PRECEDENT AGREEMENT FOR THE FIRM TRANSPORTATION OF NATURAL GAS
Exhibit
10.1
PRECEDENT
AGREEMENT
FOR
THE FIRM TRANSPORTATION OF NATURAL GAS
This
PRECEDENT AGREEMENT for the Firm Transportation of Natural Gas ("Precedent
Agreement") is made and entered into this 31st
day of
May, 2006, by and between EASTERN SHORE NATURAL GAS COMPANY, a Delaware
corporation (“Eastern Shore”) and CHESAPEAKE UTILITIES CORPORATION - DELAWARE
DIVISION (“Shipper”), a Delaware corporation, sometimes jointly referred to
herein as the (“Parties”) or singly as a (“Party”).
WITNESSETH:
WHEREAS,
Eastern Shore is a natural gas company engaged in the transportation of natural
gas in interstate commerce; and
WHEREAS,
Eastern Shore proposes to develop, construct and operate new interstate pipeline
facilities (the “Project”) to transport natural gas from an interconnection with
the facilities of the Cove Point Liquefied Natural Gas (“LNG”) Plant located
near Cove Point, Maryland to points on the Delmarva Peninsula where such
facilities shall interconnect with the existing pipeline facilities of Eastern
Shore; and
WHEREAS,
Shipper is a Local Distribution Company connected to the natural gas pipeline
facilities of Eastern Shore: and
WHEREAS,
Eastern Shore and Shipper are Parties to existing firm transportation service
agreements, and Shipper desires firm transportation service under Eastern
Shore’s proposed Project for delivery of the quantities specified in Exhibit A
hereto from the receipt point to the delivery points specified in Exhibit
A
hereto; and
WHEREAS,
Eastern Shore is willing to endeavor to (1) seek the necessary governmental
and
regulatory authorizations, (2) construct the necessary facilities and (3)
render
the requested firm transportation service as described in this Precedent
Agreement, subject to the terms and conditions set forth in this Precedent
Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound, Eastern Shore and Shipper agree
as
follows:
| 1. |
Subject
to Eastern Shore’s ability to enter into binding Precedent Agreements with
customers for an aggregate quantity of firm transportation service
which,
in Eastern Shore's sole judgment, would make the construction of
additional pipeline and/or compression facilities economical, and
subject
to all other terms and conditions of this Precedent Agreement, Eastern
Shore shall proceed with due diligence to obtain such governmental
and
regulatory authorizations or exemptions as Eastern Shore deems necessary
to construct and operate the pipeline and/or compression facilities
necessary to render the firm transportation service contemplated
herein.
Eastern Shore reserves the right to file and prosecute any and all
applications for such authorizations, any supplements or amendments
thereto, and, if necessary, any court review, in such a manner as
it deems
to be in its best interest.
|
| 2. |
Shipper
agrees to use its good faith efforts to cooperate with Eastern Shore
in
obtaining all authorizations necessary for Eastern Shore to construct
and
operate the requisite facilities and render the firm transportation
service contemplated herein. In addition, Shipper shall file with
the
Federal Energy Regulatory Commission (“FERC”) in support of Eastern
Shore’s application for the FERC authorizations; provided, however, that
nothing herein shall prevent Shipper from protesting any regulatory
filings that are inconsistent with the terms and conditions of this
Precedent Agreement. If the FERC determines that information relating
to
Shipper’s markets, gas supply or upstream or downstream transportation or
storage arrangements is required from Eastern Shore, Shipper shall
provide
Eastern Shore with such information in a timely manner to enable
Eastern
Shore to respond within the time required by the FERC. If Shipper
identifies any such information as being commercially sensitive or
confidential, Eastern Shore shall treat such information as privileged
and
confidential and shall request that the FERC treat such information
as
privileged and confidential and place such information in a non-public
file.
|
| 3. |
Subject
to the terms and conditions of this Precedent Agreement, Shipper
shall
proceed with due diligence and a in timely fashion, to obtain such
governmental and regulatory authorizations or exemptions as are necessary:
(i) for Shipper to construct and operate any facilities necessary
to
enable Shipper to utilize the firm transportation service contemplated
herein; and (ii) for the performance of its obligations as contemplated
herein. Shipper reserves the right to file and prosecute any and
all
applications for such authorizations, any supplements or amendments
thereto, and, if necessary, any court review, in such a manner as
it deems
to be in its best interest. Eastern Shore agrees to use best efforts
to
cooperate with Shipper in obtaining all authorizations necessary
for
Shipper to receive the firm transportation service contemplated herein.
Shipper shall also, within sixty (60) days after execution of this
Precedent Agreement, if requested by Eastern Shore, advise Eastern
Shore
in writing of: (a) any facilities which Shipper must construct, or
cause
to be constructed, in order for Shipper to utilize the firm transportation
service contemplated in this Precedent Agreement; and (b) any necessary
governmental and/or regulatory authorizations, approvals, certificates,
and/or permits and/or exemptions associated with the facilities identified
pursuant to (a) above. Shipper agrees to notify Eastern Shore promptly
in
writing when each of the required authorizations, approvals, and/or
exemptions are received, obtained, rejected, or denied. Shipper may,
in
its reasonable discretion, determine whether each of the required
authorizations has been granted in a manner acceptable to
Shipper.
|
| 4. |
Performance
by Eastern Shore and Shipper of the duties and obligations assumed
by each
Party in Paragraphs 5, 6 and 7 of this Precedent Agreement is expressly
made subject to the fulfillment of the following conditions precedent:
|
(a)
the
receipt by Eastern Shore, in form and substance acceptable to Eastern Shore
in
its sole discretion, of all certificates, permits, approvals and/or other
authorizations contemplated herein from the FERC or other governmental
authorities having jurisdiction, to construct and operate the necessary pipeline
and/or compression facilities to provide the firm transportation service
as
contemplated herein;
(b)
the
receipt by Eastern Shore, no later than one hundred twenty (120) days following
receipt of the last of the authorizations referred to in subparagraph (a)
above,
of a financial commitment or commitments from financial institutions, acceptable
to Eastern Shore, to make the capital expenditures necessary to enable Eastern
Shore to construct the facilities and to provide the transportation service
contemplated herein;
(c)
the
receipt by Eastern Shore, no later than one hundred twenty (120) days following
receipt of the last of the authorizations referred to in subparagraph (a)
above,
of the approval of its Board of Directors to make the capital expenditures
necessary to enable Eastern Shore to construct the pipeline and/or compression
facilities necessary to render the firm transportation service contemplated
herein; and
(d)
the
receipt by Shipper, in form and substance acceptable to Shipper in its
reasonable discretion, of all certificates, permits and other authorizations
from all governmental and regulatory authorities having competent jurisdiction
as are necessary for Shipper: (i) to construct and operate any facilities
necessary to enable Shipper to utilize the firm transportation service
contemplated herein; and (ii) to perform its obligations as contemplated
herein.
The
governmental and regulatory approvals required by this Precedent Agreement,
as
duly granted by the FERC and/or any other governmental agencies or authorities
having jurisdiction, shall be final and non-appealable; provided, however,
that
the Parties may by written agreement waive the condition that such approvals
be
final and non-appealable.
|
5.
|
Within
thirty (30) days after satisfaction or mutual waiver of the conditions
precedent set forth in Xxxxxxxxx 0, Xxxxxxx Xxxxx and Shipper shall
enter
into the necessary agreements to extend the term of each service
agreement
listed on Exhibit C, which is attached hereto and incorporated
herein, for
the periods specified on Exhibit C.
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|
6.
|
Within
thirty (30) days after satisfaction or mutual waiver of the conditions
precedent set forth in Xxxxxxxxx 0, Xxxxxxx Xxxxx and Shipper shall
enter
into a firm transportation service agreement under: (i) Eastern
Shore’s
Part 284 Firm Transportation Service FT Rate Schedule, as such
may be
amended or revised from time to time, or (ii) such other new rate
schedule
as the FERC may require as a condition to the issuance of authorizations
required to provide the service contemplated herein, as such rate
schedule
may be amended or revised from time to time. Such firm transportation
service agreement shall specify Shipper’s Maximum Daily Transportation
Quantity (“MDTQ”) of twenty-two thousand five hundred (22,500) dekatherms
(“dts”) per day and a primary term of service of twenty (20) years, as
detailed on Exhibit A, which is attached hereto and incorporated
herein.
Eastern Shore shall provide such firm transportation service to
Shipper at
negotiated reservation and commodity rates, as set forth in Exhibit
B,
which is attached hereto and incorporated herein.
|
|
7.
|
Upon
satisfaction or mutual waiver of the conditions precedent set forth
in
Paragraph 4 herein, and after execution of the firm transportation
service
agreement as provided in Paragraph 6 and the contract extensions
contemplated in Paragraph 5 herein, Eastern Shore shall proceed
with due
diligence to construct the authorized pipeline and/or compression
facilities necessary to implement the firm transportation service
contemplated herein. If, after proceeding with due diligence, Eastern
Shore is unable to provide such firm transportation service for
Shipper by
the Service Commencement Date specified in Exhibit A, Eastern Shore
shall
continue to proceed with due diligence to complete arrangements
for such
service, and commence the firm transportation service for Shipper
at the
earliest practicable date thereafter. Subject to the provisions
of
Xxxxxxxxx 0, Xxxxxxx Xxxxx shall not be liable, nor shall this
Precedent
Agreement or the firm transportation service agreement be subject
to
cancellation if, despite its exercise of due diligence, Eastern
Shore is
unable to complete the construction of such pipeline and/or compression
facilities and commence the firm transportation services contemplated
herein by the Service Commencement Date specified in Exhibit A.
Eastern
Shore agrees to provide Shipper advance written notice of its best
estimate of any revisions to the in-service date.
|
|
8.
|
This
Precedent Agreement shall terminate upon execution of the firm
transportation service agreement contemplated in Paragraph 6 above;
provided, however, that:
|
(a)
if
Eastern Shore has not filed with FERC its certificate application for
authorization to construct the Project within twenty-four (24) months after
the
execution of this Precedent Agreement, either Party may, at its option,
terminate this Precedent Agreement by giving twenty (20) days prior written
notice of its intention to terminate, without recourse by the other Party;
or
(b)
if
the condition(s) precedent in Paragraph 4 above and the agreements to extend
the
contracts listed in Exhibit C have not been satisfied or waived by written
agreement of the Parties
within twenty-four (24) months after
the FERC
formally accepts Eastern Shore’s certificate application filing and institutes a
decisional proceeding, either Party may thereafter, at its option, terminate
this Precedent Agreement, without recourse by the other Party, and Eastern
Shore, at its option, may withdraw its certificate application , without
recourse by Shipper, in either case by giving twenty (20) days prior written
notice of its intention to terminate; or
(c)
if
Eastern Shore has not commenced the firm transportation service within
twenty-four (24) months of the Service Commencement Date as specified in
Exhibit
A, either Party thereafter may, at its option, terminate this Precedent
Agreement and/or the firm transportation service agreement executed pursuant
to
Paragraph 6 above, by giving twenty (20) days prior written notice of its
intention to terminate, without recourse by the other Party.
In
the
event of termination pursuant to subparagraph (c) above, (i) Eastern Shore
shall request FERC approval to abandon any certificate authorizations previously
granted to provide the service contemplated herein, which request Shipper
shall
fully support, and (ii) the Parties’ obligations under this Paragraph 8
shall survive the expiration and/or termination of this Precedent Agreement
and
shall bind the Parties and any and all of their respective successors and
assigns.
|
9.
|
Pursuant
to the terms of the letter agreement attached hereto as Exhibit
D and
incorporated herein, Shipper agrees to support recovery by Eastern
Shore
of certain Project development costs, as defined in Exhibit D,
which is
attached hereto and incorporated herein. Notwithstanding any other
provision of this Precedent Agreement to the contrary, the Parties’
obligations under this Paragraph 9 and Exhibit D shall survive
the
expiration and/or termination of this Precedent Agreement and shall
bind
the Parties and any and all of their respective successors and
assigns.
|
|
10.
|
Any
company, which shall succeed by purchase, merger, or consolidation
of
title to properties, substantially or in their entirety, of Eastern
Shore
or Shipper, as the case may be, shall be entitled to the rights
and shall
be subject to the obligations of its predecessor in title under
this
Precedent Agreement. Any Party may, without relieving itself of
its
obligations under this Precedent Agreement, assign any of its rights
hereunder to a company or companies with which it is affiliated
but
otherwise no assignment of this Precedent Agreement or any of the
rights
or obligations hereunder shall be made unless there first shall
have been
obtained the consent thereto in writing by the other
Party.
|
|
11.
|
Eastern
Shore may terminate this Precedent Agreement if, at any time, Shipper
fails to comply with the creditworthiness requirements as set forth
in
Sections 11 and 19 of the General Terms & Conditions of Eastern
Shore’s FERC Gas Tariff.
|
|
12.
|
No
modification of this Precedent Agreement shall be made except by
the
execution of a written amendment to this Precedent
Agreement.
|
|
13.
|
The
interpretation and performance of this Precedent Agreement shall
be in
accordance with the laws of the State of Delaware, without recourse
to the
law governing the conflict of laws.
|
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14.
|
Except
as herein otherwise provided, any notice, or correspondence provided
for
in this Precedent Agreement, or any notice which either Party may
desire
to give to the other, shall be in writing and deemed to have been
effectively given upon the third day following the day when same,
properly
addressed and postpaid, has been placed in the United States
mail.
|
Routine
communications shall be considered as duly delivered when mailed by registered,
certified, or ordinary mail.
It
is
expressly understood and agreed, however, that any communications referred
to
hereunder may first be delivered by electronic means and shall be delivered
as
soon as practicable thereafter by registered, certified or ordinary mail
to:
Eastern
Shore Natural Gas Company
Xxxxxx
X.
Xxxxx
Contract
& Billing Administrator
000
Xxxx
Xxxx
Xxxxx,
XX
00000
Phone:
(302) 734 - 6710 extension 6753
Fax:
(302) 734 - 6745
Email:
XXxxxx@xxxx.xxx
Chesapeake
Utilities Corporation - Delaware Division
Xxxxxxx
X. Xxxxxxxx, Director of Regional Business & Planning
000
Xxxxx
Xxxxx Xxxxxx
Xxxxx,
XX
00000
Phone:
(000) 000-0000
Fax:
(000) 000-0000
Email:
XXxxxxxxx@xxxx.xxx
IN
WITNESS WHEREOF, the Parties hereto have caused this Precedent Agreement
to be
duly executed in several counterparts by their proper officers thereunto
duly
authorized as of the day and year first above written.
EASTERN
SHORE NATURAL GAS COMPANY
/s/
Xxxxxx X. Xxxxxxx
Xxxxxx
X.
Xxxxxxx
Vice
President
CHESAPEAKE
UTILITIES CORPORATION
DELAWARE
DIVISION
/s/
Xxxx X. Xxxxxx
Xxxx
X.
Xxxxxx
EXHIBIT
A
FIRM
TRANSPORTATION SERVICE REQUESTED BY SHIPPER
Exhibit
To The Precedent
Agreement
Between
Eastern
Shore Natural Gas Company
and
Chesapeake
Utilities Corporation - Delaware Division
Dated
May
31, 2006
|
Commencement
Date
|
Maximum
Daily Transportation Quantity
|
Primary
Receipt Point
|
Primary
Delivery Point(s)
|
Termination
Date
|
|
November
1, 2009*
|
22,500
dt
|
Cove
Point, MD
|
DPA
4 - 6,500
DPA
5 - 8,500
DPA
6 - 3,500
DPA
0X - 000
XXX
0X - 2,000
DPA
8 - 1,100
DPA
9 - 150
|
October
31, 2029**
|
*
Or upon
such later date that facilities required to provide firm transportation service
are placed in service. In addition, Shipper shall have a one-time option
to
defer the desired commencement date of the transportation service to either
November 1, 2010, or November 1, 2011, which option shall expire on March
31,
2007. In the event Shipper elects to defer the commencement date, it must
deliver such notice to Eastern Shore in writing no later than March 31, 2007.
Shipper understands and acknowledges that Eastern Shore shall make this one-time
option available to each shipper participating in the Project. Shipper agrees
that if it, or any other shipper participating in the Project, elects to
defer
the commencement date of its transportation service on the Project, then
Eastern
Shore, at its sole discretion, may elect to defer the service commencement
date
for all shippers participating in the Project to the later of the commencement
dates requested, provided that Eastern Shore notifies Shipper of Eastern
Shore’s
election no later than May 31, 2007.
**
The
later of October 31, 2029 or twenty (20) years from the Commencement
Date.
EXHIBIT
B
NEGOTIATED
RATES
Exhibit
To The Precedent
Agreement
Between
Eastern
Shore Natural Gas Company
and
Chesapeake
Utilities Corporation - Delaware Division
Dated
May
31, 2006
Eastern
Shore Natural Gas Company and Chesapeake Utilities Corporation - Delaware
Division mutually agree to the following rates for the firm transportation
service contemplated herein:
Negotiated
Reservation Rate
The
initial Negotiated Reservation Rate shall be $30.40 per dt applicable to
the
first 15,000 dts (Block One) of Delaware’s total MDTQ of 22,500 dts contemplated
in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern
Shore’s current estimate of the capital investment of approximately $93 million
required to complete the Project. Eastern Shore shall revise the initial
Negotiated Reservation Rate applicable to Block One pursuant to the Reservation
Rate Formula below to reflect the actual capital investment required to complete
the Project. Delaware shall pay the Negotiated Reservation Rate, as adjusted
to
reflect the actual capital investment, subject to the Maximum Negotiated
Reservation Rate limitations below. In the event the revised Negotiated
Reservation Rate is higher than the initial Negotiated Reservation Rate,
Delaware shall pay the initial Negotiated Reservation Rate until such time
as
Eastern Shore revises the Negotiated Reservation Rate, and Delaware shall
pay
the difference between the initial and Revised Negotiated Reservation Rate
for
the period from the Commencement Date to the date Eastern Shore revises the
Negotiated Reservation Rate, without interest. In the event the revised
Negotiated Reservation Rate is lower than the initial Negotiated Reservation
Rate, Delaware shall pay the initial Negotiated Reservation Rate until such
time
as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore
shall
refund
the difference between the initial and revised Negotiated Reservation Rate
for
the period from the Commencement Date to the date Eastern Shore revises the
Negotiated Reservation Rate, without interest.
The
Negotiated Reservation Rate applicable to the remaining 7,500 dts (Block
Two) of
Delaware’s total MDTQ of 22,500 dts contemplated in Exhibit A, shall be fixed at
$7.50 per dt.
Reservation
Rate Formula
Block
One
Negotiated Reservation Rate = $30.40 + (Cost
- $93,000,000)
2,700,000
Where,
Block
One
Negotiated Reservation Rate = the negotiated reservation rate to be applied
to
the first 15,000 dts of Delaware’s total MDTQ of 22,500 dts and
Cost
=
Actual Capital Cost of the Project.
Maximum
Negotiated Reservation Rate
Unless
otherwise agreed to in writing by both Parties, Shipper’s Negotiated Reservation
Rate applicable to Block One (first 15,000 dts of total 22,500 dts MDTQ)
shall
not exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate applicable
to Block Two (remaining 7,500 dts of total 22,500 dts MDTQ) shall not exceed
$7.50 per dt.
Negotiated
Commodity Rate
Delaware
shall pay a negotiated commodity rate of $0.00 (zero) per dt for both Block
One
and Block Two quantities transported. Applicable commodity surcharges under
Eastern Shore’s FERC Gas Tariff, if any, shall be paid by Delaware.
Fuel
Eastern
Shore’s system-wide Fuel Retention Percentage (FRP), as determined and adjusted
pursuant to Section 31 of the General Terms and Conditions of Eastern Shore’s
FERC Gas Tariff, shall also be assessed.
EXHIBIT
C
SERVICE
AGREEMENT EXTENSIONS
Exhibit
to the
Precedent
Agreement
Between
Eastern
Shore Natural Gas Company
and
Chesapeake
Utilities Corporation - Delaware Division
Dated
May
31, 2006
Listing
of Service Agreements to be Extended Pursuant to Paragraph 5
herein:
|
Contract
No.
|
MTDQ
|
Termination
Date
|
Extension
Date
|
|||||||
|
010001
|
8,690
|
Xxxxx
00, 0000
|
Xxxxx
31, 2015
|
|||||||
|
010020
|
911
|
October
31, 2011
|
October
31, 2016
|
|||||||
|
010021
|
6,193
|
October
31, 2009
|
October
31, 2014
|
|||||||
|
010022
|
852
|
October
31, 2009
|
October
31, 2014
|
|||||||
|
010023
|
1,767
|
October
31, 2017
|
October
31, 2022
|
|||||||
|
010029
|
650
|
October
31, 2008
|
October
31, 2013
|
|||||||
|
010030
|
1,416
|
October
31, 2008
|
October
31, 2013
|
|||||||
|
010042
|
2,865
|
October
31, 2010
|
October
31, 2015
|
|||||||
|
010045
|
1,800
|
October
31, 2011
|
October
31, 2016
|
|||||||
|
010047
|
1,500
|
October
31, 2012
|
October
31, 2017
|
|||||||
|
010048
|
362
|
March
31, 2010
|
March
31, 2015
|
|||||||
|
010049
|
2,500
|
October
31, 2013
|
October
31, 2018
|
|||||||
|
010052
|
2,400
|
October
31, 2014
|
October
31, 2019
|
|||||||
|
010056
|
2,300
|
October
31, 2015
|
October
31, 2020
|
|||||||
|
010067
|
4,500
|
October
31, 2015
|
October
31, 2020
|
|||||||
|
020001
|
1,846
|
Xxxxx
00, 0000
|
Xxxxx
31, 2015
|
|||||||
|
020009
|
3,235
|
Xxxxx
00, 0000
|
Xxxxx
31, 2018
|
|||||||
EXHIBIT
D
PRE-CERTIFICATION
COST RECOVERY
Exhibit
to the
Precedent
Agreement
Between
Eastern
Shore Natural Gas Company
and
Chesapeake
Utilities Corporation - Delaware Division
Dated
April
1, 2006
[Eastern
Shore Natural Gas Logo]
April
1,
2006
Xx.
Xxxxxxx X. Xxxxxxxx
Director
of Regional Business and Planning
Chesapeake
Utilities Corporation
000
Xxxxx
Xxxxx Xxxxxx
Xxxxx,
Xxxxxxxx 00000
Re:
Cove
Point Project Pre-Certification Cost Recovery
Dear
Xx.
Xxxxxxxx:
As
you
know, Chesapeake Utilities Corporation (“CUC”) and Eastern Shore Natural Gas
Company (“Eastern Shore”) are negotiating a Precedent Agreement for the Firm
Transportation of Natural Gas (“Precedent Agreement”) that sets forth the
parties’ respective rights and obligations in connection with the firm
transportation service that would be provided by the Cove Point Project,
all as
more fully stated therein. The parties agree that Eastern Shore should continue
to proceed with its project activities, particularly those related to the
Federal Energy Regulatory Commission’s (“FERC”) pre-filing NEPA and Certificate
Application process.
The
purpose of this Letter Agreement is to state the parties’ agreement regarding
CUC’s support for Eastern Shore’s recovery of outside professional service costs
in the event that the project is terminated prior to completion of construction.
The parties’ agreement includes those costs incurred (i) as of the date of this
Letter Agreement and (ii) between the date of this Letter Agreement and the
date of the Final Certificate Order by FERC authorizing the Cove Point Project
or the date in which the project is terminated, and includes those costs
incurred for engineering, communications, governmental relations, economics,
environmental, regulatory, and legal services (collectively, “Pre-Certification
Costs”).
Xx.
Xxxxxxx X. Xxxxxxxx
April
1,
2006
Page
2
If
the
parties are unable to agree upon the terms of the Precedent Agreement by
June 1,
2006, the parties agree that this Letter Agreement shall be null, void, and
of
no effect. The parties agree to negotiate diligently and in good faith toward
the execution of the Precedent Agreement by that date. Furthermore, if the
Cove
Point Project proceeds to completion, this Letter Agreement shall be null
and
void, and of no effect.
It
is the
expectation of the parties that the cost recovery contemplated herein will
be
part of a settlement agreement or similar document that would be subject
to FERC
approval. The parties agree that CUC will support, in FERC proceedings initiated
by Eastern Shore following the execution of this Letter Agreement and the
Precedent Agreement, rates to be charged under firm transportation service
agreements of all shippers who have executed a Cove Point Project Precedent
Agreement with Eastern Shore that reflect a return of and return on each
shipper’s proportionate share of such Pre-Certification Costs incurred by
Eastern Shore in the event that the Cove Point Project is not completed.
Prior
to
filing the settlement agreement or similar document contemplated herein,
Eastern
Shore will use its best efforts to obtain support for or non-opposition of
the
settlement agreement or similar document reflecting such cost recovery from
all
of Eastern Shore’s firm transportation customers. Such rates will reflect
amortization of CUC’s proportionate share of the Pre-Certification Costs over a
period of no less than 20 years. CUC’s proportionate share is computed by taking
its firm transportation nomination contained in the executed Precedent Agreement
divided by the sum of the firm transportation nominations contained in all
executed Cove Point Precedent Agreements up to a total level of
Pre-Certification Costs equal to $3 million. For Pre-Certification Costs
in
excess of $3 million, CUC’s proportionate share is computed by dividing one (1)
by the sum of all the shippers who have executed Cove Point Precedent Agreements
plus Eastern Shore 1 .
Unless
a change is agreed to in writing by both parties, CUC’s total Pre-Certification
Cost obligation shall in no event exceed $2.0 million.
_______________
1 For
example, once total Pre-Certification Costs exceed $3,000,000, with a total
of
two (2) shippers (Chesapeake Utilities Corporation and Delmarva Power and
Light
Company), Chesapeake’s proportionate share would equal one (1) divided by three
(3), or thirty-three and one-third (33 1/3) percent.
Xx.
Xxxxxxx X. Xxxxxxxx
April
1,
2006
Page
3
Cove
Point Project Pre-Certification Costs will be accounted for in accordance
with
the FERC's Uniform System of Accounts.
Eastern
Shore shall provide to CUC detailed quarterly reports no later than forty
five
days (45) days after the end of each quarter, on the types and amounts of
Pre-Certification Costs it incurred during the quarter and on the types and
amounts of Pre-Certification Costs it expects to expend in the upcoming quarter
in furtherance of the Cove Point Project. At CUC’s request, Eastern Shore agrees
to meet and discuss such quarterly reports. Eastern Shore shall also provide
to
CUC in a timely fashion copies of final reports and recommendations that
Eastern
Shore receives from its consultants and from parties involved in the FERC
pre-filing NEPA and Certificate Application proceedings regarding Cove Point
Project activities. In addition, at the following key stepping points in
the
project, CUC and Eastern Shore shall meet to discuss the progress of the
project: (1) at the conclusion of FERC sponsored NEPA scoping meetings, (2)
immediately after Eastern Shore files its formal certificate application
with
FERC and (3) upon issuance of FERC’s Preliminary Draft Environmental Impact
Statement (“EIS”).
After
the
Certificate Application for the Cove Point project is filed with the FERC
or at
such time as the cumulative Pre-Certification Costs for such project exceed
a
total of $2,000,000, Eastern Shore shall provide information to CUC regarding
the reason(s) for procurement(s) prior to executing any contract or purchase
order for Project development goods or services for an amount in excess of
$150,000. CUC shall have three (3) business days within which to request
clarification regarding such information. No such clarification shall delay
or
otherwise interfere with either Party's rights and obligations under the
Precedent Agreement or interfere with activities undertaken in accordance
with
the Precedent Agreement to advance the project. Notwithstanding the above,
CUC
can request a meeting with Eastern Shore at any time during the project to
discuss the progress of the project.
By
the
review process set forth in this Letter Agreement, CUC is not assuming any
responsibility or liability with respect to the accounting procedures used
by
Eastern Shore or any oversight related to the pre-construction or construction
of the Cove Point Project.
Xx.
Xxxxxxx X. Xxxxxxxx
April
1,
2006
Page
4
If
this
letter accurately reflects CUC’s understanding and is acceptable, please so
indicate by signing in the space provided.
EASTERN
SHORE NATURAL
GAS
COMPANY
/s/
Xxxxxx X. Xxxxxxx
Xxxxxx
X.
Xxxxxxx
Vice
President
AGREED
AND ACCEPTED:
CHESAPEAKE
UTILITIES CORPORATION
/s/
Xxxx X. Xxxxxx
Xxxx
X.
Xxxxxx
Executive
Vice President &
Chief
Operating Officer
