell electricity for resale due to NORENCO's
Steam requirements. This incremental cost is calculated as the estimated lost
revenues from sales for resale from the King Plant minus the estimated avoided
electrical production costs, had this energy been generated at the King Plant.

            (c) The cost of replacement energy shall be calculated using the NSP
System Operations computer program and the following coefficients or
information:

                  (1)   Total Steam Flow in MMBTU's to NORENCO

                  (2)   Electric power MW hours lost per MMBTU delivered to
                        NORENCO

                  (3)   Cost of replacement energy per MW Hour

                                       -6-
<PAGE>   7
      3.2 Cost to Provide Steam from the King Heating Boiler

            The King Plant heating boiler may be used to provide Steam to
Andersen and the State when the King Plant turbine generator is not in
operation. NORENCO will be charged for operation of the heating boiler
(including standby operation) as provided in 3.2.1 - 3.2.3.

      3.2.1 Fuel Cost

            (a) NORENCO will be charged for any incremental fuel used due to
heating boiler operations for NORENCO. For oil usage the cost will be calculated
as follows:

      Cost =  Gallons of oil used for    x   Oil cost per
                    NORENCO                    gallon

            (b) For gas usage, the cost will be calculated as follows:

               Cost = Millions of BTU of gas    x    Gas cost per
                     used for NORENCO                million BTU

            (c) The King Plant will report monthly the gallons of oil and the
millions of BTU's of gas used for the heating boiler. If the heating boiler
is used to supply steam to both NSP and NORENCO, the costs will be prorated
based on NORENCO Steam Flow and NSP steam flow.

      3.2.2 Incremental Maintenance Cost

            Each month, NORENCO shall pay NSP for the cost of

                                       -7-
<PAGE>   8
incremental maintenance of the King Plant heating boiler as calculated using NSP
Power Production's incremental maintenance coefficient.

      3.2.3 Incremental Auxiliary Cost

            Each month, NORENCO shall pay NSP for the cost of incremental
auxiliary electrical power usage for the King Plant heating boiler as calculated
using the average incremental system generation cost for that month.

      3.3 Incremental Operating Cost

            Any other incremental operating costs including overtime or
operating personnel required by NSP to provide Steam to NORENCO shall be
reported and charged to NORENCO.

      3.4 Thermal Equipment Operation and Maintenance

            Any operation or maintenance of thermal only equipment (equipment
installed for thermal use only) will be charged on separate work orders to
NORENCO.

      3.5 Supply of Gas or Oil

            If NSP supplies any oil or natural gas to NORENCO, NORENCO shall
reimburse NSP for the replacement cost of that oil or natural gas including
appropriate carrying and handling charges.

      3.6 Administrative and General Costs

            Administrative and general costs are covered by the Administrative
Services Agreement dated January 1, 1983, and any amendments thereto, between
NSP and NORENCO.

      3.7 NSP Surcharge

                                      -8-
<PAGE>   9
            A 5% surcharge will be added to items 3.2.2 through 3.4.

                        4. Sale of wood Byproduct to NSP

      4.1 NORENCO is responsible for transporting and for all costs related to
transporting the wood byproduct from Andersen to the King Plant site or to other
mutually agreed to NSP sites if King Plant is out of service.

      4.2 NSP agrees to use reasonable efforts to burn wood byproduct from
NORENCO up to thirteen (13) tons per hour and up to 80,000 tons per year of wood
byproduct when the King Plant is operating or to utilize it at other NSP
generating plants capable of handling and burning such wood byproduct when the
King Plant is out of service. NORENCO will annually provide NSP with a
forecasted wood byproduct delivery schedule. NORENCO agrees to supply all such
wood byproduct received from Andersen to NSP at the locations specified in 4.1
above unless NSP in its sole discretion is unable to utilize such wood
byproduct.

      4.3 Whenever NSP receives wood byproduct from NORENCO, NSP shall pay for
all such wood byproduct at the following rate:

            (a) For wood byproduct burned at the King Plant NSP shall pay
NORENCO at the average cost per MMBTU for solid fuel delivered to the King Plant
during the calendar year on a BTU equivalent basis.

            (b) For wood byproduct delivered to other NSP generating plants, NSP
shall pay NORENCO the average cost per

                                       -9-
<PAGE>   10
MMBTU of solid fuel (on an equivalent BTU basis) during the calendar year at
such other NSP plants. The cost per MMBTU in (a) and (b) above shall be
estimated at the beginning of each calendar year for billing purposes and the
billings adjusted after the close of the year to reflect the year's actual
average cost.

                                   5. Billing

      5.1 NSP will bill NORENCO, and NORENCO will bill NSP, by the 20th of the
month following the month in which the costs were incurred. The amount of each
month's bill shall be increased by 1% to cover working capital and miscellaneous
costs.

      5.2 NORENCO will pay NSP, and NSP will pay NORENCO, no later than ten
(10) days following the date of NSP's bill and the date of NORENCO's bill,
respectively. Interest shall accrue on payments which are overdue at the daily
commercial prime rate in effect at the Norwest Bank Minneapolis.

      5.3 NSP will provide NORENCO with a cost component schedule along with its
bill similar to that shown in Table 1. NORENCO will provide NSP with a cost
component schedule along with its bill similar to that shown in Table II.

      5.4 The total monthly cost billed shall be calculated pursuant to Articles
3 and 4 of this Agreement.

                                  6. Liability

      6.1 NORENCO shall hold harmless and indemnify NSP from

                                      -10-
<PAGE>   11
any and all claims, loss, damage or liability, including injury to and death of
persons, caused directly or indirectly by the Steam or the use of NORENCO's
facilities after the delivery of Steam to NORENCO, other than those resulting
solely from the negligence of NSP or its agents or employees (excluding persons
assigned to NORENCO on a full-time basis). NSP likewise shall hold harmless and
indemnify NORENCO from any and claims, loss, damage or liability, including
injury to and death of persons, caused directly or indirectly by steam or the
use of NSP's facilities before the delivery of steam to NORENCO, other than
those resulting solely from the negligence of NORENCO or its agents or employees
(including those persons assigned to NORENCO on a full-time basis).

      6.2 Notwithstanding any other provision of this Agreement, neither NSP nor
NORENCO in any event shall be liable to the other, whether arising under
contract, tort (including negligence), or otherwise, for claims of customers or
any other third parties, or for loss of use of capital or revenue, or for loss
of anticipated profits, or for any other special, indirect, incidental or
consequential loss or damage of any nature arising at any time or from any cause
whatsoever.

      6.3 No provision of this Agreement shall in any way inure to the benefit
of any third person (including the public at large) so as to constitute any such
person a third party beneficiary of this Agreement or of any one or more of the
terms

                                      -11-
<PAGE>   12
hereof, or otherwise give rise to any cause of action in any person not a party
hereto.

      6.4 The provisions of this section and of any other sections of this
Agreement providing for limitation, of or protection against liability shall
apply to the full extent permitted by law and regardless of fault and shall
survive the expiration or termination of this Agreement.

                            7. Continuity of Service

      7.1 NSP shall not be liable to NORENCO for its failure to deliver Steam,
and NORENCO shall not be liable to NSP for its failure to receive Steam, when
such failure on the part of either party shall be due to accident to or breakage
of pipelines or equipment, fires, floods, storms, weather conditions, strikes,
lockouts or other industrial disturbances, riots, legal interference, acts of
God or public enemy, shutdowns for necessary repairs and maintenance, or,
without limitation by enumeration, any other cause beyond the reasonable control
of the party failing to deliver or receive Steam provided such party shall
promptly and diligently take such action as may be necessary and practicable
under the then existing circumstances to remove the cause of failure and resume
the delivery or receipt of Steam.

            Furthermore, NSP shall not be liable for its failure to deliver
Steam provided that such failure is (i) due to any scheduled or unscheduled
maintenance shutdown of King Plant

                                      -12-
<PAGE>   13
boilers or (ii) due to operating conditions on King Plant boilers and turbine
that warrant curtailment of the delivery of Steam to NORENCO. NSP shall have the
sole right to determine when those conditions exist. NSP and NORENCO shall
cooperate with each other regarding maintenance and Steam service curtailment,
and shall use their best efforts to coordinate inspections, maintenance and
repairs to their respective facilities. NSP shall provide NORENCO with
reasonable advance notice as possible of scheduled interruption or curtailment
of Steam service.

                                8. Miscellaneous

      8.1 This Agreement shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto, and any reference to any of the
parties hereto shall be deemed to include all successors and assigns.
Notwithstanding the foregoing, no assignment shall relieve a party of its duties
and obligations to the other party under this Agreement if the assignee defaults
in such duty or obligation, unless such other party consents to the novation in
writing.

      8.2 Unless designated otherwise in writing, all notices from NORENCO to
NSP shall be delivered to:

                              D. E. Gilberts
                              Senior Vice President-Power Supply
                              Northern States Power Company
                              414 Nicollet Mall
                              Minneapolis, MN 55401

                                      -13-
<PAGE>   14
      Unless designated otherwise in writing, all notices from NSP to NORENCO
shall be delivered to:

          H. S. Wick
          Vice President
          NORENCO Corporation
          414 Nicollet Mall
          P.O. Box 1396
          Minneapolis, MN 55440

      8.3 All payments and reimbursements required to be made by NORENCO to NSP
pursuant to this Agreement shall be directed to:

          Manager, General Accounting
          Northern States Power Company
          414 Nicollet Mall
          Minneapolis, MN 55401

      8.4 All payments and reimbursements required to be made by NSP to NORENCO
pursuant to this Agreement shall be directed to:

          Manager, Business Operations
          NORENCO Corporation
          P.O. Box 1396
          Minneapolis, MN 55440

      8.5 The costs and charges provided for herein are exclusive of any
present or future federal, state, municipal or other sales or use tax with
respect to the personnel or products covered hereby, or any other present or
future excise tax upon or measured by the gross receipts from this transaction
or any allocated portion thereof or by the gross value of the personnel or
products covered hereby. If NSP is required by applicable law or regulations to
pay or collect any such tax or taxes on account of this transaction or the
personnel or products covered hereby, then such amount shall be paid by NORENCO
in addition to the costs or charges provided for herein.

                                       -14-
<PAGE>   15
      8.6 This Agreement shall be construed in accordance with and be governed
by the laws of the State of Minnesota.

      IN WITNESSETH WHEREOF, the parties hereto have caused this instrument to
be executed by their respective officers thereunto duly authorized as of the day
and year below written.

NORENCO CORPORATION                     NORTHERN STATES POWER COMPANY
By______________________________        By__________________________________
Its_____________________________        Its_________________________________
Date____________________________        Date________________________________

00476

                                      -15-
<PAGE>   16
                                     TABLE I

                             NSP CHARGES TO NORENCO

3.1(a)     Cost for Replacement Generation                       $
                                                                  -------------
   (b)     Lost Opportunity Cost                                 $
                                                                  -------------
3.2.1      Heating Boiler Fuel Cost                    Gas       $
                                                                  -------------
                                                       Oil       $
                                                                  -------------
3.2.2      Incremental Maintenance Cost                          $
                                                                  -------------
3.2.3      Incremental Auxiliary Cost                            $
                                                                  -------------
3.3        Incremental Operating Cost                            $
                                                                  -------------
3.4        Thermal Equipment Operation and
           Maintenance                                           $
                                                                  -------------
3.5        Supply of Gas and Oil                                 $
                                                                  -------------
3.6        Administrative and General Costs                      $
                                                                  -------------
3.7        NSP Surcharge                                         $
                                                                  -------------

00476.4

                                      -16-
<PAGE>   17
                                    TABLE II

                       NORENCO WOOD BYPRODUCT SALE TO NSP

Tons of wood byproduct delivered to NSP                 _______________ Tons

BTU's per pound                                         _______________ BTU/lb.

*  NSP Equivalent cost for coal
   delivered to King Plant during
   the year                                            $ _______________ /MMBTU

*  An estimated cost will be used during the year and retroactively adjusted as
   necessary at the end of the year.

00476.5

                                      -17-

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