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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

OR

AES IRONWOOD, L.L.C.
(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (717) 228-1328
Securities Registered Pursuant To Section 12(b) of The Act: None
Securities Registered Pursuant To Section 12(g) of The Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes |X|     No |_|

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes |_|     No |X|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K |X|

As of June 28, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter, and as of March 28, 2003, AES Ironwood, L.L.C had one membership interest outstanding, which was held by AES Ironwood, Inc., the Company’s parent and a wholly owned subsidiary of The AES Corporation.

All of the Registrant’s equity securities are indirectly owned by The AES Corporation. Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format authorized by General Instruction I of Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE
None

TABLE OF CONTENTS

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          Some of the statements in this Form 10-K, as well as statements made by us in periodic press releases and other public communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “estimates,” “plans,” “projects,” “expects,” “may,” “will,” “should,” “approximately,” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussion of strategies, each of which involves risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events based upon our knowledge of facts as of the date of this Form 10-K and our assumptions about future events.

          All statements herein other than of historical facts, including those regarding market trends, our financial position, business strategy, projected plans and objectives of management for future operations of the facility, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors outside of our control that may cause our actual results or performance to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include, among others, the following:

We have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

ITEM 1.     Business

General

          We are a Delaware limited liability company formed on October 30, 1998 to develop, construct, own, operate and maintain a 705-megawatt (MW) gas-fired electric generating power plant in Lebanon County, Pennsylvania, and to manage the production of electric generating capacity, ancillary services and energy at our facility. References to “us”, “our”, “we” or “the Company” herein mean AES Ironwood, L.L.C. We commenced commercial operations on December 28, 2001. Since the commercial operation date, our sole business is the ownership and operation of this facility.

          We own the land on which our facility is located. Our facility was designed, engineered, procured and constructed for us by Siemens Westinghouse Power Corporation (Siemens Westinghouse) on a fixed-price, turnkey basis under the construction agreement. Siemens Westinghouse is also providing combustion turbine maintenance services and spare parts for our facility for an initial term of between eight and ten years, depending on the timing of scheduled outages, under the maintenance services agreement. AES Prescott, L.L.C. (AES Prescott), an indirect wholly-owned subsidiary of The AES Corporation, provides development, construction management and operations and maintenance services for the project under an operations agreement.

          We entered into a power purchase agreement for a term of 20 years under which Williams Energy. is committed to purchase all of the net capacity, fuel conversion and ancillary services of our facility. Net capacity is the maximum amount of electricity generated by our facility net of electricity used at our facility. Fuel conversion services consist of the combustion of natural gas in order to generate electric energy. Ancillary services consist of services necessary to support the transmission of capacity and energy. Williams Energy is obligated to supply us with all natural gas necessary to provide net capacity, fuel conversion services and ancillary services under the power purchase agreement. During the term of the power purchase agreement, substantially all of our revenues will be derived from payments made by Williams Energy under the power purchase agreement.

Organizational Structure

          All of our equity interests are owned by AES Ironwood, Inc., a wholly-owned subsidiary of The AES Corporation. The AES Corporation has provided funds to AES Ironwood, Inc. so that AES Ironwood, Inc. can make equity contributions to us to fund project costs. Under an Equity Subscription Agreement dated June 1, 1999, with AES Ironwood, Inc., these contributions are limited to $50.1 million. As of December 31, 2002, AES Ironwood, Inc. had made net contributions of $38.8 million. On March 12, 2003, final acceptance under the agreement was granted and an Officer’s Certificate has been submitted to the Collateral Agent indicating that the facility has been fully funded and no further contribution will be required. AES Ironwood, Inc. currently has no operations outside of its activities in connection with our project and does not anticipate undertaking any operations not associated with our project. AES Ironwood, Inc. has no assets other than its membership interests in us and AES Prescott. AES Prescott has no operations outside of its activities in connection with our project. Under a services agreement, The AES Corporation supplies to AES Prescott all of the personnel and services necessary for AES Prescott to comply with its obligations under the operations agreement. As of December 31, 2002, The AES Corporation provided 36 employees to our facility.

          The AES Corporation is a leading global power company. The AES Corporation’s purpose is to better society by serving the world’s need for electricity in ways that benefit its stakeholders including shareholders, customers, AES people, local communities, host nations, regulators, lenders, suppliers and partners. The AES Corporation is a public company and is subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, files reports, proxy statements and other information, including financial reports, with the SEC.

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          The following organizational chart illustrates the relationship among our company, AES Ironwood, Inc., AES Prescott and The AES Corporation:

          Our principal executive offices are located at 305 Prescott Road, Lebanon, Pennsylvania 17042. Our telephone number is (717) 228-1328.

Project Status and Recent Developments

          By meeting the provisions in Section 6.3 of the construction agreement, provisional acceptance was granted by us on December 27, 2001. We previously had a dispute with Siemens Westinghouse over which party was responsible for the payment of the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance. As a result of a settlement agreement with Siemens Westinghouse entitled Agreement Change Order No. 71, we granted final acceptance as of March 12, 2003.

          As a result of the settlement agreement, we have agreed, among other things, not to pursue the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance date. We have also agreed to pay $156,000 relating to an outstanding claim by Siemens Westinghouse regarding an April 2002 outage. This amount was recorded as an accrued expense and was paid as part of the settlement. Siemens Westinghouse has agreed to waive their right to receive any payments with respect to a milestone payment of $2.2 million and to the retainage of $12.1 million held by us. Additionally, Siemens Westinghouse made a payment of $4.8 million to us in respect of items related to final acceptance. This amount was recorded as a reduction in the cost of the facility.

          The effects of this settlement agreement have been recorded in our financial statements as of December 31, 2002. For further discussion, please see “Legal Proceedings”.

          Under the power purchase agreement, in the event that S&P or Moody’s rate the long term senior unsecured debt of The Williams Companies, Inc. lower than investment grade, The Williams Companies, Inc., or affiliate thereof, is required to replace The Williams Companies, Inc. guarantee with an alternative security that is acceptable to us. According to published sources, on July 23, 2002, S&P lowered the long term senior unsecured debt rating of The Williams Companies, Inc. to “BB” from “BBB-", and further lowered such rating to “B” on July 25, 2002. According to published sources, on July 24, 2002, Moody’s lowered the long-term senior unsecured debt rating of The Williams Companies, Inc. to “B1” from “Baa3.” According to published sources, this rating was further lowered on November 22, 2002 to “Caa1” by Moody’s. Accordingly, The Williams Companies, Inc.‘s long term senior unsecured debt is currently rated below investment grade by both S&P and Moody’s.

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          In an action related to the ratings downgrade of The Williams Companies, Inc., S&P lowered its ratings on the Company’s senior secured bonds to “BB-” from “BBB-” on July 26, 2002, and placed the rating on credit watch. On November 27, 2002, Moody’s lowered its ratings on our senior secured bonds to “B2” from “Ba2”. We do not believe that such ratings downgrades will have any other direct or immediate effect on us, as none of the other financing documents or project contracts have provisions that are triggered by a reduction of the ratings of the bonds.

          To satisfy the requirements of the power purchase agreement, on September 20, 2002, Citibank, N.A., issued a $35 million Irrevocable Standby Letter of Credit (“the Letter of Credit”) on behalf of Williams Energy. The Letter of Credit does not alter, modify, amend or nullify the guaranty issued by The Williams Companies, Inc. in favor of us and is considered to be additional security to the security amounts provided by such guaranty. The Letter of Credit became effective on September 20, 2002 and shall expire upon the close of business on July 10, 2003; except that the Letter of Credit will be automatically extended without amendment for successive one-year periods from the present or any future expiration date hereof, unless Citibank, N.A. provides written notice of its election not to renew the Letter of Credit at least thirty days prior to any such expiration date. Additionally, in a Letter Agreement dated September 20, 2002, Williams Energy agreed to (a) provide eligible credit support prior to the stated expiration date of the Letter of Credit and (b) replenish any portion of the Letter of Credit or eligible credit support that is drawn, reduced, cashed or redeemed, at any time, with an equal amount of Eligible Credit Support. Within twenty days prior to the expiration of the Letter of Credit and/or any expiration date of eligible credit support posted by Williams Energy, Williams Energy shall post eligible credit support to us in place of the Letter of Credit and/or any expiring eligible credit support unless The Williams Companies, Inc. regains and maintains its investment grade status, in which case the Letter of Credit or eligible credit support shall automatically terminate and no additional eligible credit support shall be required. We and Williams Energy acknowledge that the posting of such Letter of Credit and Williams Energy’s agreement and performance of the requirements of (a) and (b) as set forth in the immediately preceding sentence shall be in full satisfaction of Williams Energy’s obligations contained in Section 19.3 of the power purchase agreement to provide replacement security due to the downgrade of The Williams Companies, Inc. falling below investment grade status.

          We previously entered into arbitration with Williams Energy to resolve certain disputes regarding the proper interpretation of certain provisions of the power purchase agreement relating to amounts claimed by us to be payable by Williams Energy. On February 5, 2003 the arbitration panel handed down their decision to the parties. The arbitration decision interprets key provisions of the power purchase contract and covers both revenue and non-revenue items. The most important item to us was in respect of the calculation of total annual available capacity, which we believe was decided in our favor. However, there were several other items that were not in our favor. The net effect of these items for fiscal year 2002 was a reduction of revenues of approximately $320,000. See “Legal Proceedings”.

          Additionally, we are in ongoing discussions with Williams Energy relating to the calculation of certain amounts under the power purchase agreement. Under the agreement, we have earned an annual availability bonus and an additonal capacity payment for 2002. We have invoiced Williams Energy approximately $1.4 million as an annual availability bonus for 2002 and approximately $0.1 million as a capacity payment for 2002. Because the amounts are in dispute, we have only recognized the amounts that Williams Energy paid us, approximately $0.3 million. We will continue to discuss with Williams Energy the calculation of these amounts but are unable to predict the outcome of these discussions and their potential impact on our ability to collect these contractual items either for 2002 or in the future.

Energy Revenues

          We generate energy revenues under the power purchase agreement with Williams Energy. During the 20 year term of the agreement, we also expect to sell electric energy and capacity produced by the facility, as well as ancillary and fuel conversion services. Under the power purchase agreement, we also generate revenues from meeting (1) base electrical output guarantees and (2) heat rate rebates through efficient electrical output.

          Upon its expiration, or in the event that the power purchase agreement is terminated prior its 20 year term, we would seek to generate energy revenues from the sale of electric energy and capacity into the merchant market or

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under new short- or long-term power purchase or similar agreements. There can be no assurances as to the whether such efforts would be successful.

Operating Expenses

          Under an agreement with AES Prescott, L.L.C., we are required to reimburse it all operator costs on a monthly basis. Operator costs generally consist of all direct costs and overhead. Additionally, an operator fee of $400,000, subject to annual adjustment, is payable on each bond payment date.

Competition

          Under the power purchase agreement, Williams Energy is required to purchase all of our facility’s capacity and energy. Therefore, during the 20 year term of the power purchase agreement, competition from other capacity and energy providers will only become an issue if Williams Energy breaches its agreement and ceases to purchase our capacity and energy or the power purchase agreement is otherwise terminated or not performed in accordance with its terms. Upon the expiration of the power purchase agreement or in the event the power purchase agreement is terminated prior to the expiration of its term, we anticipate selling our facility’s net capacity, ancillary services and energy under a new power purchase agreement or into the Pennsylvania-New Jersey-Maryland (PJM) power pool market. At that time, we will face competition from other generating facilities selling into the PJM power pool market including, possibly, other facilities owned by The AES Corporation or its affiliates.

Employees

          As of December 31, 2002, we had thirteen officers. Except for these officers we do not have any employees and do not anticipate having any employees in the future. Under the operations agreement, AES Prescott has managed the development and construction of and now operates and maintains our facility. The direct labor personnel and the plant operations management are employees of The AES Corporation which are provided to AES Prescott under the services agreement. As of December 31, 2002, AES Corporation provided 36 employees to our facility.

Insurance

          As owner of our facility, we maintain a comprehensive insurance program as required under our various project contracts and the indenture governing our senior secured bonds and underwritten by recognized insurance companies. Among other insurance policies, we also maintain commercial general liability insurance, permanent property insurance for full replacement value of our facility and business interruption insurance covering at least 12 months of debt service and fixed operation and maintenance expenses. We have obtained title insurance in an amount equal to the principal amount of the senior secured bonds.

          AES Prescott, as operator of our facility, maintains, among other insurance policies, workers’ compensation insurance, or evidence of self-insurance, if required, and comprehensive automobile bodily injury and property damage liability insurance.

Permits and Regulatory Approvals

          AES Prescott, as operator of our facility, and we, as owner of our facility, must comply with numerous federal, state and local regulatory requirements including environmental requirements in the operation of our facility.

          On March 31, 1999, we received a certification from the Federal Energy Regulatory Commission (FERC) that we are an Exempt Wholesale Generator. Certification as an Exempt Wholesale Generator exempts us from regulation under the Public Utility Holding Company Act of 1935. We will maintain this status so long as we continue to make only wholesale sales of electricity, which we intend to do. Prior to commercial operation, we filed the power purchase agreement with FERC and obtained approval for the rates contained therein. We may also need to obtain FERC approval for sales of electricity at market-based rates after the power purchase agreement is no longer in effect.

          On March 29, 1999, we received our Prevention of Significant Deterioration Permit, or “air permit,” from the Pennsylvania Department of Environmental Protection. The appeal period in respect of the air permit expired on

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May 3, 1999 and no appeal was filed. The air permit required that our facility be constructed in a manner that would allow it to meet specified limitations on emissions of air pollutants. Under the construction agreement, Siemens Westinghouse was required to construct our facility to meet these requirements. During the April 2002 outage, Siemens Westinghouse made certain modifications to ensure the facility’s emissions would be within the limits set by the EPC construction contract. Testing on May 22, 2002 indicated the modifications to be successful and at that date the facility’s emissions were in compliance and Siemens-Westinghouse had met the emission guarantees of the EPC construction contract.

          We are subject to a number of statutory and regulatory standards and required approvals relating to energy, labor and environmental laws. Although the necessary environmental permits for the commencement of construction of our facility have been obtained, we are required to comply with the terms of our environmental permits and to obtain other permits for the operation of our facility.

          The permits that have been obtained and that will be obtained contain ongoing requirements. Failure to satisfy and maintain any of the permit conditions or other applicable requirements could prevent the operation of our facility and/or result in additional costs.

Summary of Principal Project Contracts

          While we believe that the following summaries contain the material terms of the principal project contracts, such summaries may not include all of the provisions of each agreement that each individual investor may feel is important. These summaries do not restate each agreement discussed herein and exclude certain definitions and complex legal terminology that may be contained in each relevant agreement. You should carefully read each agreement discussed herein, each of which is filed as an exhibit to this Form 10-K.

Power Purchase Agreement

          We entered into an Amended and Restated Power Purchase Agreement, dated as of February 5, 1999, with Williams Energy for the sale to Williams Energy of all of the electric energy and capacity produced by our facility as well as ancillary services and fuel conversion services. We previously entered into arbitration with Williams Energy to resolve certain disputes regarding the proper interpretation of certain provisions of the power purchase agreement relating to amounts claimed by us to be payable by Williams Energy. On February 5, 2003 the arbitration panel handed their decision to the parties. The arbitration decision covered both revenue and non-revenue items. The most important item to us was in respect of the calculation of total available capacity, which was decided in our favor. However, there were several other items that were not in our favor. The net effect of these items for fiscal year 2002 was a reduction of revenues of approximately $320,000. For further information, please see “Legal Proceedings”.

Term

          The term of the power purchase agreement extends for 20 years after the first contract anniversary date, which is the last day in the month in which the commercial operation date occurs. The commercial operation date occurs when

          These prerequisites were met and the facility commenced operations, subject to the terms of the power purchase agreement, on December 28, 2001, accordingly, the power purchase agreement’s initial term is expected to expire on December 31, 2021.

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Purchase and Sale of Capacity and Services

          During the term, commencing with the commercial operation date, we must sell and make available to Williams Energy on an exclusive basis, and Williams Energy must purchase and pay for, our facility’s net capacity and ability to generate electric energy. In addition, during the term, commencing with the commercial operation date, we must perform for Williams Energy on an exclusive basis, and Williams Energy must purchase and pay for fuel conversion services and ancillary services. Fuel conversion services consist of the generation of electric energy from fuel provided by Williams Energy. Ancillary services consist of services necessary to support the transmission of capacity and energy.

Fuel Conversion and Other Services

          Williams Energy must deliver or cause to be delivered to us at the gas delivery point on an exclusive basis all quantities of natural gas as we require:

Pricing and Payments

          For each month of the term after the commercial operation date, Williams Energy must pay us for our facility’s net capacity, successful start-ups and associated shutdowns, other services and fuel conversion services at the applicable rates described in the power purchase agreement. Each monthly payment by Williams Energy will consist of a total fixed payment, a fuel conversion payment and a start-up payment. The total fixed payment, which is payable regardless of facility dispatch by Williams Energy but is subject to adjustment based on facility availability, is calculated by multiplying a fixed capacity rate for each contract year by our facility’s net capacity in the billing month and is anticipated to be sufficient to cover our debt service and fixed operating and maintenance costs and to provide us a return on equity. The fuel conversion payment is intended to cover our variable operating and maintenance costs and escalates annually based on an escalation index described in the power purchase agreement. The start-up payment is intended to cover our non-fuel variable costs when the plant is starting a dispatch period. In addition, we may receive heat rate bonuses or be required to pay heat rate penalties.

          Prior to the commercial operation date, and during specific facility tests thereafter, we purchased natural gas from Williams Energy. Williams Energy sold to us the natural gas at prices specified in the power purchase agreement, and we sold to Williams Energy at the electric delivery point any net electric energy produced during those periods at 90% of the energy market clearing price.

          Williams Energy will be entitled to an annual fuel conversion volume rebate if its dispatch of our facility exceeds specified levels and specified monthly non-dispatch payments if, under specific circumstances, our facility is not available for dispatch. All fuel conversion volume rebate payments and non-dispatch payments must be made to Williams Energy after debt service and specified other payments but prior to any distribution to holders of the equity interests in our company. Fuel conversion volume rebate payments must be paid to Williams Energy within 30 days after the end of the contract year in which the payments have been earned and non-dispatch payments must be paid to Williams Energy within 20 days after the end of the month on which a payment obligation arises. Fuel conversion volume rebate payments and any non-dispatch payments owed to Williams Energy and not paid when due must be paid, together with interest, when funds become available to us at the priority level described above.

Interconnection and Metering Equipment

          At our sole cost and expense, we will maintain, or be responsible for the maintenance of our facility, the interconnection facilities and protective gas apparatus needed to generate and deliver net electric energy and/or ancillary services to the electric delivery point in order to fulfill our obligations under the power purchase

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agreement, including all interconnection facilities and protective gas apparatus that may be located at any switchyard and/or substation to be built at our facility. At our cost and expense, the interconnection facilities and protective gas apparatus needed to generate and deliver net electric and/or ancillary services to the electric delivery point have been completed as required under the power purchase agreement. The interconnection facilities and protective gas apparatus have been designed, constructed and completed in a good and workmanlike manner and in accordance with accepted electrical practices, with respect to our facility and interconnection facilities or in accordance with standard gas industry practices, with respect to protective gas apparatus, so that the expected useful life of our facility, the interconnection facilities and protective gas apparatus will be not less than the term of the power purchase agreement.

          We have been solely responsible for the negotiation and execution of the interconnection agreement with GPU Energy under which GPU Energy will own and be responsible for the electric metering equipment and the design, installation, construction and maintenance of the electrical facilities and protective apparatus, including any transmission equipment and related facilities, necessary to interconnect GPU Energy’s electrical system with our facility at the electric delivery point. This equipment cost approximately $5.1 million which was capitalized as part of the facility. Williams Energy reimbursed us for the reasonable GPU Energy costs (i.e., transmission facility costs, GPU Energy protective apparatus and other equipment, GPU Energy electric meters, and GPU Energy costs for PJM and other required interconnection-related studies) incurred, or to be reimbursed, by us under the interconnection agreement up to a maximum amount of which is in excess of the costs anticipated to be incurred by us under the interconnection agreement.

          Williams Energy was responsible for the installation and will be responsible for the maintenance and testing of the gas metering equipment, to the extent not otherwise installed, maintained and tested by the supplier of gas transportation services, as reasonably approved by us.

          All electric metering equipment, gas metering equipment and oil metering equipment, whether owned by us or by a third party, must be operated, maintained and tested in accordance with accepted electrical practices, in the case of the electric metering equipment, and in accordance with applicable industry standards, in the case of the gas metering equipment and oil metering equipment.

Operation / Dispatch

          Our facility, the interconnection facilities and the protective gas apparatus must be operated in accordance with accepted electrical practices and applicable requirements and guidelines reasonably adopted by GPU Energy from time to time and applied consistently to GPU Energy’s electric generating facilities, with respect to our facility and interconnection facilities, or in accordance with standard gas industry practices, with respect to protective gas apparatus. If there is a conflict between the terms and conditions of the power purchase agreement and GPU Energy requirements, GPU Energy requirements will control.

          We must operate our facility in parallel with GPU Energy’s electrical system with governor control and the net electric energy to be delivered by us under the power purchase agreement must be three-phase, 60 hertz, alternating current at a nominal voltage acceptable to GPU Energy at the electric delivery point, must not adversely affect the voltage, frequency, wave shape or power factor of power at the electric delivery point and must be delivered to the electric delivery point in a manner acceptable to GPU Energy.

          The power purchase agreement acknowledges that GPU Energy has the right to require us to disconnect our facility from GPU Energy’s electrical system, or otherwise curtail, interrupt or reduce deliveries of net electric energy, for specific safety or emergency reasons. If our facility has been disconnected for these reasons, Williams Energy will continue to be obligated to make total fixed payments for at least 24 hours after the occurrence of the disconnection of our facility by GPU Energy.

          We must use commercially reasonable efforts to promptly correct any condition at our facility which necessitates the disconnection of our facility from GPU Energy’s electrical system or the reduction, curtailment or interruption of electrical output of our facility. Williams Energy will have the exclusive right to schedule the operation of our facility or a unit in accordance with the provisions of the power purchase agreement so long as the

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scheduling is consistent with the design limitations of our facility, applicable law, regulations and permits, and manufacturers’ reasonable recommendations for operating limits with respect to our facility and major components.

          Up to two times each year, we must demonstrate, in accordance with the then-applicable criteria of PJM applicable generally to independent power and GPU Energy generating facilities in PJM of similar technology, the capability of our facility to produce and maintain, as required for the demonstration, our facility’s net capacity.

Force Majeure

          A party will be excused from performing its obligations under the power purchase agreement and will not be liable in damages or otherwise to the other party if and to the extent the party declares that it is unable to perform or is prevented from performing an obligation under the power purchase agreement by a force majeure condition, except for any obligations and/or liabilities under the power purchase agreement to pay money, which will not be excused, and except to the extent an obligation accrues prior to the occurrence or existence of a force majeure condition so long as:

          Irrespective of whether the force majeure condition is declared by Williams Energy or us, the time period of a force majeure will be excluded from the calculation of all payments under the power purchase agreement and Williams Energy must be under no obligation to pay us any of the payments described in the power purchase agreement. If Williams Energy declares a force majeure, however, it must, subject to its right to terminate the power purchase agreement if the force majeure has not been fully corrected or alleviated within 18 months of the declaration, continue to pay us only the applicable monthly total fixed payment as described in the power purchase agreement until the earlier of (1) the termination of the force majeure condition or (2) the termination of the power purchase agreement. Furthermore, if we declare a force majeure due to an action or inaction of GPU Energy that prevents us from delivering net electric energy to the electric delivery point, Williams Energy must continue to pay the applicable portion of the total fixed payment for the first 24 hours of the period. Notwithstanding anything to the contrary contained in the power purchase agreement, except as may expressly be provided in the power purchase agreement, the term force majeure will not include the following nor will the following excuse a party’s performance:

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          Neither party will be required to settle any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the party involved in the dispute, are contrary to its interest. Williams Energy will have the right to terminate the power purchase agreement if a force majeure has been declared by us and the effect of the force majeure has not been fully corrected or alleviated within 18 months after the date the force majeure was declared. Williams Energy, however, will not have the right to terminate the power purchase agreement if (1) the force majeure was caused by Williams Energy or (2) the force majeure event does not prevent or materially limit Williams Energy’s ability to sell our facility’s net capacity into or through the PJM power pool market or to a third party.

Events of Default; Termination; Remedies

          The following will constitute events of default under the power purchase agreement:

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          Upon the occurrence of any event of default, other than an event of default for voluntary bankruptcy or insolvency, for which no notice will be required or opportunity to cure permitted, the party not in default, to the extent the party has actual knowledge of the occurrence of the event of default, must give prompt written notice of the default to the defaulting party. The notice must describe, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure the default. The defaulting party must have 30 days, but only two business days in the case of a default for failure to make a requested payment to the non-defaulting party under the power purchase agreement, following receipt of the notice either to cure the default or commence in good faith all the steps as are necessary and appropriate to cure the default if the default cannot be completely cured within the 30-day period. If the defaulting party fails to cure the default or take the steps as provided under the preceding paragraph, and immediately upon the occurrence of any event of default for voluntary bankruptcy or insolvency, the power purchase agreement may be terminated by the non-defaulting party, without any liability or responsibility whatsoever, by written notice to the party in default. The non-defaulting party may exercise all the rights and remedies as are available to it to recover damages caused by the default.

Security

          Williams Energy has provided us a guaranty, issued by The Williams Companies, Inc., of Williams Energy’s performance and payment obligations under the power purchase agreement. Under the power purchase agreement, in the event that S&P or Moody’s rates the long-term senior unsecured debt of The Williams Companies, Inc. lower than investment grade, The Williams Companies, Inc. or an affiliate thereof, is required to replace such Williams Companies, Inc. guaranty, within thirty days, with an alternative security that is acceptable to us after loss of such investment grade rating.

          According to published sources, on July 23, 2002, S&P lowered the long term senior unsecured debt rating of The Williams Companies, Inc. to “BB” from “BBB-", and further lowered such rating to “B” on July 25, 2002. According to published sources, on July 24, 2002, Moody’s lowered the long-term senior unsecured debt rating of The Williams Companies, Inc. to “B1” from “Baa3.” According to published sources, this rating was further lowered on November 22, 2002 to “Caa1” by Moody’s.

          To satisfy the requirements of the power purchase agreement, on September 20, 2002, Citibank, N.A., issued a $35 million Irrevocable Standby Letter of Credit (“the Letter of Credit”) on behalf of Williams Energy. The Letter of Credit does not alter, modify, amend or nullify the guaranty issued by The Williams Companies, Inc. in favor of the Company and is considered to be additional security to the security amounts provided by such guaranty. The Letter of Credit became effective on September 20, 2002 and shall expire upon the close of business on July 10, 2003; except that the Letter of Credit will be automatically extended without amendment for successive one year periods from the present or any future expiration dates thereof, unless Citibank, N.A. provides written notice of its election not to renew the Letter of Credit at least thirty days prior to any such expiration date. Additionally, in a Letter Agreement dated September 20, 2002 (the “Letter Agreement”), Williams Energy agreed to (a) provide eligible credit support prior to the stated expiration date of the Letter of Credit and (b) replenish any portion of the Letter of Credit or eligible credit support that is drawn, reduced, cashed or redeemed, at any time, with an equal amount of Eligible Credit Support. Within twenty days prior to the expiration of the Letter of Credit and/or any expiration date of eligible credit support posted by Williams Energy, Williams Energy shall post eligible credit support to the Company in place of the Letter of Credit and/or any expiring eligible credit support unless The Williams Companies, Inc. regains and maintains its investment grade status, in which case the Letter of Credit or eligible credit support shall automatically terminate and no additional eligible credit support shall be required. We and Williams Energy acknowledge that the posting of such Letter of Credit and Williams Energy’s agreement and performance of the requirements of (a) and (b) as set forth in the immediately preceding sentence

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shall be in full satisfaction of Williams Energy’s obligations contained in Section 19.3 of the power purchase agreement to provide replacement security due to the downgrade of The Williams Companies, Inc. falling below investment grade status.

Assignment

          Generally, neither the power purchase agreement nor any rights, duties, interests or obligations thereunder may be assigned, transferred, pledged or otherwise encumbered or disposed of, by operation of law or otherwise without the prior written consent of the other party.

          We agreed that we will not sell, transfer, assign, lease or otherwise dispose of our facility or any substantial portion thereof or interest therein necessary to perform our obligations under the power purchase agreement to any person that is a FERC-authorized power marketer or an affiliate without the prior written consent of Williams Energy, which consent must not be unreasonably withheld.

Construction Agreement

          We, as assignee of AES Ironwood, Inc., entered into an Agreement for Engineering, Procurement and Construction Services, dated as of September 23, 1998, as amended, with Siemens Westinghouse for Siemens Westinghouse to perform services in connection with the design, engineering, procurement, site preparation and clearing, civil works, construction, start-up, training and testing and to provide all materials and equipment (excluding operational spare parts), machinery, tools, construction fuels, chemicals and utilities, labor, transportation, administration and other services and items (collectively and separately, the “services”) for our facility.

          By meeting the provisions in Section 6.3 of the construction agreement, provisional acceptance was granted by us on December 27, 2001. On March 12, 2003, we entered into a settlement agreement with Siemens Westinghouse concerning final acceptance. This agreement became effective as of that date and final acceptance was granted by us as of that date. For further information, please see “Legal Proceedings”.

Siemens Westinghouse’s Services and Other Obligations

          Siemens Westinghouse must complete our project by performing or causing to be performed all of the services. The required services have included: engineering and design; construction and construction management; providing design documents, instruction manuals, a project procedures manual and quality assurance plan; procuring all materials, equipment and supplies and all contractor and subcontractor labor and manufacturing and related services; providing a spare parts list; providing all labor and personnel; obtaining some applicable permits and providing information to assist us in obtaining other applicable permits; performing inspection, expediting, quality surveillance and traffic services; transporting, shipping, receiving and marshalling all materials, equipment and supplies and other items; providing storage for all materials, supplies and equipment and procurement or disposal of all soil and gravel (including remediation and disposal of specific hazardous materials); providing for design, construction and installation of electrical interconnection facilities (including electric metering equipment, automatic regulation equipment, protective apparatus and control system equipment) and reviewing other GPU Energy interconnections to our facility (including gas and water pipelines); performing performance tests and power purchase agreement output tests; providing for start-up and initial operation functions; and providing specified spare parts, waste disposal services, chemicals, consumables and utilities.

          The services have also included: training our personnel prior to provisional acceptance; providing us and our designee with access to the facility site; obtaining additional necessary real estate rights; clean-up and waste disposal (including hazardous materials brought to the facility site by Siemens Westinghouse or the subcontractors); submitting a construction schedule and progress reports; payment of contractor taxes; employee identification and security arrangements; protecting adjoining utilities and public and private lands from damage; paying appropriate royalties and license fees; providing final releases and waivers to us; posting collateral or providing other assurances if major subcontractors fail to furnish final waivers; maintaining labor relations and project labor agreements; providing further assurances; coordinating with other contractors; and causing Siemens Corporation to execute and deliver the related guaranty.

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Construction and Start-Up

          Siemens Westinghouse must perform certain services in accordance with prudent utility practices, generally accepted standards of professional care, skill, diligence and competence applicable to engineering, construction and project management practices, all applicable laws, all applicable permits, the real estate rights, the quality assurance plan, GPU Energy electrical interconnection requirements, the environmental requirements and safety precautions described in the construction agreement, and all of the requirements necessary to maintain the warranties granted by the subcontractors under the construction agreement. Siemens Westinghouse must perform the services in accordance with our construction schedule and must cause:

          Siemens Westinghouse must perform the services so that our facility, when operated in accordance with the instruction manual and the power purchase agreement operating requirements, regardless of whether our facility is operated at 705 megawatts or at a different output, on natural gas , respectively, as of provisional acceptance, interim acceptance and final acceptance, will comply with all applicable laws and applicable permits, GPU Energy electrical interconnection requirements and the guaranteed emissions limits in accordance with the completed performance test requirements.

Contract Price and Payment

          The adjusted contract price, including base scope changes through the date of the construction agreement, is $241 million and commencing on the construction commencement date is to be paid in installments in accordance with the payment and milestone schedule. The contract price may be adjusted as a result of scope changes. We must make and have made scheduled payments to Siemens Westinghouse upon receipt of Siemens Westinghouse’s payment request unless the independent engineer fails to confirm the matters certified to by Siemens Westinghouse in the request, in which case we may defer the scheduled payments until the condition is satisfied. To date we have not deferred any payment. We withheld from each scheduled payment 5%, other than our project completion payment, of the payment until after final acceptance. As part of a settlement agreement, Siemens Westinghouse has agreed to waive their right to receive any payments with respect to the final milestone payment of $2.2 million and to the retainage of $12.1 million held by us. Additionally, Siemens Westinghouse made a payment of $4.8 million to us in respect of items related to final acceptance. This amount was recorded as a reduction in the cost of the facility. Upon the termination of the construction agreement, Siemens Westinghouse will be entitled to termination costs incurred by Siemens Westinghouse and subcontractors. We are not obligated to make any payment to Siemens Westinghouse at any time Siemens Westinghouse is in material breach of the construction agreement, unless Siemens Westinghouse is diligently pursuing a cure. All payments are subject to release of claims.

Our Required Services

          Our responsibilities include: designating a representative for our project; furnishing Siemens Westinghouse access to the facility site; securing specified applicable permits and real estate rights; providing specified start-up personnel; furnishing water, water delivery facilities, specified spare parts, water disposal services and consumables; providing permanent utilities for the start-up, testing and operation of our facility; providing fuel supply arrangements; providing electrical interconnection facilities arrangements; furnishing approvals; administering third-party contracts; and causing The AES Corporation to provide a pre-financial closing guaranty.

          If we fail to meet any of our obligations under the construction agreement, then, to the extent that Siemens Westinghouse was reasonably delayed in the performance of the services as a direct result thereof, an equitable adjustment to one or more of the contract price, the guaranteed completion dates, the construction progress milestone dates, the payment and milestone schedule and our construction schedule, and, as appropriate, the other

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provisions of the construction agreement that may be affected thereby, will be made by agreement between us and Siemens Westinghouse.

Mechanical Completion

          The agreement sets forth certain conditions that were required to be met in order for mechanical completion to occur. These conditions were deemed to be met on December 27, 2001 when provisional acceptance was granted.

Performance Tests and Power Purchase Agreement Output Tests

          Before project completion is met, Siemens Westinghouse must perform the performance tests and power purchase agreement output tests in accordance with criteria described in the construction agreement. Siemens Westinghouse must give us notice of the performance tests and power purchase agreement output tests. We must arrange for the disposition of output during start-up and testing. Siemens Westinghouse may declare the performance test or the power purchase agreement output test to be a completed performance test or a completed power purchase agreement output test, respectively, if during the tests the operation of our facility complies with applicable laws, applicable permits, guaranteed emissions limits and other required standards.

Provisional and Final Acceptance

          The agreement sets forth various requirements before provisional acceptance and final acceptance of the project would be made by us. We granted provisional acceptance on December 27, 2001. As part of a settlement agreement with Siemens Westinghouse, final acceptance was granted on March 12, 2003.

          Because we have granted final acceptance on March 12, 2003, Siemens Westinghouse will have no liability to us for any amounts thereafter arising as performance guarantee payments, other than any interim period rebates that arose prior to the final acceptance, for failure of our facility to achieve any or all of the applicable performance guarantees other than modifications to the facility as set forth in our settlement agreement.

Project Completion

          Project completion will be achieved under the construction agreement when:

          When Siemens Westinghouse believes that it has achieved project completion, it must deliver to us a notice of project completion. If we are satisfied that the project completion requirements have been met, we must deliver to Siemens Westinghouse a project completion certificate. If reasonable cause exists for doing so, we must notify Siemens Westinghouse in writing that project completion has not been achieved, stating the reasons therefore. If our project completion has not been achieved as so determined by us, Siemens Westinghouse must promptly take such

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action or perform the additional services as will achieve project completion and must issue to us another notice of project completion. The procedure must be repeated as necessary until project completion is achieved.

          Siemens Westinghouse will be obligated to achieve project completion within 180 days after final acceptance of our facility. If Siemens Westinghouse does not achieve our project completion on or before our project completion deadline or if we determine that Siemens Westinghouse is not proceeding with all due diligence to complete the services in order to achieve project completion by the deadline, we may retain another contractor to complete the work at the contractor’s expense.

Price Rebate for Failure to Meet Guarantees

          Siemens Westinghouse guarantees that (1) at least one of provisional acceptance, interim acceptance or final acceptance of our facility will be achieved on or before the guaranteed provisional acceptance date and (2) final acceptance of our facility will be achieved on or before the guaranteed final acceptance date.

          If none of provisional acceptance, interim acceptance or final acceptance of our facility occurs by the date that is 45 days after the guaranteed provisional acceptance date, Siemens Westinghouse must pay us $110,000 per day for each day provisional acceptance, interim acceptance or final acceptance is later than the guaranteed provisional acceptance date, but in no event will the aggregate amount of the payments be greater than the Delay LD SubCap (the aggregate amount of which is equal to 20% of the contract price).

          Siemens Westinghouse began paying liquidated damages of $110,000 per day beginning 45 days after the guaranteed provisional acceptance date of May 22, 2001. The liquidated damages ceased to accrue on December 27, 2001, the date upon which provisional acceptance was granted. At December 31, 2001, we had invoiced Siemens Westinghouse approximately $19 million. At December 31, 2002, Siemens Westinghouse had paid all liquidated damages invoiced to them. These amounts were recorded as a reduction in the cost of the facility.

Performance Guarantees

          If the average net electrical output of our facility at provisional acceptance or interim acceptance, whichever is the earlier to occur, is less than the natural gas-based electrical output guarantee, then Siemens Westinghouse must pay us, as a rebate, for each day during the interim period, an amount equal to $0.22 per day for each kilowatt by which the average net electrical output is less than the natural gas-based electrical output guarantee. During performance testing output was calculated to be 37,854 kilowatts less than the natural gas-based electrical output guarantee. The daily charge for this amount has been calculated at $8,328 per day.

          At the conclusion of the April 2002 outage, Siemens-Westinghouse retested the facility and achieved no improvement in electrical output. The daily charge for electrical output shortfall remained at $8,328 per day through June 30, 2002.

          Output was improved in July 2002 to 3,195 kilowatts less than the natural gas-based electrical output guarantee and accordingly the interim rebate was lowered to $645 per day on July 4, 2002, the day we began receiving higher capacity payments from Williams Energy.

          Under the terms of the agreement, various provisions relating to electrical output performance provided either for a bonus to be paid by us to Siemens Westinghouse or for Siemens Westinghouse to pay us a rebate based on the outcome of those performance tests. As a result of our settlement agreement, however, Siemens Westinghouse is deemed to have met but not exceeded the performance guarantees and no bonus will be paid by us and no rebate will be paid by Siemens Westinghouse.

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          If the average net heat rate of our facility at provisional acceptance and/or interim acceptance, if having occurred before final acceptance, exceeds the natural gas-based heat rate guarantee, then Siemens Westinghouse must pay us, as a rebate, for each day during the interim period, an amount equal to $44 per day for each BTU/KwH by which the measured net heat rate is greater than the natural gas-based heat rate guarantee. During performance testing heat rate was calculated to be 162 BTU/KwH more than the natural gas-based heat rate guarantee. The daily charge for this amount has been calculated at $7,116 per day.

          At the conclusion of the April outage Siemens-Westinghouse retested the facility and achieved an improvement in heat rate. During performance testing heat rate was calculated to be 71 BTU/KwH more than the natural gas-based natural heat rate guarantee. The daily charge for this amount has been calculated at $3,118 per day. The improvement in heat rate commenced on May 23, 2002, and the lesser amount was invoiced to Siemens-Westinghouse from that date until December 31, 2002.

          Under the terms of the agreement, various provisions relating to heat performance provided either for a bonus to be paid by us to Siemens Westinghouse or for Siemens Westinghouse to pay us a rebate based on the outcome of those performance tests. As a result of our settlement agreement, however, Siemens Westinghouse is deemed to have met but not exceeded the performance guarantees and no bonus will be paid by us and no rebate will be paid by Siemens Westinghouse.

          In no event will Siemens Westinghouse’s liability exceed (1) the Delay LD SubCap, the aggregate of which is equal to 20% of the contract price, and (2) the Total LD SubCap (the aggregate amount of which is equal to 45% of the contract price).

Liability and Damages

     Consequential Damages

          Neither party nor any of its contractors, subcontractors or other agents providing equipment, material or services for our project will be liable for any indirect, incidental, special or consequential loss or damage of any type.

     Aggregate Liability of Contractor

          The total aggregate liability of Siemens Westinghouse and any of its subcontractors, including liabilities covered by the Delay LD SubCap and the Total LD SubCap, to us will not in any event exceed an amount equal to the contract price so long as the limitation of liability will not apply to obligations to remove liens or to make indemnification payments.

          Warranties and Guarantees