buys power from: midwest generation

10-K SEC filing by midwest generation LLC , annual report for 2008

http://www.edison.com/images/cms_images/c7183_2008_MWGen_10k_3257.pdf

 

 

Overview of Facilities 

The Crawford Station 

The Crawford Station is a 532 MW coal-fired power plant located in Cook County, Illinois, and is 

within the city limits of Chicago. The Crawford Station occupies approximately 72 acres, inclusive of the 

switchyard. The operating units are referred to as Units 7 and 8 and began operations in 1958 and 1961, 

respectively. 

Southern PRB coal is loaded into barges at the Will County Station and delivered by barge primarily 

on a ‘‘just-in-time’’ basis supported by Crawford’s on-site storage. Natural gas is used for ignition and 

combustion support and for full boiler operation, when economical. Peoples Energy Corporation delivers 

natural gas under a delivery contract that includes balancing storage, which is also shared by the Fisk 

Station. 

The Fisk Station 

The Fisk Station is a 326 MW coal-fired power plant located in Cook County, Illinois, and is within 

the city limits of Chicago. The Fisk Station is located on approximately 44 acres, inclusive of the 

switchyard. The operating unit comprising the Fisk Station is referred to as Unit 19 and began operations 

in 1959. 

Southern PRB coal is loaded into barges at the Will County Station, delivered by barge on a 

‘‘just-in-time’’ basis. Natural gas is used for ignition and combustion support and for full boiler 

operation, when economical. Peoples Gas delivers natural gas under a delivery contract that includes 

balancing storage, which is shared by the Crawford Station. 

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The Joliet Station 

The Joliet Station is located in Joliet, Will County, Illinois, approximately 40 miles southwest of 

Chicago on an approximately 467-acre site. The operating units comprising the Joliet Station are referred 

to as Units 6, 7 and 8. Only Units 7 and 8 are subject to the leveraged lease transaction described in this 

annual report. The operation of Units 6, 7 and 8 began in 1959, 1965 and 1966, respectively. Joliet Unit 

6 is a 290 MW coal-fired unit located adjacent to, but across the Des Plaines River from, Joliet Units 7 

and 8. Joliet Units 7 and 8 are coal-fired and have a combined capacity of 1,036 MW. The Joliet Station 

burns Southern PRB coal which is shipped by rail. With the completion of a new rail spur in early 2003, 

direct deliveries are received from the Union Pacific Railroad. Natural gas is delivered for the boilers as 

a startup and stabilizing fuel by Nicor Gas Company under a delivery contract. 

The Powerton Station 

The Powerton Station is a 1,538 MW coal-fired station located in Pekin, Tazwell County, Illinois, 

approximately 16 miles southwest of Peoria or 166 miles from Chicago on an approximately 568-acre 

site. The Powerton Station is subject to the leveraged lease transaction described in this annual report. 

The site also includes an approximately 1,440-acre lake. The operating units comprising the Powerton 

Station are referred to as Units 5 and 6 and began operations in 1972 and 1975, respectively. The 

Powerton Station burns Southern PRB coal which is shipped by rail by the Illinois and Midland Railroad 

Company from interchange points with the Union Pacific Railroad. 

The Waukegan Station 

The Waukegan Station is a 689 MW coal-fired power plant located in Waukegan, Lake County, 

Illinois, on Lake Michigan. The Waukegan Station occupies approximately 194 acres, inclusive of the 

switchyard. The operating units comprising the Waukegan Station are referred to as Units 7 and 8 and 

began operations in 1958 and 1962, respectively. Midwest Generation shut down permanently Unit 6, 

representing 100 MW of capacity, on December 21, 2007. Unit 7 utilizes oil or natural gas and Unit 8 

utilizes natural gas for ignition and startup. The Waukegan Station burns Southern PRB coal, which is 

shipped by rail by the Union Pacific Railroad. 

The Will County Station 

The Will County Station is a 1,060 MW coal-fired power plant located in Romeoville, Will County, 

Illinois. The Will County Station is located on approximately 215 acres, inclusive of the switchyard. The 

operating units comprising the Will County Station are referred to as Units 1, 2, 3 and 4 and began 

operations between 1955 and 1963. Beginning in January 2003, operations at Units 1 and 2 were 

suspended pending improvement in market conditions. In late 2004, both units were returned to service. 

Midwest Generation has agreed with the Illinois EPA to shut down permanently Units 1 and 2 on or 

before December 31, 2010. 

The Will County Station burns Southern PRB coal, which is shipped by rail by the Elgin, Joliet & 

Eastern Railway Company from interchange points with the Union Pacific Railroad. The Will County 

Station uses No. 2 fuel oil for ignition and combustion support, which is delivered by tanker truck to a 

100,000 gallon on-site storage tank. 

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The Collins Station 

On September 30, 2004, Midwest Generation permanently ceased operations at the Collins Station 

and all units were decommissioned on or before December 31, 2004. The Collins Station was a 2,698 

MW gas and oil-fired power plant located in Grundy County, near Morris, Illinois. 

On-Site and Off-Site Peaking Facilities 

The on-site peaking units of Joliet and the off-site peaking units of Calumet, Electric Junction, 

Lombard and Sabrooke ceased operations as of December 31, 2004 following a management analysis of 

the future competitiveness of eight of Midwest Generation’s small peaking units in the expanded PJM 

marketplace in September 2004. In addition, the on-site peaking units of Crawford ceased operations as 

of April 21, 2005 as a result of the same management analysis. The remaining on-site peaking units 

consist of Fisk and Waukegan, which were commissioned in 1968. 

The Fisk and Waukegan peaking units burn No. 1 fuel oil (jet fuel). Natural gas is used by the Fisk 

peaking unit for ignition. Natural gas is purchased in the monthly and daily spot markets and is shipped 

at the seller’s risk to Chicago. Peoples Gas provides delivery services, including balancing storage, to the 

site under tariffs approved by the Illinois Commerce Commission. Midwest Generation purchases No. 1 

fuel oil and No. 2 fuel oil from bids taken annually. The oil price is tied to the Oil Price Information 

Service posted price (the market price) on the date of delivery. Shipments to the various sites are in 

tanker trucks and inventory is replenished as needed by the site. Truck delivery charges are at fixed 

agreed-upon prices. 

Transmission 

Station units at Will County, Crawford, Waukegan, and Joliet Unit 6 are connected to Commonwealth 

Edison’s 138 kV transmission systems. The Fisk Station is connected via various circuit breakers and 

transformers to transmission substations. The Joliet Units 7 and 8, subject to the leveraged lease 

transactions, and the two Powerton units deliver their power into Commonwealth Edison’s 345 kV 

transmission system. Prior to May 1, 2004, sales of power produced by Midwest Generation required 

using transmission that had to be obtained from Commonwealth Edison. As mentioned previously, the 

Illinois Plants are generally dispatched into the PJM market, and sales may also be made from PJM into 

the MISO. 

Significant Customer 

In the past three fiscal years, Midwest Generation derived a significant source of its operating 

revenues from electric power sold into the PJM market by EMMT. Sales into PJM accounted for 

approximately 58%, 49% and 67% of Midwest Generation’s consolidated operating revenues for the years 

ended December 31, 2008, 2007 and 2006, respectively. 

Beginning in January 2007, Midwest Generation derived a significant source of its revenues from the 

sale of energy, capacity and ancillary services generated to Commonwealth Edison under load 

requirements services contracts. Sales under these contracts accounted for 18% and 30% of Midwest 

Generation’s consolidated operating revenues for the years ended December 31, 2008 and 2007, 

respectively. 

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Fuel Supply 

Coal is used to fuel 5,471 MW of Midwest Generation’s generating capacity. The coal is purchased 

from several suppliers that operate mines in the Southern PRB of Wyoming. The total volume of coal 

consumed annually is largely dependent on the amount of generation and ranges between 17.5 million to 

19.5 million tons. 

All coal is transported under long-term transportation agreements with the Union Pacific Railroad 

and various delivering carriers. As of December 31, 2008, Midwest Generation leased approximately 

4,000 railcars to transport the coal from the mines to the generating stations and the leases have 

remaining terms that range from less than two years to 11 years, with options to extend the leases or 

purchase some railcars at the end of the lease terms. The coal is transported nearly 1,200 miles from the 

mines to the Illinois Plants. 

Coal for the Fisk and Crawford Stations is typically shipped by rail to the Will County Station where 

it is transferred from the railcars, blended as necessary to meet station specifications, and loaded into 

river barges. These barges are towed to the stations by an independent contractor under a transportation 

agreement with Midwest Generation. Occasionally, third-party transloading facilities are utilized. 

Midwest Generation has approximately 305 MW of peaking capacity in the form of simple cycle 

combustion turbines at the Fisk and Waukegan Stations. These units are fueled with distillate fuel oils. 

See ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of 

Operations—Liquidity and Capital Resources—Contractual Obligations, Commitments and 

Contingencies,’’ for additional discussion of contractual commitments related to Midwest Generation’s 

fuel supply and coal transportation contracts. 

 

 

ITEM 2. PROPERTIES 

As of December 31, 2008, Midwest Generation owned a fee interest in the Illinois Plants, with the 

exception of the Powerton Station and the Joliet Units 7 and 8, as more particularly described below. In 

December 1999, Commonwealth Edison sold only a portion of its then owned properties related to the 

Illinois Plants to Midwest Generation and retained the remaining portions of the properties for its own 

uses. Midwest Generation and Commonwealth Edison have various reciprocal permanent and temporary 

easements over Midwest Generation’s respective parcels for the location, use, maintenance and repair of 

those facilities and equipment that are used in connection with the operations of Midwest Generation and 

Commonwealth Edison. On December 30, 2004, Midwest Generation acquired additional property 

adjacent to the Collins Station from Commonwealth Edison in exchange for easements Midwest 

Generation granted to Commonwealth Edison at the Will County, Joliet and Powerton Stations. 

In conjunction with the sale-leaseback of the Powerton Station and Joliet Units 7 and 8 in August 

2000, Midwest Generation leased substantially all the property on which the generating units are located 

to the owner trusts under site leases, and the owner trusts in turn subleased their undivided ground 

interest in the property back to Midwest Generation under site subleases. The terms of the site subleases 

are 33.75 years for the Powerton property and 30 years for the Joliet property, with renewal options. 

Rent is paid on each January 2 and July 2. 

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Description of Properties 

Leased/ 

Operating Plant or Site Location Owned Fuel Megawatts 

Electric Generating Facilities 

Crawford Station………………………… Chicago, Illinois owned coal 532 

Fisk Station……………………………….. Chicago, Illinois owned coal 326 

Joliet Unit 6………………………………. Joliet, Illinois owned coal 290 

Joliet Units 7 and 8……………………. Joliet, Illinois leased coal 1,036 

Powerton Station………………………… Pekin, Illinois leased coal 1,538 

Waukegan Station………………………. Waukegan, Illinois owned coal 689(1) 

Will County Station……………………. Romeoville, Illinois owned coal 1,060(2) 

Peaking Units 

Fisk………………………………………….. Chicago, Illinois owned oil/gas 197 

Waukegan………………………………….. Waukegan, Illinois owned oil/gas 108 

Total……………………………………………. 5,776 

Other Plant or Site 

Collins Station(3)……………………….. Grundy County, Illinois 

Crawford peaker(4)…………………….. Chicago, Illinois 

Joliet peaker(5)………………………….. Joliet, Illinois 

Calumet peaker(5)………………………. Chicago, Illinois 

Electric Junction peaker(5)………….. Aurora, Illinois 

Lombard peaker(5)…………………….. Lombard, Illinois 

Sabrooke peaker(5)…………………….. Rockford, Illinois 

(1) The Waukegan Station is comprised of Units 7 and 8. Midwest Generation shut down permanently Waukegan Station 

Unit 6 (100 MW) on December 21, 2007. For further discussion, see ‘‘Item 8. Financial Statements and Supplementary 

Data—Midwest Generation, LLC Notes to Consolidated Financial Statements—Note 9. Commitments and Contingencies— 

Environmental Matters and Regulations—Air Quality Regulation.’’ 

(2) The Will County Station is comprised of Units 1, 2, 3, and 4. Operations at Will County Station Units 1 and 2 (totaling 

299 MW) were returned to service in late 2004 after being suspended in January 2003. Midwest Generation has agreed 

with the Illinois EPA to shut down permanently Will County Station Units 1 and 2 on or before December 31, 2010. For 

further discussion, see ‘‘Item 8. Financial Statements and Supplementary Data—Midwest Generation, LLC Notes to 

Consolidated Financial Statements—Note 9. Commitments and Contingencies—Environmental Matters and Regulations— 

Air Quality Regulation.’’ 

(3) All Collins Station units ceased operations and were decommissioned on or before December 31, 2004. 

(4) Peaking units ceased operations as of April 21, 2005. 

(5) Peaking units ceased operations as of December 31, 2004. 

ITEM 3. LEGAL PROCEEDINGS 

New Source Review Notice of Violation 

On August 3, 2007, Midwest Generation received an NOV from the US EPA alleging that, beginning 

in the early 1990’s and into 2003, Midwest Generation or Commonwealth Edison performed repair or 

replacement projects at six Illinois coal-fired electric generating stations in violation of the Prevention of 

Significant Deterioration requirements and of the New Source Performance Standards of the CAA, 

including alleged requirements to obtain a construction permit and to install best available control 

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technology at the time of the projects. The US EPA also alleges that Midwest Generation and 

Commonwealth Edison violated certain operating permit requirements under Title V of the CAA. Finally, 

the US EPA alleges violations of certain opacity and particulate matter standards at the Illinois Plants. 

The NOV does not specify the penalties or other relief that the US EPA seeks for the alleged violations. 

Midwest Generation, Commonwealth Edison, the US EPA and the DOJ are in talks designed to explore 

the possibility of a settlement. If the settlement talks fail and the DOJ files suit, litigation could take 

many years to resolve the issues alleged in the NOV. Midwest Generation cannot predict the outcome of 

this matter or estimate the impact on its facilities, its results of operations or financial position. 

On August 13, 2007, Midwest Generation and Commonwealth Edison received a letter signed by 

several Chicago-based environmental action groups stating that, in light of the NOV, the groups are 

examining the possibility of filing a citizen suit against Midwest Generation and Commonwealth Edison 

based presumably on the same or similar theories advanced by the US EPA in the NOV. 

By letter dated August 8, 2007, Commonwealth Edison advised Midwest Generation that 

Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that 

it may be required to bear as a result of the NOV. By letter dated August 16, 2007, Commonwealth 

Edison tendered a request for indemnification to Midwest Generation for all liabilities, costs, and 

expenses that Commonwealth Edison may be required to bear if the environmental groups were to file 

suit. Midwest Generation and Commonwealth Edison are cooperating with one another in responding to 

the NOV. 

 

 

Environmental Developments 

Climate Change Regulation 

The content of potential climate change regulation in the future remains uncertain. While debate 

continues at the national level over domestic climate policy and the appropriate scope and terms of any 

federal legislation, many states are developing state-specific measures or participating in regional 

legislative initiatives to reduce GHG emissions. State and regional regulations may vary and may be 

more stringent and costly than federal legislative proposals currently being debated in the U.S. Congress. 

Key uncertainties include whether a cap-and-trade program will be implemented similar to the US EPA 

Acid Rain Program, and, if implemented, whether emission allowances would be provided to affected 

parties without cost for a period of time. In the absence of legislation, it is also possible that CO2 will be 

regulated by the US EPA pursuant to authority granted under the CAA in its current form. Furthermore, 

the rate of decrease in GHG emissions and the cost to purchase allowances would be significant factors 

in determining whether environmental controls for other emissions would be economic to install. 

Programs to reduce GHG emissions could significantly increase the cost of generating electricity from 

fossil fuels as well as the cost of purchased power. The potential impact on Midwest Generation will 

depend upon how the factors discussed above and many other considerations are resolved. 

Air Quality Regulation 

On December 11, 2006, Midwest Generation entered into an agreement with the Illinois EPA to 

reduce mercury, NOX and SO2 emissions at the Illinois Plants. The agreement has been embodied in an 

Illinois rule called the CPS. All of Midwest Generation’s Illinois coal-fired electric generating units are 

subject to the CPS. 

Under the CPS, Midwest Generation is required to achieve specific lower emission rates by specified 

dates. Midwest Generation has not decided upon a particular combination of retrofits to meet the 

required step down in emission rates. Midwest Generation continues to review alternatives, including 

interim compliance solutions. The CPS also specifies that specific control technologies are to be installed 

on some units by specified dates. In these cases, Midwest Generation must either install the required 

technology by the specified deadline or shut down the unit. 

Midwest Generation is in the process of completing engineering work for the potential installation of 

SCR equipment on Units 5 and 6 at the Powerton Station and SNCR equipment on Unit 6 at the Joliet 

Station. The SCR equipment at the Powerton Station is currently estimated to cost $500 million, and the 

SNCR equipment on Unit 6 at the Joliet Station is currently estimated to cost $13 million (both figures 

are in 2008 dollars). This technology combination represents one possible compliance plan for the NOX 

emission rates. Midwest Generation is evaluating other potential solutions that are less costly to meet the 

NOX emissions rate that combine the use of alternative NOX removal technologies with certain unit 

shutdowns. 

The engineering work at the Powerton Station also includes the potential installation of FGD 

equipment on Units 5 and 6, and Midwest Generation currently estimates approximately $1 billion (in 

2008 dollars) of capital expenditures would be required for the FGD equipment at the Powerton Station. 

Midwest Generation also determined these capital expenditures could be reduced if the construction work 

sequence of FGD and SCR at the Powerton Station were reversed. The complexity of the Powerton 

Station installation and construction interferences are representative of the balance of the fleet and 

Midwest Generation currently estimates approximately $650/kW for any FGD installation it elects to 

make on other units. 

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A decision to make these improvements has not been made. Midwest Generation is still evaluating 

all technology and unit shutdown combinations, including interim and alternative compliance solutions. 

For further discussion, see ‘‘Midwest Generation, LLC Notes to Consolidated Financial Statements— 

Note 9. Commitments and Contingencies—Environmental Matters and Regulations.’’ 

Water Quality Regulation 

On October 26, 2007, the Illinois EPA filed a proposed rule with the Illinois PCB that would 

establish more stringent thermal and effluent water quality standards for the Chicago Area Waterway 

System and Lower Des Plaines River. Midwest Generation’s Fisk, Crawford and Will County Stations all 

use water from the Chicago Area Waterway System and its Joliet Station uses water from the Lower Des 

Plaines River for cooling purposes. The rule, if implemented, is expected to affect the manner in which 

those stations use water for station cooling. 

The proposed rule is the subject of an administrative proceeding before the Illinois PCB and must be 

approved by the Illinois PCB and the Illinois Joint Committee on Administrative Rules. Following state 

adoption and approval, the US EPA also must approve the rule. Hearings began on January 28, 2008, and 

are continuing in 2009. Midwest Generation is a party in those proceedings. At this time, it is not 

possible to predict the timing for resolution of the proceeding, the final form of the rule, or how it 

would impact the operation of the affected stations; however, significant capital expenditures may be 

required depending on the form of the final rule. In addition, the outcome of these proceedings may 

affect Midwest Generation’s plans for compliance with the CPS discussed above. 

Overview of Midwest Generation’s Operating Performance 

Midwest Generation’s net income increased $174 million in 2008, compared to 2007. During 2007, 

Midwest Generation recorded a $79 million after-tax charge related to early extinguishment of debt. 

Excluding this charge, net income increased $95 million in 2008, compared to 2007, primarily 

attributable to: 

• a $99 million (pre-tax) increase in realized gross margin resulting primarily from higher capacity 

revenues as a result of the PJM RPM auctions; 

• a $43 million (pre-tax) change from unrealized losses in 2007 to unrealized gains in 2008 related 

to power contracts, partially offset by a $24 million unrealized loss in 2008 related to the 

bankruptcy of Lehman Brothers Holdings (see ‘‘Market Risk Exposures—Accounting for Energy 

Contracts’’ for more information); 

• a $31 million (pre-tax) reduction in long-term debt interest expense primarily due to the repayment 

of debt in May 2007 from refinancing; and 

• a $15 million (pre-tax) gain related to the buyout of a fuel contract (see ‘‘Liquidity and Capital 

Resources—Contractual Obligations and Contingencies—Fuel Supply Contracts’’ for more 

information). 

The increases were partially offset by an increase in maintenance and repair costs due to planned and 

unplanned outages, and lower sales of emission allowances during the current year. 

Two factors are expected to increase operating expenses by approximately $90 million to 

$105 million during 2009 as compared to 2008: 

• Effective January 1, 2009, the CAIR requires Midwest Generation to purchase annual NOX 

allowances in excess of the amounts allocated by the state of Illinois under its SIP. See ‘‘Midwest 

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Generation, LLC Notes to Consolidated Financial Statements—Note 9. Commitments and 

Contingencies—Environmental Matters and Regulations—Environmental Matters and 

Regulations—Air Quality Regulation—Clean Air Interstate Rule’’ for further discussion. 

• Midwest Generation installed activated carbon injection equipment to reduce mercury emissions at 

the Illinois Plants. 

See ‘‘Results of Operations’’ for further discussion of Midwest Generation’s operating results. 


 

Related Party Transactions 

EMMT Agreements 

Midwest Generation entered into a revolving credit agreement with EMMT, dated as of April 27, 

2004, to provide credit support for forward contracts entered into by EMMT. Under this agreement, 

Midwest Generation can, from time to time, make revolving loans to, and have letters of credit issued on 

behalf of, EMMT. Midwest Generation had provided $54 million to EMMT as of December 31, 2007 

and none as of December 31, 2008. Loans provided under this revolving credit agreement are repaid by 

EMMT upon the return of the funds under the terms of the related forward contract. The amount repaid 

includes interest earned, if any, under margining agreements supporting such contracts. Midwest 

Generation earned interest income of $1 million during 2008 and $2 million during each of 2007 and 

2006. The maximum amount of available credit under the agreement is $500 million. 

Midwest Generation has entered into a master purchase, sale and services agreement with EMMT, 

pursuant to which EMMT arranges for purchases and sales of the following products, including related 

services: (i) energy and capacity; (ii) natural gas; (iii) fuel oil; and (iv) emission allowances. 

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Midwest Generation compensates EMMT in accordance with the following table with respect to 

these transactions, and reimburses EMMT for brokers’ fees, taxes, and other reasonably incurred direct 

out-of-pocket expenses. Payment for these services is due within 30 days of billing. 

Service Compensation 

Energy……………………………………………. $.02/MWh 

Capacity…………………………………………. $.02/MW-day 

Natural gas……………………………………… $.02/MMBtu 

Fuel oil…………………………………………… $.05/bbl 

Emission allowances…………………………. $.25/SO2 allowance; and $25/NOX allowance 

The net fees earned by EMMT were $2 million, $1 million and $1 million for the years ended 

December 31, 2008, 2007 and 2006, respectively. Midwest Generation had receivables due from EMMT 

of $143 million and $108 million at December 31, 2008 and 2007, respectively. 

Midwest Generation also entered into several transactions through EMMT to sell surplus or purchase 

SO2 and NOX allowances. All transactions were completed at market price on the date of the transaction. 

Net consideration received (paid) by Midwest Generation was $(33) million, $(7) million and $7 million 

during 2008, 2007 and 2006, respectively. 

Fuel Services Agreement 

Midwest Generation has entered into an agreement with Edison Mission Energy Services, Inc. to 

provide fuel and transportation services related to coal and fuel oil. Under the terms of this agreement, 

Midwest Generation paid a service fee of $.06 for each ton of coal delivered and $.05 for each barrel of 

fuel oil delivered, plus the actual cost of the commodities. The agreement terminated during 2006. The 

amount billable under this agreement for the service fee for the year ended December 31, 2006 was 

$1 million. 

Notes Receivable from EME 

The proceeds received by Midwest Generation from the Powerton-Joliet sale-leaseback transaction 

were loaned to EME. The loan is evidenced by four intercompany notes amounting to $1.367 billion. 

EME is obligated to repay the principal on the notes in a series of installments on the dates and in the 

amounts set forth on a schedule to each note. EME has paid and is required to pay interest on the notes 

on each January 2 and July 2 at an 8.30% fixed interest rate. All amounts due under the notes are due to 

be repaid in full by January 2, 2016. Midwest Generation earned interest income of $112 million, 

$113 million and $113 million during 2008, 2007 and 2006, respectively. 

 

 

 

Indemnity Provided as Part of the Acquisition from Commonwealth Edison 

In connection with the acquisition of the Illinois Plants, Midwest Generation agreed to indemnify 

Commonwealth Edison with respect to specified environmental liabilities before and after December 15, 

1999, the date of sale. The indemnification claims are reduced by any insurance proceeds and tax 

benefits related to such claims and are subject to a requirement that Commonwealth Edison takes all 

reasonable steps to mitigate losses related to any such indemnification claim. Due to the nature of the 

obligation under this indemnity, a maximum potential liability cannot be determined. This 

indemnification for environmental liabilities is not limited in term and would be triggered by a valid 

claim from Commonwealth Edison. Commonwealth Edison has advised Midwest Generation that 

Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that 

it may be required to bear as a result of the NOV discussed below under ‘‘—Contingencies—New 

Source Review Notice of Violation’’ and potential litigation by private groups related to the NOV. Except 

as discussed below, Midwest Generation has not recorded a liability related to this indemnity. 

Midwest Generation entered into a supplemental agreement with Commonwealth Edison and Exelon 

Generation on February 20, 2003 to resolve a dispute regarding interpretation of its reimbursement 

obligation for asbestos claims under the environmental indemnities set forth in the Asset Sale 

Agreement. Under this supplemental agreement, Midwest Generation agreed to reimburse 

Commonwealth Edison and Exelon Generation for 50% of specific asbestos claims pending as of 

February 2003 and related expenses less recovery of insurance costs, and agreed to a sharing 

arrangement for liabilities and expenses associated with future asbestos-related claims as specified in the 

agreement. As a general matter, Commonwealth Edison and Midwest Generation apportion responsibility 

for future asbestos-related claims based upon the number of exposure sites that are Commonwealth 

Edison locations or Midwest Generation locations. The obligations under this agreement are not subject 

to a maximum liability. The supplemental agreement had an initial five-year term with an automatic 

renewal provision for subsequent one-year terms (subject to the right of either party to terminate); 

pursuant to the automatic renewal provision, it has been extended until February 2010. There were 

approximately 222 cases for which Midwest Generation was potentially liable and that had not been 

settled and dismissed at December 31, 2008. Midwest Generation had recorded a $52 million liability at 

December 31, 2008 related to this matter. 

Midwest Generation recorded an undiscounted liability for its indemnity for future asbestos claims 

through 2045. During the fourth quarter of 2007, the liability was reduced by $9 million based on 

updated estimated losses. In calculating future losses, various assumptions were made, including but not 

limited to, the settlement of future claims under the supplemental agreement with Commonwealth Edison 

as described above, the distribution of exposure sites, and that no asbestos claims will be filed after 

2044. 

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The amounts recorded by Midwest Generation for the asbestos-related liability are based upon a 

number of assumptions. Future events, such as the number of new claims to be filed each year, the 

average cost of disposing of claims, as well as the numerous uncertainties surrounding asbestos litigation 

in the United States, could cause the actual costs to be higher or lower than projected. 

 

The following is an excerpt from a 10-K SEC Filing, filed by MIDWEST GENERATION LLC on 3/16/2005.

 

http://sec.edgar-online.com/midwest-generation-llc/10-k-annual-report/2005/03/16/Section3.aspx

 

 

Significant Customer

       In the past three fiscal years, Midwest Generation derived a significant source of its revenues from the sale of energy and capacity to Exelon Generation primarily under three power purchase agreements which began on December 15, 1999. The Collins Station power purchase agreement was terminated on September 30, 2004 and the other power purchase agreements expired on December 31, 2004. Exelon Generation accounted for approximately 54%, 68% and 99% of Midwest Generation’s energy and capacity revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

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Fuel Supply

       Coal is used to fuel 5,621 MW of Midwest Generation’s generating capacity. The coal is purchased from several suppliers that operate mines in the Southern Powder River Basin of Wyoming. The coal is purchased under a number of supply agreements ranging from one year to four years in length. The total volume of coal consumed annually is largely dependent on the amount of generation and ranges between 16 million to 20 million tons.

       All coal is transported under long-term transportation agreements with the Union Pacific Railroad and various delivering carriers. As of December 31, 2004, Midwest Generation leased approximately 3,800 railcars to transport the coal from the mines to the generating stations and the leases have remaining terms that range from as short as 6 months up to 15 years, with options to extend the leases for or purchase some railcars at the end of the lease terms. The coal is transported nearly 1,200 miles from the mines to the stations.

       Coal for the Fisk and Crawford Stations is first shipped by rail to the Will County Station where it is transferred from the railcars, blended as necessary to meet station specifications, and loaded into river barges. These barges are towed by an independent contractor under a transportation agreement with Midwest Generation to the stations.

       Midwest Generation has approximately 255 MW of peaking capacity in the form of simple cycle combustion turbines at Fisk and Waukegan Stations. These units are fueled with distillate fuel oils.

       See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Contingencies,” for additional discussion of contractual commitments related to Midwest Generation’s fuel supply and coal transportation contracts.

 

 

 

 

Facilities Overview

The Crawford Station

       The Crawford Station is a 542 MW coal-fired power plant located in Cook County, Illinois, and is within the city limits of Chicago. The Crawford Station occupies approximately 72 acres, inclusive of the switchyard. The operating units are referred to as Units 7 and 8 and began operations in 1958 and 1961, respectively.

       Southern Powder River Basin coal is loaded into barges at the Will County Station and delivered by barge primarily on a “just-in-time” basis supported by Crawford’s on-site storage. Natural gas is used for ignition and combustion support and for full boiler operation, when economical. Peoples Gas delivers natural gas under a delivery contract that includes balancing storage, which is also shared by the Fisk Station.

The Fisk Station

       The Fisk Station is a 326 MW coal-fired power plant located in Cook County, Illinois, and is within the city limits of Chicago. The Fisk Station is located on approximately 44 acres, inclusive of the switchyard. The operating unit comprising the Fisk Station is referred to as Unit 19 and began operations in 1959.

       Southern Powder River Basin coal is loaded into barges at the Will County Station, delivered by barge on a “just-in-time” basis. Natural gas is used for ignition and combustion support and for full boiler operation, when economical. Peoples Gas delivers natural gas under a delivery contract that includes balancing storage, which is shared by the Crawford Station.

The Joliet Station

       The Joliet Station is located in Joliet, Will County, Illinois, approximately 40 miles southwest of Chicago on an approximately 467 acre site. The operating units comprising the Joliet Station are referred to as Units 6, 7 and 8. Only Units 7 and 8 are subject to the leveraged lease transaction described in this annual report. The operation of Units 6, 7 and 8 began in 1959, 1965 and 1966, respectively. Joliet Unit 6 is a 290 MW coal-fired unit located adjacent to, but across the Des Plaines River from, Joliet Units 7 and 8. Joliet Units 7 and 8 are coal-fired and have a combined capacity of 1,044 MW.

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       The Joliet Station burns Southern Powder River Basin coal which is shipped by rail. With the completion of a new rail spur in early 2003, direct deliveries are received from the Union Pacific Railroad. Natural gas is delivered for the boilers as a startup and stabilizing fuel by Nicor Gas Company under a delivery contract.

The Powerton Station

       The Powerton Station is a 1,538 MW coal-fired station located in Pekin, Tazwell County, Illinois, approximately 16 miles southwest of Peoria or 166 miles from Chicago on an approximately 568-acre site. The Powerton Station is subject to the leveraged lease transaction described in this annual report. The site also includes an approximately 1,440-acre lake. The operating units comprising the Powerton Station are referred to as Units 5 and 6 and began operations in 1972 and 1975, respectively.

       The Powerton Station burns Southern Powder River Basin coal which is shipped by rail by the Illinois and Midland Railroad Company from interchange points with the Union Pacific Railroad.

The Waukegan Station

       The Waukegan Station is a 789 MW coal-fired power plant located in Waukegan, Lake County, Illinois, on Lake Michigan. The Waukegan Station occupies approximately 194 acres, inclusive of the switchyard. The operating units comprising the Waukegan Station are referred to as Units 6, 7 and 8 and began operations in 1952, 1958 and 1962, respectively.

       Unit 6 utilizes oil for ignition and startup, while Unit 7 utilizes oil or natural gas and Unit 8 utilizes natural gas for ignition and startup. The Waukegan Station burns Southern Powder River Basin coal which is shipped by rail by the Union Pacific Railroad.

The Will County Station

       The Will County Station is a 1,092 MW coal-fired power plant located in Romeoville, Will County, Illinois. The Will County Station is located on approximately 215 acres, inclusive of the switchyard. The operating units comprising the Will County Station are referred to as Units 1, 2, 3 and 4 and began operations between 1955 and 1963. Beginning in January 2003, operations at Units 1 and 2, representing 310 MW of capacity, were suspended pending improvement in market conditions. In late 2004, both units were returned to service.

       The Will County Station burns Southern Powder River Basin coal which is shipped by rail by the Elgin, Joliet & Eastern Railway Company from interchange points with the Union Pacific Railroad. The Will County Station uses No. 2 fuel oil for ignition and combustion support, which is delivered by tanker truck to a 100,000 gallon on-site storage tank.

The Collins Station

       On September 30, 2004, Midwest Generation permanently ceased operations at the Collins Station and all units were decommissioned by the fourth quarter of 2004. The Collins Station was a 2,698 MW gas and oil-fired power plant located in Grundy County, near Morris, Illinois. See “—Management’s Overview, Risks Related to the Business and Critical Accounting Estimates—Management’s Overview—Termination of the Collins Station Lease” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for events leading up to the decommissioning of the Collins Station.

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midwest generation LLC, owners of crawford & fisk plants in pilsen & little village, chicago

http://www.edison.com/files/020702_8k.pdf

 

http://www.chicagobusiness.com/cgi-bin/news.pl?id=6731

Midwest Generation LLC will consider whether or not to shut down much of its giant Collins natural gas-fueled power plant following a decision Thursday by Exelon Corp. not to exercise options to purchase electricity generated by three of Collins’ five units next year.

MidwestGen, a Chicago-based power-generation unit of California utility holding company Edison International, bought Collins in Morris, Ill., and several other fossil fuel plants from Exelon’sCommonwealth Edison Co. in 1999. As part of that deal, Exelon negotiated contracts to buy virtually all of those plants’ output through 2002.

The agreements gave Exelon options to buy much of MidwestGen’s power in 2003 and 2004, but Exelon now isn’t exercising many of those options because power prices have dropped significantly.

For 2003, Exelon has exercised options to buy 3,043 megawatts from MidwestGen out of 7,454 megawatts it could have bought, said Exelon spokeswoman Linda Marsicano. Including firm contracts Exelon still has with MidwestGen, Exelon will account for about half of MidwestGen’s total output of 9,400 megawatts.

Stymied by low electricity prices, MidwestGen already has announced it’s mothballing two coal-powered units in Will County next year in reaction to Exelon’s decision earlier this year not to buy power from some of its coal facilities. It plans to lay off about 50 people as part of that move, MidwestGen spokesman Doug McFarlan said.

The company will do a similar analysis on Collins, its largest plant, and should make a decision by the end of the month, he said.

“The current market and depressed prices are certainly a part of that analysis,” Mr. McFarlan said. “The entire independent power business is facing a lot of challenges this year and looking forward.”

For its part, Exelon expects to save $130 million in 2003 by relinquishing its right to buy half of MidwestGen’s output, the company said in a note to investors.

 

 

http://phx.corporate-ir.net/phoenix.zhtml?c=124298&p=irol-newsArticle&ID=570365&highlight=

 

Exelon Generation Company, LLC Exercises Options Under Purchase Power Agreement With Midwest Generation, LLC
On October 2, 2002, Exelon Generation notified Midwest Generation, LLC (Midwest) of its exercise of certain of Exelon Generation’s termination options under the existing Collins Generating Station and Peaking Unit Purchase Power Agreements (PPA). Exelon Generation is a subsidiary of Exelon Corporation (Exelon). Midwest is a subsidiary of Edison Mission Energy and Edison International. Exelon Generation has elected to exercise its termination options on Collins Units 2, 4, and 5 totaling 1,614 MWs of the capacity for the fourth and fifth contract years, 2003 and 2004. Exelon Generation has also elected to exercise its termination options with respect to Calumet units 33 and 34 and Lombard unit 33 totaling 113 MWs for the same period. The effect of exercising these termination options is that Exelon Generation will release the output of the following Midwest generating units during 2003 and 2004.

 

 

Exelon Generation did not exercise its termination options on Collins Units 1 and 3 (1,084 MWs of capacity) or on the remaining 694 MWs of peaking capacity under contract (a total of 1,778 MWs of capacity). Accordingly, Exelon Generation will take output from the following units during 2003.

 

Exelon Generation also has a Coal Generating Stations Purchase Power Agreement with Midwest. Under that PPA, during the fourth contract year, 2003, Exelon Generation contracted for 1,696 MWs of non-option capacity from Midwest with a call option on 3,949 MWs of capacity. On July 1, 2002 Exelon Generation exercised its call option on 1,265 MWs of option capacity. For the contract year 2003, Exelon Generation will take the 1,696 MWs of non-option coal capacity, 1,265 MWs of the option coal capacity, 1,084 MWs of Collins station capacity and 694 MWs of peaking capacity from Midwest. In total, Exelon Generation has retained a total of 4,739 MWs of capacity under the terms of the three existing PPAs with Midwest Generation. Providing reliable service to customers in Illinois served by delivery subsidiary ComEd remains a top priority of Exelon.

On June 20, 2002, Exelon provided earnings per share guidance of a 4.5% to 5.5% compound annual growth rate (CAGR) off a 2001 base. The cost savings related to the Midwest contract incorporated in Exelon’s model at that time totaled $120 million in 2003. The $120 million represented an estimate of the cost savings that could be achieved if the company turned back 50% of the July 1 coal options relative to the estimated cost of the contract in 2003. With the release of about 70% of the coal options and 1,727 MWs of Collins and peaking capacity, the estimated savings in 2003 relative to the full Midwest contract price are about $250 million. However, since the PPAs included a significant step-up in cost in 2003, that contract savings number does not represent year-over-year savings in 2003 compared to 2002.

With the exercise of the termination options on Collins and the peaking plants in addition to the options on the coal plants, the contract with Midwest is in place for 2003. By exercising the Midwest contract options and restructuring the 2003 supply portfolio, the expected capacity cost savings in 2003 compared with 2002 are approximately $130 million. The estimated cost savings are after recognition of capacity payments to other suppliers for the desired amount of contracted replacement of the released supply. Incremental savings related to the energy charge on purchased power will be a function of Exelon Generation’s supply portfolio in 2003, fuel prices, wholesale market prices and volumes purchased.

For additional information please contact me at (312) 394-7696.

Sincerely,

Linda C. Byus, CFA
Vice President Investor Relations

 

 

 

 

 

 

 

 

By: Steve Daniels Oct. 03, 2002

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