EXHIBIT 10.173
CONFIDENTIAL TREATMENT
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT BY BRACKETS.
October 24, 1997
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice president
Panda Brandywine Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
This letter agreement sets forth the agreement between Potomac Electric
Power Company ("PEPCO") and Panda-Brandywine, L.P. ("Panda") to settle all
claims associated with four disputes concerning the adjustment of capacity
payments and the implementation of energy payments that have arisen under the
Power Purchase Agreement, dated August 9, 1991, entered into by PEPCO and Panda,
as amended ("Power Purchase Agreement"). The first dispute involves application
of Subsection 6.1(c)(i) and Appendix L of the Power Purchase Agreement to
determine the adjustment, if any, to be made to the Capacity Rate used to
calculate the Monthly Capacity Payment in order to reflect the yield to maturity
on United States Treasury securities with a maturity of 12 years in effect as of
the Commitment Date.1 PEPCO asserts that, for purposes of this adjustment, the
Commitment Date should be December 19, 1996, the date of the permanent lease
financing for the Panda Facility. Panda asserts that, for purposes of
determining the adjustment set forth in Subsection 6.1(c)(i) and Appendix L of
the Power Purchase Agreement, the commitment Date should be October 6, 1994, the
date of the commitment letter for financing for the Panda Facility entered into
by Panda and General Electric Capital Corporation. PEPCO and ▇▇▇▇▇ also have
asserted various legal and equitable arguments concerning Subsection 6.1 (c)(i)
of the Power Purchase Agreement.
The second dispute concerns the manner of determining any adjustment to be
made to the Monthly Capacity Payments in accordance with Subsection 6.1(g) of
the Power Purchase Agreement. In particular, Panda asserts that, for purposes of
determining the CPWIRR Increase under such subsection following the merger or
other combination of PEPCO with another electric utility, the actual peak load
experienced by PEPCO should be deemed to be the actual peak load experienced by
the company resulting from the merger or combination. PEPCO asserts that, for
purposes of calculating the CPWIRR Increase under such subsection after such a
merge or combination, the actual peak load experienced by PEPCO should be deemed
to be the actual peak load of only that portion of the system of the merged or
combined company that constituted the
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1 Capitalized terms that are not otherwise defined in this letter agreement
will have the definitions set forth in the Power Purchase Agreement.
PEPCO system prior to the merger or combination. Again, the parties have raised
various legal and equitable arguments to support their positions.
The third dispute involves the initial determination of the firm
displacement tariff rate for transportation on the Columbia LNG pipeline for
purposes of determining the FGMRi and IGRi pursuant to Subsections 6.2(b)(v) and
6.2(b)(vi) of the Power Purchase Agreement, respectively. The fourth dispute
involves determining the period of time for which the Unit commitment Payment
for Must Run hours will be made under Subsection 6.2(b) of the Power Purchase
Agreement under existing circumstances.
According to Article 17 of the Power Purchase Agreement, the Parties are
required to attempt to resolve all disputes arising under the Power Purchase
Agreement promptly, equitably and in a good faith manner. In the event that the
Parties are unable to resolve any such dispute, the parties are required to
submit such dispute to the Maryland Public Service Commission. This letter
agreement settles all claims between PEPCO and Panda with respect to each of the
disputes described above. In particular, PEPCO and Panda each hereby waives, and
releases the other party from, all actions, claims, demands, causes of action
and assertions of right that may be brought by it, whether known or unknown,
developed or undeveloped, arising out of each of the disputes described above.
Such waiver and release, however, is not applicable to actions, claims, demands,
causes of action and assertions of right arising out of implementation of the
provisions of this letter agreement.
In consideration of these premises, and the mutual covenants set forth
herein, PEPCO and Panda hereby agree as follows:
1. For the purpose of implementing Subsection 6.1(c)(i) and Appendix L
of the Power Purchase Agreement and resolving the first dispute
described in the first paragraph of this letter agreement, PEPCO
will: (i) make a payment of $3,855,992.00 to Panda within 2 Business
Days after the date on which this letter agreement becomes
effective; and (ii) adjust the schedule of Capacity Rates in Column
2 of Appendix L of the Power Purchase Agreement for purposes of
calculating the Monthly Capacity Payments due after the date this
letter agreement becomes effective to make the majority of the
adjustment in years 11 through 25 of the Term. However, the
adjustment must produce an equivalent net present value to PEPCO,
and must include an equitable distribution of risk. PEPCO will
adjust the Capacity Rates in Column 2 of Appendix L of the Power
Purchase Agreement for periods after the date this letter agreement
becomes effective to the rates as set forth in Columns 1 and 2 of
Exhibit I attached to this letter agreement. The Capacity Rates as
set forth in columns 3 and 4 of Exhibit I attached to this letter
agreement reflect further adjustment of the Capacity Rates set forth
in Columns 1 and 2 of Exhibit I for the percentage change in the GNP
Deflator for the period between June 1, 1994 and the Actual
Commercial Operation Date referred to in footnote 2 to Appendix L to
the Power Purchase Agreement.(2) This adjustment was calculated
using a GNP Deflator of 104.71 for June 1, 1994 and a GNP Deflator
of 110.54 for the Actual Commercial Operation
--------------
2 In accordance with a letter dated April 10, 1996, PEPCO and Panda have
agreed that the GNP Deflator shall be defined as the Implicit Price
Deflator for Gross Domestic Products as reported on Table 7.1 of the
"Survey of Current Business," published by the U.S. Department of
Commerce, Bureau of Economic Analysis.
Date.(3) PEPCO and Panda agree that the foregoing amounts are the
appropriate values for the GNP Deflator for such dates for all
purposes of Subsection 6.1(a) of the Power Purchase Agreement for
the Term. PEPCO and ▇▇▇▇▇ further agree that the Capacity Rates are
set forth in columns 3 and 4 of Exhibit I attached to this letter
agreement will be used for purposes of calculating the Monthly
Capacity Payments due after the date this letter agreement becomes
effective, pursuant to Subsection 6.1(a) of the Power Purchase
Agreement for the Term. PEPCO and Panda hereby waive any further
adjustment to such Capacity Rates pursuant to Column 3 of Appendix L
of the Power Purchase Agreement
2. PEPCO will sell to Panda an exclusive right to broker (as defined by
FERC) a sale of capacity from the Brandywine Facility, backed up by
the PEPCO System, for resale up to the amounts, and for the periods,
shown below (released capacity). PEPCO will sell the capacity
pursuant to its Power Sales Tariff on file with FERC. (Electric
Tariff No. 4). PEPCO has represented to Panda that the rate
provisions of Electric Tariff No. 4 may reasonably be interpreted in
the manner described in Appendix A to this letter agreement. In any
proceeding in which such interpretations are placed in issue before
FERC or another forum, PEPCO shall, in good faith support the
interpretations set forth in Appendix A. PEPCO will provide Panda
prior written notice of any change to its Power Sales Tariff that
PEPCO determines in good faith may have a material adverse impact on
Panda's rights under this letter agreement before filing such change
with FERC. The failure of PEPCO to give such prior written notice to
Panda shall not be resulting in any liability of PEPCO, and shall
not in any way limit PEPCO's right to file any such change with
FERC. ▇▇▇▇▇ will obtain all authorizations or other approvals
required for it to act as a power broker in such transactions,
including, but not limited to, any authorization or other approval
required from FERC. In exchange for exclusivity in arranging such
sales, Panda will compensate PEPCO for its lost opportunity at the
rate of [ ]/kW/yr (this is a minimum estimate of today's market
price) for al capacity that is subject to such exclusivity rights,
irrespective of whether ▇▇▇▇▇ arranges a sale of this capacity to
another entity, the price for such sale, or whether the Brandywine
Facility is unavailable. However PEPCO will not require Panda to pay
the full annual charge up front but Panda may make the payment on a
monthly basis (at a rate of [ ]/kW). In addition, PEPCO will net the
amount payable by Panda against any revenues due it from a
corresponding sale brokered by Panda. (For example, in early April
1998, PEPCO will bill Panda for the capacity released in March - 130
MW. At the same time, PEPCO would also bill the third party with
whom ▇▇▇▇▇ had arranged a sale for March, at the sales price
arranged by ▇▇▇▇▇. When the payment from the third party is received
by PEPCO later in April, PEPCO will offset the payment required from
Panda against this received amount, and remit the residual
difference to Panda as Panda's brokerage fee.)
During any period specified below when there is a reduction in
capacity available from the Brandywine Facility, PEPCO will make
available for brokering by Panda an amount of capacity from the
PEPCO System equal to the amount of such reduction, up to the
applicable amount of capacity specified below. For all
-----------------
3 The 104.71 figure used for the GNP Deflator for June 1, 1994 is the GDP
Deflator for the second quarter of 1994. The 110.54 figure used for the
GNP Deflator for the Actual Commercial Operation Date is the GDP Deflator
for the third quarter of 1996.
capacity from the PEPCO system so released by PEPCO to Panda for
brokering, in addition to the [ ]/kW/month payment specified above,
Panda will make a further payment to PEPCO equal to [ percent (__%)]
of the difference between the price at which the capacity is sold in
the transaction brokered by Panda and [ ]/kW/month. If the
difference between the sales price and [____]/kW/month is a negative
number, Panda will not be entitled to any refund from PEPCO and will
remain obligated to pay PEPCO the [ ]/kW/month price.
The amount of released capacity sold to Panda pursuant to this
paragraph is as follows
1/1/98 - 5/31/98 [ ] MW for five months
6/1/98 - 5/31/99 [ ] MW for twelve months
6/1/99 - 5/31/2000 [ ] MW for twelve months
The right to broker capacity conferred by this paragraph may be
assigned by Panda to an entity controlled by Panda, provided that:
(x) such entity agrees to assume all of the obligations of Panda
under this letter agreement with respect to such assigned rights
(which assumption and agreement shall be set forth in a form
reasonably satisfactory to PEPCO), and (y) Panda will not be
relieved of liability, and will remain liable, for all obligations
under this letter agreement with respect to such assigned rights to
the extent such obligations are not fulfilled in a timely manner by
such entity. Except as set forth in this paragraph 2 and in
paragraph 3 of this letter agreement, Panda shall not assign any of
its rights under this letter agreement to any other party, without
the prior written consent of PEPCO, which consent shall not be
unreasonably withheld.
PEPCO and Panda hereby waive Subsection 5.1(a) of the Power Purchase
Agreement with respect to the capacity released by PEPCO under this
paragraph provided that nothing in this letter agreement alters
PEPCO's obligation to make payments for the Brandywine Facility's
Dependable Capacity under Subsection 6.1(a) of the Power Purchase
Agreement. The transactions contemplated under this paragraph shall
not constitute a sale by Panda under Subsection 15.1(d) of the Power
Purchase Agreement. The testing, revalidation, verification,
scheduling and maintenance procedures described in subsections
8.2(a), 8.2(b), 8.2(c), 8.2(e) and 8.3(a), and Sections 8.4 and 8.5,
of the Power Purchase Agreement shall be coordinated in a fashion
that takes into consideration the obligations associated with sales
of capacity brokered by Panda under this paragraph.
3. PEPCO is willing to release to Panda on a periodic basis, through
the year 2002, the right to sell energy from the Brandywine Facility
for resale. The energy may or may not be from capacity released
pursuant to paragraph 2 of this letter agreement. PEPCO will base
such releases on PEPCO's projections of facility operation to serve
PEPCO loads, including projections of the PJM Pool interchange
deliveries. Sales of energy not related to released capacity will be
subject to the availability of the Brandywine Facility. Sales of
energy outside the PJM Pool not related to released capacity will be
interruptible in accordance with PJM Pool rules and requirements.
PEPCO hereby waives the first sentence of subsection 8.3(b) of the
Power Purchase Agreement with respect to all energy
released by PEPCO pursuant to this letter agreement. PEPCO further
waives Subsection 15.1(d) of the Power Purchase Agreement with
respect to all energy released by PEPCO pursuant to this letter
agreement. PEPCO and Panda waive subsection 5.1(a) of the Power
Purchase Agreement with respect to all energy released by PEPCO
pursuant to this letter agreement. The foregoing waivers, however,
do not include Section 5.5 of the Power Purchase Agreement, the
provisions of which are applicable to energy released by PEPCO
pursuant to this letter agreement. Panda hereby waives payment by
PEPCO of all Monthly Energy Payments specified in Section 6.2 of the
Power Purchase Agreement for any energy released by PEPCO pursuant
to this letter agreement.
To effect the sales from released energy, Panda can function as a
power marketer or power broker (in either case, as defined by FERC).
If Panda elects to function as a power marketer, Panda must become a
member of the PJM Pool and will obtain all authorizations or other
approvals required for it to serve as a power marketer in such
transactions, including, but not limited to, any authorization or
other approval required from FERC. In these circumstances, ▇▇▇▇▇
will pay PEPCO a base fee equal to [ percent ( %)] of Panda's gross
revenues from each sale of released energy, which base fee is
subject to increase pursuant to subparagraphs 5 1) and 2) of this
letter agreement. As between PEPCO and Panda, Panda will retain the
remaining gross revenues from each such sale of released energy.
If Panda elects to function as a power broker, it will obtain all
authorizations or other approvals required for it to act as a power
broker in such transactions, including, but not limited to, any
authorization or other approval required from FERC. In order to
implement sales of released energy in transactions brokered by
Panda, Panda will transfer, and PEPCO will take, title to such
released energy from the Brandywine Facility at zero cost to PEPCO
(zero being the net of payments received from the purchaser in
excess of the fees specified below and the price of the released
energy to PEPCO), and PEPCO will sell such released energy under
PEPCO's Power Sales Tariff (Electric Tariff No. 4) on file with
FERC. PEPCO will provide Panda prior written notice of any change to
its Power Sales Tariff that PEPCO determines in good faith may have
a material adverse impact on Panda's rights under this letter
agreement before filing such change with FERC. The failure of PEPCO
to give such prior written notice to Panda shall not result in any
liability of PEPCO, and shall not in any way limit PEPCO's right to
file any such change with FERC.
If Panda elects to function as a power broker, PEPCO will perform
transaction scheduling with the PJM Pool, and perform accounting and
billing services for the sales of released energy brokered by Panda.
The billing will specify that the purchaser shall forward all
payments for released energy to Panda. Panda, in turn, will pay to
PEPCO: (i) a base fee equal to [ percent ( %)] of the gross revenues
from each sale of released energy brokered by Panda (which base fee
is subject to increase pursuant to subparagraphs 5 1) and 2) of this
letter agreement) and (ii) an additional fee equal to [ percent (
%)] of the gross revenues from each sale as compensation for the
services described above provided by PEPCO in connection with such
sale. Panda will retain the remaining revenues from the sale as its
brokerage fee. Panda will hold PEPCO harmless from any failure of
Panda, or the Brandywine Facility, to perform.
Whether Panda acts as a broker or marketer, sales of released energy
from the Brandywine Facility will be subject to PJM Pool rules and
requirements, and will be subject to the terms and conditions of
transmission service procured by the purchaser. The PJM Pool, not
PEPCO, will supply transmission service for these transactions.
Panda may assign its rights to sell or broker released energy under
this letter agreement to an entity controlled by Panda or to a third
party power marketer or power broker, provided that: (i) such
entity, third party power marketer or power broker agrees to assume
all of the obligations of Panda under this letter agreement with
respect to such assigned rights (which assumption and agreement
shall be set forth in writing in a form reasonably satisfactory to
PEPCO) and (ii) Panda will not be relieved of liability, and will
remain liable, for all obligations under this letter agreement to
the extent such obligations are not fulfilled in a timely manner by
the assignee. Except as specified in this paragraph 3 or paragraph 2
of this letter agreement, Panda shall not assign any of its rights
under this letter agreement to any other party, without the prior
written consent of PEPCO, which consent shall not be unreasonable
withheld.
4. For each calendar year from 1999 through 2002, PEPCO will release
the rights to energy: (a) in blocks corresponding to the Dispatch
Segment definitions as contained in the Power Purchase Agreement;
and (b) for specific periods during the year. Prior to December 1 of
each year, PEPCO will determine in its sole discretion the blocks
that will be made available during the following calendar year on a
monthly basis, designated between peak and off-peak periods. The
peak and off-peak periods will be in accordance with then current
market practice. Today, the peak period is defined as the period
from 0700 to 2300, Monday through Friday; all other times are
off-peak.
For calendar year 1998 and the remainder of calendar year 1997
following the date this letter agreement becomes effective, the
energy releases will be as follows:
DISPATCH SEGMENTS
Mon-Fri
0700-2300
2300-0700
Sat, Sun 0-2400
[INFORMATION IN THIS TABLE HAS BEEN DELETED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
CONTEMPORANEOUS WITH THE FILING HEREOF]
5. For the period through 2002, in addition to the annual practice
outlined in paragraph 4 above, PEPCO may, in its sole discretion,
make additional releases from time to time throughout the year,
based on updated predictions of its requirements for energy from the
Brandywine Facility. Panda and PEPCO shall endeavor to make such
additional releases on a seasonal, monthly or daily basis. These
activities will be administered through the Operating Committee.
For weekdays during the periods from the date this letter agreement
becomes effective to May 31, 1998, and from September 1, 1998 to
December 31, 1992, PEPCO agrees to make additional releases from the
First Dispatch Segment, from 0700 to 0800, and from 2000 to 2300.
The purpose of these additional releases is to reconcile the
difference between the "peak period" as defined above based on
market practice, and the Must Run Hours as defined in the Power
Purchase Agreement, and provide Panda the opportunity to effect a
sale of energy from the First Dispatch Segment for periods that
fully supplement the Must Run Hours. PEPCO and Panda agree to make a
comparable adjustment to the energy releases in the event that the
Operating Committee revises the Must Run Hours in accordance with
the Power Purchase Agreement.
PEPCO Release Incentive
1) If the sum of the number of equivalent full load hours
(EFLH) of PEPCO's annual energy releases to Panda and
the number of actual PEPCO EFLH is equal to or greater
than [ %] of the product of the facility Equivalent
Availability Factor as defined in the Power Purchase
Agreement (EAF) and the number of hours in the period
(PH) during the year, then PEPCO shall be compensated in
an annual lump sum payment with a [ %] increase of its
base fee in accordance with the following formula:
ACTUAL PEPCO EFLH / ANNUAL ENERGY EFLH
-------------------------------------- > [ %]
(EAF x PH)
2) In addition, if the sum of the number of EFLH of PEPCO's
weekly energy releases and the number of actual PEPCO
EFLH is equal to or greater than [ %] of the product of
EAF and PH in any given month, then PEPCO shall be
compensated in a monthly lump sum payment with a [ %]
increase of its base fee for the given month in
accordance with the following formula:
ACTUAL ▇▇▇▇▇ ▇▇▇▇ / WEEKLY ENERGY RELEASE EFLH
---------------------------------------------- > [ %]
(EAF x PH)
For purposes of the above formula, Weekly Energy Releases
shall include energy previously released on a monthly and
annual basis for the relevant period.
6. PEPCO will agree to make the Unit Commitment Payment for the First
Dispatch Segment, in response to dispatch by PEPCO, for the period
of time from the point when the generator breaker for the steam
turbine is closed to the point when this breaker is opened. PEPCO
will further agree that the Must Run Hours will be 60 hours per week
at the output corresponding to the First Dispatch Segment (e.g.: 99
MW at 59(Degree) F, 50% relative humidity). The Operating Committee
has agreed at this time that the Must Run hours are from 0800 to
2000 Monday through Friday. ▇▇▇▇▇ must achieve the full output of
the First Dispatch Segment as soon as possible considering Prudent
Utility Practices but no later than 60 minutes after the steam
turbine breaker is closed and prior to 0800
Monday through Friday. Likewise, ▇▇▇▇▇ must maintain the full output
of the First Dispatch Segment as long as possible considering
Prudent Utility Practices prior to opening the steam turbine
breaker. This period of operation below full output of the First
Dispatch Segment will not be longer than 30 minutes and will not
begin earlier than 2000 Monday through Friday. Since PEPCO is unable
to determine from its data collection when the Must Run Hours as
described in this paragraph begin and end, ▇▇▇▇▇ agrees to furnish
copies of its automatic plant data recordings that provide this
information. The Unit commitment Payment for the Third dispatch
Segment will be made by PEPCO for the period of time from when, with
the breakers for the first combustion turbine and the steam turbine
closed, the generator breaker for the second combustion turbine is
closed to when this breaker is opened.
In the event Panda arranges a sale of released energy from the First
Dispatch Segment preceding Must Run Hours that eliminates a unit
startup that PEPCO would otherwise have required to meet the Must
Run Hours obligation, PEPCO will make the Unit Commitment Payment
for the Must Run Hours only, and the Unit Commitment Payment will
include a startup cost component in accordance with Subsection
6.2(b)(ii) of the Power Purchase Agreement as though the sale of
released energy never occurred.
In the event that Panda arranges a sale of released energy from the
Third Dispatch Segment, or from the First Dispatch Segment other
than preceding Must Run Hours, that eliminates a unit startup that
would otherwise be required for a PEPCO dispatch, PEPCO will make
the Unit Commitment Payment commencing at the start of its scheduled
dispatch, and the Unit Commitment Payment will include a startup
cost component in accordance with Subsection 6.2(b)(ii) of the Power
Purchase Agreement, as though the sale of released energy never
occurred.
Nothing in this letter agreement will prevent the Operating
committee from changing the Must Run Hours in accordance with
Subsection 8.3(a) of the Power Purchase Agreement for the
convenience of PEPCO.
7. PEPCO agrees to set the "firm displacement tariff rate . . . for
transportation on the Columbia LNG pipeline" at $0.05/Mbtu for
purposes of determining the FGMRi and IGRi pursuant to Subsections
6.2(b)(v) and 6.2(b)(vi) of the Power Purchase Agreement
8. PEPCO will provide sufficient detail regarding its calculations of
the monthly Capacity Payment and Monthly Energy Payment to allow
Panda to verify PEPCO's invoices and payments.
9. For purposes of calculating the CPWIRR Increase under Subsection
6.1(g) of the Power Purchase Agreement following any merger or other
combination of PEPCO with another electric utility, the actual peak
load experienced by PEPCO during any relevant year shall be deemed
to be the actual peak load experienced by the portion of the merged
or combined company's system that constituted the PEPCO system prior
to such merger or combination.
PEPCO will bill Panda for payments due in connection with released
capacity and released energy under this letter agreement in accordance with the
schedule for PEPCO" ▇▇▇▇▇▇▇▇ for energy and capacity sold under its Power Sales
Tariff (Electric Tariff No. 4) on file with FERC. Past due payments from Panda
shall bear interest in accordance with the provisions of PEPCO's Power Sales
Tariff (Electric Tariff No. 4) on file with FERC. If payment from Panda is past
due by thirty days or more, PEPCO may suspend capacity releases and energy
releases under this letter agreement until all outstanding payments have been
made.
Panda shall enter into good faith negotiations with PEPCO to reach
agreement on a buydown or buyout of the Power Purchase Agreement in a manner
that maximizes and equitably shares the benefits of such buydown or buyout
between PEPCO and Panda. Neither PEPCO nor Panda shall be required to enter into
a buyout or buydown agreement unless it is to their mutual economic benefit to
do so. The negotiations shall commence as soon as possible after PEPCO presents
a buydown or buyout proposal to Panda. At the preset time, PEPCO anticipates
presenting a buydown or buyout proposal to Panda prior to the end of 1997.
PEPCO shall enter into good faith negotiations with Panda prior to the end
of 2002 for PEPCO to continue to make energy releases to Panda after 2002 in a
manner that maximizes and equitably shares the benefits of such releases between
PEPCO and Panda. Neither PEPCO nor Panda shall be required to enter into an
agreement for such releases unless it is to their mutual economic benefit to do
so. These negotiations will consider, among other matters, the marketplace for
electricity that is expected to exist after 2002, PEPCO's needs for electricity,
the rules of the control area in which PEPCO and the Brandywine Facility are
located, how well the arrangement for energy releases from the Brandywine
Facility prior to 2002 has worked under this letter agreement, proposals that
PEPCO may have received from any other parties with respect to energy from the
Facility for the period after 2002, and methods to maximize the Brandywine
Facility's capacity factor.
As I mentioned to you on the telephone, PEPCO continues to discuss sales
of capacity for periods after 1997 continues to discuss sales of capacity for
periods after 1997 with other parties. Upon execution of this letter agreement
by PEPCO and Panda, PEPCO shall immediately cease its discussions for any such
sales.
PEPCO and Panda agree that various provisions of the Power Purchase
Agreement should also be made applicable to this letter agreement. Therefore,
Article 17 and Sections 19.2, 19.6, 19.7, 19.8, 19.9, 19.10, 19.11, 19.12,
19.13, 19.15, and 19.17 of the Power Purchase Agreement are hereby incorporated
by reference in this letter agreement as if set out herein in full. For purposes
of application of such incorporated sections to this letter agreement; (i) all
references in such sections to "Agreement" shall be deemed to be to this letter
agreement, (ii) all references in such sections to "Seller" shall be deemed to
be to Panda, and (iii) all references in such sections to "Party" shall be
deemed to be to PEPCO and/or Panda, as the context indicates, and all references
to "Parties" shall be deemed to be to both PEPCO and Panda. Additionally, for
purposes of application of the incorporated provisions of Section 19.8 of the
Power Purchase Agreement to this letter agreement, the reference to "Subsection
3.1(a)" in the first sentence of such subsection shall be deemed to be to "the
second to last paragraph of this letter agreement."
This letter agreement sets forth the entire understanding of PEPCO and
Panda with respect to the settlement of the disputes identified in the first
three paragra0hs of this letter agreement and supersedes any and all previous
understandings, whether oral or written, between PEPCO and Panda with respect to
such settlement. This letter agreement shall be binding upon and
inure to the benefit of PEPCO and ▇▇▇▇▇, and their respective successors and
permitted assigns.
THIS LETTER AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY THE
LAWS OF THE STATE OF MARYLAND AND, TO THE EXTENT APPLICABLE, FEDERAL LAW,
WITHOUT REGARD TO ANY APPLICABLE CONFLICT OF LAW PROVISION. THE PARTIES HEREBY
SUBMIT TO THE JURISDICTION OF COURTS LOCATED IN, AND VENUE IS HEREBY STIPULATED
TO BE IN, BALTIMORE, MARYLAND.
PEPCO and Panda have considered whether something other than formal
approval for this letter agreement by the Maryland Public Service Commission and
the Public Service Commission of the District of Columbia may be appropriate and
based upon the advice of their respective counsels have each determined that no
such formal approvals will be required. In addition, the effectiveness of this
letter agreement is subject to PEPCO providing the prior notice to the Owner
Trustee, the Owner Participant, the Indenture Trustee and the Security Agent
required pursuant to Section 1.4 of the PEPCO Amended and Restated Consent and
Agreement. Panda must also obtain approvals required under its Financing
Documents. Each party will notify the other party in writing when it has
fulfilled all requirements to provide or obtain the foregoing notices and
approvals. This letter agreement will be effective on the first day after the
date on which Panda and PEPCO have each received such written notice from the
other party.
If the foregoing correctly reflects our understanding and is acceptable to
Panda, please do indicate by signing the enclosed duplicate original of this
letter in the space provided below and returning it to me at your earliest
convenience.
Sincerely,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
ACCEPTED AND AGREED TO THIS 24th- DAY OF OCTOBER, 1997 BY PANDA-BRANDYWINE, L.P.
By Its General Partner,
Panda Brandywine Corporation
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President
10/10/97
EXHIBIT I
Capacity Rates
PEPCO - Panda Agreement October 24, 1997
ACOD October 31, 1996
(1) (2) (3) (4) (5) (6) (7)
Appendix L Appendix L Adjusted Adjusted Annual Annual First Annual
Rates Rates Rate Rate Capacity Amendment Adjusted
S/kW/Mo. S/kW/Mo. Per GDP Per GDP Payment Adjustments Payments
Jan. to Oct. Nov. & Dec. Jan. to Oct. Nov. & Dec. ($ Millions) ($ Millions) ($ Millions)
-------------------------------------------------------------------------------------------------------
1996 13.74 0.00 14.51 0.00 0.00 0.000
-------------------------------------------------------------------------------------------------------
1997 13.74 13.92 14.51 14.70 40.12 -15.00 25.121
-------------------------------------------------------------------------------------------------------
1998 13.92 14.12 14.70 14.91 40.66 -16.00 24.655
-------------------------------------------------------------------------------------------------------
1999 14.12 14.33 14.91 15.13 41.24 0.00 41.243
-------------------------------------------------------------------------------------------------------
2000 14.33 16.97 15.13 17.91 43.03 -1.00 42.035
-------------------------------------------------------------------------------------------------------
2001 16.07 17.13 16.96 18.08 47.33 2.00 49.334
-------------------------------------------------------------------------------------------------------
2002 16.90 17.14 17.84 18.09 49.35 0.00 49.346
-------------------------------------------------------------------------------------------------------
2003 16.93 16.93 17.88 17.88 49.34 0.00 49.340
-------------------------------------------------------------------------------------------------------
2004 16.93 16.92 17.88 17.87 49.34 0.00 49.335
-------------------------------------------------------------------------------------------------------
2005 16.94 16.94 17.88 17.88 49.36 0.00 49.356
-------------------------------------------------------------------------------------------------------
2006 16.49 17.33 17.41 18.29 48.45 0.00 48.451
-------------------------------------------------------------------------------------------------------
2007 16.63 16.63 17.56 17.56 48.45 0.00 48.454
-------------------------------------------------------------------------------------------------------
2008 16.61 16.69 17.54 17.62 48.45 0.00 48.448
-------------------------------------------------------------------------------------------------------
2009 16.49 17.33 17.41 18.30 48.46 0.00 48.461
-------------------------------------------------------------------------------------------------------
2010 17.16 17.71 18.12 18.70 50.27 0.00 50.270
-------------------------------------------------------------------------------------------------------
2011 18.10 20.32 19.11 21.45 53.82 -1.34 52.471
-------------------------------------------------------------------------------------------------------
2012 19.25 19.81 20.32 20.91 56.35 -7.87 48.489
-------------------------------------------------------------------------------------------------------
2013 18.89 19.17 19.94 20.24 55.18 -6.67 48.514
-------------------------------------------------------------------------------------------------------
2014 18.67 17.73 19.71 18.72 53.95 -5.47 48.489
-------------------------------------------------------------------------------------------------------
2015 18.74 14.88 19.79 15.71 52.74 -4.27 48.474
-------------------------------------------------------------------------------------------------------
2016 15.97 16.28 16.86 17.19 46.68 -3.07 43.616
-------------------------------------------------------------------------------------------------------
2017 15.55 15.89 16.42 16.77 45.47 -1.87 43.607
-------------------------------------------------------------------------------------------------------
2018 15.13 15.48 15.97 16.34 44.25 -0.67 43.588
-------------------------------------------------------------------------------------------------------
2019 14.72 15.08 15.54 15.92 43.06 0.53 43.599
-------------------------------------------------------------------------------------------------------
2020 14.32 14.71 15.12 15.53 41.91 1.73 43.648
-------------------------------------------------------------------------------------------------------
2021 14.04 0.00 14.82 0.00 34.09 2.28 36.369
-------------------------------------------------------------------------------------------------------
----------------------------
MARA 8.10%
----------------------------
MARA 9.84%
----------------------------
GDP Index 5.57%
----------------------------
Footnotes:
----------
Columns (5), (6) & (7) are subject to further adjustment in accordance with the
provisions of the Power Purchase Agreement other than Appendix L.
APPENDIX "A" TO LETTER AGREEMENT
BETWEEN PEPCO AND ▇▇▇▇▇
DATED OCTOBER 24, 1997, PAGE 1
APPENDIX "A"
ARTICLE 1
GENERAL
1.1 LETTER AGREEMENT AND PURPOSE OF THIS APPENDIX "A": Pursuant to the letter
agreement between Panda and PEPCO dated October 24, 1997 ("letter
agreement"), Panda has the right to broker sales of capacity, and sales of
energy, from the Brandywine Facility, as specifically described therein.
Under the letter agreement, such sales of capacity, and sales of energy,
are to be brokered by Panda under PEPCO's Power Sales Tariff on file with
FERC (Electric Tariff No. 4), the effective date of which is December 31,
1994. PEPCO has made certain representations to Panda as to how the rate
provisions of Electric Tariff No. 4 (the "Tariff") should be interpreted
in the specific context of these brokered sales of capacity, and sales of
energy, upon which ▇▇▇▇▇ has relied in entering into the letter agreement.
The purpose of this Appendix "A" is to set forth these interpretations.
ARTICLE 2
THE RELEVANT PROVISIONS OF THE TARIFF
2.1 COMPENSATION FOR ECONOMY POWER TRANSACTIONS: Article 3, P. 3.1 of the
Tariff establishes compensation for Economy Power transactions. Such
compensation is to be as agreed between the Parties subject to a maximum
charge equal to the sum of the charges specified in Appendices 3-A or 3-B
and a minimum charge equal to System Incremental Cost. "System Incremental
Cost" is defined as "the sum of hourly production operating and
maintenance expenses for the system, operating capacity expenses (where
applicable), and other expenses incurred that would not have been incurred
by PEPCO if the Economy Power had not been supplied."
2.2 APPENDICES 3-A AND 3-B -- MAXIMUM CHARGES: Appendix 3-A, entitled "Units
Most Likely to Participate Method," establishes the method (and one
alternative
method) for determining maximum rates for transactions not predicated on
PEPCO supplying power purchased from third parties, and the method for
determining maximum rates for transactions predicated on PEPCO supplying
power purchased from third parties. Appendix 3-B, entitled "Unit Sale
Method," sets forth the method for determining maximum rates for certain
PEPCO units, not including the Brandywine Facility.
ARTICLE 3
APPLICATION OF THE RELEVANT TARIFF PROVISIONS
TO THE LETTER AGREEMENT TRANSACTIONS
3.1 BROKERING OF CAPACITY: Under paragraph 2 of the letter agreement, ▇▇▇▇▇
has the right to broker a sale of capacity from the Brandywine Facility,
backed up by the PEPCO System, in certain amounts and for certain periods.
In order to provide this backup, under the letter agreement, PEPCO has
agreed to make available for brokering by Panda an amount of capacity from
the PEPCO System equal to any reduction in capacity available from the
Brandywine Facility, up to the amounts stated in the letter agreement.
3.2 RATE TREATMENT FOR SALES OF CAPACITY BROKERED BY PANDA: Under the Tariff,
the maximum demand charge for sales of capacity brokered by Panda shall be
as follows:
3.2.1 SALES OF INSTALLED CAPACITY FROM THE BRANDYWINE FACILITY TO BE
BACKED UP BY THE PEPCO SYSTEM: The letter agreement contemplates
that the Brandywine Facility will be backed up by PEPCO System
Capacity. The back-up capacity will be supplied if all or part of
the Brandywine Facility's installed capacity is unavailable during
the period of a brokered capacity sale, up to the maximum amount of
megawatts and periods of time specified in the letter agreement (see
letter agreement paragraph 2).
3.2.2 MAXIMUM CHARGE FOR CAPACITY FROM BRANDYWINE FACILITY: If the
capacity is supplied from the Brandywine Facility, the PEPCO charge
for sales of capacity under this section 3.2 shall be the brokered
price of the released capacity. This brokered price, plus the price
of the brokered energy (if any) related to the released capacity
(under section 3.4 below), comprises the total purchased power cost
to PEPCO. The maximum charge allowed under the Tariff, as specified
in Appendix 3-A (Part II), is 110% of this purchased power cost.
3.2.3 MAXIMUM CHARGE FOR CAPACITY FROM PEPCO SYSTEM: If the capacity is
supplied from the PEPCO System, the maximum charge for sales of
capacity under this section 3.2 shall be the product of the Contract
Amount times the Maximum Demand Charge Rate calculated pursuant to
Schedule 2 of the Tariff, as specified in Appendix 3-A (Part I). For
purposes of this calculation, the Maximum Demand Charge Rate shall
be calculated on the basis of the original cost of PEPCO's System
Capacity as to time periods when the Brandywine Facility is
unavailable, and for the number of megawatts of installed capacity
from the Brandywine Facility that were unavailable.
3.2.4 MINIMUM CHARGE FOR CAPACITY FROM BRANDYWINE FACILITY: If the
capacity is supplied from the Brandywine Facility, the minimum
charge for sales of capacity described under this section 3.2 is
zero. This is because, under the letter agreement, PEPCO is required
to pay the capacity rate for the Brandywine Facility regardless of
whether a sale of released capacity is brokered by Panda; therefore,
if PEPCO sells the released capacity, there is no incremental
capacity cost to PEPCO for purposes of the SIC minimum charge
specified in Appendix 3-A (Part II) of the Tariff.
3.2.5 MINIMUM CHARGE FOR CAPACITY FROM PEPCO SYSTEM: If the capacity is
supplied from the PEPCO System, the minimum charge for sales of
capacity described under this section 3.2 is zero. This is because
the Demand Charge specified in Appendix 3-A (Part I) of the Tariff
is a ceiling rate.
3.3 BROKERING OF ENERGY: Under paragraph 3 of the letter agreement, ▇▇▇▇▇ has
the right to elect to broker released energy from the Brandywine Facility.
The rates and terms for such brokered sales are to be consistent with the
Tariff.
3.4 RATE TREATMENT FOR SALES OF RELEASED ENERGY BROKERED BY PANDA: Under the
Tariff, the maximum charge for energy is specified in Schedule 3, Appendix
3-A. The minimum charge is the System Incremental Cost, as defined in
Article 3, paragraph 3.1 of the Tariff.
3.4.1 SALES OF ENERGY RELATED TO INSTALLED CAPACITY: The letter agreement
contemplates that the Brandywine Facility will be backed up by PEPCO
System capacity. If the Brandywine Facility is not available, PEPCO
will interrupt sales of released energy brokered by Panda; provided,
however, PEPCO will continue the energy sale at a market rate if the
released energy transaction is related to a sale of released
capacity to serve load located outside the control area in which
PEPCO and the Brandywine Facility are located, and further provided,
Panda will attempt diligently to make energy available to PEPCO from
an alternative source for this purpose. Panda and PEPCO may mutually
decide that the alternative source will be the PEPCO System.
3.4.2 MAXIMUM CHARGE FOR SALES OF RELEASED ENERGY SUPPLIED FROM BRANDYWINE
FACILITY: For sales of released energy brokered by Panda and
supplied by the Brandywine Facility, the PEPCO charge under this
section 3.4 shall be the brokered price of the released energy. This
brokered price, plus the price of the brokered capacity (if any)
related to the sale of the released energy (under section 3.2
above), comprises the total purchased power cost to PEPCO. The
maximum charge allowed under the Tariff, as specified in Appendix
3-A (Part II), is 110% of this purchased power cost.
3.4.3 MAXIMUM CHARGE FOR SALES OF RELEASED ENERGY SUPPLIED FROM PEPCO
SYSTEM: If energy is supplied from the PEPCO System, the maximum
charge allowed by the Tariff, as specified in Appendix 3-A (Part I),
is 110% of PEPCO's SIC.
3.4.4 MINIMUM CHARGE FOR SALES OF RELEASED ENERGY SUPPLIED FROM BRANDYWINE
FACILITY: The minimum charge for sales of released energy brokered
by Panda is the incremental cost to PEPCO of supplying the energy.
If the energy is supplied from the Brandywine Facility, the
incremental cost to PEPCO is zero.
3.4.5 MINIMUM CHARGE FOR SALES OF RELEASED ENERGY SUPPLIED FROM THE PEPCO
SYSTEM: If energy is supplied from the PEPCO System pursuant to this
subsection 3.4 when the Brandywine Facility is not available, the
incremental cost to PEPCO is PEPCO's SIC, which may be the
incremental cost to PEPCO of operating its own resources or of
purchasing the energy from others.
3.5 RATE TREATMENT FOR "MIXED" SALES OF CAPACITY AND ASSOCIATED ENERGY
BROKERED BY PANDA: Under the Tariff, the maximum demand charge for sales
of capacity and energy brokered by Panda shall be the maximum demand
charge for capacity specified in paragraph 3.2.2 or 3.2.3 plus the maximum
energy charge specified in paragraph 3.4.2 or 3.4.3.
ARTICLE 4
APPLICATION OF ALTERNATIVE TARIFF PROVISIONS
TO THE LETTER AGREEMENT TRANSACTIONS
4.1 ALTERNATIVE TARIFFS: If during the term of the letter agreement PEPCO
makes effective an alternative power sales tariff, or tariff provisions,
which permit PEPCO to sell energy or capacity brokered by Panda pursuant
to the letter agreement on terms at least as favorable to Panda as those
set forth herein, PEPCO may at its option carry out the letter agreement
by transacting pursuant to such tariff or tariff provisions in place of
the Tariff provisions referenced herein.
June 30, 1998
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Group Vice President - Energy & Market
Policy and Development
POTOMAC ELECTRIC POWER COMPANY
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
Washington, D.C. 20068-0001
Dear ▇▇▇▇:
This letter pertains to the letter agreement between Pepco and
Panda-Brandywine, L.P. ("Panda") dated October 24, 1997 (the "Letter
Agreement"). The purpose of this letter is to memorialize the mutual
understanding of the parties as to three issues that have arisen in connection
with the interpretation and administration of the Letter Agreement.
First, on line 21 of page 6 of the Letter Agreement, reference is made to
"[t]he amount of released capacity sold to Panda . . .." The parties acknowledge
that this language refers to "released capacity" as defined in the first
sentence of Paragraph 2 of the Letter Agreement, which is to say, the sale by
Pepco to Panda of an exclusive right to broker the sale of certain capacity by
Pepco from the Brandywine Facility, as further set forth in Paragraph 2.
Consistent with the remainder of Paragraph 2 and the intent of the parties,
Pepco is to sell the released capacity to third parties as brokered by Panda,
not, sell the capacity to Panda for resale.
Second, at lines 17 through 19 of page 15, the Letter Agreement states
that "[p]ayment from Panda will be due in accordance with the payment provisions
of PEPCO's Power Sales Tariff (Electric Tariff No. 4) on file with FERC." In
accordance with section 5.2 of that Tariff, the parties have agreed that payment
from Panda will be
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
June 30, 1998
Page 2
due on the 25th day of the month following the month in which the obligation to
make the payment was incurred, the same as the due date for payment pursuant to
the underlying Power Purchase Agreement between Pepco and Panda.
Third, the parties acknowledge that the Pepco Power Sales Tariff
referenced in the Letter Agreement, Appendix "A" to the Letter Agreement, and in
the previous paragraph of this letter has been designated by FERC as Electric
Tariff No. 1, not No. 4.
If the foregoing correctly reflects your understanding and is acceptable
to Pepco, please so indicate by signing the enclosed duplicate original of this
letter in the space provided below and returning it to me at your earliest
convenience.
Sincerely,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President
ACCEPTED AND AGREED TO THIS __ day of _______________, 1998 BY PEPCO By its
Group Vice President - Energy & Market
Policy and Development
By:___________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
