Exhibit 10-A
AMENDMENT TO COYOTE STATION AGREEMENT
FOR SHARING OWNERSHIP OF GENERATING UNIT NO. 1
This Agreement is made as of the 14 day of June, 2001, by
and between Otter Tail Power Company, a division of Otter Tail
Corporation, a Minnesota corporation ("Otter Tail"), Northern
Municipal Power Agency, a political subdivision and municipal
corporation of the State of Minnesota ("Agency"), Montana-Dakota
Utilities Co., a division of MDU Resources Group, Inc., a
Delaware corporation ("Montana-Dakota"), Northwestern Public
Service Company, a division of Northwestern Corporation, a
Delaware corporation ("Northwestern").
Recitals
WHEREAS, Otter Tail, Agency, Montana-Dakota, and
Northwestern have entered into an agreement entitled "Coyote
Station Agreement for Sharing Ownership of Generating Xxxx
Xx. 0," dated as of July 1, 1977, ("the Agreement for Sharing
Ownership") providing for the joint ownership and operation of
the Coyote Generating Unit No. 1 ("Coyote"); and
WHEREAS, Section 7.1 of the Agreement for Sharing Ownership
established a Coordination Committee to be maintained during the
term of the Agreement; and
WHEREAS, Section 7.4(d) of the Agreement for Sharing
Ownership authorizes Coordination Committee "action by oral or
written consent of the representatives of that number of owners
required to authorize action for the particular committee, . . ."; and
WHEREAS, Section 11.3 of the Agreement for Sharing
Ownership provides that the Coyote Coordination Committee has
the authority to appoint an owner as Operating Agent; and
WHEREAS, the Coordination Committee on May 4, 1998,
appointed a different owner as Operating Agent and pursuant to
Section 7.4(d) of the Agreement for Sharing Ownership caused
minutes of the meeting and the action taken to accept the Otter
Tail/Minnkota operating proposal; and
WHEREAS, no amendment reflecting the change in Operating
Agent has been made since that time, even though the change in
Operating Agent has taken effect; and
WHEREAS, Otter Tail, Agency, Montana-Dakota, and
Northwestern wish to amend the Agreement for Sharing Ownership
to reflect the action taken by the Coordination Committee on May 4,
1998; and
WHEREAS, the change of Operating Agent has created cost
sharing issues related to certain Pension benefits, Post-
Retirement Medical benefits, and Post-Employment benefits; and
WHEREAS, Otter Tail, Agency, Montana-Dakota, and
Northwestern wish to amend the Agreement for Sharing Ownership
to reflect agreements they have reached regarding cost sharing
of Pension benefits, Post-Retirement Medical benefits, and Post-
Employment benefits.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
Exhibit B of the Agreement for Sharing Ownership shall be
amended to change the appointment of the designated Agent to
that of Otter Tail.
Article 11, Section 11.3 of the Agreement for Sharing
Ownership shall be amended to read as follows:
"11.3 One of the owners shall act as Operating
Agent. The owners hereby appoint Otter Tail,
and Otter Tail hereby accepts such appointment,
as the Operating Agent to serve as such until
the termination of this Agreement, or until a
different owner shall be appointed as Operating
Agent by the Coordination Committee, whichever
first shall occur."
Exhibit C of the Agreement for Sharing Ownership shall be
amended pursuant to the Audit Committee's approved amendment to
Exhibit C for Coyote Station Benefit Expense Guidelines related
to issues of Pension benefits, Post-Retirement Medical benefits,
and Post-Employment benefits, adopted in accordance with Section
12.3 of the Agreement for Sharing Ownership.
Otter Tail, as operating agent for the Coyote Station,
pursuant to Section 12.3 of Article 12 of said Agreement hereby
consents to the attached amendment to Exhibit C for Coyote
Station Benefit Expense Guidelines related to issues of Pension
benefits, Post-Retirement Medical benefits, and Post-Employment
benefits.
The Audit Committee's amendment to Exhibit C is attached
hereto as a part of this Amendment to the Agreement for Sharing
Ownership and shall become part of Exhibit C, provided that
Exhibit C may be amended from time to time by the Audit
Committee in accordance with Article 12, Section 12.3.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and sealed by their authorized
representatives on the date appearing next to their signature
block, intending thereby that this Agreement shall be effective
as of its date, namely June 14, 2001.
Dated: August 1, 2001 OTTER TAIL POWER COMPANY,
-------------- A DIVISION OF OTTER TAIL
CORPORATION
By: /s/Xxxx XxxXxxxxxx
-----------------------
Dated: August 3, 2001 NORTHERN MUNICIPAL POWER AGENCY,
-------------- BY AND THROUGH ITS AGENT AND
REPRESENTATIVE FOR THE COYOTE
COAL PLANT, MINNKOTA POWER
COOPERATIVE, INC.
By: /s/Xxxxx Xxxx
-----------------------
Dated: August 9, 2001 MONTANA-DAKOTA UTILITIES CO.
-------------- A DIVISION OF MDU RESOURCES
GROUP, INC.
By: /s/Xxxxxx X. Xxxxxx
-----------------------
Dated: August 14, 2001 NORTHWESTERN PUBLIC SERVICE
--------------- A DIVISION OF NORTHWESTERN
CORPORATION
By: /s/Xxxxxxx X. Xxxxxx
/s/Xxxx Xxxxxx
-----------------------
Amendment dated June 14, 2001
To
Exhibit C Amended July 29, 1982
To
Coyote Station Agreement For Sharing Ownership of
Generating Unit No. 1 dated July 1, 1977
COYOTE STATION BENEFIT EXPENSE GUIDELINES
The goal in this process is to develop a methodology that will
be fair and reasonable for all Owners in an effort to keep all
Owners whole in the operating of the Coyote Station.
PENSION BENEFITS
Pension benefit liability for Coyote Station personnel will be
calculated separately reflecting the Otter Tail Corporation
Pension Plan provisions, including the agreed upon 6% escalation
adjustment offset from the MDU Resources Group Inc. Pension
plan.
Pension plan expenses will be charged to the Coyote Station
owners based on Statement of Financial Accounting Standard
("FAS") 87 accounting rules. Otter Tail Power Company will
establish a separate pension reconciliation account assuming an
adoption date of July 1, 1998.
ANNUAL EXPENSE CALCULATIONS
---------------------------
Annual FAS 87 expense will consist of the following items for
Coyote Station personnel:
1. Service cost
2. Interest cost
3. Estimated return on the hypothetical asset (as defined
below) at the discount rate as used in the Otter Tail
Corporation Pension Plan for the plan year.
4. Amortization of transition prior service cost base.
The transition prior service cost base was determined
by amortizing Coyote Station liabilities under the
Otter Tail Corporation plans as of July 1, 1998 over
the future working lifetime of Coyote Station
employees. This period is approximately 15 years.
5. Amortization of gains and losses. The amount of gain
or loss to be recognized in annual expense will be
based on the methodology set forth under FAS rules,
including: a) use of a 10% gain / loss corridor for
Coyote related demographics and actuarial assumptions,
and b) amortization over the future working lifetime
of active employees; but excluding: c) gain or losses
on hypothetical asset returns.
Assumptions for Coyote Station expense will mirror assumptions
Otter Tail Corporation and its actuaries select for annual FAS
87 reporting purposes, except that: a) the expected return on
assets shall equal the discount rate and b) amortization of
gains / losses as outlined in 5.above.
HYPOTHETICAL ASSET ACCOUNT
--------------------------
The hypothetical asset is designed to represent the accumulated
net value of contributions made by the Coyote Station owners.
The hypothetical asset account will be determined as if a
contribution equal to the annual FAS 87 accounting expense (as
specified above) is made to a hypothetical asset account during
the plan year. Earnings on the hypothetical asset will be
credited at a rate equal to the discount rate employed for
actuarial valuations of the Otter Tail Corporation Pension Plan
for the plan year. The hypothetical asset will be reduced to
reflect benefit payments to plan participants who retired from
active service at Coyote Station after July 1, 1998, and
reasonable expense related to the operation of the plan. These
expenses will be allocated to Coyote Station using a ratio of
plan participants located at Coyote Station to the total plan
participants as of the end of the year. These expenses include
legal and actuarial fees directly related to Coyote Station
operations along with an allocation of other fees.
The amount of the annual FAS 87 accounting expense related to
participants located at Coyote Station will be included in the
hypothetical asset for Coyote Station each year, regardless of
whether Otter Tail Corporation makes any contribution to the
Pension Plan for the year. If there is a year when the FAS 87
expense determination results in plan income for the year, this
will be handled as a negative contribution and will reduce the
hypothetical asset.
Contributions are assumed to be made to the hypothetical asset
account during the year. Allocated earnings on the hypothetical
asset will be calculated on an annual basis but it will be
assumed contributions and benefit payments are made 13/24 of the
way through the year. This is the standard way of recognizing
monthly contributions. See sample pension calculation below.
When an Otter Tail Power Company employee transfers to Coyote
Station with past Otter Tail Power Company service, the
hypothetical asset will be increased by the amount of the
employee's Projected Benefit Obligation (PBO). Likewise, when
an employee transfers from Coyote Station to another Otter Tail
Power Company location, the hypothetical asset will be reduced
by the amount of their PBO, which includes any related
unamortized transition amounts. This PBO will be net of the
liability, if any, retained in the MDU Resources Inc. plan.
COYOTE STATION PENSION CARVE OUT
ESTIMATED DATA
Half Year
ESTIMATED DATA 1998 1999 2000
------------------------------------ -------- ------ ------
A Projected Benefit Obligation $348,346 $575,067 $626,332 Net of MDU assumed liability
B Service Cost $ 64,355 $156,931 $137,655
C Benefit Payments $ - $ - $ 2,000
D Discount Rate 7.25% 6.50% 7.75%
E Return on Hypothetical Asset 7.25% 6.50% 7.75% Same as Discount Rate
F Amortization Period 15.1 15.1 15.1
FAS 87 EXPENSE
------------------------------------
G Service Cost $ 64,355 $156,931 $137,655 Includes wage changes
H Interest 12,628 37,379 48,541 A * D
I Expected Return on Assets (1,689) (13,662) (34,162) E * (13/24 * beginning & ending balances)
J Prior Service Cost 11,535 23,069 23,069 Greater benefits under OTP plan
K (Gains) / losses (see below) - 6,110 - Calculated below
L Annual True-Up - (5,000) 5,000
----------------------------------
M EXPENSE $ 86,829 $204,828 $180,103
HYPOTHETICAL ASSET
------------------------------------
N Hypothetical Asset Beginning Balance $ - $ 86,018 $302,007
O Plus Earnings on Hypothetical Asset 1,689 13,662 34,162 E * 13/24 * beginning & ending balances
P Less Benefits Paid - - (2,000)
Q Less Plan Operating Expenses (2,500) (2,500) (2,500)
R Plus Annual Accounting Expense 86,829 204,828 180,103 Line M above
----------------------------------
S HYPOTHETICAL ASSET ENDING BALANCE $ 86,018 $302,007 $511,772
(GAINS) / LOSSES SCHEDULE
------------------------------------
T Actual Returns on Avg. Asset $ - $ - $ - (E-D) * (N+S)* 13/24 (one year lag)
U Demographics & Assumptions Fluctuations - 149,768 (584) Net Accumulated Unrecognized Amounts
V Corridor at 10% 34,835 57,507 62,633 A * 10% (10% of PBO or asset, whichever is larger)
W Amount to Amortize - 92,261 - (T + U) - V ,else zero
X Amortization Amount - 6,110 - W / F
POST-RETIREMENT MEDICAL BENEFITS
Post-Retirement Medical benefit liability for Coyote Station
employees will be calculated separately reflecting the Otter
Tail Corporation Retiree Medical Plan provisions.
Plan expenses will be charged to the partners based on FAS 106
accounting rules. Otter Tail Power Company will establish a
separate post-retirement medical benefit reconciliation account
assuming an adoption date of July 1, 1998.
ANNUAL EXPENSE CALCULATIONS
---------------------------
Future FAS 106 expense will consist of the following items for
Coyote Station personnel:
1. Service cost
2. Interest cost
3. Estimated return on the hypothetical asset account (as
defined below)
4. Amortization of transition prior service cost base.
The transition prior service cost base was determined
by amortizing Coyote Station liabilities under the
Otter Tail Corporation plans as of July 1, 1998 over
the future working lifetime of Coyote Station
employees. This period is approximately 11 years.
5. Amortization of gains and losses. The amount of gain
or loss to be recognized in annual expense will be
based on the methodology set forth under FAS rules,
including: a) use of a 10% gain / loss corridor, and b)
amortization over the future working lifetime of active
employees. The gain or loss determination will
recognize actual Coyote liabilities and hypothetical
assets (as defined below) as of the beginning of the
plan year.
Assumptions for Coyote Station expense will mirror assumptions
Otter Tail Corporation and its actuaries select for annual FAS
106 reporting purposes, except that: a) the expected return on
assets shall equal the discount rate and b) amortization of
gains / losses as outlined in 5.above.
HYPOTHETICAL ASSET ACCOUNT
--------------------------
The hypothetical asset is designed to represent the accumulated
net value of contributions made by the Coyote Station owners.
The hypothetical asset account will be determined as if a
contribution equal to the annual FAS 106 accounting expense (as
specified above) is made to a hypothetical asset account during
the plan year. Earnings on the hypothetical asset will be
credited at a rate equal to the discount rate employed for
actuarial valuations of the Plan for the plan year. The
hypothetical asset will be reduced to reflect benefit payments
to plan participants who retired from active service at Coyote
Station after July 1, 1998, and reasonable expense related to
the operation of the plan. These expenses will be allocated to
Coyote Station using a ratio of plan participants located at
Coyote Station to the total plan participants as of the end of
the year. These expenses include legal and actuarial fees
directly related to Coyote Station operations along with an
allocation of other fees.
The hypothetical asset will be increased or decreased, in an
amount equal to the annual FAS 106 accounting expense related to
participants located at Coyote Station, each year, regardless of
whether Otter Tail Power Company elects to fund Post Retirement
Medical Benefits. If there is a year when the expense
determination results in plan income for the year, this will be
handled as a negative contribution and will reduce the
hypothetical asset.
Contributions are assumed to be made to the hypothetical asset
account during the year. Allocated earnings on the hypothetical
asset will be calculated on an annual basis but it will be
assumed contributions and benefit payments are made 13/24 of the
way through the year. This is the standard way of recognizing
monthly contributions.
When an Otter Tail Power Company employee transfers to Coyote
Station with past Otter Tail Power Company service, the
hypothetical asset will be increased by the amount of their
Accumulated Post Retirement Benefit Obligation (APBO).
Likewise, when an employee transfers from Coyote Station to
another Otter Tail Power Company location, the hypothetical
asset will be reduced by the amount of their APBO, which
includes any related unamortized transition amounts.
See sample post retirement benefit calculation below.
COYOTE STATION POST RETIREMENT BENEFITS PENSION CARVE OUT
ESTIMATED DATA
Half Year
ESTIMATED DATA 1998 1999 2000
------------------------------------ -------- ------ ------
A Accum. Projected Benefit Obligation $376,075 $534,599 $526,642
B Service Cost $ 31,811 $ 77,571 $ 68,043
C Benefit Payments $ - $ - $ 2,000
D Discount Rate 7.25% 6.50% 7.75%
E Return on Hypothetical Asset 7.25% 6.50% 7.75% Same as Discount Rate
F Amortization Period 11.5 11.5 11.5
FAS 106 EXPENSE
------------------------------------
G Service Cost $ 31,811 $ 77,571 $ 68,043
H Interest 13,633 34,749 40,815 A * D
I Expected Return on Assets (1,420) (11,035) (27,299) Line O below
J Prior Service Cost 29,381 58,762 58,762 Greater benefits under OTP plan
K (Gains) / losses (see below) - 5,184 - Calculated below
L Annual True-Up - (5,000) 5,000
----------------------------------
M EXPENSE $ 73,405 $160,231 $145,321
HYPOTHETICAL ASSET
------------------------------------
N Hypothetical Asset Beginning Balance $ - $ 72,325 $241,091
O Plus Earnings on Hypothetical Asset 1,420 11,035 27,299 E * 13/24 * beginning & ending balances
P Less Benefits Paid - - (2,000)
Q Less Plan Operating Expenses (2,500) (2,500) (2,500)
R Plus Annual Accounting Expense 73,405 160,231 145,321 Line M above
----------------------------------
S HYPOTHETICAL ASSET ENDING BALANCE $ 72,325 $241,091 $409,211
(GAINS) / LOSSES SCHEDULE
------------------------------------
T Actual Returns on Avg. Asset $ - $ - $ - (E-D) * (N+S)* 13/24 (one year lag)
U Demographics & Assumptions Fluctuations - 113,080 (13,309) Net Accumulated Unrecognized Amounts
V Corridor at 10% 37,608 53,460 52,664 A * 10% (10% of APBO or asset, whichever is larger)
W Amount to Amortize - 59,620 - (T + U) - V ,else zero
X Amortization Amount - 5,184 - W / X
POST EMPLOYMENT BENEFITS
Post Employment Benefits (FAS 112) expenses will be charged to
Coyote Station on a cash basis as costs are incurred. These
charges will be in a ratio of Coyote Station post employment
benefits participants to total participants included in FAS 112
expense.
SPECIAL RULES
Treatment of Benefit Assets and Liabilities in the event of a
change in operating agent Otter Tail Power Company is the
current operating agent of Coyote Station. At the time of a
change in operating agent, Coyote Station liabilities would be
compared to the hypothetical assets using the plan
curtailment/settlement rules of FAS 88 and 106 or other
applicable accounting standards. This methodology compares
assets and liabilities at the time of the event and adjusts for
any remaining unrecognized expense or income, such as prior
service cost bases and accumulated gains and losses. Under this
methodology, if hypothetical assets exceed liabilities at the
time of the curtailment/settlement event, a net amount would be
due to the Coyote Station owners from Otter Tail Power Company.
If hypothetical assets are less than liabilities at the time of
the curtailment/settlement event, a net amount would be due from
the Coyote Station owners to Otter Tail Power Company. A method
for actual exchange of funds or reimbursement, cognizant of the
then current business environment and income tax implications of
the owners, will be determined at the time of the curtailment/
settlement event, which would be mutually acceptable to all
Coyote Owners.
The amount of gain or loss to be recognized in annual expense
will be based on the methodology set forth under FAS rules, as
calculated for participants located at Coyote Station,
including: a) use of a 10% gain/loss corridor, and b)
amortization over future working lifetime of active Coyote
Station personnel. The gain or loss determination will
recognize actual Coyote liabilities and hypothetical assets as
of the beginning of the plan year. This amount will be spread
over future working lifetime of active personnel. In order to
avoid a large curtailment/settlement adjustment at the time of a
change in operator, the accumulated FAS 87 and 106 (gain)/loss
will be closely monitored. If it grows too large, it will be
amortized more quickly so that, if there were a change in
operating agent, it would result in a relatively smaller
curtailment/settlement adjustment. The amortization period
shall be mutually acceptable to all Coyote Owners.
The assumptions, which will be used to calculate the
curtailment/settlement adjustment at the time of a change in
operating agent, are important. The assumptions to be used to
measure these liabilities will be based on expected future long-
term funding assumptions.
SEVERANCE PAY
Otter Tail Power Company, as operating agent, will be
responsible for severance pay issues on behalf of the owners.
Costs of severance arrangements, including payments and benefits
granted to severed full-time employees located at Coyote Station
will be charged to the Coyote Station owners in proportion to
their ownership of the facility. Any severance pay must be
approved by the Owners prior to the inclusion of such costs in
the Owners' Statement of Costs.
SETTLEMENT OF ASSETS AND LIABILITIES AT THE TIME COYOTE
STATION IS DECOMMISSIONED.
This will be handled in a manner similar to a change in
operating agent described above.
PENSION AND RETIREE MEDICAL BENEFIT EXPENSE FOR THE OPERATOR'S
GENERAL OFFICE EMPLOYEES
The operating agent will include as payroll overheads, net
periodic pension cost and net periodic post-retirement benefit
cost for payroll allocated from the operating agent's General
Office employees as defined under Article 12.3 of the Operating
Agreement. The operating agent will assume all risk and rewards
of the underlying assumptions used in determining the employee
benefits with no subsequent true up.
INCOME TAXES
Any tax consequences, favorable or unfavorable, related to plan
funding or timing of tax deductions or non-deductible amounts
for the Owners or Operation Agent, shall not be shared by the
Coyote Station Owners.
OTHER EMPLOYEE BENEFITS
The operator will charge for other employee benefits consistent
with Article 12.3 of the Operating Agreement. In the event of a
change in Coyote Station operating agents or the subsequent
decommissioning of the station, the liability for such benefits
would be recalculated and adjustments made to true up
differences.
ANNUAL TRUE-UP
For the six months ended 12/31/98, and annually thereafter, the
operating agent shall true-up any differences between Pension
and Post Retirement Medical Benefits as calculated here, and
costs included in the monthly Statement of Costs to the Coyote
Station owners. Such true-up shall appear in the Statement of
Costs, the month following the true-up calculation, and shall be
shared by Coyote Station owners on the basis of ownership
percentage.
ACCOUNTING STANDARDS
In the event of a change in Accounting Standards affecting
benefits, the Operating Agent shall revise these guidelines to
the mutual satisfaction of the Coyote Station owners.
PERIODIC REVIEWS
Reflecting the interests of all Coyote Owners and the Operating
Agent, these Coyote Station Benefit Guidelines shall be in
effect until December 31, 2003, and shall be reviewed at that
time.
This Amendment was approved by the Coyote Station
Audit Committee, June 14, 2001.
