Document:

<PAGE>

                                                                EXHIBIT 10.17(b)

                      Morgantown Base-Load Units 1 and 2
                     Coal-Fired Electric Generating Units

                        Ownership & Operation Agreement

                    Morgantown OL1 LLC, Morgantown OL2 LLC,
            Morgantown OL3 LLC, Morgantown OL4 LLC, Morgantown OL5
               LLC, Morgantown OL6 LLC, Morgantown OL7 LLC, and
                       Southern Energy Mid-Atlantic, LLC

                               December 19, 2000
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                            <C>
1.     Definitions...........................................................................................     1
2.     Effective Date........................................................................................     4
3.     Ownership of Project..................................................................................     4
4.     Designation of Interim Operator and Operator; Provisions Relating to Operator.........................     5
5.     Payment to Interim Operator and Operator..............................................................     6
6.     Removal of Operator; New Operator.....................................................................     7
7.     Costs of Operation....................................................................................     8
8.     Operating Budget......................................................................................     9
9.     Operation and Maintenance Payments....................................................................    10
10.     Coal Fuel............................................................................................    10
11.     Scheduling of Power and Energy.......................................................................    11
12.     Scheduling of Outages................................................................................    12
13.     Accounting and Reports...............................................................................    12
14.     Insurance............................................................................................    13
15.     Project Committee....................................................................................    14
16.     Arbitration..........................................................................................    18
17.     Damage to the Project................................................................................    18
18.     Release of Consequential Damages.....................................................................    20
19.     Default..............................................................................................    20
20.     Uncontrollable Forces................................................................................    22
21.     Transfers and Assignments............................................................................    22
22.     Representations and Warranties of Parties............................................................    23
23.     Obligations Are Several..............................................................................    23
24.     Notices..............................................................................................    24
25.     Implementation.......................................................................................    24
26.     Conflict with Facility Leases........................................................................    24
27.     Regulatory Approval..................................................................................    25
28.     Rule Against Perpetuities............................................................................    25
29.     Termination of Project...............................................................................    25
30.     Term.................................................................................................    25
31.     Waiver of Right to Partition.........................................................................    26
32.     Miscellaneous........................................................................................    26
</TABLE>
<PAGE>

                       OWNERSHIP AND OPERATION AGREEMENT

                      MORGANTOWN BASE-LOAD UNITS 1 AND 2
                     COAL-FIRED ELECTRIC GENERATING UNITS
                     ------------------------------------

               THIS OWNERSHIP AND OPERATION AGREEMENT (this "Agreement") is made
                                                             ---------
as of December 19, 2000, by and between the following parties: each of
MORGANTOWN OL1 LLC, MORGANTOWN OL2 LLC, MORGANTOWN OL3 LLC, MORGANTOWN OL4 LLC,
MORGANTOWN OL5 LLC, MORGANTOWN OL6 LLC, and MORGANTOWN OL7 LLC, each a Delaware
limited liability company (each, together with its successors and permitted
assigns, an "Owner" and, collectively, the "Owners"), and SOUTHERN ENERGY MID-
             -----                          ------
ATLANTIC, LLC, a Delaware limited liability company ("SEMA").
                                                      ----

                                  WITNESSETH:
                                  ----------

         WHEREAS, each of the Owners owns, as a tenant in common, an undivided
interest in the Project;

         WHEREAS, each Owner will lease such undivided interest to SEMA, and
SEMA will lease such undivided interest from each Owner, pursuant to the
Facility Lease Agreement dated as of December 19, 2000 between such Owner, as
Owner Lessor, and SEMA, as Facility Lessee (each such agreement, a "Facility
                                                                    --------
Lease");
-----

         WHEREAS, at any time during which SEMA is leasing at least one
undivided interest pursuant to a Facility Lease, SEMA will operate and maintain
the entire Project;

         WHEREAS, upon the termination of SEMA's leasehold interest in all
undivided interests in the Project, the Owners, acting collectively pursuant to
the provisions hereof, may wish to appoint SEMA (or an affiliate of SEMA) or
another operator as operator of the Project; and

         WHEREAS, the parties desire to establish the terms and conditions
relating to their ownership, as tenants in common, and the operation and
maintenance of the Project and related facilities;

         NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein stated and the performance thereof, all as hereinafter set
forth, the parties hereto mutually agree as follows:

1.   Definitions
     -----------

          (a) "Agreement" is defined in the preamble.

          (b) "Arbitrator" is defined in Section 16.

<PAGE>

          (c) "Capital Additions" means additions, improvements, enhancements,
betterments and replacements to the Project that are necessary to assure design
capability, efficiency, and reliability of the Project or that are required by
law or by any governmental agency having jurisdiction over the Project.

          (d) "Capital Retirements" means those physical elements of the Project
removed from service or used with the intent that the items so removed will not
be placed back into service.

          (e) "Closing Date" shall mean December 19, 2000 or such later date on
which the closing of the Facility Leases shall have occurred.

          (f) "Commencement Date" means, when used with respect to any Owner (or
any Project User deriving its interests hereunder from any Owner), the date of
expiration or earlier termination of such Owner's Facility Lease in
circumstances where SEMA or its designee has not acquired the Owner's undivided
interest in the Project.

          (g) "Committee" means the committee provided for in Section 15 hereof.

          (h) "Common Facilities" means the "Shared Facilities", as such term is
defined in the Shared Facilities Agreement dated as of December 19, 2000 between
SEMA and each of the Owners.

          (i) "Costs of Operation" shall have the meaning set forth in Section 7
hereof.

          (j) "Elective Capital Additions" means additions, betterments, and
replacements to the Project that are not Capital Additions.

          (k) "Escalated" means, with respect to any amount and as at any date
of determination, such amount as multiplied by a quotient (a) the numerator of
which is the Consumer Price Index for all Urban Consumers - U.S. City Average
(all items) as published by the Bureau of Statistics of the United States
Department of Labor (or if the publication of the Consumer Price Index is
discontinued, a comparable index similar in nature to the discontinued index
which clearly reflects that diminution (or increase) in the real value of the
purchasing power of the U.S. Dollar (hereafter in this definition referred to as
the "index")) reported for the calendar year immediately preceding such date and
(b) the denominator of which is equal to the index reported for December, 2000.

          (l) "Facility Lease" is defined in the second WHEREAS clause.

          (m) "Final Commencement Date" means the first date on which there are
no longer any Facility Leases in effect.

          (n) "Initial Commencement Date" means the first Commencement Date that
occurs subsequent to the execution and delivery of this Agreement.

                                       2
<PAGE>

          (p) "Net Generating Capability" means the generating capacity and
associated energy of the Project, less the amount of such electrical capacity
and associated energy used in the production thereof, all as determined at any
time by the Operator under guidelines developed by the Committee.

          (q) "Operation Trust Account" is defined in Section 9.

          (r) "Operator" is defined in Section 4(b) hereof.

          (s) "Owners" is defined in the preamble.

          (t) "Person" means any individual, partnership, corporation, limited
liability company, trust, joint venture, or unincorporated organization.

          (u) "Project" means the Morgantown Base-Load Units 1 and 2, 1,164
megawatt (net) coal-fired electric generating units located in Charles County,
Maryland and more fully described in Exhibit B to each Facility Lease.

          (v) "Project Agreements" means this Agreement together with any and
all agreements related to the operation, use, maintenance or ownership of the
Project, including, without limitation, agreements relating to fuel supply and
transmission and interconnection of power.

          (w) "Project Share" shall have the meaning set forth in Section 3(b)
hereof.

          (x) "Project User" means any Owner (except to the extent that such
Owner is leasing as lessor its undivided interest in the Project, or any part
thereof, to SEMA).

          (y) "Prudent Utility Practice" at any particular time means (i) any of
the practices, methods and acts engaged in or approved by a significant portion
of the competitive electric generating industry operating in the eastern United
States at such time or (ii) with respect to any matter to which clause (i) does
not apply, any of the practices, methods and acts which, in the exercise of
reasonable judgment in light of the facts known at the time the decision was
made, could have been expected to accomplish the desired result at a reasonable
cost consistent with good business practices, reliability, safety and
expedition. Prudent Utility Practice is not intended to be limited to the
optimum practice, method or act to the exclusion of all others, but rather to be
a spectrum of possible practices, methods or acts having due regard for, among
other things, manufacturers' warranties, the requirements of insurance policies
and the requirements of any governmental or regulatory authority of competent
jurisdiction.

          (z) "SEMA" is defined in the preamble.

                                       3
<PAGE>

2.   Effective Date
     --------------

          This Agreement is being executed as of December 19, 2000; provided,
                                                                    --------
however, that this Agreement shall become effective, with respect to SEMA and
-------
any Owner, on and as of the Commencement Date with respect to such Owner, and
neither SEMA nor any Owner hereunder shall have any right, obligation, or
liability hereunder until such Commencement Date.

3.   Ownership of Project
     --------------------

          Subject to the terms and conditions hereinafter set forth, ownership
of the Project and each part thereof shall be as follows:

          (a) The Project and each part thereof shall be owned by the Owners as
tenants in common, with each Owner's respective undivided interest initially
being in the following percentage:

          Name of Owner                                  Percentage Ownership

          Morgantown OL1 LLC                             35.0000000000%
          Morgantown OL2 LLC                             28.3333333333%
          Morgantown OL3 LLC                              8.3333333333%
          Morgantown OL4 LLC                              8.3333333334%
          Morgantown OL5 LLC                              5.0000000000%
          Morgantown OL6 LLC                              6.6666666667%
          Morgantown OL7 LLC                              8.3333333333%

          (b) Each Project User shall have a project share ("Project Share"), as
                                                             -------------
of any date of determination, equal to the sum of the percentages of undivided
interests in the project owned (and not leased to another Person) by such
Project User as of such date.

          (c) Subject to the terms and conditions hereof, each Project User
shall be entitled to schedule the generation of, and take an amount of,
electrical capacity up to but not to exceed its Project Share of the Net
Generating Capability.

          (d) Each Owner and each Project User shall promptly take all action
(including, but not limited to, obtaining and maintaining in full force and
effect all requisite governmental, regulatory, and other authorizations)
necessary for participation by such Owner or Project User in the ownership,
operation and maintenance of the Project as contemplated hereby. Each Owner and
Project User shall promptly take such action (including, but not limited to, the
execution, acknowledgment, delivery and recordation of instruments of conveyance
and for release of security interests) as may

                                       4
<PAGE>

reasonably be requested by any other Owner or Project User to effect, evidence
or vest each Owner's or Project User's respective interests in the Project.

          (e) Each of the Project Users and their designated agents shall have
the right at all reasonable times to inspect the Project and all Project
records. The Operator shall provide access and safe and sufficient equipment and
facilities required for such inspection.

4.   Designation of Interim Operator and Operator; Provisions Relating to
     --------------------------------------------------------------------
Operator
--------

          (a) Interim Operator. It is acknowledged and agreed that from the
              ----------------
Initial Commencement Date to the Final Commencement Date (to the extent
applicable), SEMA (or its successors or permitted assigns) shall act as the
operator of the Project (the "Interim Operator") upon terms and conditions
                              ----------------
(including with respect to fees) that are commercially reasonable and consistent
with Prudent Utility Practice at the time with respect to generating facilities
similar to the Project. SEMA, as Interim Operator, and each Owner as to which
this Agreement has become effective shall negotiate in good faith a supplement
to this Agreement setting forth such terms and conditions. It is acknowledged
and agreed that in no event shall SEMA, as Interim Operator, be obligated to act
in any manner inconsistent with or more burdensome than the terms and conditions
of any Facility Lease then in effect (including the operation and maintenance
provisions thereof). So long as SEMA is leasing at least one undivided interest
in the Project pursuant to a Facility Lease, SEMA may not assign, transfer or
delegate its responsibilities as Interim Operator except in accordance with
Section 23.4 of the applicable Facility Lease.

          (b) Operator After Final Commencement Date. From and after the Final
              --------------------------------------
Commencement Date, the Project Users may appoint an operator (together with its
successors and permitted assigns in such capacity, the "Operator") upon the vote
                                                        --------
of at least 64% of the total Project Users. Upon appointment of an Operator,
such Operator and each of the Owners shall enter into a supplement to this
Agreement pursuant to which such Operator shall agree to be bound by the terms
of this Agreement and containing such other terms as the Owners and such
Operator may agree. The Operator may be removed and replaced by the Committee in
accordance with Section 6.

          (c) The Operator, as agent for and on behalf of the Owners and the
Project Users, shall operate and maintain the Project, hire all Project
personnel, and pay all Costs of Operation, all in accordance with Prudent
Utility Practice, and any applicable laws, regulations, orders, permits and
licenses, now or hereafter in effect, of any governmental or regulatory
authority having jurisdiction.

          (d) The Operator shall not assign, transfer or delegate, voluntarily
or by operation of law, its responsibilities as Operator hereunder to any Person
without the written approval of Committee members representing at least 66.67%
of the total Project Shares. Thereafter, the Operator may resign as operator
upon at least one year's prior written notice to the Project Users, in which
event it shall cooperate with all reasonable

                                       5
<PAGE>

requests of each other party hereto for purposes of locating a replacement
Operator. The Committee shall thereupon appoint a new Operator in accordance
with Section 6.

          (e) In every instance where Operator is required by any of the Project
Agreements to act as agent for and on behalf of any or all of the Owners and/or
Project Users, Operator is hereby granted and shall have the power to exercise
authority to do everything necessary, proper and usual, in the ordinary course
of business, for effecting the purpose of its agency, including, but not limited
to, the power to enter into contracts with third parties on an arm's-length
basis for and on behalf of the Owners and/or Project Users, the power to make
and receive payments, the power to initiate, compromise or settle claims with
third parties, the power to act as agent in its own name, and the power to
appoint subagents. The Operator shall exercise such agency power in accordance
with any guidelines established by the Committee. The grant of such agency
powers to Operator shall remain in effect until the Project is terminated as
described in Section 29.

          (f) The Operator shall maintain a work force of able and efficient
manpower, and as employer of the work force, Operator shall hire and fire
personnel as necessary. The work force will be employed in the classifications
necessary to operate and maintain the Project in accordance with the terms
hereof. The Operator shall negotiate any contracts entered into with unions and
set wage scales for nonunion personnel.

          (g) The Operator shall maintain a training program as necessary to
assure the availability of qualified personnel for the operation and maintenance
of the Project. If such training program utilizes facilities of Operator other
than Project facilities, the reasonable costs of such use of facilities shall be
allocated on an equitable basis to Costs of Operation hereunder. The Operator
shall make such training program and reasonable use of Project facilities
available to employees of the other Project Users for the purpose of training
and the costs of such training shall be apportioned equitably between the
Project and such other Project Users.

          (h) The Operator shall pay promptly all sums due employees or due any
governmental or other agency on their behalf or on account of their employment
and shall not permit any labor or other claims to become a lien against the
property of the Owners or Project Users, other than claims that are being
contested in good faith and for which adequate reserves have been set aside.

          (i) The Operator shall develop and maintain a safety program for
protection of personnel and equipment. Subject to the rights of the other Owners
and Project Users to inspect the Project, the Operator shall control access to
the Project.

          (j) The Operator shall develop and maintain a predictive and
preventive maintenance program in accordance with Prudent Utility Practice.

                                       6
<PAGE>

5.   Payment to Interim Operator and Operator
     ----------------------------------------

          (a) Interim Operator Fees. It is agreed that from and after the
              ---------------------
Initial Commencement Date and prior to reaching an agreement on the terms and
conditions applicable to the Interim Operator pursuant to Section 4, the Interim
Operator shall be entitled to receive from each of the Owners as to which this
Agreement has become effective, such Owner's pro rata portion of the following
amounts: (i) reimbursement of operation and maintenance expenses incurred by the
Interim Operator in connection with the operation and maintenance of the
Project; and (ii) a fee equal to the then prevailing rate being charged for the
same or similar services in the wholesale power generation industry (as
determined by a third-party engineering consulting firm selected by the Owner(s)
and acceptable to the Interim Operator) as compensation for its services as
Interim Operator. Such amounts shall be payable monthly within ten (10) business
days of receipt by the applicable Owner of an invoice, together with reasonable
supporting documentation with respect to operation and maintenance expenses for
which the Interim Operator is seeking reimbursement. In the event that any Owner
shall dispute any portion of any monthly invoice submitted pursuant to this
Section 5, such Owner shall give written notice of such dispute to the Interim
Operator. Such notice shall identify the disputed statement, state the amount in
dispute and set forth a full statement of the grounds on which such dispute is
based. The Interim Operator and the Owner shall negotiate in good faith to
resolve such dispute, and if such dispute cannot be resolved by such
negotiation, it shall be submitted to arbitration in accordance with Section 16.
Each of the parties shall continue to perform their obligations hereunder
pending resolution of such dispute by arbitration. In the event that such
arbitration is decided in favor of the Interim Operator and the Owner fails to
pay amounts due hereunder after the rendering of such decision, the Interim
Operator shall be entitled to either suspend acting as operator hereunder with
respect to such Owner or to withhold the disputed amount from any payment which
the Interim Operator would otherwise be required to make to such Owner with
respect to such Owner's interest in the revenues of the Project.

          (b)  Operator Fees. Each Owner shall pay to Operator its Project Share
               --------------
of the following as compensation for Operator's performance of its obligations
hereunder:

          (i)   an annual fee equal to the then prevailing rate being charged
     for the same or similar services in the wholesale power generation
     industry, payable in arrears commencing on the first anniversary of the
     date of such appointment and each successive anniversary thereafter until
     Operator resigns or is earlier terminated; and

          (ii)  reimbursement of Costs of Operation incurred by Operator (such
     costs to be evidenced by documentation reasonably satisfactory to the
     Committee).

                                       7
<PAGE>

6. Removal of Operator; New Operator
   ---------------------------------

          (a)  For Cause. Committee members representing at least 64% of the
               ---------
total Project Shares may remove Operator for any of the following reasons:

          (i)   If Operator sells or transfers all or substantially all of its
     assets, or makes a general assignment for the benefit of its creditors, or
     institutes a proceeding in bankruptcy, or if a receiver, trustee, custodian
     or assignee is appointed on account of its insolvency, and the Committee
     shall have given Operator seven (7) days notice thereof;

          (ii)  If any representation or warranty made by Operator hereunder
     shall fail to be true and accurate when made or deemed made, and such
     failure is not cured by Operator within twenty (20) days of receipt of
     notice thereof; or

          (iii) If at any time Operator materially fails to perform its
     obligations hereunder or, pursuant to the authority granted hereunder,
     under any other Project Agreement in accordance with (a) Prudent Utility
     Practices, (b) any and all applicable laws and regulatory requirements, or
     (c) the terms of this Agreement or such other Project Agreement, and such
     failure is not cured by Operator within twenty (20) days of receipt of
     notice thereof.

          (b)  Without Cause. Committee members representing at least 64% of the
               -------------
total Project Shares may terminate Operator without cause on ninety (90) days'
written notice to Operator.

          Following the removal of the Operator under this Section 6, or the
resignation of the Operator under Section 4(d), a new operator shall be
appointed with the approval of Committee members representing at least 64% of
the total Project Shares and upon the assumption by such new operator in writing
of all of Operator's obligations hereunder. Notwithstanding the foregoing or
anything else herein to the contrary, the Initial Operator may not be removed so
long as at least one Facility Lease is still in effect.

7. Costs of Operation
   ------------------

          Costs of Operation means all expenses incurred in or relating to the
operation and maintenance of the Project, including, but not limited to:

          (a)  Payroll, including related fringe benefits and payroll taxes, of
direct, full-time Project employees;

          (b)  Payroll of Operator's employees, other than those charged to its
administrative and general expenses, on an actual time basis including related
fringe benefits and payroll taxes;

                                       8
<PAGE>

          (c)  Materials and supplies, including related purchasing and handling
costs;

          (d)  Reasonable traveling expense, including use of Operator's
transportation equipment;

          (e)  Purchased power costs;

          (f)  Fuel supply costs and power transmission and interconnection
costs;

          (g)  All costs of insurance obtained pursuant hereto;

          (h)  All costs relating to injury or damage (whether incurred by an
Owner, Project User, or any other Person) arising out of the operation or
maintenance of the Project (other than any claims released pursuant to Section
18 and any costs relating to injury or damage sustained as a result of the gross
negligence or willful misconduct of such Owner, Project User, or other Person),
less proceeds received under insurance maintained pursuant hereto or pursuant to
any contract relating to the operation or maintenance of the Project;

          (i)  All federal, state and local taxes and payments in lieu of taxes
legally required to be paid in connection with ownership, operation, or
maintenance of the Project, except any tax or payment in lieu of taxes assessed
or charged directly against any individual Owner, Project User, or Operator
unless such tax or payment was assessed or charged to the individual Owner,
Project User, or Operator on behalf of the Project; and

          (j)  Administrative and general costs of Operator applicable to
Project operation and maintenance as reasonably determined by Operator in good
faith.

          The parties agree that, notwithstanding the foregoing, any cost or
expense required to be incurred solely as a result of a Project User's lease or
financing of its Project Share shall be borne by such Project User and shall be
excluded from the definition of Costs of Operation.

8.   Operating Budget
     ----------------

          (a)  As soon as practicable after the Final Commencement Date and on
or before September 1 of each year thereafter, the Operator shall submit to the
Committee a budget of its estimate of Costs of Operation by calendar months for
the operating year beginning the following January 1. Such budget shall be
subject to approval by the Committee. The Committee shall approve such budget or
a revised budget on or before November 1 in any such year; provided, that if
                                                           --------
such budget or revised budget is not approved by such date, the budget for the
next calendar year shall be the then-existing budget, as Escalated. The budget
will list the work force and expense therefor, materials, supplies, and other
expenses associated with the Project's normal maintenance program. Extraordinary
items of maintenance will be detailed to set forth the cost of labor required

                                       9
<PAGE>

beyond that available from the regular work force and other expenses which will
be incurred. The Operator will submit budget revisions as may become necessary
from time to time during any operating year, which revisions the Committee shall
promptly consider and which shall similarly be subject to approval by the
Committee. Expenditures for operating and maintenance purposes with respect to
the ensuing year shall be made in accordance with such approved budget, except
as may be required in an emergency.

          (b)  The Operator will notify each Project User as soon as practicable
of any emergency, forced outage, reduction in Net Generating Capability, or
instance of unforeseen maintenance restricting production below that required by
the Project Users when repairs could be effected more rapidly by expenditure of
overtime and other expediting costs. Unless authorized by the Committee as Costs
of Operation, Project Users desiring accelerated repairs will share pro rata,
according to their respective Project Shares, the expediting costs expended to
return the Project to the required operating level at an earlier date.

          (c)  The Owners and Project Users recognize that it will be necessary
for continued operation of the Project, or to maintain the Project in operable
condition, that the Operator be in a position to meet commitments for payroll,
repairs and replacements, materials and supplies, services and other expenses of
a continuing nature in order that it may fulfill its obligations hereunder.
Accordingly, notwithstanding any of the provisions of this Section 8, the
Operator, on behalf of the Owners and Project Users, may make all expenditures
in the normal course of business or in an emergency, all as the same are
necessary for the proper and safe operation and maintenance of the Project. As
soon as practicable after the making of any such expenditures (but in any event
within five (5) days thereof), the Operator shall make a full report thereof to
the Committee. The Operator shall take any action required by a final and
binding order of any public authority having jurisdiction or in any emergency
for the safety of the Project.

9.   Operation and Maintenance Payments
     ----------------------------------

          (a)  At such time as the Committee shall determine, Operator shall
establish a separate trust account ("Operation Trust Account") with a bank
                                     -----------------------
located in the State of Maryland. Sums of money for Costs of Operation shall be
deposited therein and the Operator shall withdraw and apply funds therefrom only
as necessary to pay Costs of Operation.

          (b)  Upon establishment of the Operation Trust Account, and on each
anniversary thereof, each Project User shall deposit (or cause to be deposited)
into the Operation Trust Account its Project Share of a working fund in an
amount established by the Committee as sufficient (taking into account the
approved budget under Section 8(a)) for the operation of the Project during the
next calendar year. The Operator shall periodically notify each Project User a
reasonable period of time in advance, as determined from time to time by the
Committee, or, in the event of an emergency, as soon as practicable, of
expenditures for Costs of Operation. Whether or not such expenditures are
provided for in the budget, each Project User shall deposit (or cause to be
deposited)

                                       10
<PAGE>

its Project Share of such expenditures in the Operation Trust Account in funds
immediately available on the dates specified in the notification.

10.  Coal Fuel
     ---------

          (a)  The Operator agrees to order, pursuant to agreements or other
arrangements reasonably satisfactory in form and substance to each Project User,
an amount of coal sufficient to generate the minimum energy required by Section
11(d) of this Agreement so as to comply with its obligations hereunder. Subject
to the foregoing, the Operator shall timely schedule coal deliveries necessary
to meet the generating requirements of the Project Users pursuant to Section 11
of this Agreement. The Committee shall prescribe a procedure for equitably
allocating to each Project User the tonnage of coal consumed in each twenty-four
(24) hour period.

          (b)  Complete records shall be kept by Operator as prescribed by the
Committee, including tons of coal consumed, the Btu content thereof, the amounts
allocated to the respective Project Users, the tonnage in and out of storage,
the tonnage each Project User has in storage and the remaining storage capacity
available.

          (c)  Annually the Operator shall compute price adjustments for Btu
content of coal pursuant to each coal supply agreement and furnish notification
thereof to each Project User and to each coal supplier.

11.  Scheduling of Power and Energy
     ------------------------------

          (a)  Each Project User shall furnish its power generation schedule to
the Operator in accordance with the procedures hereinafter set forth and shall
be entitled to schedule and take an amount of electrical capacity and energy up
to but not to exceed its Project Share of the Net Generating Capability. Subject
to the terms and conditions contained in the Project Agreements, the Operator
will operate the Project in accordance with such generation schedules. The
procedure for scheduling generation during the period from the Initial
Commencement Date to the Final Commencement shall be agreed to by the Interim
Operator and each such Project User and set forth in the supplement referred to
in Section 4.

          (b)  Before 4:00 p.m. Eastern Time of each day, the Project Users
shall make available to Operator the hourly schedules of desired power
generation for the following day or days. Changes in such scheduled generation
may thereafter be made at any time by a Project User.

          (c)  [Reserved].

          (d)  Each Project User's schedule of power generation shall not be
less at any time than such Project User's Project Share of the minimum
generating capability of the Project, unless otherwise agreed by all Project
Users.

                                       11

<PAGE>

          (e)  The Committee shall, as soon as necessary information is
available, establish guidelines for determination of minimum operating
capability for each unit of the Project, normal rate of change of generation,
and Net Generating Capability.

          (f)  The Operator shall make commercially reasonable efforts to hold
deviations from schedule to a minimum. Unless otherwise agreed among the Project
Users, actual generation in any hour shall be apportioned among the respective
Project Users in proportion to the respective Project Share of the Project
Users; provided, however, that, unless agreed by all Project Users, no Project
       --------  -------
User shall be entitled to receive deliveries of energy in excess of its Project
Share of the Net Generating Capability.

          (g)  When the actual Net Generating Capability of the Project during
any particular hour is for any reason reduced from its anticipated level, the
amount of energy available to each Project User, except as may otherwise
mutually be agreed, shall be equal to such Project User's Project Share of
reduced Net Generating Capability and the schedule for each Project User which
had more energy scheduled than is available for such Project User shall be
appropriately reduced for such hour. The Operator shall notify each Project User
as promptly as practicable of the new Net Generating Capability or of any change
in operating limits.

12.  Scheduling of Outages
     ---------------------

          (a)  The Operator shall schedule outages for major maintenance as
required by applicable law or by Prudent Utility Practice.

          (b)  The Operator shall schedule all unit outages for inspection and
routine maintenance; provided, however, that any outages (i) required by
                     --------  -------
governmental agencies having jurisdiction, (ii) to avoid hazard to the Project
or to any person or property or (iii) necessary to comply with Prudent Utility
Practice shall be scheduled by the Operator as required, with notice to the
Owners as soon as practicable (but in any event within two (2) days) thereafter.

13.  Accounting and Reports
     ----------------------

          With respect to clauses (a) through (e) below, commencing on the Final
Commencement Date:

          (a)  Operator shall keep up-to-date Project books and records of
Project financial transactions and other arrangements in carrying out the terms
of this Agreement. Such books and records shall contain information supporting
the allocation of Operator's administrative and general costs associated with
the Project. Such books and records shall be retained by Operator for such
period as is required by the rules and regulations of the Federal Energy
Regulatory Commission or such longer period determined by the Committee and
shall be made available for inspection and audit by each of the Owners and
Project Users at any reasonable time and upon reasonable notice.

                                       12
<PAGE>

          (b)  Any contract with any consultant or contractor of Operator
providing for reimbursement of costs or expenses of any kind shall require the
keeping and maintenance of books, records, documents and other evidence
pertaining to the costs and expenses incurred or claimed under such contract to
the extent, and in such detail, as will properly reflect all costs related to
this Agreement and shall require such books, records, documents and evidence to
be made available to each of the Owners and Project Users at all reasonable
times and upon reasonable notice for review and audit. Each of the Owners and
Project Users shall have the right at all reasonable times and upon reasonable
notice to examine and copy all plans, specifications, bids and contracts
relating to the Project provided that proprietary information subject to
confidentiality agreements shall only be disclosed in accordance with the terms
of such agreements.

          (c)  All accounts shall be kept so as to permit conversion to the
system of accounts prescribed for electric utilities by the Federal Energy
Regulatory Commission, but the manner in which accounts are kept pursuant to
this Agreement is not intended to be determinative of the manner in which they
are treated in the books of account of the Owners or Project Users.

          (d)  Operator shall cause all books and records to be audited annually
by independent Certified Public Accountants of national reputation acceptable to
all the Project Users. Copies of such audits shall be supplied to each Owner and
Project User. The cost of such annual audits shall be a Cost of Operation. Any
Owner or Project User may request a more frequent audit, but in that case the
requesting Owner or Project User shall pay the costs of such audit.

          (e)  Operator shall furnish to each Project User monthly statements of
Costs of Operation and monthly operation and maintenance reports in accordance
with guidelines established by the Committee. The Operator shall also furnish to
each Owner and Project User such other reports as may from time to time
reasonably be requested by such Owner or Project User. At the reasonable request
of an Owner or Project User, Operator shall provide certificates signed by a
responsible officer of Operator or an individual designated by him for such
signature setting forth the status of Costs of Operation and application of
funds. The certificate shall be in such form and contain such information as is
reasonably requested by such Owner or Project User.

          (f)  The parties hereto do not intend to form a partnership for U.S.
federal income tax purposes or any other purpose. However, in the event that
they shall be so deemed by virtue of the Project, the Common Facilities, any of
the Project Agreements, or any combination thereof, the parties hereto intend to
be deemed to have made an election pursuant to Section 761(a) of the Internal
Revenue Code to exclude such organization from the application of the provisions
of Subchapter K of the Internal Revenue Code. In addition, at the request of any
Owner or Project User, the parties shall file such an election under Internal
Revenue Code Section 861(a).

                                       13
<PAGE>

14.  Insurance
     ---------

          Commencing on the Final Commencement Date:

          (a)  The Operator shall procure at the earliest practicable time and
thereafter maintain in effect at all times hereinafter provided, to the extent
available at reasonable cost and in accordance with standards prevailing in the
utility industry for projects of similar size and nature, adequate insurance
coverage of the Project with responsible insurers, with each Owner and Project
User as a named assured and with losses payable to the respective Owners and
Project Users for their benefit as their respective interests may appear, to
protect and insure against: worker's compensation and employer's liability,
public liability for bodily injury and property damage, all risks of physical
damage to property or equipment, including transportation and installation
perils, and such other insurance as the Committee deems necessary, with
reasonable limits and subject to appropriate exclusions, and deductibles. Self-
insurance under the State of Maryland workers' compensation laws may be
substituted for the referenced workers' compensation and employer's liability
insurance and the Project Users agree to cooperate to establish a procedure
whereby the cost of such self-insurance shall be levelized over a three (3) to
five (5) year period.

          (b)  Each Owner and Project User shall ensure that each of its
policies of insurance that may be applicable to any claims arising in connection
with the Project shall provide a waiver of the insurer's rights of subrogation
against, or name as additional assureds, all the other Owners and Project Users
and their respective officers, directors, agents and employees. To the extent
permitted by its insurance policies, each Owner and Project User waives any
rights of subrogation against all the other Owners and Project Users, and their
officers, directors, agents and employees, for losses, costs, damages, or
expenses arising out of the operation, maintenance, reconstruction or repair of
the Project.

          (c)  Copies of all policies of insurance procured pursuant to Section
14(a) shall be provided to each Owner and each Project User. Upon request of an
Owner or Project User, any Owner or Project User will provide copies of policies
of insurance described in Section 14(b). Operator shall notify the Owners and
Project Users of the assertion of any claim in excess of $1,000,000 against the
Project immediately upon assertion of the same, or of the occurrence of an event
likely to result in the assertion of such a claim. All claims for lesser amounts
shall be reported annually by Operator to the Owners and Project Users. The
insurance program, policies and coverages referred to in this Section 14 shall
be reviewed annually by the Committee.

15.  Project Committee
     -----------------

          From the period on and after the Final Commencement Date:

          (a)  There shall be established a Committee to facilitate effective
cooperation, interchange of information and efficient management of the Project,
on a prompt and orderly basis. The Committee shall be composed of not more than
six (6)

                                       14
<PAGE>

members. Each Project User (or its successors and assigns acting
collectively) shall appoint one (1) Committee member. Each Committee member
shall have the right to vote the Project Share of the Project User (or its
successors and assigns) that appointed such member. A member shall vote the
entire Project Share represented by such member as a unit.

          (b)  Each Project User shall notify all of the other Project Users of
the Committee member initially appointed by it. Any Project User (or its
successors and assigns acting collectively) may change its appointment by giving
written notice of the change to all of the other Project Users. Any Project User
(or its successors and assigns acting collectively) may appoint an alternate or
alternates to serve on the Committee in the absence of the regular Committee
member or to act on specified occasions or with respect to specified occasions
or with respect to specified matters. Any reference herein to "Committee member"
includes the member's alternate in the absence of the member.

          (c)  The Committee shall meet regularly, but not less often than once
in each calendar quarter, as may be agreed upon, and at such other times as
requested by any Committee member upon three days' written notice. Meetings of
the Committee may be held or members thereof may participate in a meeting of
such Committee by means of telephone conference or similar means by which all
persons participating in the meeting can hear each other. Participation in a
meeting by means of telephone conference or similar means shall constitute
presence in person at the meeting. The Committee shall designate a Chairman, may
appoint such subcommittees as it deems necessary or appropriate and may, by
unanimous action, delegate approval authority to such subcommittees. Operator
shall prepare written minutes of all meetings and distribute them to each
Committee member within a reasonable time after each meeting.

          (d)  Any action which may be taken at a meeting of the Committee may
be taken without a meeting if all Committee members consent in writing. The
Committee may, by unanimous action, adopt written procedures for review and
approval of matters requiring Committee approval, which procedures may include,
but are not limited to, modifying maximum allowable times for approval, waiver
of portions of information required, and advance approvals.

          (e)  Operator shall use commercially reasonable efforts to keep all
members of the Committee informed of all significant matters with respect to
operation and maintenance of the Project (including, without limitation,
engineering studies, fuel reports, environmental reports and budgets) and, when
practicable, in time for members to comment thereon before decisions are made,
and shall confer with the Committee, or separately with members thereof, during
the development of any of Operator's proposals regarding such matters when
practicable to do so. Upon request of any Committee member, Operator shall
furnish or make available, with reasonable promptness and at reasonable times,
any and all other information relating to operation and maintenance of the
Project.

                                       15
<PAGE>

          (f)  Operator shall submit each of the matters listed below to the
Committee for approval, which approval must be by a vote of the Committee
members representing at least 64% of the total Project Shares:

               (i)     Any proposal made by two Committee members appointed by
          Project Users, except as provided in Sections 15(j) and 15(k);

               (ii)    Operating budgets and changes therein, except as provided
          in Section 15(j);

               (iii)   [reserved];

               (iv)    Award of any contract or payment of any controverted
          claim, in each case in excess of $1,000,000 in any single instance and
          $5,000,000 in the aggregate;

               (v)     Any change in the insurance coverages, including limits
          and choice of insurers;

               (vi)    Whether to repair the Project if damage thereto is in
          excess of $2,000,000, including any recommendation whether to repair
          in whole or in part or to remove from service, and the budget for any
          such repair.

               (vii)   Disposition of surplus property having a value of such
          minimum amount as is established by the Committee;

               (viii)  Settlement of third party claims against the Project in
          excess of $1,000,000 with respect to any single claim and $5,000,000
          in the aggregate;

               (ix)    Any proposal by Operator to issue a purchase order to or
          contract with any other Project User for facilities, goods, services,
          or other items to be provided to the Project in excess of $200,000
          with respect to any single purchase order or contract and in excess of
          $2,000,000 in the aggregate; and

               (x)     Any other action required to be taken by the Committee
          pursuant to this Agreement for which a procedure or voting percentage
          for reaching approval is not otherwise specifically provided.

          (g)  All proposals of Operator relating to any matters regarding the
operation and maintenance of the Project submitted to the Committee under any
provisions of the Project Agreements shall include itemized cost estimates and
other details sufficient to support a comprehensive review. Upon request,
Operator shall furnish or make available all supporting reports, analyses,
recommendations or other documents pertaining thereto. Operator shall prepare
and furnish such documents to each

                                       16
<PAGE>

Project User as may be required by any regulatory authority to be maintained by
such Project User.

          (h)  If any matter submitted to the Committee under section 15(f)
above is not approved by a vote within 10 days after the original submission to
the Committee, or within such longer time as the Committee may unanimously
decide, then each member of the Committee who does not approve such matter
(whether by abstaining or by voting against such matter) shall, upon demand of
Operator or any Committee member voting for approval of the matter, specify in a
written statement his reasons for declining approval, and shall also state
therein what alternative, if any, is acceptable to him. Such statement shall be
submitted to the other Committee members within 10 days after expiration of the
later of (i) the member's receipt of a demand for a written statement of his
reasons for declining approval or (ii) such longer period as the Committee may
decide upon unanimously. Each member who has not submitted such written
statement within the time provided in the preceding sentence shall be deemed to
have approved the matter as submitted by Operator. Immediately after receipt of
such statements from Committee members representing at least 64% of the total
Project Shares, Operator may refer the disputed matter to arbitration pursuant
to Section 16 of this Agreement. If Operator elects not to do so and does not
submit an alternative proposal, Committee members representing at least 64% of
the total Project Shares may refer such matter to arbitration pursuant to
Section 16.

          (i)  Any two Committee members may submit to the Committee any
proposal which conforms with the requirements imposed on Operator under Section
15(g) by serving a copy of such proposal on all other Committee members. Within
15 days after receipt of such proposal, Operator shall submit one or more
written alternative proposals. Such an alternative proposal may be that the
Project continue to be operated or maintained in the manner previously planned.
Reasonably promptly following receipt of such proposals, the Committee shall
meet and vote on such proposals. If the Committee approves in accordance with
this Section any of Operator's proposals, the proposal of the other Committee
members shall be dismissed and Operator shall implement its approved proposal.
If the Committee does not approve any of Operator's proposals, as they may be
amended, the Committee shall vote on the proposal or proposals of the other
Committee members and if the Committee approves in accordance with this Section
any such proposal, Operator shall proceed with the approved proposal. If the
Committee does not approve any of the proposals submitted, it shall require
submission of further proposals or it shall dismiss all proposals. If the
Committee does not require further proposals or dismisses all proposals, the
Operator or the Committee members initially submitting any such proposal may
submit their proposal to arbitration within 15 days after the Committee vote.
The Arbitrator shall then consider Operator's proposal and determine if its
proposal is in accordance with Prudent Utility Practice. If the arbitrator so
determines, Operator shall proceed accordingly and the proposal of the other
Committee members shall be dismissed. If the Arbitrator determines Operator's
proposal is not in accordance with Prudent Utility Practice, he shall then
consider the proposal of the other Committee members and determine if such
proposal of such other Committee members is in accordance with Prudent Utility
Practice. If the Arbitrator

                                       17
<PAGE>

determines such proposal is in accordance with Prudent Utility Practice,
Operator shall proceed with the proposal. If the Arbitrator determines that none
of the proposals conforms with Prudent Utility Practice, he shall dismiss all
proposals and terminate the arbitration.

          (j)  Proposals for Elective Capital Additions in excess of $200,000
for any single such addition and $2,000,000 in the aggregate shall require
approval of Committee members representing at least 64% of the total Project
Shares.

          (k)  The removal and replacement of the Operator shall require
approval of Committee members as set forth in Section 6.

          (l)  Any of the specific dollar limitations contained in subsections
(iv), (vi) and (viii) of Section 15(f) and in Section 15(j) may be changed from
time to time with approval of Committee members representing at least 64% of the
total Project Shares.

16.  Arbitration
     -----------

          Any disputes, controversies or claims arising out of or relating to
this Agreement or the breach, termination or validity thereof ("Dispute") which
cannot be resolved through negotiations among the parties within thirty (30)
days after receipt by a party or parties of written notice of a Dispute shall,
upon demand of any party involved in the controversy, be settled by final and
binding arbitration. The arbitration shall be conducted by one arbitrator in
accordance with the Expedited Procedures of the Commercial Arbitration Rules of
the American Arbitration Association, then in effect (the "Rules"), except as
modified herein. The arbitration shall be held and the award shall be rendered
in Baltimore, Maryland or such other location as may be agreed upon by the
parties. If the parties agree that the dispute is a technical Dispute, the
arbitrator shall be a person having expertise in the matter submitted. If the
parties do not agree that the Dispute is a technical Dispute, the arbitrator
shall be an attorney with at least ten (10) years experience in the negotiation
and drafting of operating agreements for electric generating facilities, and an
experienced arbitrator. If the parties cannot mutually agree upon an arbitrator
within twenty (20) days of receipt by the respondent(s) of a copy of demand for
arbitration, then upon the request of any party, the Arbitrator shall be
appointed by the American Arbitration Association in accordance with the Rules.
The Arbitrator shall, if possible, render a written decision (stating the
findings and conclusions upon which it is based) not later than sixty (60) days
after his or her appointment, and such decision shall be conclusive, final and
binding upon the parties and may be enforced in any court having jurisdiction.
The administrative cost of the arbitration proceedings and the fees and expenses
of the arbitrator shall be charged to Costs of Operation. Each party shall bear
its own costs incurred in the arbitration, including but not limited to
attorney's fees and expenses and the costs and expenses of its witnesses.

                                       18
<PAGE>

17.  Damage to the Project
     ---------------------

          With respect to clauses (a) and (b) below, at any time on or after the
Final Commencement Date:

          (a)  If the Project suffers damage to the extent that the estimate of
the cost of repair is no more than 20% of the then-depreciated value of the
Project, and if the Project Users do not unanimously agree that the Project
shall be terminated and disassembled or sold pursuant to Section 29, Operator
shall promptly submit a budget for the cost of repair of the Project and upon
the Committee's approval of a budget, the Operator shall proceed to repair the
Project.

          (b)  If the Project suffers damage to the extent that the estimate of
the cost of repair exceeds 20% of the then-depreciated value of the Project, and
if the Project Users do not unanimously agree that the Project shall be
terminated and disassembled or sold pursuant to Section 29, Operator shall
determine the estimated fair market value of the Project if it were then
terminated without repair and the estimated total cost of repair and shall
promptly submit to the Committee its recommendation as to whether the Project
should be repaired in whole or in part, and if not repaired in whole, what
portions of the Project should be withdrawn from further service, removed from
the Project and sold as salvage pursuant to Section 29. If Operator's
recommendation to repair the Project is approved by the Committee, then Operator
shall prepare a budget for the cost of repair and shall submit its
recommendations together with its budget to the Committee.

               (i)    Upon unanimous approval by the Committee of the
          recommendation and a budget, Operator shall proceed to repair the
          Project and each Project User shall pay (or cause to be paid) its
          Project Share of the cost of repair. If Operator's recommendation is
          to remove part or all of the Project from further service, then upon
          unanimous approval of the recommendation, the portion of the Project
          being removed from service shall be sold as salvage.

               (ii)    In the event that one or more Project Users, but not all
          Project Users, desire that the Project be repaired, then each such
          Project User shall promptly give notice in writing to the other
          Project Users. If any Project User has given such notice, the Project
          Share of each Project User which has not given notice within 60 days
          after the giving of the initial notice shall be reduced at the time
          repairs commence to the extent determined by the following formula:

                           S\\r\\ = S\\o\\  V
                                          -----
                                          V + C

                     where

                                       19
<PAGE>

                     V         =   Fair Market Value of the Project if it were
                                   to be terminated without repair as
                                   unanimously agreed by the Committee or
                                   determined by arbitration

                     C         =   Estimated expenditures for repair

                     S\\o\\    =   Project Share prior to loss

                     S\\r\\    =   Reduced Project Share

At the same time, the sum of all of such reductions shall be added to the
Project Shares of the Project Users giving such notice in the proportion that
their respective Project Share bears to the total of the Project Shares of all
Project Users giving such notice. Each of the Project Users shall pay or cause
to be paid that part of the total cost of repair in the proportion that its
Project Share bears to the total of the Project Shares of all Project Users
giving such notice. Upon completion of repair, a second adjustment of the
Project Share of each Project User will be made by substituting the actual
expenditures for repair for the estimated expenditures in the above formula and
adjusting the Project Share of each Project User to compensate for any increase
or reduction of Project Share.

          (c)  Solely for the purposes of this Section 16, the depreciated value
of the Project at any time shall be based on the purchase price of the Project
plus additions and less retirements.

18.  Release of Consequential Damages
     --------------------------------

          Each party hereto releases each other party hereto, and each of their
respective directors, officers, employees and agents, from any consequential
damages (including, but not limited to, any loss of use, revenue or profit and
any replacement power costs) arising out of the failure by such other party to
perform its obligations hereunder.

19.  Default
     -------

          (a)  Upon failure of a Project User to make or cause to be made any
payment when due, or of any Project User or Operator to perform or cause to be
performed any other obligation to be performed by it pursuant to the terms,
covenants and conditions contained in the Project Agreements, any other Project
User or Operator may make written demand upon such Person for such payment or
performance. Any Project User or Operator making such a demand shall
concurrently deliver copies of the demand to all other Project Users and Owners.

          (b)  If the failure of a Project User is to make a payment when due
and such failure is not cured within five (5) days from the date of a demand
made pursuant to Section 19(a), it shall constitute a default at the expiration
of such five-day period.

                                       20
<PAGE>

          (c)  If a Project User or, pursuant to the authority granted
hereunder, an Operator, fails to perform any obligation contained in the Project
Agreements other than to make payments when due and such failure is not cured
within 30 days from the date of a demand made pursuant to Section 19(a) or, if
it could not be cured within said 30 days, within a reasonable period after the
date of such demand so long as such Project User or Operator is diligently
pursuing a cure, it shall constitute a default at the expiration of such thirty-
day (or longer, as applicable) period.

          (d)  If a Project User or Operator shall dispute a default asserted
against it, then such Project User or Operator shall timely make or cause to be
made payment of any sums in dispute or perform the obligation in dispute, but
may, in each case, do so under protest. Such protest shall be in writing and
shall specify the reasons upon which the protest is based, and copies thereof
shall be delivered to the other Project Users and Owners or to the Operator, as
appropriate. Upon resolution of such dispute, the payments advanced or made
between Project Users, as provided in this paragraph, shall be adjusted
appropriately.

          (e)  All disputes referred to in subsection (d) above shall be
submitted to arbitration pursuant to Section 16 to determine the extent, if any,
of the obligation of the Project User disputing such default. If payment or
performance is timely made under protest, an act of default shall not be deemed
to have occurred.

          (f)  In the event that a Project User is in default because of failure
to make payments when due, then the following shall occur during the period such
Project User is in default unless the nondefaulting Project Users elect
otherwise in writing:

               (i)   The defaulting Project User shall have no right to schedule
          generation of, or receive its Project Share of, the power output of
          the Project; and

               (ii)  The defaulting Project User's Project Share of the power
          output of the Project shall be deemed to be assigned to the Operator
          on behalf of the nondefaulting Project Users during the period of
          default. The Operator shall be authorized to order coal, schedule
          generation and otherwise operate the Project for the account of the
          defaulting Project User and to sell and transmit the Project User's
          Project Share of the power output and apply the proceeds thereof to
          the amounts owed by the defaulting Project User pursuant to the
          Project Agreements.

In the event of a default, the nondefaulting Project Users are authorized to
execute, deliver and file on behalf of all Project Users such notices, demands,
agreements, consents, financing statements, applications and other documents as
are necessary or appropriate to implement the provisions of this subsection to
the full extent legally possible; provided that, if the default is cured, the
                                  --------
nondefaulting Project Users shall take such reasonable action as may be
requested by the Person curing such default to reflect the fact that such
default has been cured. In the event that any of the provisions of this

                                       21
<PAGE>

subsection are waived by nondefaulting Project Users or are held to be
unenforceable by competent authority, then the remaining provisions shall be
severable and in full force and effect.

          (g)  Payments not made when due may be advanced by other Project Users
and, if so advanced, shall bear interest until paid at the rate of 2% per month
or the highest lawful rate, whichever is lower.

          (h)  In addition to the rights granted in this Section 19, any
nondefaulting Project User or Operator may take any action, at law or in equity,
including an action for specific performance, to enforce this Agreement and to
recover for any loss, damage or payment advances, including attorneys' fees and
disbursements in all trial and appellate courts and collection costs incurred by
reason of such default.

          (i)  Subsection (f) above shall not create an encumbrance prior to the
lien of any existing mortgage, loan or credit agreement of each Project User
except to the extent permitted thereunder.

          (j)  Each act or omission to act which becomes an act of default
hereunder shall be treated as a separate act of default under this Section 19.

20.  Uncontrollable Forces
     ---------------------

          No party hereto shall be considered to be in default in the
performance of any of its obligations hereunder, other than obligations of such
party to pay costs and expenses, if failure of performance shall be due to
uncontrollable forces. The term "uncontrollable forces" shall mean any cause
beyond the control of a party hereto failing to perform, and which, by the
exercise of reasonable diligence, such party is unable to overcome, and shall
include but not be limited to an act of God, fire, flood, explosion, strikes,
labor disputes, labor or materials shortages, sabotage, an act of the public
enemy, civil or military authority, including court orders, injunctions, and
orders of government agencies with proper jurisdiction prohibiting acts
necessary to performance hereunder or permitting any such act only subject to
unreasonable conditions, insurrection or riot, an act of the elements, failure
of equipment, inability to obtain or ship materials or equipment because of the
effect of similar causes on suppliers or carriers or failure of any governmental
agency to timely act. Nothing contained herein shall be construed so as to
require a party to settle any strike or labor dispute in which it may be
involved. Any party rendered unable to fulfill any obligation by reason of
uncontrollable forces shall exercise due diligence to remove such inability with
all reasonable dispatch and shall take reasonable steps to mitigate any damages
incurred by it during the period when such uncontrollable force resulted in such
inability.

21.  Transfers and Assignments
     -------------------------

          Prior to the Commencement Date with respect to any Owner, no Owner or
Project User may sell, assign or otherwise transfer its interest in the Project
or any part

                                       22
<PAGE>

thereof, except in accordance with Section 8.1 of the Participation Agreement.
On and after the Commencement Date with respect to any Owner or Project User,
all or any part of the interest of each Owner and Project User in the Project or
any part thereof may be sold, assigned, or otherwise transferred to any Person
so long as (i) simultaneously with such sale, assignment, or other transfer the
Owner's or Project User's rights under the Project Agreements which relate to
such interest are also sold, assigned, or otherwise transferred to the same
Person or Persons, and such Person or Persons shall have assumed in writing all
the obligations of the Owner or Project User making such sale, assignment, or
other transfer under such Project Agreements and (ii) such Person has a
consolidated tangible net worth of at least $75,000,000 or the obligations of
such Person hereunder and under the other Project Agreements are guaranteed by a
Person having a consolidated tangible net worth of at least $75,000,000. Any
attempted or purported transfer made other than in accordance with this Section
22 either voluntarily or by operation of law shall be void and of no effect.

          Each Owner may assign as security its rights hereunder to any Person
(the "Mortgagee") who holds a mortgage on the undivided interest of such Owner.
The Mortgagee shall have no obligations hereunder as a result of such
assignment. Upon foreclosure upon the undivided interest of such Owner the
rights of such Owner hereunder may be transferred to the Person who acquires
such undivided interest.

22.  Representations and Warranties of Parties
     -----------------------------------------

          Each of SEMA and each Owner hereby represents and warrants that:

          (a)  It (i) is duly formed, validly existing, and in good standing
under the laws of the State of Delaware, and has the capacity and power to enter
into this Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby and (ii) is duly qualified to do business in
and is in good standing in each other jurisdiction where the character of its
properties or the nature of its activities makes such qualification necessary.

          (b)  It has full power and authority to execute, deliver, and perform
its obligations under this Agreement. This Agreement has been duly executed and
delivered by it and constitutes its legal, valid, and binding obligation
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by (i) bankruptcy, insolvency, reorganization, or other laws
affecting the enforcement of creditors' rights generally and (ii) general
equitable principles regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law.

          (c)  Neither the execution and delivery of this Agreement nor
compliance with any of the terms and provisions hereof (i) contravenes any
applicable law, order, writ, judgment, injunction, decree, determination, or
award applicable to it or any of its respective properties or other assets, (ii)
conflicts with, breaches or contravenes the provisions of any of its
organizational documents or any Project Agreement to which it is party, or (iii)
results in the creation or imposition of any lien or other encumbrance upon

                                       23
<PAGE>

any of its property or assets, or in a condition or event that constitutes (or
that, upon notice or lapse of time or both, would constitute) a default or event
of default under any Project Agreement to which it is party.

          (d)  No authorization, approval, or other action by, and no notice to
or filing with, any Person or governmental authority is required to authorize,
or is required in connection with the execution, delivery and performance of,
this Agreement or the taking of any action by it hereby contemplated, except any
that have been obtained as of the date hereof.

          (e)  There are no actions, suits, or proceedings at law or in equity
by or before any governmental authority now pending or, to the best of its
knowledge after due inquiry, threatened against or affecting it or any of its
properties or rights which could reasonably be expected to materially and
adversely affect its right or ability to fulfill its obligations hereunder, or
which questions or challenges the validity of this Agreement or any action taken
or to be taken by it pursuant to this Agreement or in connection with the
transactions contemplated hereby.

23.  Obligations Are Several
     -----------------------

          The obligations and liabilities of the Owners and Project Users
hereunder are intended to be several and not joint or collective and no Owner or
Project User shall be jointly or severally liable for the acts, omissions, or
obligations of any other Owner or Project User. Nothing herein contained shall
be construed to create an association, joint venture, or partnership, or impose
a partnership duty, obligation or liability, among the Owners and/or Project
Users. No Owner or Project User shall have a right or power to bind any other
Owner or Project User without its express written consent, except as expressly
provided in this Agreement.

24.  Notices
     -------

          Unless otherwise expressly specified or permitted by the terms hereof,
all communications and notices provided for herein shall be in writing or by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including,
without limitation, by overnight mail or courier service, (b) in the case of
notice by United States mail, certified or registered, postage prepaid, return
receipt requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof; provided such transmission
                                                      --------
is promptly confirmed by either of the methods set forth in clause (a) or (b)
above, in each case addressed to each party hereto at its address set forth
below or, in the case of any such party hereto, at such other address as such
party may from time to time designate by written notice to the other parties
hereto:

          All Owners

                                       24
<PAGE>

          c/o Wilmington Trust Company
          Rodney Square North
          1100 North Market Street
          Wilmington, Delaware 19890-0001
          Attn: Corporate Trust Administration
          Facsimile No.: (302) 651-8882
          Telephone No.: (302) 651-1000

          SEMA

          1155 Perimeter Center West
          Atlanta, Georgia 30338-4780
          Attn: President
          Facsimile No.: (678) 579-7001
          Telephone No.: (678) 579-5000

25.  Implementation
     --------------

          Each Owner and Project User shall take such reasonable action
(including, but not limited to, the execution, acknowledgment and delivery of
documents) as may be requested by any other Owner or Project User for the
implementation of this Agreement.

26.  Conflict with Facility Leases
     -----------------------------

          Notwithstanding anything to the contrary herein, from and after the
Closing Date and until the Final Commencement Date, should any provision of this
Agreement be inconsistent with or in conflict with the provisions of any
Facility Lease, the provisions of such Facility Lease shall be controlling for
all purposes hereof.

27.  Regulatory Approval
     -------------------

          It is understood that transfers of property under this Agreement may
be subject to the jurisdiction of local, state or federal regulatory agencies.
Such transfers shall not be effective until all required approvals and all other
required action by such agencies having jurisdiction shall have been obtained.

28.  Rule Against Perpetuities
     -------------------------

          The parties hereto do not intend any interest created by this
Agreement to be a perpetuity or to be subject to invalidation under any
applicable perpetuities rule; however, if the rule is to be applied, then the
perpetuities period shall be twenty-one (21) years after the last to die of the
currently living great-grandchildren and/or grandchildren and/or children of
former United States President George H.W. Bush.

                                       25
<PAGE>

29.  Termination of Project
     ----------------------

          When the Project is no longer capable of, or can no longer be made
capable of, producing electricity consistent with Prudent Utility Practice or
the requirements of governmental agencies having jurisdiction, or when part or
all of the Project is removed from service, Operator shall make commercially
reasonable efforts to sell all salable parts of the portion of the Project being
removed from service to the highest bidders; provided, however, if the entire
                                             --------  -------
Project is being removed from service and if Operator should determine that the
Project will bring a greater amount at salvage if sold as a unit, including the
structures, than it would if it were dismantled and the salable parts removed
and sold, then Operator may sell the Project as a unit to the highest bidder.
After deducting all costs of terminating the Project, including, without
limiting the generality of the foregoing, the cost of decommissioning, razing
all structures and disposing of the debris and meeting all applicable
requirements of law, Operator shall close any remaining Project accounts and, if
there are net proceeds, distribute to each Owner its percentage share of such
proceeds. In the event such costs of ending the Project exceed available funds,
each Owner shall pay its percentage share of such excess as incurred.

30.  Term
     ----

          Subject to Section 28 or to earlier termination as agreed by all the
Owners, this Agreement shall continue for so long as the Project or any part
thereof as originally constructed, reconstructed or added to is, or can be made,
capable of producing electricity consistent with Prudent Utility Practice or the
requirements of governmental agencies having jurisdiction plus any time required
for terminating the Project as provided in Section 29.

31.  Waiver of Right to Partition
     ----------------------------

          So long as the Project or any part thereof as originally constructed,
reconstructed or added to is used or useful for the generation of electric power
and energy, the Owners waive their right to partition thereof, whether by
partition in kind or sale and division of the proceeds, and agree that they will
not resort to any action at law or in equity to partition the Project and
further waive the benefit of all laws that may now or hereafter authorize such
partition of the properties comprising the Project. It is agreed this covenant
shall be deemed to run with the land. All instruments of conveyance which
effect, evidence or vest each Owner's or Project User's respective ownership or
leasehold, as applicable, interest in the Project shall contain this waiver of
right to partition.

32.  Miscellaneous
     -------------

          (a)  The headings of the clauses of this Agreement are inserted for
convenience of reference only and shall not affect the meaning or construction
thereof.

                                       26
<PAGE>

          (b)  The singular of any term in this Agreement shall encompass the
plural and the plural the singular, unless the context otherwise indicates.

          (c)  This Agreement shall be construed in accordance with the laws of
the State of Maryland.

          (d)  This Agreement shall not be amended or supplemented except by
written instrument executed, acknowledged and delivered by all of the parties
hereto.

          (e)  This Agreement may be signed in two or more counterparts, each of
which shall constitute an original and all of which together shall constitute
one and the same instrument.

                           [Signature page follows]

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
several counterparts as of the date first written above.

                                   MORGANTOWN OL1 LLC

                                   By:  Wilmington Trust Company, not in its
                                        individual capacity, but solely as
                                        Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                        Name: W. Chris Sponenberg
                                        Title: Assistant Vice President

                                   MORGANTOWN OL2 LLC

                                   By:  Wilmington Trust Company, not in its
                                        individual capacity, but solely as
                                        Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                        Name: W. Chris Sponenberg
                                        Title: Assistant Vice President

                                   MORGANTOWN OL3 LLC

                                   By:  Wilmington Trust Company, not in its
                                        individual capacity, but solely as
                                        Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                        Name: W. Chris Sponenberg
                                        Title: Assistant Vice President

                                Signature Page
<PAGE>

                                   MORGANTOWN OL4 LLC

                                   By: Wilmington Trust Company, not in its
                                       individual capacity, but solely as
                                       Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                       Name: W. Chris Sponenberg
                                       Title: Assistant Vice President

                                   MORGANTOWN OL5 LLC

                                   By: Wilmington Trust Company, not in its
                                       individual capacity, but solely as
                                       Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                       Name: W. Chris Sponenberg
                                       Title: Assistant Vice President

                                   MORGANTOWN OL6 LLC

                                   By: Wilmington Trust Company, not in its
                                       individual capacity, but solely as
                                       Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                       Name: W. Chris Sponenberg
                                       Title: Assistant Vice President

                                Signature Page
<PAGE>

                                   MORGANTOWN OL7 LLC

                                   By: Wilmington Trust Company, not in its
                                       individual capacity, but solely as
                                       Owner Manager

                                   By: /s/ W. Chris Sponenberg
                                       -----------------------------------------
                                       Name: W. Chris Sponenberg
                                       Title: Assistant Vice President

                                   SOUTHERN ENERGY MID-ATLANTIC, LLC

                                   By: /s/ Jennifer A. Cohen
                                       -----------------------------------------
                                       Name: Jennifer A. Cohen
                                       Title: Vice President

                                Signature Page<PAGE>

                                                                   EXHIBIT 10.18

                             AMENDED AND RESTATED
                                PROMISSORY NOTE

Up to U.S.$150,000,000                                            April 27, 2001
                                                            Wilmington, Delaware

          FOR VALUE RECEIVED, the undersigned, MIRANT MID-ATLANTIC, LLC, a
Delaware limited liability company (the "Maker"), hereby unconditionally
promises to pay MIRANT AMERICAS GENERATION, INC., a Delaware corporation (the
"Holder"), at the offices of the Holder located at Suite 102, 1403 Foulk Road,
Wilmington, Delaware, 19803, or at such other place within the United States as
shall be designated from time to time by the Holder, on demand, the aggregate
unpaid principal amount of all sums advanced by the Holder to the Maker under
this Note (collectively, the "Loans"), not to exceed U.S.$150,000,000, as the
same may be set forth from time to time on the grid attached hereto as Schedule
A and made a part hereof, or such lesser principal amount as may then constitute
the aggregate unpaid balance of all Loans made by the Holder to the Maker
pursuant to this Note, in lawful money of the United States of America in
federal or other immediately available funds.

          The Maker also unconditionally promises to pay interest (calculated on
the basis of a year of 360 days and the actual number of days elapsed) on the
unpaid principal amount of the Loans outstanding from time to time for each day
from the date of disbursement until such principal amount is paid in full, at a
rate per annum equal to the Holder's total cost of borrowed funds from time to
time calculated by the Holder.  Interest calculated hereunder shall be due and
payable, semiannually, in arrears, on the first day of January and July of each
calendar year beginning on July 1, 2001.  Nothing contained in this Note shall
be deemed to establish or require the payment of a rate of interest in excess of
the maximum rate permitted by any applicable law.  In the event that any rate of
interest required to be paid hereunder exceeds the maximum rate permitted by
applicable law, such interest rate shall be reduced to the extent necessary to
comply with applicable law, and any interest amounts paid by Maker to Holder in
excess of such applicable rate shall be held in trust by the Holder for the
benefit of the Maker, to be remitted to Maker.

          The Holder shall endorse all borrowings made by the Maker under this
Note and all payments of principal of such borrowings on the grid attached
hereto as Schedule A and made a part hereof but no failure to make or any error
in making such endorsements shall affect the obligations of the Maker hereunder.

          The indebtedness evidenced by this Note shall be subordinated as
provided in Appendix A.

          Presentment for payment, demand, protest and notice of demand, notice
of dishonor, notice of non-payment and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note are hereby waived by the Maker.  No delay or omission on the part of
Holder in exercising any right hereunder shall operate as a waiver of such right
or any other right under this Note.  A waiver of any right or remedy on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion.
<PAGE>

          The Maker shall be entitled, at any time and from time to time,
without the consent of Holder and without paying any penalty or premium
therefor, to prepay all or any portion or portions of the outstanding principal
amount of the Loans and accrued interest thereon.

          The Maker hereby agrees to pay on demand all costs and expenses
incurred in collecting the Loans and other obligations of the Maker hereunder or
in enforcing or attempting to enforce any of the Holder's rights hereunder,
including, but not limited to, reasonable attorneys' fees and expenses if
collected by or through an attorney, whether or not suit is filed.

          This Note shall be governed by, and construed in accordance with, the
laws of the State of Delaware without giving effect to the conflict of laws
principles thereof.

                                       MIRANT
                                       MID-ATLANTIC, LLC

                                       By: /s/ Gary J. Kubik
                                           -------------------------------------
                                           Name: Gary J. Kubik
                                                 -------------------------------
                                           Title: CFO and Treasurer
                                                  ------------------------------

Attest:

By: /s/ Michelle H. Ancosky
    ------------------------------
    Name: Michelle H. Ancosky
          ------------------------
    Title: Secretary
           -----------------------

<PAGE>

                                                                      Appendix A
                            Subordination Provisions
                            ------------------------

I.    The indebtedness evidenced by this Note and the other obligations
      described in the definition of "Subordinated Indebtedness" is subordinated
      and subject in right of payment to the prior payment in full of all
      obligations of the Facility Lessee under the Operative Documents (the
      "Senior Obligations"). Each holder of this Note, by its acceptance hereof,
      agrees to and shall be bound by all the provisions hereof. All terms used
      but not defined herein shall have the meaning set forth in Appendix A to
      the eleven Participation Agreements dated as of December 18, 2000, and
      listed on Appendix A-1.

II.   No payment on account of rent, principal, premium or interest on the
      Subordinated Indebtedness shall be made unless (a) full payment of all
      amounts then due and payable with respect to Senior Obligations has been
      made, (b) such payment would be permitted by the various Participation
      Agreements, (c) each of the conditions for the making of a "Restricted
      Payment" set forth in Section 6.8 of the various Participation Agreements
      has been satisfied and (d) immediately after giving effect to such
      payment, there shall not exist any Significant Lease Default, Lease Event
      of Default, or any event or occurrence, which, with passage of time or the
      giving of notice or both, would become a Lease Event of Default. Any such
      payment permitted pursuant to this paragraph is hereinafter referred to as
      a "Permitted Payment". For the purposes of these provisions, no Senior
      Obligation shall be deemed to have been paid in full until the obligee of
      such Senior Obligation shall have indefeasibly received payment in full in
      cash. Any cash payment on the Senior Obligations made by a Person which is
      solvent at the time of and after giving effect to such payment shall be
      presumed to have been indefeasibly paid in full in cash absent actual
      knowledge by the payor to the contrary. Any failure to make any payment on
      this Note prior to the time permitted by this paragraph shall not
      constitute a default under this Note.

III.  Upon any payment or distribution of assets of the Facility Lessee of any
      kind or character, whether in cash, property or securities, to creditors
      upon any dissolution or winding up or total or partial liquidation or
      reorganization of the Facility Lessee, whether voluntary or involuntary or
      in bankruptcy, insolvency, receivership or other proceedings, then and in
      any such event all Senior Obligations and all amounts (including interest,
      indemnities and fees) due or to become due upon all Senior Obligations
      shall first be paid in full before the holders of the Subordinated
      Indebtedness shall be entitled to retain any assets so paid or distributed
      in respect of the Subordinated Indebtedness (for principal, premium,
      interest or otherwise) and upon any such dissolution or winding up or
      liquidation or reorganization, any payment or distribution of assets of
      the Facility Lessee of any kind or character, whether in cash, property or
      securities, to which the holders of the Subordinated Indebtedness would be
      entitled, except as otherwise provided herein, shall be paid by the
      Facility Lessee or by any receiver, trustee in bankruptcy, liquidating

                                      A-3
<PAGE>

      trustee, agent or other person making such payment or distribution, or by
      the holders of the Subordinated Indebtedness if received by them, directly
      to the holders of the Senior Obligations or their representatives for
      application to such Senior Obligations in accordance with their terms. So
      long as any Senior Obligation is outstanding, the holder of this Note
      shall not commence, or join with any creditor other than any Person to
      whom Senior Obligations are owed, in commencing, or directly or indirectly
      causing the Facility Lessee to commence, or assist the Facility Lessee in
      commencing, any proceeding referred to in the preceding sentence.

IV.   The holder of this Note hereby irrevocably authorizes and empowers
      (without imposing any obligation on) each Person to whom any Senior
      Obligation is owed and such Person's representatives, under the
      circumstances set forth in the immediately preceding paragraph, to demand,
      sue for, collect and receive every such payment or distribution described
      therein and give acquittance therefor, to file claims and proofs of claims
      in any statutory or nonstatutory proceeding, to vote such Person's ratable
      share of the full amount of the Subordinated Indebtedness evidenced by
      this Note in its sole discretion in connection with any resolution,
      arrangement, plan of reorganization, compromise, settlement or extension
      and to take all such other action (including the right to participate in
      any composition of creditors and the right to vote such Person's ratable
      share of the Subordinated Indebtedness, evidenced by this Note, at
      creditors' meetings for the election of trustees, acceptances of plans and
      otherwise), in the name of the holder of the Subordinated Indebtedness
      evidenced by this Note or otherwise, as such Person's representatives may
      deem necessary or desirable for the enforcement of the subordination
      provisions of this Note. The holder of this Note shall execute and deliver
      to each Person to whom any Senior Obligation is owed and such Person's
      representatives all such further instruments confirming the foregoing
      authorization, and all such powers of attorney, proofs of claim,
      assignments of claim and other instruments, and shall take all such other
      action as may be reasonably requested by such Person or such Person's
      representatives in order to enable such holder to enforce all claims upon
      or in respect of such Person's ratable share of the Subordinated
      Indebtedness evidenced by this Note; provided, however, that nothing
      herein shall obligate the holder of this Note to pay or incur any cost,
      expense or liability or to take any action that may result in the
      imposition of any cost, expense or liability.

V.    The holder of this Note shall not, without the prior written consent of
      the various Owner Lessors and, so long as the Lien of the various Lease
      Indentures shall not have been discharged or terminated, the various Lease
      Indenture Trustees, have any right to accelerate payment of, or institute
      any proceedings to enforce, the Subordinated Indebtedness so long as any
      Senior Obligation is outstanding.

VI.   If any payment (other than a Permitted Payment) or distribution of assets
      of the Facility Lessee of any kind or character, whether in cash, property
      or securities, shall be received by the holder of the Subordinated
      Indebtedness before all Senior Obligations are paid in full, such payment
      or distribution will be held in trust for the benefit of, and shall be

                                      A-4
<PAGE>

      immediately paid over to, the holders of the Senior Obligations or their
      representatives for application to such Senior Obligations in accordance
      with their terms.

VII.  Nothing contained in this Note is intended to or shall impair as between
      the Facility Lessee, its creditors (other than the holders of Senior
      Obligations) and the holders of the Subordinated Indebtedness, the
      obligations of the Facility Lessee, to pay to the holders of the
      Subordinated Indebtedness, as and when the same shall become due and
      payable in accordance with their terms, or to affect the relative rights
      of the holders of the Subordinated Indebtedness and creditors of the
      Facility Lessee (other than holders of Senior Obligations).

VIII. The Persons to whom Senior Obligations are due shall not be prejudiced in
      their rights to enforce the subordination contained herein in accordance
      with the terms hereof by any act or failure to act on the part of the
      Facility Lessee.

IX.   The holder of this Note agrees to execute and deliver such further
      documents and to do such other acts and things as the Lease Financing
      Parties may reasonably request in order fully to effect the purposes of
      these subordination provisions. Each holder of this Note by its acceptance
      hereof authorizes and directs the Lease Financing Parties on its behalf to
      take such further action as may be necessary to effectuate the
      subordination as provided herein and appoints the various Lease Indenture
      Trustees, so long as the Lien of the various Lease Indentures shall not
      have been terminated or discharged in accordance with the terms thereof
      and thereafter the various Owner Lessors, as its attorney-in-fact for any
      and all such purposes.

X.    The subordination effected by these provisions, and the rights of the
      Persons to whom Senior Obligations are owed, shall not be affected by (i)
      any amendment of, or addition or supplement to any Operative Document, or
      any other document evidencing or securing any Senior Obligation, (ii) any
      exercise or nonexercise of any right, power or remedy under or in respect
      of any Operative Document, or any other document evidencing or securing
      any Senior Obligation or (iii) any waiver, consent, release, indulgence,
      extension, renewal, modification, delay, or other action, inaction or
      omission, in respect of, any Operative Document, or any other document
      evidencing or securing any Senior Obligation, whether or not any holder of
      any Subordinated Indebtedness shall have had notice or knowledge of any of
      the foregoing. No failure on the part of any holder of a Senior Obligation
      to exercise, and no delay in exercising, any right hereunder shall operate
      as a waiver thereof, nor shall any single or partial exercise of any right
      hereunder preclude any other or further exercise thereof or the exercise
      of any other right. The remedies herein provided are cumulative and not
      exclusive of any remedies provided by law.

XI.   The holder of this Note and the Facility Lessee each hereby waive
      promptness, diligence, notice of acceptance and any other notice with
      respect to any Senior Obligation and these

                                      A-5
<PAGE>

      terms of subordination and any requirement that any Lease Financing Party
      protect, secure, perfect or insure any Lien or any property subject
      thereto or exhaust any right to take any action against the Facility
      Lessee or any other Person or any collateral.

XII.  These terms of subordination shall continue to be effective or be
      reinstated, as the case may be, if at any time any payment of any Senior
      Obligation is rescinded or must otherwise be returned by the Person to
      whom such Senior Obligation is owed upon the insolvency, bankruptcy or
      reorganization of the Facility Lessee or otherwise, all as though such
      payment had not been made.

XIII. The provisions of these terms of subordination constitute a continuing
      agreement and shall (i) remain in full force and effect until each of the
      Facility Leases has been terminated and all amounts owed thereunder have
      been paid and the Lien of the various Lease Indentures has been terminated
      or discharged, (ii) be binding upon the holder of this Note and the
      Facility Lessee and their respective successors, transferees and assignees
      and (iii) inure to the benefit of, and be enforceable by, the Lease
      Financing Parties. Without limiting the generality of the foregoing clause
      (iii), the Lease Financing Parties may assign or otherwise transfer all or
      any portion of their rights and obligations under all or any of the
      Operative Documents to any other Person (to the extent permitted by the
      Operative Documents), and such other Person shall thereupon become vested
      with all the rights in respect thereof granted to the Lease Financing
      Parties herein or otherwise.

XIV.  This Note shall be governed by and construed in accordance with, the laws
      of the State of New York but without giving effect to the conflict of laws
      principles thereof which would require the application of the law of any
      other jurisdiction.

                                      A-6
<PAGE>

                                                                    Appendix A-1

                            Participation Agreements
                            ------------------------

1.  Participation Agreement (Dickerson L1) among Mirant Mid-Atlantic, LLC, as
Lessee, Dickerson OL1 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP3 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass through Trustee.

2.  Participation Agreement (Dickerson L2) among Mirant Mid-Atlantic, LLC, as
Lessee, Dickerson OL2 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP6 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass through Trustee.

3.  Participation Agreement (Dickerson L3) among Mirant Mid-Atlantic, LLC, as
Lessee, Dickerson OL3 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP7 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass through Trustee.

4.  Participation Agreement (Dickerson L4) among Mirant Mid-Atlantic, LLC, as
Lessee, Dickerson OL4 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP8 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass through Trustee.

5.  Participation Agreement (Morgantown L1) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL1 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP1 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

6.  Participation Agreement (Morgantown L2) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL2 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP2 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

7.  Participation Agreement (Morgantown L3) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL3 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP4 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

8.  Participation Agreement (Morgantown L4) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL4 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager,

                                     A-1-1
<PAGE>

SEMA OP5 LLC, as Owner Participant, and State Street Bank and Trust Company of
Connecticut, National Association, as Lease Indenture Trustee and as Pass
Through Trustee, dated as of December 18, 2000.

9.  Participation Agreement (Morgantown L5) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL5 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP8 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

10.  Participation Agreement (Morgantown L6) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL6 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP9 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

11.  Participation Agreement (Morgantown L7) among Mirant Mid-Atlantic, LLC, as
Lessee, Morgantown OL7 LLC, as Owner Lessor, Wilmington Trust Company, as Owner
Manager, SEMA OP9 LLC, as Owner Participant, and State Street Bank and Trust
Company of Connecticut, National Association, as Lease Indenture Trustee and as
Pass Through Trustee, dated as of December 18, 2000.

                                     A-1-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}]]