AMONG

EXHIBIT 10.1
[EXECUTION COPY]

JOINT DEVELOPMENT AGREEMENT

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U.S. GENERATING COMPANY

MILESBURG ENERGY, INC.

AND

ENVIRONMENTAL POWER CORPORATION

TABLE OF CONTENTS

SECTION PAGE
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1. Purpose.............................................................................................................. 1

2. Term................................................................................................................. 2

3. Mutual Responsibilities.............................................................................................. 2

4. MEI Responsibilities................................................................................................. 2

5. USGen Responsibilities............................................................................................... 2

6. Project Company...................................................................................................... 3

7. Engineering, Procurement and Construction Contract................................................................... 3

8. Operations and Maintenance Contract and Management Service Agreement................................................. 3

9. MEI's Previous Development Costs..................................................................................... 3

10. Accounting During Development Period................................................................................. 4

11. Costs Sharing During Development Period.............................................................................. 4

12. Reimbursement of Development Costs Upon Closing...................................................................... 5

13. EPC Acquisition Fee.................................................................................................. 5

14. Priority of Payments to the Parties.................................................................................. 5

15. Withdrawal and Termination........................................................................................... 6

16. Representations and Warranties of EPC and MEI........................................................................ 6

17. Representations and Warranties of USGen.............................................................................. 9

18. Management of Development Period Activities.......................................................................... 10

19. Indemnities.......................................................................................................... 11

20. Confidentiality...................................................................................................... 12

JOINT DEVELOPMENT AGREEMENT

This Joint Development Agreement ("Agreement") for the development of an
approximately 43 megawatt ("Mw") electric generating facility known as the
Milesburg project (the "Project") is entered into as of the 30th day of July,
1996 by and among U.S. GENERATING COMPANY ("USGen"), ENVIRONMENTAL POWER
CORPORATION ("EPC") and MILESBURG ENERGY, INC. ("MEI"). USGen, MEI and EPC may
be referred to individually as a Party or collectively as the Parties in this
Agreement.

R E C I T A L S

WHEREAS, EPC and MEI and the owners of USGen had previously contemplated
developing the Project as set forth in a Memorandum of Understanding dated March
8, 1989 (the "MOU"), which subsequently expired;

WHEREAS, the Parties have reviewed the status of the Project on a periodic
basis since the expiration of the MOU;

WHEREAS, litigation and other proceedings against the Project have been
resolved to the point that the Parties believe final development of the Project
can now proceed; and

WHEREAS, MEI and USGen desire to complete final development of the Project;

NOW, THEREFORE, in consideration of the mutual promises and undertakings
set forth in this Agreement, the Parties, intend to be legally bound, agree as
follows:

1. Purpose. The Parties by this Agreement shall seek to accomplish or provide
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for implementation of the following:

(a) Complete development of the Project as an independent power project
under a structure that, unless otherwise mutually agreed to by the Parties, will
prevent the regulation of EPC, MEI and USGen, or any of their affiliates, as an
electric utility or an electric utility holding company under the Public Utility
Holding Company Act of 1935 ("PUHCA").

(b) Structure the Project so as to maximize returns, obtain federal
income tax benefits for the participants and ensure limits of liability that are
acceptable to each of the Parties.

(c) Establish the terms and conditions of a Project partnership or other
appropriate entity (the "Project Company") to develop, own and operate the
Project.

(d) Develop a financing structure for the Project which will be
consistent with the requirements of financial institutions and the Parties and
will provide non-recourse financing for construction and operation of the
Project.

(e) Negotiate and execute all definitive Project documents acceptable to
each of the Parties that are needed to achieve a financial closing of the
Project.

2. Term. This Agreement shall be in effect from the date of this Agreement to
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December 31, 1998, unless sooner terminated in accordance with the provisions
hereof. If, the financing for the construction of the Project has not occurred
on or before Xxxx 0, 0000, XXXxx and MEI shall each have the option to purchase
all or a part of the Project assets, as described in this Agreement, at their
then-current fair market value. If both USGen and MEI seek to exercise their
options, they shall cooperate in selling the Project assets to a third party.
The proceeds of such a third-party sale shall be paid to USGen and MEI in
proportion to the amounts paid by each of them with respect to the development
of the Project, provided such amounts either were paid as provided in this
Agreement (other than as provided in Section 19), or are Previous Development
Costs (as hereinafter defined).

3. Mutual Responsibilities. In order to achieve the purposes of this
-----------------------
Agreement, each Party agrees to:

(a) Identify and resolve Project issues;

(b) Negotiate a mutually agreeable capital structure and obtain Project
financing; and

(c) Keep the other Party informed as to its activities regarding the
Project, and, subject to Section 20, supply the other Party with such
information as they may reasonably request.

4. MEI Responsibilities. MEI shall perform such tasks and shall assume such
--------------------
responsibilities with respect to the development of the Project as shall be
assigned to it by USGen, including without limitation, (a) completing the
negotiation with West Penn Power of the Power Purchase Agreement ("PPA"), (b)
diligently endeavoring to reduce its payment obligations to any others with any
rights, title or interests in the Project, (c) assisting USGen in any permitting
efforts at the local and state agencies, and (d) to the extent of the
expenditures required by Section 11, (i) maintain its right, title and interest
in the proposed site for the Project located in Milesburg, Pennsylvania (the
"Proposed Project Site"), and (ii) pay all Proposed Project Site Costs (as
hereinafter defined).

5. USGen Responsibilities. USGen shall (a) lead and manage the activities of
----------------------
the Parties with respect to the development of the Project, (b) provide Project
development funds and personnel as provided for in this Agreement, (c) use
reasonable efforts to obtain all environmental and other permits, licenses and
approvals needed to construct and operate the Project, (d) subject to MEI's
approval as provided in Section 18(b), negotiate, on behalf of the Project
Company, the engineering, procurement and construction contract with Xxxxxxx
Power Corporation ("BPC"), the operations and maintenance contract with U.S.
Operating Services Company ("USOSC") and the Management Service Agreement with
USGen described in Sections 7 and 8, respectively, (e) negotiate on behalf of
the Project Company contracts for the procurement of fuel for the Project and
the disposal of ash generated by the

Project, (f) take the lead in the financial structuring of the Project,
including a lease structure or such other structure as is appropriate, (g)
provide equity for the Project, and (h) negotiate with lenders towards achieving
a financial closing on terms acceptable to both Parties.

6. Project Company. By the Project Closing Date (as hereafter defined), an
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agreement (the "Project Company Agreement") shall be executed that will replace
and supersede this Joint Development Agreement and establish the Project
Company. MEI shall not transfer any right, title or interest in the Proposed
Project Site (as hereinafter defined) to the Project Company or USGen without
the prior written consent of USGen, which consent may be withheld in its sole
discretion.

7. Engineering, Procurement and Construction Contract. Subject to MEI's
--------------------------------------------------
approval as provided in Section 18(b), the Project Company shall enter into an
engineering, procurement and construction contract with BPC, pursuant to which
BPC shall perform the engineering procurement, construction, precommissioning
and start-up of the Project facilities. The terms and conditions of said
contract shall, subject to Project lender approval, be those agreed upon by the
Project Company and BPC.

8. Operations and Maintenance Contract and Management Service Agreement
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(a) Subject to MEI's approval as provided in Section 18(b), the Project
Company shall enter into an operations and maintenance contract with USOSC,
pursuant to which USOSC shall operate and maintain the Project facilities. The
terms and conditions of said contract shall, subject to Project lender approval,
be those agreed upon by the Project Company and USOSC.

(b) Subject to MEI's approval as provided in Section 18(b), the Project
Company shall enter into a management services contract with USGen, pursuant to
which USGen will manage the Project Company and the Project. The terms and
conditions of said contract shall, subject to Project lender approval, be those
agreed upon by the Project Company and USGen.

9. MEI's Previous Development Costs.
--------------------------------

(a) "Previous Development Costs" means the legal, consulting,
contractor, financing and other costs and fees incurred by MEI in the
development of the Project prior to the date of this Agreement, which are set
forth on Exhibit A.

(b) Previous Development Costs are subject to recovery at financial
closing as provided for in Section 12 or from a termination of the PPA by West
Penn Power as provided for in Section 15(b). Neither USGen nor its affiliates
will have any obligation to reimburse MEI or EPC for any of the Previous
Development Costs or for any other indebtedness, claims, liabilities or
obligations incurred by EPC in connection with the Project prior to the date of
this Agreement.

10. Accounting During Development Period. Each of the Parties shall track and
------------------------------------
keep records of the following costs incurred by it in performing its
responsibilities hereunder from the date of this Agreement through the Project
Closing Date (the "Development Period"):

(a) Personnel Costs. The actual wages and salaries paid by MEI, EPC and
---------------
USGen to employees of themselves or their affiliates for work on the Project,
multiplied by [INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED] to cover
payroll additives and overhead ("Personnel Costs").

(b) Budgeted Third Party Costs. Third party legal, consulting,
--------------------------
subcontractor, financing and other approved third party costs incurred by USGen,
MEI and EPC in accordance with the Project development budget to be mutually
agreed upon by the Parties ("Budgeted Third Party Costs").

(c) Other Development Costs. Travel expenses, application fees, site
-----------------------
option payments and other miscellaneous costs incurred by USGen, MEI and EPC.

(d) Proposed Project Site Costs. Costs incurred by EPC or MEI in
---------------------------
connection with the Proposed Project Site, including, without limitation, costs
associated with maintaining the Project Site, real estate taxes, insurance,
costs required to secure or defend title, and environmental clean-up or
remediation ("Proposed Project Site Costs"). Any such costs shall be mutually
agreed upon by the Parties.

MEI, EPC and USGen each shall make its records of such costs available
to the other Party upon reasonable request.

For purposes of this Agreement, "Project Closing Date" shall be the day on
which funds are first advanced under the construction financing for the Project.

11. Costs Sharing During Development Period. MEI shall pay all Proposed
---------------------------------------
Project Site Costs; provided, however, MEI shall not be required to pay in
excess of [INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED] for Proposed
Project Site Costs under this Agreement. USGen shall pay all approved Budgeted
Third Party Costs on a current basis. MEI, EPC and USGen each shall bear the
Personnel Costs and Other Development Costs incurred by it or at its direction.
USGen, EPC and MEI shall have no obligation to pay any costs arising out of or
in connection with the Project, except as expressly provided in this Section 11.
Without limiting the foregoing, USGen shall have no obligation (a) to pay any
amount paid or incurred by MEI or EPC on or after the date of this Agreement
other than such approved Budgeted Third Party Costs, if any, as are properly
incurred by MEI or EPC pursuant to Section 10, or (b) any costs associated with
the remediation or environmental clean-up of the Proposed Project Site. Such
costs may be recovered by USGen, EPC and MEI at financial closing as provided
for in Section 12 or from a termination of the PPA by West Penn Power as
provided for in Section 15(b).

12. Reimbursement of Development Costs Upon Closing.
-----------------------------------------------

(a) Upon the Project Closing Date, MEI, EPC and USGen shall be reimbursed
from the proceeds of the construction financing for the Project their Previous
Development Costs, Personnel Costs, Budgeted Third Party Costs, Proposed Project
Site Costs and Other Development Costs pursuant to Section 14.

(b) If this Agreement is terminated for any reason by any Party, and
the other Party continues to develop the Project, either alone or with others,
but without the participation of the other Party, then, upon the first release
of construction funds for the Project, the non-participating Party shall be paid
from Project funds an amount equal to that described in Section 12(a).

13. EPC Acquisition Fee. Upon the Project Closing Date, EPC shall be paid a
-------------------
fee of [INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED] (the "Acquisition
Fee") out of the proceeds of the construction financing for the Project. The
Acquisition Fee shall be paid to EPC, without interest, in equal monthly
installments over the period of construction of the Project as established as of
the Project Closing Date.

14. Priority of Payments to the Parties.
-----------------------------------

(a) The payments to the Parties described in Sections 12 and 13 shall
be made in the following order of priority:

(i) First, funds sufficient to pay EPC its Acquisition Fee
pursuant to Section 13 shall be reserved;

(ii) Second, prorata to MEI, EPC and USGen, their Previous
Development Costs, Proposed Project Site Costs and Budgeted Third Party Costs;

(iii) Third, prorata to USGen, MEI and EPC, their Personnel Costs
and Other Development Costs; provided that such payments do not adversely affect
the terms and conditions of the financing.

(b) If the funds available from the proceeds of the construction
financing are insufficient to pay any portion of the foregoing amounts, or the
Project lender does not approve the payment of any portion of the foregoing
amounts, or the amount described in Section 14(a)(iii), is not payable as a
result of the proviso in such section, then such amount shall be paid on a
deferred or subordinated basis, or otherwise adjusted, pursuant to such
reasonable terms as the Parties shall agree to.

15. Withdrawal and Termination.
--------------------------

(a) Withdrawal.
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(i) Any Party may withdraw from this Agreement upon (1) providing
thirty (30) days prior written notice to the other Party, together with a duly
executed Withdrawing Party Assignment and (2) payment in full of such Party's
share of all Budgeted Third Party Costs incurred through the day immediately
preceding the date of termination. For purposes of this Agreement, "Withdrawing
Party Assignment" shall mean an assignment by the Party withdrawing from this
Agreement pursuant to this Section 15(a) in favor of the remaining Party of all
of the withdrawing Party's right, title and interest in all agreements, entered
into by any Party with respect to the Project, together with all permits,
licenses, variances or other governmental authorizations and all assets and
rights in the Project, subject to obtaining any necessary consents. If USGen so
elects in its sole discretion the Withdrawing Party Assignment provided by MEI
shall also transfer all of MEI's right, title and interest in the Proposed
Project Site. The withdrawing Party shall use its best efforts to obtain any
necessary consents to such assignment.

(ii) Notwithstanding any other provision in this Section 15(a),
because there is no adequate remedy at law for failure to effect the Withdrawing
Party Assignment, such failure shall entitle the Party or Parties to which such
assignment is required to be made to the remedy of specific performance.

(b) Termination Due To Termination of the Power Purchase Agreement. In
--------------------------------------------------------------
the event that the PPA is terminated as a result of a settlement or other
agreement with West Penn Power, this Agreement shall terminate and the proceeds
of such settlement or other agreement shall be distributed as follows:

(i) [INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED]

(ii) [INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED]

16. Representations and Warranties of EPC and MEI. EPC and MEI hereby
---------------------------------------------
represent and warrant to USGen that the following statements are true and
correct as of the date hereof and, except as otherwise expressly contemplated or
permitted by this Agreement, shall be true and correct on and as of the Project
Closing Date. Except as otherwise expressly provided, the following
representations and warranties apply solely to MEI:

(a) Organization and Good Standing. EPC is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware.
MEI is a corporation duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. MEI is duly qualified to do
business and is in good standing in all jurisdictions in which such
qualification is necessary under applicable law. The copies of the articles and
bylaws of MEI heretofore delivered to USGen are complete and correct copies
thereof as amended to date. There are

no dissolution, liquidation, winding-up, bankruptcy, insolvency, reorganization,
receivership or any similar proceedings pending or, to the knowledge of MEI or
EPC, threatened against MEI or EPC.

(b) Compliance with Instruments and Statutes. The execution and delivery
----------------------------------------
of this Agreement, compliance with the terms and conditions hereof, and
consummation of the transactions contemplated hereby, do not and shall not:
(i) conflict with or violate the provisions of the articles or bylaws of MEI;
(ii) conflict with, violate the provisions of, constitute a default (or an event
which with notice or lapse of time or both would become a default) or result in
the creation of a lien or encumbrance on any of the property or assets of MEI
under any mortgage, indenture, agreement or other instrument to which MEI is a
party or by which any properties of MEI are bound or affected; (iii) conflict
with, violate or require a filing or waiting period under any statute, rule or
regulation of any applicable jurisdiction, or any judgment, order or decree of
any court or any governmental department, commission or instrumentality
applicable to MEI; or (iv) require the consent or approval of any governmental
authority.

(c) Authority Relative to Agreements. EPC and MEI each have full right,
--------------------------------
capacity, power and authority to execute and deliver this Agreement, to perform
their respective obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of EPC and MEI and the shareholders of EPC
and MEI, and no further acts or proceedings on the part of EPC and MEI's
shareholders are necessary in connection therewith. This Agreement has been duly
executed and delivered by EPC and MEI and, assuming due authorization, execution
and delivery by USGen, constitutes the legal, valid and binding obligation of
EPC and MEI enforceable in accordance with its terms and conditions, except as
such enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization or other laws of general application affecting creditors' rights
generally or by general principles of equity.

(d) Financial Statements. EPC has delivered to USGen copies of its 1995
--------------------
10-K and its 10-Q for the first quarter of 1996. All such financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods covered, and fairly present
the financial position and results of operations of EPC, all items of income and
expense and all of its assets, liabilities and accruals at the dates and for the
periods indicated.

(e) Legal Proceedings. Except as referred to in Schedule A, there is no
-----------------
suit, action or legal, administrative, arbitration or other proceeding pending
or, to the best of MEI's knowledge, threatened against or affecting MEI or its
business or assets, or any investigation of MEI or its business or properties
being conducted or, to the best of MEI's knowledge, threatened by any
governmental authority or agency, and MEI has no knowledge of any facts which
might result in such proceedings.

(f) Title to Assets. MEI legally and beneficially owns good and valid
---------------
title to the Project assets described on Schedule C attached, subject only to
those liens, claims, charges, pledges, mortgages, encumbrances, security
interests, and other restrictions of any nature whatsoever described

on Schedule C. Such assets are not subject to any agreement, order or other
restriction which prohibits their sale or exchange, except as described on
Schedule C. To the best of MEI's knowledge, all real property and tangible
personal property complies in all material respects with all applicable
ordinances, regulations or zoning, building, health or other laws or regulations
applicable to such property, except as may be related to the presence of
significant quantities of asbestos at the Proposed Project Site.

(g) Material Contracts. Schedule B to this Agreement is a correct and
------------------
complete list of all material contracts concerning, related to or arising out of
the Project or its development to which either EPC or MEI is a party or by which
either EPC or MEI or any of its properties is bound or affected. For purposes of
this Section, a contract includes any written or oral agreement or arrangement
and a material contract includes any: (i) contract for the purchase or sale of
materials, supplies, equipment or other personal property or services where the
amount payable may exceed $1,000; (ii) contract not made in the ordinary and
usual course of business; (iii) employment, representation, management,
consulting, distribution, sales agency, or advertising contract not terminable
without penalty upon notice of 31 days or less; (iv) contract with any labor
union or other labor organization; (v) bonus, pension, profit-sharing,
retirement, stock option, stock purchase, hospitalization, life, accident, or
medical insurance, or other written plan or agreement providing employee
benefits of any kind for employees, officers or agents of MEI; (vi) loan
agreement, indenture, mortgage, deed of trust, security agreement, or other
agreement relating to the borrowing of money; (vii) guarantee of any
indebtedness or other obligation, take-out agreement, or similar agreement
pursuant to which MEI could become liable for the debts or obligations of
another or by which MEI could be obligated to purchase the right to receive
payments or performance from another; (viii) lease of an item of personal
property which has an annual rental rate of at least $1,000 and which has a
term, including renewal options exercisable by any party thereto, other than
MEI, ending after June 30, 1996, (ix) contract for the purchase, sale or lease
of any real property or any interest in real property; and (x) any other
contract which is material to the Project or its development. Assuming due
authorization, execution and delivery by the other parties thereto, all such
contracts, except as set forth in Schedule B, are legal, valid, binding and
enforceable in accordance with their respective terms (except as limited by
bankruptcy, insolvency, reorganization or other laws of general application
affecting creditors' rights generally, or by general principles of equity), and
neither MEI nor, to the knowledge of MEI, any other party to any of such
contracts, is in default under any of such contracts or has performed any act
which with notice or lapse of time, or both, shall become a default thereunder.

(h) Permits, Licenses, Applicable Law. Schedule D to this Agreement lists
---------------------------------
all permits, licenses, variances or other governmental authorizations held by
MEI concerning, related to or arising out of the Project or its development. No
action is pending or, to the best of MEI's knowledge, threatened to cancel or
modify any of such authorizations, and MEI has no knowledge of any facts which
might result in such an action. No portion of the business of MEI concerning,
related to or arising out of the Project is being or has been conducted in
violation of or contrary to the provisions of any applicable governmental law,
regulation, order, writ, injunction or decree.

(i) Undisclosed Liabilities, Contingencies. Except as and to the extent
--------------------------------------
disclosed and reflected in the financial statements delivered pursuant to
Section 16(d) above and as set forth or referred to herein or in the Schedules,
or which arose in the ordinary course of business since the date of the most
recent financial statements, or which are intercompany transactions eliminated
in consolidation, EPC and MEI do not have any liability or obligation, whether
accrued, absolute, contingent, liquidated or unliquidated, and whether due or to
become due, including without limitation guarantees, which is not adequately
reflected and reserved against on such financial statements. There is no
contingent liability of MEI or, to MEI's knowledge, the basis for any unasserted
claim against MEI.

(j) No Omission or Misrepresentation. The information with respect to MEI
--------------------------------
and the Project furnished to USGen by MEI or EPC in connection with the
transactions contemplated by this Agreement is true and correct in all material
respects and does not omit any material information required to make the
information so furnished not misleading in any material respect.

(k) Environmental Claims. There are no past, pending or, to the best
--------------------
knowledge of MEI, threatened environmental claims against MEI or any of its
officers, directors, employees, and agents or, to the best knowledge of MEI, any
of its lessees, affiliates, partners, joint venturers, assignees or other
persons or entities occupying, using, or conducting operations on or about the
Proposed Project Site. While no claims are known to have been made or
threatened, MEI is aware of the presence of significant quantities of asbestos
at the Proposed Project Site.

17. Representations and Warranties of USGen. USGen hereby represents and
---------------------------------------
warrants to EPC and MEI that the following statements are true and correct as of
the date hereof and shall be true and correct on and as of the Project Closing
Date.

(a) Organization and Good Standing. USGen is a general partnership duly
------------------------------
organized under the laws of the state of California. There are no dissolution,
liquidation, winding-up, bankruptcy, insolvency, reorganization, receivership or
any similar proceedings pending or, to the knowledge of USGen, threatened
against it.

(b) Compliance with Instruments and Statutes. The execution and delivery
----------------------------------------
of this Agreement, compliance with the terms and conditions hereof and
consummation of the transactions contemplated hereby do not and shall not: (i)
conflict with or violate the provisions of the partnership agreement of USGen;
(ii) conflict with, violate the provisions of, constitute a default (or an event
which with notice or lapse of time or both would become a default) or result in
the creation of a lien or encumbrance on any of the property or assets of USGen
under any mortgage, indenture, agreement or other instrument to which USGen is a
party or by which USGen or any of its properties is bound or affected; (iii)
conflict with, violate or require a filing or waiting period under any statute,
rule or regulation of any applicable jurisdiction, or any judgment, order or
decree of any court or any

governmental department, commission or instrumentality applicable to USGen; or
(iv) with respect to USGen, require the consent or approval of any governmental
authority.

(c) Authority Relative to Agreements. USGen has full right, capacity,
--------------------------------
power and authority to execute and deliver this Agreement, to perform its
respective obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of USGen, and no further acts or proceedings on the part of
USGen are necessary in connection therewith. This Agreement has been duly
executed and delivered by USGen and, assuming due authorization, execution and
delivery by MEI and EPC, constitutes the legal, valid and binding obligation of
USGen enforceable in accordance with its terms and conditions, except as such
enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization or other laws of general application affecting creditors' rights
generally or by general principles of equity.

(d) Legal Proceedings. There is no material suit, action or legal,
-----------------
administrative, arbitration or other proceeding pending or, to the best of
USGen's knowledge, threatened against or affecting USGen or its business or
assets, or any material investigation of USGen or its business or properties
being conducted or, to the best of USGen's knowledge, threatened by any
governmental authority or agency, and USGen has no knowledge of any facts which
might result in such proceedings.

(e) No Omission or Misrepresentation. The information with respect to
--------------------------------
USGen furnished to EPC and/or MEI by USGen in connection with the transactions
contemplated by this Agreement is true and correct in all material respects and
does not omit any material information required to make the information so
furnished not misleading in any material respect.

18. Management of Development Period Activities.
-------------------------------------------

(a) Except as provided in Section 18(b), the management and control of
all Development Period activities shall be exercised by USGen, and USGen shall
endeavor to direct and coordinate the activities of the Parties under this
Agreement. USGen, subject to the consent of MEI, which consent shall not be
unreasonably withheld, shall appoint a Project development manager (the "Project
Manager") who shall direct the day-to-day Development Period activities. USGen
may remove the Project Manager at any time upon written notice to EPC. Without
limitation on the authority of USGen to direct Development Period activities,
MEI and EPC shall not take any of the following actions without the prior
written approval of the Project Manager:

(i) the sale, lease, pledge, license, exchange or other transfer
or encumbrance of all or any material portion of any of the Project assets;

(ii) making (A) any expenditure or commitment of Budgeted Third
Party Costs, except as expressly provided otherwise in the agreed upon Project
development budget, (B) any expenditure or commitment in excess of $5,000,
except for the expenditure or commitment of MEI's

and EPC's Personnel Costs, or (C) any expenditure or commitment to be paid out
of Project funds in the event of closing or other contingency; or

(iii) entering into, amending, modifying, assigning or terminating,
or making any agreement regarding the execution, amendment, modification,
assignment or termination of, any of the contracts, permits, licenses or
approvals concerning, related to or arising out of the Project or its
development.

(b) The terms and conditions of the engineering, procurement and
construction contract described in Section 7 and of the operations and
maintenance contract and management services agreement described in Section 8
shall be subject to the approval of MEI, which approval shall not be
unreasonably withheld.

19. Indemnities.
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(a) EPC and MEI agree to defend, indemnify and hold harmless USGen, the
related and affiliated entities of USGen and the directors, officers, employees
and agents of each of USGen and of such related and affiliated entities, from
and against any and all losses, damages, liabilities, reasonable costs,
reasonable expenses (including, without limitation, reasonable fees and
disbursements of counsel and other professional advisers), claims, demands,
investigations, proceedings, actions, judgments, liens or other obligations of
any nature whatsoever ("Losses") suffered, incurred or paid by USGen or such
affiliated entities:

(i) resulting from, related to or arising out of the activities of
EPC or MEI prior to the date of this Agreement;

(ii) resulting from all environmental claims (including third party
liabilities), costs and expenses (including, without limitation, removal and
clean-up costs and reasonable attorneys' and consultants' fees and
disbursements) which arise, or are alleged to arise, from or in connection with
the Proposed Project Site, unless otherwise agreed to in the Project Company
Agreement.

(iii) resulting from or arising out of the inaccuracy of any
representation or the breach of any warranty, covenant or other agreement of MEI
contained in this Agreement or resulting or arising by reason of any action,
proceeding or investigation being instituted by any person based on an
allegation or assertion which, if true or proven, would constitute such an
inaccuracy or breach.

(b) USGen agrees to defend, indemnify and hold harmless EPC and MEI, the
related and affiliated entities of EPC and MEI and the directors, officers,
employees and agents of each of EPC and MEI and of such related and affiliated
entities, from and against any and all Losses suffered, incurred or paid by EPC,
MEI or such affiliated entities resulting from or arising out of the inaccuracy
of any representation or the breach of any warranty, covenant or other agreement
of USGen contained in this Agreement or resulting or arising by reason of any
action, proceeding or investigation being instituted

by any person based on an allegation or assertion which, if true or proven,
would constitute such an inaccuracy or breach.

20. Confidentiality. All the parties shall exercise, until five (5) years from
---------------
the date hereof, reasonable efforts to maintain the confidentiality of
information identified in writing by another Party as confidential. This duty
shall not apply to information which is already known to a Party, in the public
domain, or received from a third party.

21. Entire Agreement. Pending the execution of the Project Company Agreement,
----------------
this Agreement shall constitute the entire agreement between the Parties
concerning the Project and shall supersede all prior agreements and
understandings.

22. No Partnership. This Agreement shall not constitute or create an
--------------
association, trust, joint venture, partnership or other similar arrangement
among the Parties, or impose a trust or partnership duty, obligation or
liability on or with regard to either Party, and the Parties shall not be
authorized to act as agents of one another.

23. Liability Limits.
----------------

(a) Except for amounts to be paid by a Party pursuant Section 19, in no
event shall the total aggregate liability of any Party to the other Party for
losses or damages caused by breach of this Agreement, activities performed under
this Agreement, the failure to pay Proposed Project Site Costs, the failure to
reach agreement on a Project Company Agreement, the failure to obtain necessary
permits, the failure to obtain construction financing or the failure to complete
the Project, exceed the sum of the unpaid Budgeted Third Party Costs or Proposed
Project Site Costs allocable to the breaching Party under this Agreement.

(b) In no event shall a Party have any liability hereunder for any
special, indirect, exemplary, punitive or consequential damages of any kind.

(c) The limitations of liability and indemnity and hold harmless
obligations expressed throughout this Agreement shall apply even in the event of
the fault, tort (including negligence, in whole or in part and whether active or
passive), strict liability, breach of contract, or otherwise of the party whose
liability is limited, indemnified, or held harmless, and shall extend to such
Party's related or affiliated entities and its and their directors, officers,
employees and agents; provided, however, such limitation of liability shall not
extend to any affiliated entity utility that provides goods or service to the
Project under a separate vendor contract.

24. Public Statements. No Party may issue any public statement concerning this
-----------------
Agreement or the transactions described in it unless it first obtains the
written consent of the other Party to the form and content of such statement,
which consent shall not be unreasonably withheld; provided that any Party

may issue a statement to the public or to a governmental agency without such
consent to the extent its counsel opines that such a statement is required to
comply with applicable laws or regulations.

25. Provisions Surviving Termination. The rights and obligations of the Parties
--------------------------------
as described in Sections 12, 14, 15, 16, 19, 20, 21, 22, 23 and 26 shall survive
the termination of this Agreement and shall continue in full force and effect in
accordance with the provisions of such sections.

26. No Third Party Beneficiaries. No provision of this Agreement is intended or
----------------------------
shall be construed to confer upon any person, other than the Parties hereto and
their respective successors or permitted assigns, any rights or remedies under
or by reason of this Agreement.

27. No Representations Concerning Financing. Neither USGen, EPC nor MEI, have
---------------------------------------
made any representation, or given any assurance, to the other Party that debt
financing can be obtained with respect to the Project, either on terms
consistent with the provisions of this Agreement, or on any terms.

28. Successors and Assigns.
----------------------

(a) Except as provided in Section 28(b) below, any assignment or other
transfer by any party of this Agreement of any of the rights, interests or
obligations hereunder, without the prior written consent of the other parties,
shall be void, but such consent shall not be unreasonably withheld; provided,
that USGen may assign its rights and obligations under this agreement to an
affiliate or affiliates.

(b) This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of the Parties.

29. Notices. Any notice or communication required or permitted to be given by
-------
this Agreement shall be in writing and be delivered personally or by telecopy,
telex, nationally recognized courier service or first class mail, postage
prepaid, to the address for the receiving Party set forth below or to such other
address as the receiving Party shall have specified by written notice given in
accordance with this Section. Any mailed communication shall be deemed to have
been given on the third business day after the date of mailing and any
communication sent by telecopy, telex or courier service shall be deemed to have
been given at the time receipt.

If to USGen, to: U.S. Generating Company
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxx 0000
Xxxxxxxx, XX 00000-0000
Attn: General Counsel
Fax: (000) 000-0000

MEI or EPC
If to MEI or EPC, to: c/o Environmental Power Corporation
000 Xxxxxx Xxxxxx
Xxxxx 0X
Xxxxxxxxxx, XX 00000
Attn: President
Fax: (000) 000-0000

30. Miscellaneous. This Agreement (i) shall be governed by Pennsylvania law,
-------------
(ii) may be amended only by a writing signed by all Parties, and (iii) may be
executed in separately signed counterparts.

31. Dispute Resolution.
------------------

(a) The parties agree to make a diligent, good faith attempt to resolve
all disputes arising under this Agreement. If a dispute arises under this
Agreement, then the aggrieved party shall promptly notify the other party to
this Agreement of the existence and nature of the dispute. If the Parties shall
fail to resolve the dispute within ten (10) days after delivery of such notice,
either party may submit the dispute for settlement by arbitration in Pittsburgh,
Pennsylvania or at any other place or under any other form of arbitration
mutually acceptable to the parties) in accordance with the provisions of this
Paragraph 31. The dispute in question shall be settled by two independent
arbitrators, one chosen by USGen and one chosen by MEI or EPC. USGen, MEI or
EPC, as the case may be, shall deliver a notice to the other appointing its
arbitrator within fifteen (15) days after receipt from the other of a notice
appointing its arbitrator. If, within thirty (30) days after appointment of the
two arbitrators, they are unable to agree upon the determination in question, a
third independent arbitrator shall be chosen within ten (10) days thereafter by
mutual consent of the first two arbitrators or, if the first two arbitrators
fail to agree upon the appointment of a third arbitrator, such appointment shall
be made in accordance with the rules of the American Arbitration Association, or
any organization successor thereto, from a panel of qualified arbitrators. The
decision of the arbitrators so appointed and chosen shall be given within thirty
(30) days after selection of the third arbitrator. In the case of a monetary
dispute, if three arbitrators shall be appointed and the determination of one
arbitrator is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such arbitrator shall be excluded, the
remaining two determinations shall be averaged and such average shall be binding
and conclusive on the Parties; otherwise the average of all three determinations
shall be binding and conclusive on the Parties. Each Party shall bear its own
costs and expenses of arbitration unless otherwise provided for herein or
directed by the arbitrators. The Parties shall each abide by and perform any
resulting arbitration award. The arbitration award, when issued, shall be final
and shall be enforceable in any court of competent jurisdiction.

(b) While any dispute under this Agreement is unresolved, the parties
shall continue to perform their obligations hereunder to the extent possible
notwithstanding such dispute.

IN WITNESS WHEREOF, the parties have executed this Joint Development
Agreement as of the date set forth in the preamble hereof.

U.S. GENERATING COMPANY

By: /s/ Xxxxxxxxxxx X. Xxxxx
---------------------------------------------------
Name: Xxxxxxxxxxx X. Xxxxx
-------------------------------------------------
Title: Vice President, Marketing & Product Development
-----------------------------------------------

MILESBURG ENERGY, INC.

By: /s/ Xxxxxx X. Xxxxxxxxxx
----------------------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
--------------------------------------------------
Title: Vice President
-------------------------------------------------

ENVIRONMENTAL POWER CORPORATION
(for the limited purposes specifically
set forth in this Agreement)

By: /s/ Xxxxxx X. Xxxxxxxxxx
------------------------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
----------------------------------------------------
Title: President
---------------------------------------------------

EXHIBIT A

MEI STATEMENT OF PREVIOUS DEVELOPMENT COSTS

DESCRIPTION AMOUNT
----------- ------

INVESTMENT IN MILESBURG DEVELOPMENT RIGHTS *
ACQUISITION COSTS *
ENGINEERING FEES *
LEGAL FEES *
CAPITALIZED SALARIES *
CAPITALIZED OVERHEAD *
TRAVEL *
INTEREST *
MISCELLANEOUS EXPENSES *
-------------

TOTAL DEVELOPMENT COSTS 8,116,612
=============

* - INFORMATION OMITTED-CONFIDENTIAL TREATMENT REQUESTED

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