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

FORM 10-K

OR

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

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

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

Yes |X|     No |_|

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

Yes |_|     No |X|

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE
None

TABLE OF CONTENTS

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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PART I

ITEM 1.     Business

General

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

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

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

Organizational Structure

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

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

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

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

Project Status and Recent Developments

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

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

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

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

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

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

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

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

Energy Revenues

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

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

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

Operating Expenses

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

Competition

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

Employees

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

Insurance

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

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

Permits and Regulatory Approvals

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

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

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

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

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

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

Summary of Principal Project Contracts

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

Power Purchase Agreement

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

Term

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

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

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Purchase and Sale of Capacity and Services

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

Fuel Conversion and Other Services

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

Pricing and Payments

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

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

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

Interconnection and Metering Equipment

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

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

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

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

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

Operation / Dispatch

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

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

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

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

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

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

Force Majeure

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

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

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

Events of Default; Termination; Remedies

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

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

Security

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

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

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

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

Assignment

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

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

Construction Agreement

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

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

Siemens Westinghouse’s Services and Other Obligations

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

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

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Construction and Start-Up

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

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

Contract Price and Payment

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

Our Required Services

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

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

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

Mechanical Completion

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

Performance Tests and Power Purchase Agreement Output Tests

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

Provisional and Final Acceptance

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

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

Project Completion

          Project completion will be achieved under the construction agreement when:

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

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

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

Price Rebate for Failure to Meet Guarantees

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

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

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

Performance Guarantees

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

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

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

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

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

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

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

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

Liability and Damages

     Consequential Damages

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

     Aggregate Liability of Contractor

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

          Warranties and Guarantees

          Siemens Westinghouse warrants and guarantees that during the applicable warranty period:

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          During the applicable warranty period, Siemens Westinghouse must promptly notify us of any engineering and design defects which are manifested in any of Siemens Westinghouse’s fleet of 501G combustion turbines under construction, start-up or testing or in operation during the warranty period and which could reasonably be expected to be common to the fleet or this facility. Upon the notification from Siemens Westinghouse of a fleet-wide or common defect and otherwise upon notification from us no later than 30 days after the expiration of the applicable warranty period of any defects or deficiencies in our project or any component, we must, subject to the provisions of the construction agreement, make our facility or the subject equipment available to Siemens Westinghouse for Siemens Westinghouse to re-perform, replace or, at its option, repair the same at its expense so that it is in compliance with the standards warranted and guaranteed, all in accordance with the construction agreement.

     Force Majeure Event

          A force majeure event means any act or event that prevents the affected party from performing its obligations, other than the payment of money, under the construction agreement or complying with any conditions required to be complied with under the construction agreement if the act or event is beyond the reasonable control of and not the fault of the affected party and the party has been unable by the exercise of due diligence to overcome or mitigate the effects of the act or event. Force majeure events include, but are not limited to, acts of declared or undeclared war, sabotage, landslides, revolution, terrorism, flood, tidal wave, hurricane, lightning, earthquake, fire, explosion, civil disturbance, insurrection or riot, act of God or the public enemy, action (including unreasonable delay or failure to act) of a court or public authority, or strikes or other labor disputes of a regional or national character that are not limited to only the employees of Siemens Westinghouse or its subcontractors and that are not due to the breach of a labor contract or applicable law by the party claiming force majeure or any of its subcontractors. Force majeure events do not include (1) strikes, work stoppages and labor disputes or unrest of any kind that involve only employees of Siemens Westinghouse or any subcontractors, except as expressly provided in the preceding sentence, (2) late delivery of materials or equipment, except to the extent caused by a force majeure event and (3) economic hardship.

     Excused Performance

          If either party is rendered wholly or partly unable to perform its obligations because of a force majeure event, that party will be excused from whatever performance is affected by the force majeure event to the extent affected so long as:

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     Scope Changes

          We may order scope changes to the services, in which event one or more of the contract price, the construction progress milestone dates, the guaranteed completion dates, the payment and milestone schedule, our construction schedule and the performance guarantees will be adjusted accordingly, if necessary. All scope changes must be authorized by a scope change order and only we or our representative may issue scope change orders. As soon as Siemens Westinghouse becomes aware of any circumstances which it has reason to believe may necessitate a scope change, Siemens Westinghouse must issue to us a scope change order notice at its expense. If we desire to make a scope change, in response to a scope change order notice or otherwise, we must submit a scope change order request to Siemens Westinghouse. Siemens Westinghouse must promptly review the scope change order request and notify us in writing of the options for implementing the proposed scope change and the effect, if any, each option would have on the contract price, the guaranteed completion dates, the construction progress milestone dates, the payment and milestone schedule, our construction schedule and the performance guarantees. No scope change order will be issued and no adjustment of the contract price, the guaranteed completion dates, the construction progress milestone dates, the payment and milestone schedule, our construction schedule or the performance guarantees will be made in connection with any correction of errors, omission, deficiencies, or improper or defective work on the part of Siemens Westinghouse or any subcontractors in the performance of the services. Changes due to changes in applicable laws or applicable permits occurring after the date of the construction agreement must be treated as scope changes.

          In December 2001, we reached an agreement with Siemens Westinghouse to eliminate the requirement to use fuel oil as a secondary fuel from the construction agreement. In a separate agreement, Williams Energy agreed to eliminate the requirement to use fuel oil as a secondary fuel from the power purchase agreement contract. The result of the non-use of fuel oil will enhance the reliability of the plant as well as increase the efficiency of the plant.

Effect of Force Majeure Event

          If and to the extent that any force majeure events affect Siemens Westinghouse’s ability to meet the guaranteed completion dates, or the construction progress milestone dates, an equitable adjustment in one or more of the dates, the payment and milestone schedule and our construction schedule must be made by agreement between us and Siemens Westinghouse. No adjustment to the performance guarantees and, except as otherwise expressly described below, the contract price must be made as a result of a force majeure event. If Siemens Westinghouse is delayed in the performance of the services by a force majeure event, then:

Price Change

          An increase or decrease in the contract price, if any, resulting from a scope change requested by us or made under the construction agreement must be determined, upon the mutual agreement of the parties.

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Continued Performance Pending Resolution of Disputes

          If a dispute arises regarding the amount of any increase or decrease in Siemens Westinghouse’s costs with respect to a scope change, Siemens Westinghouse must proceed with the performance of the scope change promptly following our execution of the corresponding scope change order.

          If hazardous materials were not identified in an environmental site assessment report delivered by us to Siemens Westinghouse prior to the construction commencement date and were not brought onto the facility site by Siemens Westinghouse or any of its subcontractors, then Siemens Westinghouse will be entitled to a scope change under the construction agreement.

Risk of Loss

          Until the risk transfer date, which was December 27, 2001, the date at which provisional acceptance was achieved, Siemens Westinghouse bore the risk of loss and full responsibility for the costs of replacement, repair or reconstruction resulting from any damage to or destruction of our facility or any materials, equipment, tools and supplies, which are purchased for permanent installation in or for use during construction of our facility. Since December 27, 2001, the risk transfer date with respect to our facility, we have born all risk of loss and full responsibility for repair, replacement or reconstruction with respect to any loss, damage or destruction to our facility.

Termination

     Termination for Company’s Convenience

          We may for our convenience terminate any part of the services or all remaining services at any time upon 30 days’ prior written notice to Siemens Westinghouse specifying the part of the services to be terminated and the effective date of termination. We may elect to suspend completion of all or any part of the services upon 10 days’ prior written notice to Siemens Westinghouse or, in emergency situations, upon prior notice as circumstances permit.

     Termination by Contractor

          If we fail to pay to Siemens Westinghouse any payment and our failure continues for 20 days, then (1) Siemens Westinghouse may suspend its performance of the services upon 10 days’ prior written notice to us, which suspension may continue until the time as the payment, plus accrued interest, is paid to Siemens Westinghouse, and/or (2) if the payment has not been made prior to the commencement of a suspension by Siemens Westinghouse under clause (1) above, Siemens Westinghouse may terminate the construction agreement upon 60 days’ prior written notice to us so long as the termination does not become effective if the payment, plus accrued interest, is made to Siemens Westinghouse prior to the end of the notice period. In the event of a suspension, an equitable adjustment to one or more of the contract price, the guaranteed completion dates, the construction progress milestone dates, the payment and milestone schedule and our construction schedule, and, as appropriate, the other provisions of the construction agreement that may be affected thereby, must be made by agreement between us and Siemens Westinghouse. If we have suspended completion of all or any part of the services in accordance with the construction agreement for a period in excess of two years in the aggregate, Siemens Westinghouse may, at its option, at any time thereafter so long as the suspension continues; give written notice to us that Siemens Westinghouse desires to terminate the suspended services. Unless we order Siemens Westinghouse to resume performance of the suspended services within 10 days of the receipt of the notice from Siemens Westinghouse, the suspended services will be deemed to have been terminated by us for its convenience. If the occurrence of one or more force majeure events prevents Siemens Westinghouse from performing the services for a period of 365 consecutive days, Siemens Westinghouse may, at its option, give written notice to us of its desire to terminate the construction agreement.

Consequences of Termination

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Default and Remedies

     Contractor’s Default

          Siemens Westinghouse’s events of default include: voluntary bankruptcy or insolvency; involuntary bankruptcy or insolvency; materially adverse misleading or false representation or warranty; improper assignment; failure to maintain required insurance; failure to comply with applicable laws or applicable permits; cessation or abandonment of the performance of services; termination or repudiation of, or default under the related guaranty; failure to supply sufficient skilled workers or suitable material or equipment; failure to make payment when due for labor, equipment or materials; non-occurrence of provisional acceptance, interim acceptance, final acceptance and construction progress milestones; and failure to remedy non-performance or non-observance of any provision in the construction agreement.

     Our Rights and Remedies

          If Siemens Westinghouse is in default of its obligations, we will have any or all of the following rights and remedies, in addition to any other rights and remedies that may be available to us under the construction agreement or at law or in equity, and Siemens Westinghouse will have the following obligations:

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Assignment

          Generally, neither we nor Siemens Westinghouse will have any right to assign or delegate any of their respective rights or obligations under the construction agreement either voluntarily or involuntarily or by operation of law.

Maintenance Services Agreement

          We, as assignee of AES Ironwood, Inc., have entered into the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998, with Siemens Westinghouse by which Siemens Westinghouse will provide us with, among other things, combustion turbine parts, shop repairs and scheduled outage technical field assistance services.

          The maintenance services agreement became effective on the date of execution and unless terminated early, must terminate upon completion of shop repairs performed by Siemens Westinghouse following the eighth scheduled outage of the applicable combustion turbine or 10 years from initial synchronization of the applicable combustion turbine, whichever occurs first.

Scope of Work

          During the term of the maintenance services agreement, and in accordance with the scheduled outage plan, Siemens Westinghouse is required to do the following:

          deliver the type and quantity of new program parts for installation of the combustion turbine; repair/refurbish program parts and equipment for the combustion turbine;

          We and Siemens Westinghouse have jointly developed the scheduled outage plan. The scheduled outage plan is consistent with the terms and conditions of the power purchase agreement.

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Early Replacement

          If it is determined that due to normal wear and tear a program part(s) for the combustion turbine has failed or will not last until the next scheduled outage, and the part has to be repaired before the scheduled replacement period, Siemens Westinghouse will replace the program part by moving up a new program part which is otherwise scheduled to be delivered at a later date. The contract price for the replacement will not be affected if the replacement date is less than or equal to one year earlier than the scheduled outage during which the program part was scheduled to be replaced. If the actual replacement date for a program part is more than one year earlier than the scheduled outage at which point the program part was scheduled to be replaced, the early replacement will result in an adjustment to the payment schedule. Siemens Westinghouse has the final decision with regard to the replacement or refurbishment associated with any program part. If we dispute Siemens Westinghouse’s decision, we may seek to resolve the dispute in accordance with the dispute resolution procedures discussed below.

Parts Life Credit

          After applicable warranty periods described in the maintenance services agreement and the construction agreement, Siemens Westinghouse will provide a parts life credit if a program part requires replacement due to normal wear and tear prior to meeting its expected useful life. Siemens Westinghouse has the final decision with regard to actual parts life and the degree of repair or refurbishment associated with any program parts. The parts life credit will be calculated in terms of EBHs and equivalent starts. The price of the replacement part will be adjusted for inflation. If we dispute Siemens Westinghouse’s decision, we may seek to resolve the dispute in accordance with the dispute resolution procedures discussed below.

Contract Price and Payment Terms

          Siemens Westinghouse will invoice us monthly and payments are then due within 25 days. The fees assessed by Siemens Westinghouse will be based on the number of EBHs accumulated by the applicable combustion turbine as adjusted for inflation. The contract price will be the aggregate number of fees as adjusted plus any additional payment amount mutually agreed to by the parties under a change order.

Unscheduled Outages and Unscheduled Outage Work

          If during the term of the maintenance services agreement an unscheduled outage occurs resulting from (1) the non-conformity of new program parts; (2) the failing of a shop repair; (3) a program part requiring replacement due to normal wear and tear prior to achieving its expected life in terms of EBHs or equivalent starts; or (4) the failure of a service, performed by Siemens Westinghouse, we must hire Siemens Westinghouse, to the extent not supplied by Siemens Westinghouse as a warranty remedy under Siemens Westinghouse’s warranties under the maintenance services agreement to supply any additional parts, miscellaneous hardware, shop repairs and TFA Services under a change order. We will be entitled to any applicable parts life credit with respect to program parts as well as a discount for TFA services. If the unscheduled outage occurs within a specified number of EBHs of a scheduled outage and it was anticipated that the additional parts, miscellaneous hardware, shop repairs and TFA services to be used in the unscheduled outage were to be used during the upcoming scheduled outage, the upcoming Scheduled outage must be moved up in time to become the unscheduled outage/moved-up scheduled outage. We will not be required to pay any additional money for the program parts, miscellaneous hardware, shop repairs and TFA Services.

          If any program parts are delivered by Siemens Westinghouse within 15 days of receipt of the change order, we will pay to Siemens Westinghouse the price for the program part described in the maintenance services agreement plus a specified percentage. Any program part delivered after 30 days of the change order will cost us the price described in the maintenance services agreement minus a specified percentage.

Changes in Operating Restrictions

          The maintenance services agreement requires that each combustion turbine be operated in accordance with the requirements of the power purchase agreement and prudent utility practices, with 8,000 EBH/year and 100 equivalent starts per year by using natural gas fuel and water. Should the actual operations differ from these

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operating parameters which cause a scheduled outage to be planned/performed earlier or later than as expected, then, under a change order, an adjustment in the scope, schedule, and price must be made.

Warranties

          Siemens Westinghouse warrants that the new program parts, miscellaneous hardware and any shop repairs must conform to standards of design, materials and workmanship consistent with generally accepted practices of the electric utility industry. The warranty period with respect to program parts, hardware and shop repair is until the earlier of one year from the date of installation of the original program part or hardware, a specific number of starts or fired hours after installation of the program parts and hardware, or three years from the date of delivery of the original program part, hardware, and in the case of shop repair, three years from completion of the work. Warranties on the program parts and hardware must not expire more than one year after the conclusion of the maintenance services agreement.

          Siemens Westinghouse will repair or replace any program part or hardware, at its cost, if notified of any failure or non-conformity of the program part or hardware during the warranty period. Siemens Westinghouse also warrants that the services of its personnel and technical information transmitted will be competent and consistent with prudent utility practices and the services will comply in all material respects with laws and will be free from defects in workmanship for a period of one year from the date of completion of that item of services. The warranties on the services must expire no later than one year after the termination or end of the term of the maintenance services agreement.

          In addition, Siemens Westinghouse warrants any program part removed during a scheduled outage and delivered by us to the designated facility for repair will be repaired and delivered by Siemens Westinghouse within 26 weeks. If Siemens Westinghouse does not deliver the program part within this time frame or does not provide a new program part in lieu of the program part being shop repaired and an outage occurs which requires a program part, Siemens Westinghouse will pay us liquidated damages for each day the program part is not repaired and delivered the aggregate of which liquidated damage payments must not exceed a maximum annual cap. If upon reaching the maximum cap on aggregate liquidated damages, Siemens Westinghouse still has not repaired and delivered the program part, we may elect to terminate the maintenance services agreement because Siemens Westinghouse will be considered to have failed to perform its material obligations.

          Except for the express warranties described in the maintenance services agreement, Siemens Westinghouse makes no other warranties or representations of any kind. No implied statutory warranty of merchantability or fitness for a particular purpose applies.

          The warranties provided by Siemens Westinghouse are conditioned upon (1) our receipt, handling, storage, operation and maintenance of our project, including any program parts and miscellaneous hardware, being done in accordance with the terms of the combustion turbine instruction manuals; (2) operation of the combustion turbine in accordance with the terms of the maintenance services agreement; (3) repair of accidental damage done consistently with the equipment manufacturer’s recommendations; (4) us providing Siemens Westinghouse with access to the facility site to perform its services under the maintenance services agreement; and (5) hiring Siemens Westinghouse to provide TFA services, program parts, shop repairs and miscellaneous hardware required to dissemble, repair and reassemble the combustion turbine.

Termination

          We may terminate the maintenance services agreement if:

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          Notwithstanding the preceding, we may terminate the maintenance services agreement at any time for its convenience following the completion of the first major outage of both combustion turbines. In addition, the maintenance services agreement will automatically terminate if:

Limitation of Liability

          We agreed that the remedies provided in the maintenance services agreement are exclusive and that under no circumstances must the total aggregate liability of Siemens Westinghouse during a given year exceed 100% of the contract price payable to Siemens Westinghouse for that given year under the maintenance services agreement. We further agreed that under no circumstances must the total aggregate liability of Siemens Westinghouse for liquidated damages during a given year exceed a specified percentage of the contract price payable to Siemens Westinghouse for that given year under the maintenance services agreement. We further agreed that under no circumstances must the total aggregate liability of Siemens Westinghouse exceed a specified percentage of the contract price payable to Siemens Westinghouse under the maintenance services agreement.

Force Majeure

          Neither party will be liable for failure to perform any obligation or delay in performance, excluding payment, to the extent the failure or delay is caused by any act or event beyond the reasonable control of the affected party or Siemens Westinghouse’s suppliers so long as the act or event is not the fault or the result of negligence of the affected party and the party has been unable by exercise of reasonable diligence to overcome or mitigate the effects of the act or event. Force majeure includes: any act of God; act of civil or military authority; act of war whether declared or undeclared; act (including delay, failure to act, or priority) of any governmental authority; civil disturbance; insurrection or riot; sabotage; fire; inclement weather conditions; earthquake; flood; strikes, work stoppages or other labor difficulties of a regional or national character which are not limited to only the employees of Siemens Westinghouse or its subcontractors or suppliers and which are not due to the breach of an applicable labor contract by the party claiming force majeure; embargo; fuel or energy shortage; delay or accident in shipping or transportation to the extent attributable to another force majeure; changes in laws which substantially prevents a party from complying with its obligations in conformity with its requirements under the maintenance services agreement or failure or delay beyond its reasonable control in obtaining necessary manufacturing facilities, labor, or materials from usual sources to the extent attributable to another force majeure; or failure of any principal contractor to provide equipment to the extent attributable to another force majeure. Force majeure does not include: (1) economic hardship, (2) changes in market conditions or (3) except due to an event of force majeure, late delivery of program parts or other equipment.

          If a delay in performance is excusable due to a force majeure, the date of delivery or time for performance of the work will be extended by a period of time reasonably necessary to overcome the effect of the force majeure and if the force majeure lasts for a period longer than 30 days and the delay directly increases Siemens Westinghouse’s costs or expenses, we, after reviewing Siemens Westinghouse’s additional direct costs and expenses, will reimburse Siemens Westinghouse for its reasonable additional direct costs and expenses incurred after 30 days from the beginning of the force majeure resulting from the delay.

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Interconnection Agreement

          We have entered into a Generation Facility Transmission Interconnection Agreement, dated as of March 23, 1999, with GPU Energy for the installation, operation and maintenance of the facilities necessary to interconnect our facility to the transmission system of GPU Energy. Under the interconnection agreement, we and GPU Energy will construct, own, operate and maintain the interconnection facilities. We will be responsible for all of the costs of construction, operation and maintenance of the interconnection facilities, including those owned by GPU Energy.

          The interconnection facilities and protective gas apparatus needed to generate and deliver net electric and/or ancillary services to the electric delivery point were completed in 2001, as required under the power purchase agreement.

Scope

          The interconnection agreement became effective on March 23, 1999 (the effective date established by FERC), and will continue in full force and effect until a mutually agreeable termination date not to exceed the retirement date for our facility.

Our Obligations

          At December 31, 2002, we owned, operated and maintained a portion of the interconnection facilities, including, but not limited to, a 230 kV switchyard, including generator step up transformers, instrument transformers, revenue metering, power circuit breakers, control and protective relay panels, supervisory control and data acquisition equipment, and protective relaying equipment.

          We reimbursed GPU Energy for its actual costs of installing the interconnection facilities. Our payments to GPU Energy have consisted of an advance payment of $500,000 on the execution date of the interconnection agreement, another payment of $40,000 within 30 days of the execution date of the interconnection agreement (for work undertaken by GPU Energy prior to December 17, 1998), a payment of $1,000,000 at financial closing, June 25, 1999, and monthly invoices for the work performed.

          We are obligated to modify our portion of the interconnection facilities as may be required to conform to changes in good utility practice or as required by PJM.

          We are obligated to keep our facility insured against loss or damage in accordance with the minimum coverages specified in the interconnection agreement.

Operation and Maintenance of Interconnection Facilities

          The parties are obligated to operate and maintain their respective portions of the interconnection facilities in accordance with good utility practices and the requirements and guidelines of PJM and GPU Energy.

          GPU Energy will have the right to disconnect our facility from its transmission system and/or curtail, interrupt or reduce the output of our facility when operation of our facility or the interconnection facilities adversely affects the quality of service rendered by GPU Energy or interferes with the safe and reliable operation of its transmission system or the regional transmission system. GPU Energy, however, is obligated to use reasonable efforts to minimize any disconnection, curtailment, interruption or reduction in output.

          In accordance with good utility practice, GPU Energy may remove the interconnection facilities from service as necessary to perform maintenance or testing or to install or replace equipment on the interconnection facilities or the transmission system. GPU Energy is obligated to use due diligence to restore the interconnection facilities to service as promptly as practicable.

          In addition, if we fail to operate, maintain, administer, or insure our facility or its portion of the interconnection facilities, GPU Energy may, following 30 days’ notice and opportunity to cure the failure, disconnect our facility from the transmission system.

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Force Majeure

          If either party is delayed in or prevented from performing or carrying out its obligations under the interconnection agreement by reason of force majeure, the party will not be liable to the other party for or on account of any loss, damage, injury or expense resulting from or arising out of the delay or prevention so long as the party encountering the delay or prevention uses due diligence to remove the cause or causes thereof.

Default

          The events of default under the interconnection agreement are:

          Upon an event of default, the non-defaulting party may give notice of the event of default to the defaulting party. The defaulting party will have 60 days following the receipt of the notice to cure the default or to commence in good faith the steps necessary to cure a default that cannot be cured within that 60-day period. If the defaulting party fails to cure its default within 60 days or fails to take the steps necessary to cure a default that cannot be cured within a 60-day period, the non-defaulting party will have the right to terminate the interconnection agreement. GPU Energy will have the right to operate and/or to purchase specific equipment, facilities and appurtenances from us that are necessary for GPU Energy to operate and maintain its transmission system if (1) we commence bankruptcy proceedings or petitions for the appointment of a trustee or other custodian, liquidator, or receiver, (2) a court issues a decree for relief of us or appoints a trustee or other custodian, liquidator, or receiver for us or a substantial part of our assets and the decree is not dismissed within 60 days or (3) we cease operation for 30 consecutive days without having an assignee, successor, or transferee in place.

Operations Agreement

          We entered into a Development and Operations Services Agreement, dated as of June 1, 1999, with AES Prescott by which AES Prescott is providing development and construction management services and, after the commercial operation date, operating and maintenance services for our facility for a period of 27 years. Under the operations agreement, AES Prescott is responsible for, among other things, preparing plans and budgets related to start-up and commercial operation of our facility, providing qualified operating personnel, making repairs, purchasing consumables and spare parts (not otherwise provided under the maintenance services agreement) and providing other services as needed according to industry standards. During fiscal year 2002, AES Prescott was compensated for the services on a cost plus fixed-fee basis of $421,000 per month. The fee is adjusted annually by the change in Gross Domestic Product, Implicit Price Deflator. Total fees paid by us were $5.0 million for the year ended December 31, 2002. Under the services agreement between AES Prescott and The AES Corporation, The

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AES Corporation provides to AES Prescott all of the personnel and services necessary for AES Prescott to comply with its obligations under the operations agreement.

Effluent Supply Agreement

          We, as assignee of AES Ironwood, Inc., have entered into an Effluent Supply Agreement, dated as of March 3, 1998, with the City of Lebanon Authority, by which City of Lebanon Authority will provide effluent to be used by us at the electric generating facility to be constructed in South Lebanon Township, Pennsylvania.

Supply of Effluent

          Subsequent to completion of the pipeline connecting our facility with the wastewater treatment facility owned and operated by City of Lebanon Authority and throughout the term of the effluent supply agreement, City of Lebanon Authority must make available to us a supply of effluent not less than 2,160,000 gallons per day. In the event of a shortfall, we may elect to accept potable water from City of Lebanon Authority in accordance with the effluent supply agreement. We will not be obligated to purchase any minimum amount of effluent and will be entitled to seek and obtain water from other available sources. City of Lebanon Authority must use its best efforts to comply with requests by us for excess effluent, which must not exceed (1) 4,600,000 gallons per day or (2) 1,679,000,000 gallons per calendar year. In addition, City of Lebanon Authority must use its best efforts to meet our minimum effluent requirements.

Compensation

          We are obligated to pay City of Lebanon Authority monthly for all effluent delivered to the point of delivery during the prior month. The base rate for effluent supplied is: (1) for 0-2,160,000 gallons per day, $0.29 per thousand gallons and (2) for 2,160,000 or greater gallons per day, $0.21 per thousand gallons, which rates are subject to annual adjustments for inflation.

Pipeline and Real Estate Rights

          We have been solely responsible, at our cost and expense, for constructing and installing the pipeline.

          We and City of Lebanon Authority must cooperate in good faith to obtain the necessary real estate rights for constructing, operating, maintaining and accessing the pipeline.

Operation and Maintenance

          The City of Lebanon Authority must operate and maintain the pipeline in accordance with the effluent supply agreement, and as compensation, we must pay to City of Lebanon Authority $18,250 per year, which amount will be subject to annual adjustment for inflation.

Capital Improvements

          The effluent supply agreement provides for capital improvements.

Potable Water

          The City of Lebanon Authority must make available to us on a continuous basis a potable water supply of not less than 50 gallons per minute. We will not be obligated to purchase a minimum amount of potable water, but must pay the City of Lebanon Authority for potable water accepted at the potable delivery point at the rate applicable to us described in City of Lebanon Authority’s applicable rate schedule.

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Force Majeure

          If either party is unable to carry out any obligation under the effluent supply agreement due to force majeure, the effluent supply agreement must remain in effect, but the obligation will be suspended for the period necessary as a result of the force majeure so long as: (1) the non-performing party gives the other party written notice not later than 48 hours after the occurrence of the force majeure describing the particulars of the force majeure; (2) the suspension of performance is of no greater scope and of longer duration than is required by the force majeure; and (3) the non-performing party uses its best efforts to remedy its inability to perform. Notwithstanding the preceding, the settlement of strikes, lockouts, and other labor disputes will be entirely within the discretion of the affected party, and the party will not be required to settle any strike, lockout or other labor dispute on terms which it deems inadvisable.

Term

          The term of the effluent supply agreement will be 25 years unless terminated early as a result of (1) our inability to obtain financing for our project; (2) our inability to obtain necessary approvals to construct and operate our project; (3) failure by us to deliver the commencement notice by December 31, 2004, or (4) the occurrence of any event of default.

Early Termination for Event of Default

          A party may terminate the effluent supply agreement (1) upon a bankruptcy event of the other party or (2) if the other party fails to perform or observe any of its material obligations under the effluent supply agreement within the time contemplated by the effluent supply agreement and the failure continues for a period of time greater than 30 days from the defaulting party.

Pennsy Supply Agreements

          We, as assignee of AES Ironwood, Inc., entered into an Agreement Relating to Real Estate, dated as of October 22, 1998, with Pennsy Supply, Inc. under which Pennsy Supply has agreed to grant to us specific easements and the right to pump water from Pennsy Supply-owned property. The easements, which are primarily for access and utility purposes, would run from property owned by us, on which it will develop and construct its electric generating facility, across property owned by Pennsy Supply and require that our property be used as a power plant. Pennsy Supply has also agreed to grant to us easements with respect to storm-water facilities and construction of a rail spur. Pennsy Supply will make water available to us during construction and testing of our facility and for as long as we operate our facility. We will bear all costs and expenses with respect to water-pumping. In consideration for the easements and the water-pumping rights, we have agreed to convey to Pennsy Supply title to a parcel of land adjacent to the property owned by us.

          We also entered into an Easement and Right of Access Agreement, dated as of April 15, 1999, with Pennsy Supply under which Pennsy Supply has granted us the rights and easements referred to in the prior paragraph as well as specific other rights and easements required by us for the construction and operation of our facility.

ITEM 2.     Properties

          Our principal property is the land for the facility site, which we own, and the completed power plant. The facility site is located in South Lebanon Township, Lebanon County, Pennsylvania on an approximately 35-acre parcel of land. We have access, utility, drainage and construction easements across neighboring property. We are able to use these easements as long as there is no default under the agreements with the owner of the adjacent property and we are using the facility site for a power plant. We have constructed a rail spur to facilitate the transportation of heavy equipment to the facility site, but will not maintain rights in the rail spur after construction has been completed. We have title insurance in connection with our property rights. In June and December 2001, we purchased two parcels of land of approximately 15 acres, contiguous to the existing property for approximately $619,000.

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          Under certain financing documents, our rights and interests in our property rights are encumbered by mortgages, security agreements, collateral assignments and pledges for the benefit of the bondholders and other senior creditors.

          Our facility consists of a 705 megawatt (net) gas-fired combined cycle electric generating facility. The plant became operational with commercial acceptance on December 28, 2001.

          Our facility was designed, engineered, procured and constructed for us by Siemens Westinghouse under a fixed-price construction agreement. Among other components, our facility uses two Siemens Westinghouse model 501G combustion turbines with hydrogen-cooled generators, two unfired heat recovery steam generators and one multi-cylinder steam turbine with a hydrogen-cooled generator. Siemens Westinghouse has provided us with specific combustion turbine maintenance services and spare parts for an initial term of between eight and ten years, depending on the timing of scheduled outages, under a maintenance services agreement. Under the power purchase agreement, Williams Energy or its affiliates will supply fuel necessary to allow us to provide capacity, fuel conversion and ancillary services to Williams Energy. AES Prescott, the operator, will provide development, construction management and operations and maintenance services for our facility under an operations agreement. We will provide installation, operation and maintenance of facilities necessary to interconnect our facility to the transmission system of GPU Energy, under an interconnection agreement.

ITEM 3.     Legal Proceedings

          We previously had a dispute with Siemens Westinghouse over which party was responsible for the payment of the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance. On March 12, 2003, we entered into a settlement agreement with Siemens Westinghouse entitled Agreement Change Order No. 71 concerning final acceptance. This agreement became effective as of that date and final acceptance was granted by us as of that date.

          The terms of the agreement include but are not limited to the following items:

          We have agreed not to pursue the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance date. These costs totaled approximately $10.7 million, and were included in accounts receivable.

          We have agreed to pay approximately $156,000 in respect of an outstanding amount claimed by Siemens Westinghouse regarding an April 2002 outage to test and inspect the facility. This amount was included in our calculation of the April outage and was recorded in Accounts Payable. Siemens Westinghouse has agreed to waive their right to receive any payments with respect to a milestone payment of $2.2 million and to the retainage amounts relating to performance guarantees of $12.1 million held by us. Additionally, Siemens Westinghouse made a payment of $4.8 million to us in respect of items related to final acceptance. This amount was recorded as a reduction in the cost of the facility. The financial impact from the settlement has been recorded in our financial statements as of December 31, 2002. The effect of this settlement for fiscal year 2002 was a reduction in insurance of $291,000 and a $182,000 reduction in depreciation as a result of the reduction in facility cost.

          We previously entered into arbitration with Williams Energy to resolve certain disputes regarding the proper interpretation of certain provisions of the power purchase agreement relating to amounts claimed by us to be payable by Williams Energy.

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          On February 5, 2003 the arbitration panel handed down its decision. The arbitration decision covered both revenue and non-revenue items. The revenue items were mainly concerned with the interpretation the power purchase agreement regarding the of calculation of revenue. The net effect of these items was a reduction of revenues for 2002 of approximately $320,000.

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

ITEM 4.     Submission of Matters to a Vote of Security Holders

          Not applicable pursuant to General Instruction I of the Form 10-K.

PART II

ITEM 5.     Market for Registrant’s Common Equity and Related Stockholder Matters

          There is no market for our equity interests. All of our member interests are owned by our parent, AES Ironwood, Inc., a subsidiary of The AES Corporation. During December 2002 we declared and paid $4.3 million in dividends to AES Ironwood, Inc.

ITEM 6.     Selected Financial Data

          Not applicable pursuant to General Instruction I of the Form 10-K.

ITEM 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this annual report. The following discussion involves forward-looking statements. Our actual results may differ significantly from the results suggested by these forward-looking statements.

General

          We were formed on October 30, 1998 to develop, construct, own, operate and maintain the facility. We were dormant until June 25, 1999, the date of the sale of the senior secured bonds. We granted provisional acceptance on December 27, 2001. We commenced commercial operations subject to the power purchase agreement on December 28, 2001. We obtained $308.5 million of project financing from the sale of the senior secured bonds. The total cost of the construction of our facility was estimated to be approximately $339.1 million, which was financed by the proceeds from the sale of the senior secured bonds and the equity contributions described below. As a result of the Siemens Westinghouse settlement, the facility cost was reduced by approximately $7.3 million. In May 2000, we consummated an exchange offer whereby the holders of the senior secured bonds exchanged their privately placed senior secured bonds for registered senior secured bonds.

Equity Contributions

          Under an Equity Subscription Agreement, AES Ironwood, Inc. is obligated to contribute up to approximately $50.1 million in the form of either subordinated debt or equity to us to fund project costs. In 2001 AES Ironwood, Inc. provided a $30 million subordinated loan to us under the equity subscription agreement. In January 2002, the $30 million payable to AES Ironwood, Inc. was converted to an equity contribution. On February 26, 2002, AES Ironwood, Inc. contributed an additional $8.8 million of equity to us. The remaining $9.1 million contribution was supported by a surety bond until June 25, 2002, when the surety bond expired. At that time the surety bond was replaced by an acceptable letter of credit in the amount of $9.1 million. The need for the letter of credit ceased with

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the granting of final acceptance on March 12, 2003. We have notified the collateral agent and have requested they release us of this requirement.

Results of Operations

          For the years ended December 31, 2002, 2001 and 2000, operating revenues were approximately $51.9 million, $1.2 million and $0 respectively. Operating revenues consist of capacity payments of approximately $3.9 million per month. The remaining revenue consists of fuel conversion and heat rate bonus payments. Operating revenues in 2002 reflect a full year of operation. Operating revenues in 2001 reflected operation for a portion of the month of December. There were no operating revenues in 2000 as the facility was under construction.

          For the years ended December 31, 2002, 2001 and 2000, depreciation expense was approximately $10.1 million, $85,000 and $0 respectively. Depreciation expense in 2002 reflects a full year of operation. Depreciation expense in 2001 reflected operation for a portion of the month of December. There was no depreciation expense in 2000 as the facility was under construction.

          For the years ended December 31, 2002, 2001 and 2000, management services and fees were approximately $8.4 million, $20,000 million and $0 respectively. Management services and fees in 2002 reflect a full year of operation. Management services and fees in 2001 reflected operation for a portion of the month of December and management services and fees that were not capitalized as part of the construction of the facility.

          For the years ended December 31, 2002, 2001 and 2000, operating fees were approximately $5.0 million, $0 million and $0 respectively. Operating fees in 2002 reflect a full year of operation. Operating fees in 2001 reflected operation for a portion of the month of December and operating expenses that were not capitalized as part of the construction of the facility.

          For the years ended December 31, 2002, 2001 and 2000, interest cost incurred on the bond proceeds not spent on construction of our facility was approximately $27.2 million, $0.2 million and $2.9 million respectively, and is included as interest expense in the statements of operations. This increase reflects the impact of a full year of operation in 2002 compared to operation for a portion of the month of December in 2001.

          A portion of the proceeds from the sale of the senior secured bonds had not yet been expended on construction and were invested by the trustee. For the years ended December 31, 2002, 2001 and 2000, the interest income earned on these invested funds was approximately $0.1, $0.5 million and $2.7 million, respectively, and is included in the Statements of Operations.

          For the years ended December 31, 2002, 2001 and 2000, general and administrative costs of $5.5 million, $0.4 million and $0.3 million, respectively, were incurred. These costs did not directly relate to construction and are included as expenses in the Statement of Operations. This increase reflects the impact of a full year of operation in 2002 compared to operation for a portion of the month of December in 2001.

          For the year ended 2002, we had a net loss of $1.6 million versus net income of $1.0 million for 2001. For fiscal year 2000, we had a net loss of $0.5 million. The net loss for 2002 is attributable to our costs being higher than originally budgeted. We incurred increased expenses due to arbitration, higher security costs, and other smaller operating items. The facility was in operation for a portion of December 2001 and there were no operations in 2000.

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

          Other income in 2002 consisted of $3.5 million from Siemens Westinghouse relating to their payment of performance guarantees and $1.3 million from the sale of excess fuel.

Liquidity and Capital Resources

          The minimum cash flow from Williams Energy under the power purchase agreement is approximately $4.0 million per month. Net operating cash outflows are approximately $1.3 million per month. The balance left will provide for senior debt interest and principal payments. Additionally, a significant monthly expenditure is for payment of our long term service agreement with Siemens Westinghouse. This agreement provides that we pay approximately $400 per gas turbine per equivalent operating hour. In the event we are not required to dispatch the facility, there is no charge. While operating at base load, the estimated monthly payment for the long term service agreement could be as much

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as $450,000. We believe that our cash flows are sufficient to fund our future operations and to satisfy our outstanding obligations.

          We believe that cash flows from the sale of electricity under the power purchase agreement will be sufficient to pay ongoing project costs, including principal and interest on the senior secured bonds. After the power purchase agreement expires, we will depend on market sales of electricity.

          In order to provide liquidity in the event of cash flow shortfalls, the debt service reserve account contains an amount equal to the debt service reserve account required balance through cash funding, issuance of the debt service reserve letter of credit or a combination of the two.

          Williams Energy currently is our sole customer for purchases of capacity, ancillary services, and energy, and our sole source for fuel. Williams Energy’s payments under the power purchase agreement are expected to provide all of our revenues during the term of the power purchase agreement. It is uncertain whether we would be able to find another purchaser or fuel source on similar terms for our facility if Williams Energy were not performing under the power purchase agreement. Any material failure by Williams Energy to make capacity and fuel conversion payments or to supply fuel under the power purchase agreement would have a severe impact on our operations. The payment obligations of Williams Energy under the power purchase agreement are guaranteed by The Williams Companies, Inc. The payment obligations of The Williams Companies, Inc. are capped at an amount equal to 125% of the sum of the principal amount of our senior secured bonds, plus the maximum debt service reserve account balance. At December 31, 2002, this amount was approximately $400 million.

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

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

          To satisfy the requirements of the power purchase agreement, on September 20, 2002, Citibank, N.A. issued a $35 million Irrevocable Letter of Credit (“the Letter of Credit”) on behalf of Williams Energy. The Letter of Credit does not alter, modify, amend or nullify the guaranty issued by The Williams Companies, Inc. in favor of the Company and is considered to be additional security to the security amounts provided by such guaranty. The Letter of Credit became effective on September 20, 2002 and shall expire upon the close of business on July 10, 2003; except that the Letter of Credit will be automatically extended without amendment for successive one year periods from the present or any future expiration date hereof, unless Citibank, N.A. provides written notice of its election not to renew the Letter of Credit at least thirty days prior to any such expiration date. Additionally, in a Letter Agreement dated September 20, 2002, Williams Energy agreed to (a) provide Eligible Credit Support prior to the stated expiration date of the Letter of Credit and (b) replenish any portion of the Letter of Credit or Eligible Credit Support that is drawn, reduced, cashed or redeemed, at any time, with an equal amount of Eligible Credit Support. Within twenty days prior to the expiration of the Letter of Credit and/or any expiration date of eligible credit support posted by Williams Energy, Williams Energy shall post eligible credit support to the Company in place of the Letter of Credit and/or any expiring eligible credit support unless The Williams Companies, Inc. regains and maintains its

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investment grade status, in which case the Letter of Credit or eligible credit support shall automatically terminate and no additional eligible credit support shall be required. We and Williams Energy acknowledge that the posting of such Letter of Credit and Williams Energy’s agreement and performance of the requirements of (a) and (b) as set forth in the immediately preceding sentence shall be in full satisfaction of Williams Energy’s obligations contained in Section 19.3 of the power purchase agreement to provide replacement security due to the downgrade of The Williams Companies, Inc. falling below investment grade status.

          Our dependence on The Williams Companies, Inc. and its affiliates under the power purchase agreement exposes us to possible loss of revenues and fuel supply, which in turn, could negatively impact our cash flow and financial condition and could result in a default under our senior secured bonds. There can be no assurance as to our ability to generate sufficient cash flow to cover operating expenses or our debt service obligations in the absence of a long term power purchase agreement with Williams Energy.

Business Strategy and Outlook

          Under our overall business strategy, we are committed to market and sell all of our net capacity, fuel conversion and ancillary services to Williams Energy during the 20 year term of the power purchase agreement. After expiration of the power purchase agreement, we anticipate selling our facility’s capacity, ancillary services and energy under a power purchase agreement or into the Pennsylvania/New Jersey/Maryland power pool market. We intend to cause the facility to be managed, operated and maintained in compliance with the project contracts and all applicable legal requirements.

Recent and New Accounting Pronouncements

          Effective January 1, 2001, the Company adopted SFAS No. 133, entitled “Accounting for Derivative Instruments and Hedging Activities,” which, as amended, establishes new accounting and reporting standards for derivative instruments and hedging activities. The Company produces and sells electricity, as well as provides fuel conversion and ancillary services, solely to Williams Energy under the power purchase agreement. The Company does not believe that the power purchase agreement meets the definition of a derivative under SFAS No. 133 and, as such, should not be accounted for as a derivative. The Company has no other contracts that meet the definition of a derivative or an embedded derivative under SFAS No. 133. Therefore, there is no impact on the Company’s financial statements as of January 1, 2001, December 31, 2001, or for the period ending December 31, 2002.

          In July 2001, the FASB issued SFAS No. 143, entitled “Accounting for Asset Retirement Obligations.” This standard is effective for fiscal years beginning after June 15, 2002, and provides accounting requirements for asset retirement obligations associated with long-lived assets. Under this Statement, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long lived asset. The liability is accreted to its present value in each subsequent period and the capitalized cost is depreciated over the useful life of the related asset. We have determined that the effects of the adoption of SFAS No. 143 on our financial position and results of operations will not be material.

          In August 2001, the FASB issued SFAS No. 144, entitled “Accounting for Impairment or Disposal of Long-Lived Assets.” The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 and generally are to be applied prospectively. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 provides guidance for developing estimates of future flows used to test assets for recoverability and requires that assets to be disposed of be classified as held for sale when certain criteria are met. The statement also extends the reporting of discontinued operations to all components of an entity and provides guidance for recognition of liability for obligations associated with a disposal activity. The initial adoption of the provisions of SFAS No. 144 did not have any material impact on its financial position or results of operations.

          In April 2002, the FASB issued SFAS No. 145, entitled “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in

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reclassification as operating leases be accounted for consistent with the sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. The adoption of this standard by the Company did not have any immediate effect on the Company’s consolidated financial statements.

          In June 2002, the FASB issued SFAS No. 146, entitled “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. This standard will be accounted for prospectively.

          In November 2002, the FASB issued Interpretation No. 45, entitled “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation establishes new disclosure requirements for all guarantees, but the measurement criteria are applicable to guarantees issued and modified after December 31, 2002. The Company has not yet determined the impact that this standard may have on its financial statements.

Critical Accounting Policies

          We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are most critical to understanding and evaluating our reported financial results include the following: Revenue Recognition; Property Plant and Equipment and Contingencies.

          We generate energy revenues under our power purchase agreement with Williams Energy. During the 20 year term of the agreement, we expect to sell electric energy and capacity produced by the facility, as well as ancillary and fuel conversion services. Under the power purchase agreement, we also generate revenues from meeting (1) base electrical output guarantees and (2) heat rate rebates through efficient electrical output. Revenues from the sales of electric energy and capacity are recorded based on output delivered and capacity provided at rates as specified under contract terms. Revenues for ancillary and other services are recorded when the services are rendered.

          Upon its expiration, or in the event that the power purchase agreement is terminated prior its 20 year term, we would seek to generate energy revenues from the sale of electric energy and capacity into the merchant market or under new short- or long-term power purchase or similar agreements. There can be no assurances as to the whether such efforts would be successful.

          Property, plant and equipment is recorded at cost and is depreciated over its useful life. The estimated lives of our generation facilities range from 5 to 40 years. A significant decrease in the estimated useful life of a material amount of our property, plant or equipment could have a material adverse impact on our operating results in the period in which the estimate is revised and subsequent periods.

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Contingencies

          We previously entered into arbitration with Williams Energy to resolve certain disputes regarding the proper interpretation of certain provisions of the power purchase agreement relating to amounts claimed by us to be payable by Williams Energy. (See “Legal Proceedings”). Additionally, we are in ongoing discussions with Williams Energy relating to the calculation of certain amounts under the power purchase agreement. Under the agreement, we have earned an annual availability bonus and an additional capacity payment for 2002. We have invoiced Williams Energy approximately $1.4 million as an annual availability bonus for 2002 and approximately $0.1 million as a capacity payment for 2002. Because the amounts are in dispute, we have only recognized the amounts that Williams Energy has paid us, approximately $0.3 million. We will continue to discuss with Williams Energy the calculation of these amounts but are unable to predict the outcome of these discussions and their potential impact on our ability to collect these revenue items either for 2002 or in the future.

Commitments

          Interest on the Bonds is payable quarterly in arrears. Quarterly principal payments on the Bonds commenced on February 28, 2002. The final maturity date for the Bonds is November 30, 2025.

          Principal and interest is payable as follows at December 31 (in thousands)

ITEM 7A.      Quantitative and Qualitative Disclosure About Market Risk

          The bonds have an aggregate principal amount of $306.5 million at December 31, 2002. The bonds bear interest at a fixed rate per annum of 8.857% and are due 2025. Interest on these bonds is payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year. The bonds are secured ratably by a lien on and security interest in shared collateral, which consists of substantially all of our assets. In addition, the indenture accounts, the debt service reserve account and the debt service reserve letter of credit (other than to the extent of the debt service reserve letter of credit provider’s right to specific proceeds there under) are separate collateral solely for the benefit of the holders of the bonds. The fair value of these bonds at December 31, 2002 was approximately $214.0 million. We are not subject to interest rate risk as the interest rates associated with our outstanding indebtedness are fixed over the life of the bonds. We currently have no other financial or derivative financial instruments. We do not believe that we face other material risks requiring disclosure pursuant to Item 305 of Regulation S-K.

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

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ITEM 8.     Financial Statements and Supplemental Data

AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

Index to Financial Statements

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INDEPENDENT AUDITORS’ REPORT

To the Member of
AES Ironwood, L.L.C.:

          We have audited the accompanying balance sheets of AES Ironwood, L.L.C. (an indirect wholly owned subsidiary of The AES Corporation) (the Company) as of December 31, 2002 and 2001 and the related statements of operations, changes in member’s capital and cash flows for the year ended December 31, 2002, 2001 and 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

          We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, such financial statements present fairly, in all material respects, the financial position of AES Ironwood, L.L.C., as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the years ended December 31, 2002, 2001 and 2000, in conformity with accounting principles generally accepted in the United States of America.

          As more fully discussed in Note 6, the Company’s dependence upon Williams Energy Marketing & Trading Company under the Power Purchase Agreement exposes the Company to possible loss of revenues and fuel supply. There can be no assurances as to the Company’s ability to generate sufficient cash flow to cover operating expenses or debt service obligations in the absence of a Power Purchase Agreement with Williams Energy Marketing & Trading Company and related guaranty by The Williams Companies, Inc. or their affiliates.

/s/ Deloitte & Touche LLP
McLean, Virginia

February 20, 2003 (March 12, 2003 as to the third paragraph of Note 7)

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AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

BALANCE SHEETS,
DECEMBER 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)

See notes to financial statements.

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AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

STATEMENTS OF OPERATIONS,
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS)

See notes to financial statements.

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AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

STATEMENTS OF CHANGES IN MEMBER’S CAPITAL,
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(DOLLARS IN THOUSANDS)

See notes to financial statements.

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AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

STATEMENTS OF CASH FLOWS,
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(DOLLARS IN THOUSANDS)

See notes to financial statements.

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AES IRONWOOD, L.L.C.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF THE AES CORPORATION

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

          We were formed on October 30, 1998, in the state of Delaware to develop, construct, and operate a 705-megawatt (MW) gas-fired, combined cycle electric generating facility in South Lebanon Township, Pennsylvania (the Plant). We were considered dormant until June 25, 1999, at which time the Project Financing and certain related agreements were consummated (hereinafter, Inception). The Plant includes two Westinghouse 501 G combustion turbines, two heat recovery steam generators, and one steam turbine. The Plant produces and sells electricity, as well as provides fuel conversion and ancillary services, solely to Williams Energy Marketing and Trading Company (Williams Energy) under a power purchase agreement (the PPA) with a term of 20 years. We commenced commercial operations on December 28, 2001, the commercial operation date. On March 12, 2003, final acceptance under the agreement was granted and an Officer’s Certificate was subsequently submitted to the Collateral Agent indicating that the facility has been fully funded and no further contribution will be required (see Note 7).

          We are a wholly-owned subsidiary of AES Ironwood, Inc. (Ironwood), which is a wholly owned subsidiary of The AES Corporation (AES). Ironwood has no assets other than its ownership interests in us and AES Prescott, L.L.C. (Prescott), another wholly owned subsidiary of Ironwood (see Note 8). Ironwood has no operations and is not expected to have any operations. Its only income is distributions it receives from us and Prescott. The additional equity that Ironwood is required to provide to us pursuant to the Equity Subscription Agreement (as described below) will be provided to Ironwood by AES, which owns all of the stock of Ironwood. Ironwood’s equity contribution obligations are required to be supported by either an insurance bond or letter of credit. Currently those obligations are supported by a letter of credit. (see Note 5).

          On June 25, 1999, we issued $308.5 million in senior secured bonds (see Note 4) for the purpose of providing financing for the construction of the Plant and to fund, through the construction period, interest payments to the bondholders. On May 12, 2000, we consummated an exchange offer whereby the holders of the senior bonds exchanged their privately placed senior secured bonds for registered senior secured bonds.

          Pursuant to an Equity Subscription Agreement, Ironwood is required to contribute up to $50.1 million to us to fund construction after the bond proceeds had been fully utilized. As of December 31, 2002, Ironwood had made net contributions of $38.8 million of equity capital. Upon final acceptance (see Note 7) no further contribution is required.

          Basis of Presentation – These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

          Cash and Cash Equivalents – We consider unrestricted cash on hand, deposits in banks, and investments with original maturities of three months or less to be cash and cash equivalents for the purpose of the statement of cash flows.

          Restricted Cash – Restricted cash in the amount of approximately $5.8 million as of December 31, 2002 and $5.4 million as of December 31, 2001 consists of accounts we are required under the Collateral Agency Agreement (see Note 4) to maintain for the construction, maintenance, and debt service of the facility.

          Construction in Progress – Costs incurred in developing the Plant, including progress payments, engineering costs, management and development fees, interest, and other costs related to construction were capitalized. Total interest capitalized on the project financing debt was approximately $60.3 million as of December 31, 2002 and December 31, 2001. Certain costs related to construction activities were paid by AES prior to the issuance of the bonds. These amounts include approximately $105.4 million of construction progress payments and $20.1 million in other incurred costs. These costs were reflected within construction in progress, and were reimbursed to AES out of

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the bond proceeds. All construction in progress was transferred to property, plant, and equipment on December 28, 2001.

          Property, Plant, and Equipment – Property, plant, and equipment is recorded at cost. Depreciation, after consideration of salvage value, is computed using the straight-line method over the estimated useful lives of the assets, which range from five to forty years. Maintenance and repairs are charged to expense as incurred.

           Long-Lived Assets – We evaluate the impairment of our long-lived assets based on the provisions of SFAS No. 144.

          Other Assets – Pursuant to the provisions of 25 Pa. Code Section 123, Nitrogen Oxide (NOx), Allowance Requirements, which establishes a NOx budget and a NOx allowance trading program for NOx affected sources for the purpose of achieving air quality standards, we purchased approximately $1.1 million in NOx allowances in 1999. The NOx allowances were purchased for NOx emissions during the ozone seasons for the first two full years of operations. These amounts are reported as other assets and will be amortized as they are utilized. Approximately $384 thousand in NOx were used during the 2002 NOx season.

          Deferred Financing Costs – Financing costs are deferred and are being amortized using the straight-line method over approximately 26 years, which does not differ materially from the effective interest method of amortization.

          Prepaid Expenses and Note Payable – Prepaid Expenses at December 31, 2002 include prepaid insurance in the amount of approximately $2.3 million, prepaid taxes in the amount of approximately $161,000, prepaid leases in the amount of approximately $30,000, and prepaid rating agency review fees in the amount of $27,000. Premiums for operating insurance on the facility increased approximately $2.1 million with the policy year beginning November 22, 2002. Instead of paying the full amount we paid a down payment in December 2002 of approximately $793,000 and

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financed the balance over eight months beginning in January 2003 with the final payment due August 1, 2003. The amount financed was $2.3 million with an interest rate of 3.75%. The payments are approximately $295,000 per month.

          Revenue Recognition – We generate energy revenues under our power purchase agreement with Williams Energy. During the 20-year term of the agreement, we expect to sell electric energy and capacity produced by the facility, as well as ancillary and fuel conversion services. Under the power purchase agreement, we also generate revenues from meeting (1) base electrical output guarantees and (2) heat rate rebates through efficient electrical output. Revenues from the sales of electric energy and capacity are recorded based on output delivered and capacity provided at rates as specified under contract terms. Revenues for ancillary and other services are recorded when the services are rendered. Upon its expiration, or in the event that the power purchase agreement is terminated prior its 20-year term, we would seek to generate energy revenues from the sale of electric energy and capacity into the merchant market or under new short- or long-term power purchase or similar agreements. There can be no assurances as to the whether such efforts would be successful (see Note 6).

          Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

          Income Taxes – We are a limited liability company and are treated as a disregarded entity for tax purposes. Therefore, we do not pay income taxes, and no provision for income taxes has been reflected in the accompanying financial statements.

          Reclassifications – Certain reclassifications have been made to the 2001 amounts to conform to the 2002 presentation.

          Accounts Receivable — As of December 31, 2002, accounts receivable of approximately $10.1 million consists of unpaid invoices from Williams Energy of approximately $5.8 million, from Siemens Westinghouse of approximately $4.8 million, from sales of excess fuel inventory of approximately $717,000, less allowance for doubtful accounts of approximately $1.2 million. As of December 31, 2001, accounts receivable was approximately $17.9 million and consisted of unpaid invoices from Williams Energy for operations and related services of $3.0 million, from Siemens Westinghouse for fuel and electricity reimbursables and related services of $11.5 million, from the construction contract of $3.0 million, and from other sources of $400,000.

          Other Income – For the year ended December 31, 2002, other income of approximately $4.8 million consists of interim heat rate and output rebates of $3.5 million as a result of performance guarantees by Siemens Westinghouse, $1.3 million from the sales of excess fuel inventory and $7,000 from the rental of property on the facility’s site.

          Effective January 1, 2001, the Company adopted SFAS No. 133, entitled “Accounting for Derivative Instruments and Hedging Activities, “which, as amended, establishes new accounting and reporting standards for derivative instruments and hedging activities. The Company produces and sells electricity, as well as provides fuel conversion and ancillary services, solely to Williams Energy under the power purchase agreement. The Company does not believe that the power purchase agreement. The Company does not believe that the power purchase agreement meets the definition of a derivative under SFAS No. 133 and as such, should not be accounted for as a derivative. The Company has no other contracts that meet the definition of a derivative or an embedded derivative under SFAS No. 133. Therefore, there is no impact on the Company’s financial statements as of January 1, 2001, December 31, 2001, or for the period ending December 31, 2002.

          In July 2001, the FASB issued SFAS No. 143, entitled “Accounting for Asset Retirement Obligations.” This standard is effective for fiscal years beginning after June 15, 2002, and provides accounting requirements for asset retirement obligations associated with long-lived assets. Under this Statement, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long lived

45

asset. The liability is accreted to its present value in each subsequent period and the capitalized cost is depreciated over the useful life of the related asset. We have determined that the effects of the adoption of SFAS No. 143 on our financial position and results of operations will not be material.

          In August 2001, the FASB issued SFAS No. 144, entitled “Accounting for Impairment or Disposal of Long-Lived Assets.” The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 and generally are to be applied prospectively. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 provides guidance for developing estimates of future flows used to test assets for recoverability and requires that assets to be disposed of be classified as held for sale when certain criteria are met. The statement also extends the reporting of discontinued operations to all components of an entity and provides guidance for recognition of liability for obligations associated with a disposal activity. The initial adoption of the provisions of SFAS No. 144 did not have any material impact on its financial position or results of operations.

          In April 2002, the FASB issued SFAS No. 145, entitled “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with the sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. The adoption of this standard by us did not have any immediate effect on our consolidated financial statements.

          In June 2002, the FASB issued SFAS No. 146, entitled “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. This standard will be accounted for prospectively.

          In November 2002, the FASB issued Interpretation No. 45, entitled “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation establishes new disclosure requirements for all guarantees, but the measurement criteria are applicable to guarantees issued and modified after December 31, 2002. The Company has not yet determined the impact that this standard may have on its financial statements.

          On June 25, 1999, we issued $308.5 million of 8.857% senior secured bonds due in 2025 (the Bonds) to qualified institutional buyers and/or institutional accredited investors, pursuant to a transaction exempt from registration under the Securities Act of 1933 (the Act) in accordance with Rule 144A under the Act. On May 12, 2000, we consummated an exchange offer whereby the holders of the senior secured bonds exchanged their privately placed senior secured bonds for registered senior secured bonds.

          In an action related to a ratings downgrade of The Williams Companies, Inc., S&P lowered its ratings on our senior secured bonds to “BB-” from “BBB-” on July 26, 2002, and placed the rating on credit watch. On November 27, 2002, Moody’s lowered its ratings on our senior secured bonds to “B2” from “Ba2”.

          Registration Rights – We were obligated to register the Bonds under the Act with the Securities and Exchange Commission within 220 days of the initial sale of the Bonds. The registration was not completed within the required time frame. As a result, effective January 30, 2000, the interest rate payable on the Bonds, previously fixed at 8.857%, increased by 50 basis points until the consummation of the exchange offer on May 12, 2000, when such interest rate was reduced back to 8.857%.

          The net proceeds of the bonds (after deferred financing costs), approximately $305.2 million, were used to fund the construction of the Plant and, during the construction period, for interest payments to bondholders.

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          Interest on the Bonds is payable quarterly in arrears. Quarterly principal payments on the Bonds commenced on February 28, 2002. The final maturity date for the Bonds is November 30, 2025.

          Principal and interest is payable as follows at December 31 (in thousands)

          Optional Redemption – The Bonds are subject to optional redemption by us, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus accrued interest, together with a premium calculated using a discount rate equal to the interest rate on comparable U.S. Treasury securities plus 50 basis points.

          Mandatory Redemption – The Bonds are subject to mandatory redemption by us, in whole or in part, at a redemption price equivalent to 100% of the principal amount plus accrued interest under certain situations pursuant to receiving insurance proceeds or liquidated damages from certain failures related to the performance of the facility under the EPC with the Contractor, or in certain instances in which payments are received under the PPA with Williams Energy under the event of default, at which time we have terminated the PPA.

          Collateral for the Bonds consists of the Plant and related facilities, all agreements relating to the operation of the project, our bank and investment accounts, and all ownership interests in our company as prescribed under the trust indenture (the Indenture). We are also bound by a collateral agency agreement (the Collateral Agency Agreement) and an equity subscription agreement (the Equity Subscription Agreement) (see Note 5).

          Indenture – The Indenture contains limitations on our company incurring additional indebtedness; granting liens on our property; distributing equity and paying subordinated indebtedness issued by affiliates; entering into transactions with affiliates; and amending, terminating, or assigning any of the contracts and fundamental changes or disposition of assets.

          Collateral Agency Agreement – The Collateral Agency Agreement requires us to fund or provide the funding for a debt service reserve fund. We have therefore entered into a Debt Service Reserve Letter of Credit Agreement dated June 1, 1999, which commenced on December 28, 2001. The amount required for funding the debt service reserve fund is equal to six months scheduled payments of principal and interest on the Bonds plus interest on the Debt Service Reserve Letter of Credit. A Letter of Credit in the amount $17.3 million has been obtained from Dresdner Bank AG to fulfill our requirement under the Collateral Agency Agreement.

          Covenants – The Indenture, Collateral Agency Agreement, and Equity Subscription Agreement contain specific covenants and requirements that we must meet. These covenants primarily entail the restriction of payments, reporting requirements, and the creation and maintenance of debt service reserve and construction related accounts.

          We, along with Ironwood, have entered into an Equity Subscription Agreement, pursuant to which Ironwood, has agreed to contribute up to approximately $50.1 million to us to fund project costs. This amount is secured by an acceptable bond issued by Ironwood. Ironwood will fund these amounts as they come due upon the earlier of (a) expenditure of all funds that have been established for construction or (b) the occurrence, and during the continuation of, an event of default, as defined under the indenture governing its senior secured bonds. A portion of

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this equity requirement may be made in the form of affiliate debt, between us and Ironwood, which would be subordinate to the senior secured bonds.

          In 2001, Ironwood provided $30.0 million in the form of subordinated debt to us under the equity subscription agreement. In January of 2002, this $30 million payable to Ironwood was converted to an equity contribution. On February 26, 2002, Ironwood contributed an additional $8.8 million in equity to us.

          AES Ironwood, Inc. has a Letter of Credit agreement in relation to its equity subscription agreement. The initial amount of the bond under this agreement was $50.1 million. On July 10, 2002, the surety bond was replaced by an acceptable letter of credit in the amount of $9.1 million. As a result of the Siemens Westinghouse settlement (see Note 7) and final acceptance of the facility, the need for the letter of credit ceased. We have notified the collateral agent and have requested they release AES Ironwood, Inc. of this requirement.

          We have entered into a power purchase agreement with Williams Energy for the sale of all electric energy and capacity produced by the facility, as well as ancillary and fuel conversion services. The term of the power purchase agreement is 20 years, commencing on December 28, 2001, the commercial operation date. Payment obligations to us are guaranteed by The Williams Companies, Inc. Such payment obligations under the guarantee are capped at an amount equal to 125% of the sum of the principal amount of the senior secured bonds plus the maximum debt service reserve account required balance.

          Fuel Conversion and Other Services – Williams Energy has the obligation to deliver, on an exclusive basis, all quantities of natural gas required by the Plant to generate electricity or ancillary services, to start up or shut down the Plant, and to operate the Plant during any period other than a start-up, shut-down, or required dispatch by Williams Energy for any reason.

          Concentration of Credit Risk – Williams Energy currently is our sole customer for purchases of capacity, ancillary services, and energy, and our sole source for fuel. Williams Energy’s payments under the power purchase agreement are expected to provide all of our revenues during the term of the power purchase agreement. It is uncertain whether we would be able to find another purchaser or fuel source on similar terms for our facility if Williams Energy were not performing under the power purchase agreement. Any material failure by Williams Energy to make capacity and fuel conversion payments or to supply fuel under the power purchase agreement would have a severe impact on our operations. The payment obligations of Williams Energy under the power purchase agreement are guaranteed by The Williams Companies, Inc. The payment obligations of The Williams Companies, Inc. are capped at an amount equal to 125% of the sum of the principal amount of our senior secured bonds, plus the maximum debt service reserve account balance. At December 31, 2002, this amount was approximately $400 million.

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

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

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

          We believe that our sources of liquidity will be adequate to meet our needs through the end of 2003. This belief is based on a number of assumptions, including, without limitation, the financial condition and continued performance of third parties on which we depend, and in particular Williams Energy, as the fuel supplier under the power purchase agreement we entered into with Williams Energy for the sale of all electric energy and capacity produced by the facility, and The Williams Companies, Inc., as the ultimate guarantor of Williams Energy’s performance under the Power Purchase Agreement. Known and unknown risks, uncertainties and other factors outside our control may cause actual results to differ materially from our current expectations, including, but not limited to, risks and uncertainties related to the financial condition and continued performance of the third parties on which we depend, including Williams Energy, The Williams Companies, Inc. and their affiliates, the possibility of unexpected problems related to the performance of the facility, the possibility of unexpected expenses or lower than expected revenues and additional factors that are unknown to us or beyond our control.

          Since we depend on The Williams Companies, Inc. and its affiliates for both revenues and fuel supply under the power purchase agreement, if The Williams Companies, Inc. and its affiliates were to terminate or default under the power purchase agreement, there would be a severe negative impact to our cash flow and financial condition which could result in a default on our senior secured bonds. Due to recent declines in pool prices, we would expect that if we were required to seek alternative purchasers of our power as a result of a default by The Williams Companies, Inc. and its affiliates, that any such alternate revenues would be substantially below the amounts that would have been otherwise payable pursuant to the power purchase agreement. There can be no assurance as to our ability to generate sufficient cash flow to cover operating expenses or our debt service obligations in the absence of a long-term power purchase agreement with Williams Energy or its affiliates.

          We previously entered into arbitration with Williams Energy to resolve certain disputes regarding the proper interpretation of certain provisions of the power purchase agreement relating to amounts claimed by us to be payable by Williams Energy. On February 5, 2003 the arbitration panel handed their award to the parties. The arbitration decision covered both revenue and non-revenue items. The revenue items were mainly concerned with the interpretation the power purchase agreement regarding the calculation of revenue. The net effect of these items was a reduction of revenues for 2002 of approximately $320,000.

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

          Construction – We entered into a fixed-price turnkey agreement with Siemens Westinghouse (the Contractor) for the design, engineering, procurement, and construction of the Plant. As of December 31, 2002 and 2001, we were liable to the Contractor for a retention payment as part of the total contract price due at the completion of the contract for approximately $0 and $11.9 million, respectively.

          Since provisional acceptance, interim acceptance or final acceptance did not occur prior to the guaranteed provisional acceptance date, Siemens Westinghouse began paying liquidated damages of $110,000 per day beginning 45 days after the guaranteed provisional acceptance date of May 22, 2001. The liquidated damages ceased to accrue on December 27, 2001, the date upon which provisional acceptance was granted. At December 31, 2001

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we had invoiced Siemens Westinghouse approximately $19.1 million. At December 31, 2001 Siemens Westinghouse had paid all but $2.97 million, the amount accrued for twenty-seven days in December. Siemens Westinghouse paid this amount in January 2002.

          We previously had a dispute with Siemens Westinghouse over which party was responsible for the payment of the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance. On March 12, 2003, we entered into a settlement agreement with Siemens Westinghouse entitled Agreement Change Order No. 71 concerning final acceptance. This agreement became effective as of that date and final acceptance was granted by us as of that date. The effects of the settlement have been recorded in our financial statements as of December 31, 2002. As a result of the settlement agreement, we have agreed, among other things, not to pursue the cost of electricity and natural gas used by the project during certain periods prior to the December 28, 2001 commercial acceptance date.

          Maintenance – We, as assignee of AES Ironwood, Inc., have entered into the Maintenance Program Parts, Shop Repairs and Scheduled Outage TFA Services Contract, dated as of September 23, 1998, with Siemens Westinghouse by which Siemens Westinghouse will provide us with, among other things, combustion turbine parts, shop repairs and scheduled outage technical field assistance services. The Contractor provided us with specific combustion turbine maintenance services and spare parts for an initial term of between eight and ten years under a maintenance service agreement. The fees assessed by Siemens Westinghouse will be based on the number of Equivalent Base Load Hours accumulated by the applicable Combustion Turbine as adjusted for inflation. The fees to Siemens Westinghouse are capitalized when paid. Each outage is analyzed and the cumulative fees and other costs related to the outage are capitalized as part of the facility or expensed accordingly.

          The maintenance services agreement became effective on the date of execution and unless terminated early, must terminate upon completion of shop repairs performed by Siemens Westinghouse following the eighth scheduled outage of the applicable combustion turbine or 10 years from initial synchronization of the applicable combustion turbine, whichever occurs first.

          Additionally, a significant monthly expenditure is for payment of our long term service agreement with Siemens Westinghouse. This agreement provides that we pay approximately $400 per gas turbine per equivalent operating hour. In the event we are not required to dispatch the facility, there is no charge. While operating at base load, the monthly payment for the long term service agreement could be as much as $450,000.

          Water Supply – We entered into a contract with the City of Lebanon Authority (the Authority) for the purchase of 50 percent of the water use of the Plant. The contract has a term of 25 years. Costs associated with the use of water by the Plant under this contract are based on gallons used per day at prices specified under the contract terms. We also entered into an agreement with Pennsy Supply, Inc. (Pennsy), which will provide the remaining 50 percent of the water use of the Plant.

          Interconnection Agreement – We entered into an interconnection agreement with GPU Energy (GPU) to transmit the electricity generated by the Plant to the transmission grid so that it may be sold as prescribed under the PPA. The agreement is in effect for the life of the Plant, yet may be terminated by mutual consent of both GPU and us under certain circumstances as detailed in the agreement. Costs associated with the agreement are based on electricity transmitted via GPU at a variable price, the PJM (Pennsylvania/New Jersey/Maryland) Tariff, as charged by GPU to the Company, which is comprised of both service cost and asset recovery cost, as determined by GPU and approved by the Federal Energy Regulatory Committee (FERC). We are obligated to pay approximately $204,000 per year as a maintenance fee for the interconnection equipment. The term of this agreement is twenty-five years.

          Power Purchase Agreement – We have entered into a power purchase agreement for a term of twenty years with Williams Energy, our sole customer for purchases of capacity, ancillary services and our sole source for fuel. (See Note 6)

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          Effective June 1999, we entered into a 27-year development and construction management agreement with Prescott to provide certain support services required by us for the development and construction of the Plant. Under this agreement Prescott will also provide operations management services for the Plant once commercial operation is attained. Payments for operations management services are approximately $400,000 per month.

          During the construction period, the construction management fees were paid to Prescott from the investment balances or from parent funding. For the year ended December 31, 2002, $5.0 million in management fees were incurred and charged to operating expenses, and $421,000 was payable to Prescott. For the year ended December 31, 2001, $3.9 million in construction management fees were incurred and charged to construction in progress, and $327,500 was payable to Prescott.

          Accounts receivable from parent and affiliates generally represents charges for certain AES projects that we have paid for and invoiced to our parent and affiliates. Accounts payable are generally amounts owed for shared services to our parent and affiliates. Accounts receivable from parent and affiliates were in the amount of $0 and $365,000 as of December 31, 2002 and 2001, respectively. Accounts payable to AES and affiliates as of December 31, 2002 and 2001 amounted to $2.9 million and $1.9 million, respectively.

          The estimated fair values of our financial instruments have been determined using available market information. The estimates are not necessarily indicative of the amounts we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

          The Bonds had a carrying amount of $306.5 million with a fair value of approximately $214.0 million at December 31, 2002 versus a carrying amount of $308.5 million with a fair value of approximately $290.1 million at December 31, 2001. The estimated fair value of the Bonds at December 31, 2002 is based on quoted market prices of similarly rated bonds with similar maturities.

          Under the provisions of Statement of Financial Accounting Standards No. 131, Disclosure About Segments of an Enterprise and Related Information, our business is expected to be operated as one reportable segment, with operating income or loss being the measure of performance evaluated by the chief operating decision-maker. As described in Notes 1 and 5, our primary customer is Williams Energy, which provides all of our operating revenues during the term of the PPA.

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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes the unaudited quarterly statements of operations for the Company for the years ended December 31, 2002 and 2001. Operations began on December 28, 2001; therefore 3 days of the quarter ended December 31, included operations and 87 days represented the development stage.

AES Ironwood, LLC
Quarters Ended December 31, 2002, September 30, 2002, June 30, 2002, March 31, 2002
(dollars in thousands)

AES Ironwood, LLC
Quarters Ended December 31, 2001, September 30, 2001, June 30, 2001, March 31, 2001
(dollars in thousands)

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ITEM 9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

          None.

PART III

ITEM 10.     Directors and Executive Officers of the Registrant

          Not applicable pursuant to General Instruction I of Form 10-K.

ITEM 11.     Executive Compensation

          Not applicable pursuant to General Instruction I of Form 10-K.

ITEM 12.     Security Ownership of Certain Beneficial Owners and Management

          Not applicable pursuant to General Instruction I of Form 10-K.

ITEM 13.     Certain Relationships And Related Transactions

          Not applicable pursuant to General Instruction I of Form 10-K.

ITEM 14.     Controls and Procedures

          Evaluation of Disclosure Controls and Procedures. Our President and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14c) as of a date (the “Evaluation Date”) within 90 days before the filing date of this annual report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that material information relating to us is recorded, processed, summarized, and reported in a timely manner.

          Changes in Internal Controls. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect such controls subsequent to the Evaluation Date.

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PART IV

ITEM 15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K

          Unless otherwise indicated, all exhibits to this Form 10-K are incorporated herein by reference from the identically numbered exhibit of AES Ironwood, L.L.C.‘s Registration Statement on Form S-4 (333-91391).

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          b) Reports on Form 8-K. No current reports on Form 8-K were filed by the registrant during the fourth quarter of the fiscal year ended December 31, 2002.

Supplementary Information to be Furnished With Reports filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.

          No annual report or proxy materials have been sent to security holders during the fiscal year ended December 31, 2002. No annual report or proxy materials will be sent to security holders subsequent to the filing of this annual report on Form 10-K.

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SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 31, 2003

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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CERTIFICATION

I, Peter Norgeot, certify that:

1. I have reviewed this annual report on Form 10-K of AES Ironwood, LLC;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

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CERTIFICATION

I, Michael Carlson, certify that:

1. I have reviewed this annual report on Form 10-K of AES Ironwood, LLC;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

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