According to the executive director of the Electric Power Supply Association, 20% of the United States' electricity supply will eventually come from merchant plants. Clearly, it is a growth industry. Outside the United States, the development of merchant power facilities may not be occurring at a uniformly high pace, but in relatively mature market-based economies there is great potential for further growth. Even in countries and regions without a lengthy market-based history, innovative financial arrangements make merchant power plant development feasible.

Vinson & Elkins has carved out a strong position as counsel in the development of merchant power facilities. With our extensive pre-existing experience in the development and financing of electric power plants, combined with our proven ability to structure complex, multinational ventures, and our familiarity with a broad array of project finance structures, Vinson & Elkinsí lawyers are prepared to fulfill the needs of participants in merchant power projects.

Among the significant projects for Vinson & Elkins in the past year was a refinancing agreement involving Dynegy and NRG. In June 1999, the two Sponsors refinanced a portion of the original acquisition costs of four Southern California merchant power facilities, using innovative limited recourse financing provided by Bank of America.

The generating facilities were originally acquired by the Sponsors from two California utilities through bidding processes dictated by California deregulation legislation. The ownership structure involved a limited liability holding company, acting as parent, owned 50-50 by the Sponsors, a second limited liability company owned 100% by the Parent and four limited liability operating companies.

This structure was perceived to provide maximum flexibility to the Lender and to the Sponsors. The collateral package included all the trappings of a project financing and Sponsor support was limited to interest reserve and environmental undertakings by the Sponsors.

Outside the United States, one of the many significant matters handled by the Vinson & Elkins merchant power team was the development of the AES Paran· project. This is an approximately 826 MW (net) gas-fired generating plant currently under construction in San Nicol(s, Argentina. The project, sponsored by The AES Corporation and PSEG Global Inc., is designed to serve as a base-load generator selling its output into the Argentine wholesale market. The project was financed on a limited recourse basis in 1999 by the Japan Bank for International Cooperation under a Buyer's Credit Facility and the Inter-American Development Bank under an A Loan/B Loan structure.

Among the factors enabling the project to obtain limited recourse financing were the relative stability and maturity of the Argentine wholesale electric market, the reliability of the price, demand, and revenue projections for the project, based on the conduct of extensive independent market studies, and the unique method of indexing the facilityís fuel costs to a formula that included changes in Argentine electricity prices.

Vinson & Elkins is actively engaged in other merchant power projects, and stands ready to assist you in your efforts in this rapidly developing field.