Exhibit No. 10.10.
March 8, 2000 (amended and restated as of January 12, 2001)
Xx. Xxxx X. Xxxxxx
Vice President, Business Development
Questar Pipeline Company
000 Xxxx 000 Xxxxx
X.X. Xxx 00000
Xxxx Xxxx Xxxx, XX 00000-0000
Dear Xx. Xxxxxx:
This letter sets forth the terms of an agreement between Colorado
Interstate Gas Company ("CIG") and Questar Pipeline Company
("Questar"), concerning (i) the joint development, ownership, and
construction and operation of new and/or expanded natural gas
pipeline facilities extending westward from an interconnection with
CIG's pipeline facilities near the Natural Buttes area in Utah
through the Price, Utah area, continuing westward to a pipeline
interconnection with the Kern River natural gas pipeline near
Elberta, Utah and extending to the vicinity of Elko, Nevada, and
(ii) gas transportation service for CIG's affiliate over a portion
of such facilities (such new and/or expanded pipeline facilities and
the related gas transportation service shall hereinafter be referred
to as the "Project"). In consideration of the mutual premises and
covenants of the parties, and subject to the conditions identified
below, the parties hereto agree as follows:
Pipeline Construction Phases of the Project:
The Pipeline Construction will take place in two phases:
Phase I: Construction of a new 1440 p.s.i.g.
24-inch pipeline loop (including compression)f
of Questar's existing pipeline system from the
Price, Utah area to a delivery point inter-
connection with the Kern River Pipeline near
Elberta, Utah (the "Questar Loop").
Phase II: Construction of a new interstate
natural gas pipeline (the "Ruby Pipeline") from
the Questar/Kern River Pipeline delivery point
interconnection near Elberta, Utah to the vicinty
of Elko, Nevada.
Ownership of Pipeline Facilities:
Questar Loop - Questar shall cause the
construction of the Questar loop. Questar
shall file a certificate application with
the Federal Energy Regulatory Commission
("FERC") for authorization to construct and
operate the new facilities. Questar shall
pursue "rolled-in" rate treatment for the
new facilities and the capacity created by
those facilities, and shall attempt to avoid
incremental pricing of those facilities and
that capacity. Questar shall have full
responsibility and authority for all
elements of the certificate application.
CIG will use all reasonable efforts to
assist Questar in this process and will
support the application. If CIG terminates
this Letter Agreement, CIG will not oppose
the construction of Phase I at the FERC but
will retain the right to intervene and take
positions on issues such as pipe size,
compression, rates, etc. that are in CIG's
best interests. Questar will not be
required to accept a certificate which, in
its sole judgment, is detrimental to its
interests. Upon the in-service date of the
new facilities Questar shall sell a 31.3%(1)
undivided interest in the Questar Loop to
CIG Gas Supply Company ("Supply") at
Questar's cost. Coincident with the sale of
the undivided interest, Supply will lease
its undivided interest in the Questar Loop
to Questar under a thirty-three (33) year
and four month lease with full possessory
and operational rights. The lease payments
will be tied to the sales price, will be
cost of service based, and will be
calculated annually using rate of return,
depreciation, capital structure and income
tax factors authorized by the FERC for use
in setting Questar's rates. The Lease
Agreement between Questar and Supply dated
August 22, 2000, shall be revised to reflect
the foregoing provisions. If CIG Resources
Company ("Resources") terminates the Gas
Transportation Services agreement discussed
below, or at the termination of the lease,
Questar shall have the right to re-purchase
Supply's interest in the Questar Loop at the
then present net book value. If Questar
elects to re-purchase Supply's interest, CIG
shall have the right to re-purchase
Questar's interest in the Ruby Pipeline
described below at the then present net book
value.
____________________
1 This percentage interest may be
increased as provided in the separate letter
agreement between CIG and Questar dated
January 12, 2001.
Ruby Pipeline - Questar shall have the
right, exercisable by written notice to CIG,
to participate in the ownership of the Ruby
Pipeline. CIG will provide Questar with the
economics supporting the Ruby Pipeline
(including details of costs incurred to date
and the supporting contracts, which may
include the gas transportation agreement
discussed below). Based upon its review of
these economics and supporting documents,
Questar shall have ninety (90) days from the
Trigger Date to exercise Questar's right to
participate in the Ruby Pipeline, during
which 90-day period Questar will seek any
necessary approvals of its board of
directors for the exercise of such right.
The "Trigger Date" means the date of receipt
of the last of: (1) a fully-executed and
binding precedent agreement providing for
firm gas transportation service by CIG/Ruby
for Newmont Gold Company's ("Newmont's")
processing load requirements; (2) a
fully-executed and binding precedent
agreement providing for firm gas
transportation service by CIG/Ruby for the
proposed Elko power plant's full
requirements (such precedent agreements are
to provide for a total firm transportation
capacity of approximately 82,000 Dth/day);
and (3) written notification from CIG that
it intends to continue pursuing the Ruby
Pipeline project.
If Questar elects to participate
in the Ruby Pipeline: (i) it shall purchase
a 31.3%(2) ownership interest; and (ii)
Questar and CIG agree to use good faith
efforts to negotiate and execute a joint
venture agreement, operating agreement
and/or other appropriate agreements ("Joint
Venture Agreements") for the ownership and
operation of the Ruby Pipeline that include
provisions for proportionately sharing costs
of the Ruby Pipeline project. Such
provisions shall also be consistent with the
terms of this Letter Agreement. CIG (or the
participating CIG affiliate) may offer an
equity ownership interest in the Ruby
Pipeline to Southwest Gas Corporation, in
which event the ownership interests of the
CIG and Questar participating affiliates
shall be diluted on a pro rata basis. Third
party ownership in excess of 25% must be
agreed to by both parties. The parties shall
exercise good faith efforts to complete the
Joint Venture Agreements described herein
prior to the end of the 90-day period
described above, which Joint Venture
Agreements shall require approval by the
parties' senior management or boards of
directors, provided however that opposition
to any points specifically set forth in this
Letter Agreement shall not be a basis for
withholding of such approvals. If,
notwithstanding such good faith efforts, the
parties fail to reach agreement in principal
on the terms of the Joint Venture Agreements
by the end of such 90-day period, then -
unless otherwise agreed - the parties shall
refer the terms on which they have not been
able to agree upon in principal to a
mutually acceptable arbitrator selected
within 30 days of the end of the 90-day
period to resolve the disputed issues. Such
arbitration shall be governed by the rules
of the American Arbitration Association. The
costs of such arbitration shall be borne
equally by the parties. If the parties
reach agreement at least in principal on the
terms of the Joint Venture Agreements by the
end of such 90-day period, the parties shall
finalize and execute the Joint Venture
Agreements by no later than the date that is
120 days from the Trigger Date. In the event
of arbitration as provided for above, the
parties shall finalize and execute the Joint
Venture Agreements by no later than the date
that is 30 days from the date of issuance of
the arbitrator's decision.
____________________
22 Should Supply's equity interest in
the Questar Loop be increased per the
provisions of footnote 1, this percentage
interest will also be increased to the same
number.
Gas Transportation Services:
CIG Resources Company ("Resources") has
contracted, subject to the provisions of
this Letter Agreement, for 94 MDth/day of
firm transportation capacity from the
interconnection of Questar's and CIG's
facilities near Natural Buttes, Utah
(including up to 25 MDth/day from the Dragon
Trail-Questar receipt point) to the delivery
point interconnection with Kern River
Pipeline near Elberta, Utah (at a pressure
sufficient to enter into the Kern River
Pipeline). Such transportation agreement
shall contain or be subject to the terms of
this Letter Agreement, notwithstanding any
other provisions of the transportation
agreement or Questar's FERC gas tariff.
Service and payment obligations under the
transportation agreement shall commence on
the first day of the month following the
date the Questar Loop is ready for service.
Such transportation agreement shall have a
term of twenty (20) years commencing upon
the date discussed above, and shall provide
Resources the right to terminate, with 12
month prior notification, at any time on or
after ten years. The transportation
agreement shall have a two-part rate
(reservation/usage) equivalent to a 100%
load factor rate of $0.13/Dth.
If Questar agrees to provide firm
transportation on the Questar Loop for other
similarly-situated shippers on similar terms
to those provided for in the Resources
transportation agreement, Questar shall
offer to provide the same rates and terms to
Resources under the Resources transportation
agreement and to any third party shippers
under any releases of the Resources
transportation capacity.
If by November 1, 2002, Resources
requests an additional 56 MDth/d of capacity
from Questar from Natural Buttes to Elberta,
Questar will hold an open season and if
Questar can provide Resources with 56 MDth/d
of firm capacity from Natural Buttes to
Elberta it will do so at a 100% load factor
rate of $.13 per Dth, so long as the $.13
per Dth is above Questar's incremental costs
for constructing such capacity.
Additional Provisions:
Overthrust Pipeline Sale - Provided that
Supply acquires the above-described interest
in the Questar Loop, CIG shall cause CIG
Overthrust, Inc. ("CIG Overthrust") to agree
to a sale to Questar of CIG Overthrust's 10%
equity interest in Overthrust Pipeline
Company at an amount equal to CIG
Overthrust's net book value at the date of
the sale adjusted to compensate CIG
Overthrust for any tax obligations that are
created by the sale.(3) Such sale shall
take place within 30 days following the
in-service date of the Questar Loop, subject
to any necessary regulatory approvals and
Questar's commitment that neither CIG nor
its affiliate Wyoming Interstate Company
will be adversely affected due to future
operations or rate structures of the
Overthrust pipeline, to the extent such
matters are under Questar's control.
____________________
33 Attached as Exhibit A is an example
of how the purchase price will be calculated.
Construction and Operation - It is the
general intent of the parties that Questar
will construct the expansions of its
pipeline, that CIG shall construct the Ruby
Pipeline and that Questar shall operate all
facilities which are constructed as a part
of Questar Pipeline. The parties
specifically reserve to a later time the
determination of the operator of the Ruby
Pipeline.
Ruby Pipeline Extensions - The parties agree
to evaluate a possible lateral north to
Northwest Pipeline and further agree that
such a lateral would be an opportunity that
is initially reserved to the
Ruby Pipeline. Such evaluation shall be
conducted by March 1, 2002. The Joint
Venture Agreements shall contain provisions
governing such potential extensions and
shall provide procedures permitting members
the right to participate in such extensions
or to decline such participation opportunities
.
Board Approvals - Questar's acceptance of
the FERC certificate is subject to the
approval by the senior management and, if
applicable, Board of Directors of Questar.
The resulting capital investment obligations
contemplated herein by Supply, are subject
to the approval by the senior management
and, if applicable, Board of Directors of
Supply (or Supply's parent corporation.)
Legal Relationship - It is the intent of the
parties that as a result of the sale and
lease-back of the ownership interest in the
Questar Loop facilities, Supply will not be
deemed to be an owner of any other portion
of Questar Pipeline's facilities. Further
the parties will have no legal, financial or
fiduciary obligations to one another other
than those specifically set forth in this
Letter Agreement arising out of Supply's
ownership interest in the Questar Loop
facilities except for previously executed
agreements.
Confidentiality and Exclusivity - The
parties agree that the terms of this Letter
Agreement shall fall under the terms of the
Confidentiality Agreement previously
executed by the parties. The parties
further agree that during the term of this
Letter Agreement neither party shall take
any action inconsistent with the joint
development of the Project, provided however
that such agreement shall not preclude
either party from seeking transportation
commitments for the capacity discussed herein.
Choice of Law - This Letter Agreement shall
be construed and enforced in accordance with
the laws of the State of Utah.
Prevailing Agreement - This Letter
Agreement amends, restates and supersedes in
its entirety the Letter Agreement as signed
by the Parties and dated March 8, 2000, as
amended and restated.
Please indicate the agreement of Questar to
the terms outlined above by signing below
and returning one fully executed copy of
this Letter Agreement to me.
Sincerely,
Colorado Interstate Gas Company
By: /s/Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx
Assistant Vice President
ACCEPTED AND AGREED TO this 12th day of
January, 2001:
Questar Pipeline Company
By: /s/Xxxx X. Xxxxxx
Xxxx X. Xxxxxx
Vice President, Business Development
