<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
--------------
Commission File No. 0-29604
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ENERGYSOUTH, INC.
(Successor to Mobile Gas Service Corporation)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 58-2358943
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 334-450-4774
------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock ($.01 par value) outstanding at May 3, 1999 - 4,885,513 shares.
<PAGE> 2
ENERGYSOUTH, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - March 31,
1999 and 1998 and September 30, 1998 3 - 4
Consolidated Statements of Income - Three, Six and
Twelve Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Retained Earnings - Three,
Six and Twelve Months Ended March 31, 1999
and 1998 6
Consolidated Statements of Cash Flows - Six
Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. Other Information 16
Exhibit Index 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 1999 1998 1998
-------------------------- ---------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 8,700 $ 7,305 $ 18,515
Receivables:
Gas 6,947 7,779 4,468
Unbilled Revenue (Note 6) 1,767
Merchandise 3,007 2,945 3,021
Other 690 733 759
Less Allowance for Doubtful Accounts (814) (648) (626)
Materials, Supplies, and Mdse (at average cost) 1,488 1,358 1,327
Gas Stored Underground for Current Use (at average cost) 628 793 1,435
Deferred Gas Costs (Note 6) 0 591 176
Deferred Income Taxes 2,573 1,663 1,430
Prepayments 992 1,083 1,375
--------- --------- ---------
Total Current Assets 25,978 23,602 31,880
--------- --------- ---------
PROPERTY, PLANT, AND EQUIPMENT:
Property, Plant, and Equipment 172,067 166,745 170,894
Less: Accumulated Depreciation and Amortization 47,599 42,876 44,872
--------- --------- ---------
Property, Plant, and Equipment in Service - Net 124,468 123,869 126,022
Construction Work in Progress 1,585 1,656 1,106
--------- --------- ---------
Total Property, Plant, and Equipment - Net 126,053 125,525 127,128
--------- --------- ---------
OTHER ASSETS:
Regulatory Asset 805 1,023 909
Merchandise Receivables Due After One Year 5,584 5,015 5,371
Deferred Charges 1,006 1,356 1,253
--------- --------- ---------
Total Other Assets 7,395 7,394 7,533
--------- --------- ---------
Total $ 159,426 $ 156,521 $ 166,541
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, September 30,
Liabilities and Capitalization 1999 1998 1998
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 918 $ 2,372 $ 4,600
Notes Payable 12,665
Accounts Payable 3,237 3,558 2,511
Dividends Declared 1,074 973 1,072
Customer Deposits 1,456 1,517 1,461
Taxes Accrued 4,240 3,395 3,551
Deferred Purchased Gas Adjustment 3,337 1,333 592
Interest Accrued 1,721 1,926 1,794
Other Liabilities 2,874 2,176 1,898
-------- -------- --------
Total Current Liabilities 18,857 17,250 30,144
-------- -------- --------
OTHER LIABILITIES:
Accrued Pension Cost 1,319 1,535 1,452
Accrued Postretirement Benefit Cost 1,283 1,049 1,332
Deferred Income Taxes 11,305 10,854 10,945
Deferred Investment Tax Credits 408 432 418
-------- -------- --------
Total Other 14,315 13,870 14,147
-------- -------- --------
Total Liabilities 33,172 31,120 44,291
-------- -------- --------
CAPITALIZATION:
Stockholders' Equity
Common Stock, $.01 Par Value
(Authorized 10,000,000 Shares;
Outstanding: March, 1999 -
4,881,000 Shares; March 1998 -
4,864,000 Shares; September, 1998 -
4,872,000 Shares) 49 49 49
Capital in Excess of Par Value 18,326 17,961 18,135
Retained Earnings 45,841 42,217 41,711
-------- -------- --------
Total Stockholders' Equity 64,216 60,227 59,895
Minority Interest 3,456 3,175 3,376
Long-Term Debt (Less Current Maturities) 58,582 61,999 58,979
-------- -------- --------
Total Capitalization 126,254 125,401 122,250
-------- -------- --------
Total $159,426 $156,521 $166,541
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $ 22,394 $ 27,782 $ 41,005 $ 46,772 $ 65,005 $ 70,744
Merchandise Sales and Jobbing 693 729 1,693 1,814 3,143 3,223
-------- -------- -------- -------- -------- --------
Total Operating Revenues 23,087 28,511 42,698 48,586 68,148 73,967
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 7,156 11,008 12,042 18,043 16,889 23,357
Cost of Merchandise and Jobbing 557 543 1,333 1,349 2,500 2,388
Operations 4,559 4,192 9,076 8,583 17,549 17,359
Maintenance 352 453 715 852 1,396 1,705
Depreciation 1,656 1,591 3,333 3,181 6,430 6,116
Taxes, Other Than Income Taxes 1,711 1,923 3,216 3,408 5,400 5,561
-------- -------- -------- -------- -------- --------
Total Operating Expenses 15,991 19,710 29,715 35,416 50,164 56,486
-------- -------- -------- -------- -------- --------
Operating Income 7,096 8,801 12,983 13,170 17,984 17,481
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,289) (1,405) (2,697) (2,818) (5,412) (5,719)
Allowance for Borrowed Funds Used During Construction 9 13 21 23 57 112
Interest Income 316 297 581 628 1,166 1,151
Minority Interest (129) (132) (292) (269) (550) (484)
-------- -------- -------- -------- -------- --------
Total Other Income (Expense) (1,093) (1,227) (2,387) (2,436) (4,739) (4,940)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 6,003 7,574 10,596 10,734 13,245 12,541
-------- -------- -------- -------- -------- --------
Income Taxes 2,244 2,783 3,939 3,955 4,950 4,536
-------- -------- -------- -------- -------- --------
Income Before Cumulative Effect of Changes in Accounting Principles 3,759 4,791 6,657 6,779 8,295 8,005
-------- -------- -------- -------- -------- --------
Cumulative Effect on Prior Years of Change in Accounting Method For
Unbilled Revenue (Net of Income Tax of $133)(Note 6) -- -- 235 -- 235 --
Cumulative Effect on Prior Years of Change in Accounting Method For
Start-Up Costs (Net of Income Tax of $(350))(Note 7) -- -- (616) -- (616) --
-------- -------- -------- -------- -------- --------
Total Cumulative Effect of Accounting Changes (Net of Tax) -- -- (381) -- (381) --
-------- -------- -------- -------- -------- --------
Net Income $ 3,759 $ 4,791 $ 6,276 $ 6,779 $ 7,914 $ 8,005
======== ======== ======== ======== ======== ========
Basic Earnings Per Share
Income Before Cumulative Effect of Changes in Accounting Principles $ 0.77 $ 0.99 $ 1.37 $ 1.39 $ 1.70 $ 1.65
Cumulative Effect of Accounting Changes -- -- (0.08) -- (0.08) --
-------- -------- -------- -------- -------- --------
Net Income $ 0.77 $ 0.99 $ 1.29 $ 1.39 $ 1.62 $ 1.65
======== ======== ======== ======== ======== ========
Diluted Earnings Per Share
Income Before Cumulative Effect of Changes in Accounting Principles $ 0.76 $ 0.97 $ 1.35 $ 1.38 $ 1.69 $ 1.63
Cumulative Effect of Accounting Changes -- (0.08) -- (0.08) --
-------- -------- -------- -------- -------- --------
Net Income $ 0.76 $ 0.97 $ 1.27 $ 1.38 $ 1.61 $ 1.63
======== ======== ======== ======== ======== ========
Pro Forma Amounts Assuming Retroactive Application
of Accounting Changes
Net Income $ 3,759 $ 4,163 $ 6,657 $ 7,009 $ 8,103 $ 7,898
======== ======== ======== ======== ======== ========
Basic Earnings Per Share $ 0.77 $ 0.86 $ 1.37 $ 1.44 $ 1.66 $ 1.63
======== ======== ======== ======== ======== ========
Diluted Earnings Per Share $ 0.76 $ 0.84 $ 1.35 $ 1.42 $ 1.64 $ 1.61
======== ======== ======== ======== ======== ========
Cash Dividends Declared Per Share of Common Stock $ 0.22 $ 0.20 $ 0.44 $ 0.40 $ 0.88 $ 0.80
======== ======== ======== ======== ======== ========
Average Common Shares Outstanding (Note 8)
Basic 4,881 4,862 4,879 4,860 4,874 4,856
Diluted 4,933 4,929 4,930 4,928 4,927 4,912
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $43,156 $38,398 $41,711 $37,382 $42,217 $38,097
Net Income 3,759 4,791 6,276 6,779 7,914 8,005
------- ------- ------- ------- ------- -------
Total 46,915 43,189 47,987 44,161 50,131 46,102
Less: Dividends 1,074 972 2,146 1,944 4,290 3,885
------- ------- ------- ------- ------- -------
Balance at End of Period $45,841 $42,217 $45,841 $42,217 $45,841 $42,217
======= ======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 12,255 $ 8,510
-------- --------
Cash Flows Used In Investing Activities -
Capital Expenditures (3,369) (2,897)
-------- --------
Cash Flows From Financing Activities:
Repayment of Long-Term Debt (4,080) (2,138)
Changes in Short-Term Borrowings (12,665) (10,700)
Payment of Dividends, Net of Dividend Reinvestment (1,956) (1,730)
-------- --------
Net Cash Used In Financing Activities (18,701) (14,568)
-------- --------
Net Decrease in Cash and Cash Equivalents (9,815) (8,955)
-------- --------
Cash and Cash Equivalents at Beginning of Period 18,515 16,260
-------- --------
Cash and Cash Equivalents at End of Period $ 8,700 $ 7,305
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The consolidated financial statements of EnergySouth, Inc. and its
subsidiaries (collectively the "Company") include the accounts of Mobile Gas
Service Corporation; EnergySouth Services, Inc., formerly MGS Energy Services,
Inc.; MGS Storage Services; MGS Marketing Services, Inc.; an 87.5% owned
partnership, Bay Gas Storage Company, Ltd. ("Bay Gas"); and a 51% owned
partnership, Southern Gas Transmission Company ("SGT"). All significant
intercompany balances and transactions have been eliminated.
Note 2. The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments, consisting of
normal and recurring accruals, which are, in the opinion of management,
necessary to present fairly the results for the interim periods have been made
and are of a recurring nature. The statements should be read in conjunction with
the summary of accounting policies and notes to financial statements included in
the Annual Report on Form 10-K of the Company for the fiscal year ended
September 30, 1998.
Note 3. Due to the high percentage of customers using gas for heating, the
Company's operations are seasonal in nature. Therefore, the results of
operations for the six month periods ended March 31, 1999 and 1998 are not
indicative of the results to be expected for the full year.
Note 4. Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was effective for the Company on October 1, 1998. The
Company does not currently have any comprehensive income other than items
included in net income. Therefore, comprehensive income is the same as net
income for all periods reported.
Note 5. Statement of Financial Accounting Standards No, 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Interim
disclosures are not required in the year of adoption; accordingly, the Company
expects to report the required financial and descriptive information about its
operating segments beginning with its annual financial statements for the fiscal
year ending September 30, 1999.
Note 6. Effective October 1, 1998 the Company changed its method of accounting
for unbilled revenues to be consistent with prevailing industry practice. Prior
to October 1, 1998, the Company recorded revenues as meters were read on a
monthly cycle basis and the commodity cost of purchased gas applicable to gas
delivered but not yet billed at month-end was deferred. The accrual method
adopted records revenues based upon estimated consumption through the end of the
month for all customers regardless of the meter reading date. The effect of the
change for the six months and twelve months ended March 31, 1999 was to increase
net income by $490,000 ($0.10 per share, diluted) of which $255,000 ($.05 per
share, diluted) is included in operating income, and $235,000 ($0.05 per share,
diluted),
7
<PAGE> 8
the cumulative effect of the change, is reported as a separate component of net
income. This change in accounting method has the effect of recognizing income
earlier within the fiscal year but will have a minimal impact on the fiscal year
as a whole.
Note 7. Effective October 1, 1998, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5) and recorded a
cumulative effect of change in accounting method of $616,000 ($.13 per share,
diluted) as a result of expensing organization and start-up costs previously
capitalized. The effect on operating income as a result of not expensing the
amortization of such costs is not material to the financial statements.
Note 8. Basic earnings per share are computed based on the weighted average
number of common shares outstanding during each period. Diluted earnings per
share are computed based on the weighted average number of common shares and
diluted potential common shares, using the treasury stock method, outstanding
during each period. Average common shares used to compute basic earnings per
share differed from average common shares used to compute diluted earnings per
share by equivalent shares of 52,000 and 67,000 for the three months ended March
31, 1999 and 1998, respectively; 51,000 and 68,000 for the six months ended
March 31, 1999 and 1998, respectively; and 53,000 and 56,000 for the twelve
months ended March 31, 1999 and 1998, respectively. These differences in
equivalent shares are from outstanding stock options.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
THE COMPANY
The following discussion and analysis encompasses EnergySouth, Inc. and its
direct and indirect subsidiaries (collectively referred to as the "Company").
EnergySouth became the holding company for Mobile Gas Service Corporation
(Mobile Gas) on February 2, 1998, and at that time Mobile Gas became a
wholly-owned subsidiary. The Company, primarily through Mobile Gas, is engaged
principally in the distribution of natural gas to residential, commercial and
industrial customers in Southwest Alabama. Other subsidiaries are engaged in
providing gas pipeline transportation, gas storage, gas marketing and other
energy-related services. The Alabama Public Service Commission (APSC) regulates
the Company's gas distribution and storage operations. Mobile Gas' rate tariffs
for gas distribution allow a pass-through to customers of the cost of gas
supplies, certain taxes, and incremental costs associated with the replacement
of cast iron mains. These costs, therefore, have little impact on the Company's
earnings. Other costs, including a return on investment, are recovered through
rates approved in traditional rate proceedings. Interstate gas storage contracts
do not require APSC approval since the Federal Energy Regulatory Commission
(FERC), which has jurisdiction over such contracts, allows them to have
market-based rates. Market-based rates allow Bay Gas to respond to market
conditions and minimize regulatory involvement in the setting of its rates for
storage services. The FERC issued an order on April 28, 1999 granting authority
to Bay Gas to provide transportation-only services to interstate and intrastate
shippers and approved rates for such service.
The Company's distribution business is highly seasonal and
temperature-sensitive since residential and small commercial customers use more
gas during colder weather for heating. As a result, the Company's operating
results in any given period historically have reflected, in addition to other
matters, the impact of weather, through either increased or decreased sales
volumes. The Company utilizes a temperature rate adjustment rider to offset the
impact that unusually cold or warm weather has on customer billings and
operating margins by reducing high gas bills in colder than normal weather and
increasing gas revenues in warmer than normal weather. Normal weather for the
Company's service territory is defined as the 30-year average temperature as
determined by the National Weather Service. In the gas utility industry,
degree-days are the benchmark for measuring coldness and represent the number of
degrees that the daily average temperature falls below 65 degrees Fahrenheit.
RESULTS OF OPERATIONS
NET INCOME
Net income for the three months ended March 31, 1999 and 1998 was
$3,759,000 or $.76 per share and $4,791,000 or $.97 per share, respectively. Net
income for the six months ended March 31, 1999 and 1998 was $6,276,000 or $1.27
per share and $6,779,000 or $1.38 per share, respectively. Net income for the
twelve months ended March 31, 1999 and 1998 was $7,914,000 or $1.61 per share
and $8,005,000 or $1.63 per share, respectively. All references to earnings per
share amounts are computed on a diluted basis. The fiscal 1999 period earnings
include the effect of a change in accounting for unbilled revenues while the
fiscal 1999 six and twelve month periods also include the effect of a change in
9
<PAGE> 10
accounting for start-up costs. In accordance with prescribed accounting rules,
the amounts presented for the same prior year periods have not been adjusted.
Both accounting changes are discussed in further detail within "New Accounting
Standards" below. The effect of these accounting changes for the three months
ended March 31, 1999 was to decrease net income by $588,000 ($0.12 per share)
while the effect on the fiscal 1999 six and twelve month periods was to decrease
net income by $126,000 ($0.03 per share). Assuming retroactive application of
the accounting changes, earnings per share amounts for three, six and twelve
months ended March 31, 1999 would have been $0.76, $1.35 and $1.64,
respectively, as compared to $0.84, $1.42 and $1.61, respectively, for the
three, six and twelve months ended March 31, 1998.
The decrease in earnings for the three and six months ended March 31,
1999, assuming retroactive application of the accounting changes, is due
primarily to decreased margin on gas sales revenues resulting from unusually
warm weather, decreased gas storage revenues, increased operations expenses and
increased depreciation expense. The increase in earnings for the twelve months
ended March 31, 1999 is due primarily to increased margin on gas transportation
revenues, decreased maintenance expenses and decreased interest expense.
OPERATING REVENUES
Gas revenues decreased $5.4 million (19%), $5.8 million (12%) and $5.7
million (8%), respectively, for the three, six and twelve months ended March 31,
1999 as compared to the same prior year periods. Included within gas revenues
for each fiscal 1999 period is the effect of accruing for unbilled gas revenues
at month-end while no such accrual is included within prior year periods since
this new accounting method was adopted in the first quarter of fiscal 1999.
Assuming retroactive application of this accounting change, gas revenues
decreased $2.7 million (11%), $6.7 million (14%) and $6.6 million (9%),
respectively, for the three, six and twelve months ended March 31, 1999
resulting primarily from decreased gas sales volumes of 21%, 26% and 21%,
respectively. Causing these decreases in gas sales volumes, primarily to
temperature-sensitive customers, was weather which was 22%, 37% and 36%,
respectively, warmer than the prior year three, six and twelve month periods and
22%, 27% and 26%, respectively, warmer than normal for the three, six and twelve
month periods. The temperature adjustment rider in rates mitigated the effects
of weather to a large extent; however, margins from customers who are sensitive
to weather were slightly down from the prior year for the three and six month
periods. In addition to the effect on gas revenues of lower gas sales volumes,
the Company passed through to customers lower purchased gas costs on a per unit
basis during the fiscal 1999 periods through the purchased gas adjustment
component of customer rates.
Gas revenues from large commercial and industrial customers decreased
$762,000, $1,331,000 and $2,032,000, respectively, for the three, six and twelve
months ended March 31, 1999 due in part to factors mentioned previously in
addition to decreased plant utilization and several customers switching to
transportation agreements. Transportation revenues during the three, six and
twelve months ended March 31, 1999 increased $43,000, $363,000 and $1,231,000,
respectively, due primarily to several new customers added to the distribution
system and certain sales customers who switched to transportation agreements.
Revenues from natural gas storage operations decreased $76,000, $148,000 and
$46,000, respectively, for the three, six and twelve months ended March 31, 1999
due primarily to decreased firm storage contracted to customers.
10
<PAGE> 11
EXPENSES
Cost of gas decreased $3.9 million (35%), $6.0 million (33%) and $6.5
million (28%), respectively, for the three, six and twelve months ended March
31, 1999 as compared to the same prior year periods. Included within each fiscal
1999 period is an accrual for cost of gas associated with unbilled gas revenues
whereas the prior year periods do not reflect such an accrual. Assuming
retroactive application of the accounting change for unbilled gas revenues, cost
of gas decreased $2.3 million (25%), $6.5 million (35%) and $7.2 million (30%),
respectively, for the three, six and twelve months ended March 31, 1999. The
decrease for all periods is attributed to decreased gas sales volumes and
decreased purchased gas costs on a per unit basis as mentioned previously.
Operations expense increased $367,000, $493,000 and $190,000,
respectively, for the three, six and twelve months ended March 31, 1999 compared
to the same prior year periods due primarily to increases in the following
areas: payroll and related benefits, reserve for uncollectible accounts, and
selling expenses.
Maintenance expense decreased $101,000, $137,000 and $309,000,
respectively, for the three, six and twelve months ended March 31, 1999 compared
to the same prior year periods due primarily to decreased maintenance on mains
and services.
Depreciation expense increased 4% for the second quarter of fiscal 1999
and increased 5% for the six and twelve months ended March 31, 1999 as compared
to the same prior year periods due to growth in depreciable plant-in-service.
Taxes, other than income taxes, primarily consist of state and local
taxes that are based on gross revenues and fluctuate accordingly.
Interest expense decreased 8%, 4% and 5%, respectively, for the three,
six and twelve months ended March 31, 1999 as compared to the same prior year
periods due to decreased long-term debt which was due in part to the early
redemption of $2,500,000 of First Mortgage Bonds, 10.25% Series, during the
first quarter of fiscal 1999.
Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs decreased $55,000 for the twelve months ended March 31, 1999 due
to completion in August 1997 of new facilities to service a large industrial
customer.
Interest income increased $19,000, decreased $47,000 and increased
$15,000, respectively, for the three, six and twelve months ended March 31, 1999
as compared to the same prior year periods. Interest income of $42,000 related
to an income tax refund was recorded during the fiscal 1998 first quarter,
whereas the fiscal 1999 periods do not include any such miscellaneous interest
income. The fluctuation in interest income for each period is due primarily to
financing of merchandise sales and installations and income from short-term
investments.
Income tax expense changed primarily in relation to changes in income
before income taxes.
11
<PAGE> 12
NEW ACCOUNTING STANDARDS
Effective October 1, 1998 the Company changed its method of accounting
for unbilled revenues to be consistent with prevailing industry practice. Prior
to October 1, 1998, the Company recorded revenues as meters were read on a
monthly cycle basis and the commodity cost of purchased gas applicable to gas
delivered but not yet billed at month-end was deferred. The accrual method
adopted records revenues based upon estimated consumption through the end of the
month for all customers regardless of the meter reading date. This change in
accounting method has the effect of recognizing income earlier within the fiscal
year but will have a minimal impact on the fiscal year as a whole. As of
December 31, 1998, unbilled revenue had increased net income by $1,078,000
($0.22 per share, diluted) of which $843,000 ($0.17 per share, diluted) was
included in operating income and $235,000 ($0.05 per share, diluted), the
cumulative effect of the accounting change, was reported as a separate component
of net income. During the three months ended March 31, 1999, a portion of this
effect reversed so that the six and twelve month periods ended March 31, 1999
reflect an increase in net income of $490,000 ($0.10 per share, diluted) of
which $255,000 ($0.05 per share, diluted) is included in operating income and
$235,000 ($0.05 per share, diluted) is reflected as the cumulative effect of the
accounting change.
Effective October 1, 1998, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5) and recorded a
cumulative effect of change in accounting method of $616,000 ($0.13 per share,
diluted) as a result of expensing organization and start-up costs previously
capitalized. The effect on operating income as a result of not expensing the
amortization of such costs is not material to the financial statements.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) was effective for the Company on October 1,
1998. The Company does not currently have any comprehensive income other than
items included in net income. Therefore, comprehensive income is the same as net
income for all periods reported.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
annual financial statements and requires that those enterprises report selected
information about operating segments on interim financial reports issued to
shareholders. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Interim
disclosures are not required in the year of adoption, accordingly, the Company
expects to report the required financial and descriptive information about its
operating segments beginning with its annual financial statements for the fiscal
year ending September 30, 1999.
FINANCIAL CONDITION AND LIQUIDITY
The Company generally relies on cash generated from operations and on a
temporary basis, short-term borrowings, to meet working capital requirements and
to finance normal capital expenditures. The Company issues debt and equity for
longer term financing as needed.
12
<PAGE> 13
Operating activities provided cash of $12,255,000 and $8,510,000,
respectively, for the six months ended March 31,1999 and 1998. The increase in
cash flow from operating activities is attributed primarily to the change in
operating assets and liabilities, which reflects the timing of cash receipts and
payments on receivables and payables.
Financing activities used cash of $18,701,000 and $14,568,000
respectively, for the six months ended March 31, 1999 and 1998. The increase in
cash used by financing activities primarily reflects the early redemption of
$2,500,000 of First Mortgage Bonds, 10.25% Series during the fiscal 1999 first
quarter in addition to increased payments on short-term borrowings.
Cash used in investing activities increased $472,000 during the six
months ended March 31, 1999 primarily as a result of the Company's regular
construction program. The Company's capital needs for construction of
distribution and storage facilities, purchase of equipment and other general
improvements for the remainder of fiscal 1999 is estimated to be $9,375,000.
Funds for the Company's cash needs are expected to come from cash provided by
operations and borrowings under the Company's revolving credit agreement.
Management believes it has adequate financial flexibility to meet its expected
cash needs in the foreseeable future.
YEAR 2000
The Company is working to resolve the potential impact of the Year 2000
on the ability of computerized information systems to accurately process
information that may be date sensitive. Programs that recognize a date using
"00" as the year 1900 rather than 2000 could result in errors or system failures
that could ultimately cause the Company to interrupt service or become unable to
process transactions and could thereby require the Company to cease operations
pending resolution of the problem. Such an eventuality would materially
adversely affect the Company's business, financial condition and results of
operations. Accordingly, management is devoting significant attention to
identifying Year 2000 issues and testing its systems for Year 2000 compliance.
The identification, assessment, remediation and testing of the
Company's computer systems have been substantially completed. As a result, the
Company has made changes to its computer application programs and tested them
accordingly. Additional testing will be completed during 1999 to ensure that no
subsequent changes have affected the Year 2000 modifications. The state of Year
2000 readiness of hardware and software already evaluated will be monitored
during the coming year to maintain this readiness and to determine that there
have been no subsequent exclusions or disclaimers by manufacturers resulting in
a loss of Year 2000 readiness. Mission critical processes have been identified
and contingency plans are being developed at this time and are scheduled for
completion by the end of June 1999 in an effort to ensure the uninterrupted
continuation of customer service. An inventory and assessment of the Company's
embedded systems has been completed. The two systems for which failure of
embedded systems would be critical are responsible for monitoring and
controlling 1) the distribution of gas through the Company's pipeline system and
2) the underground storage facility. These systems are scheduled for replacement
by June 30, 1999.
In addition to the remediation and testing efforts of the Company's
internal systems, the Company is contacting each of its significant vendors to
obtain a commitment that they
13
<PAGE> 14
are or will be Year 2000 compliant. If such assurances are not forthcoming, or
if management believes for any reason that any of its significant vendors will
not be Year 2000 compliant when required, management plans to either contract
with other vendors that would be able to provide similar services at similar
costs or have plans in place so operations will not be materially affected.
During March 1999, the Company's Year 2000 project was subjected to a
third party Readiness Review for completeness. The Company has responded to the
recommendations made by the third party review which includes a limited amount
of on-going testing of third party software, continued assessment and inquiry of
significant vendors and finalizing contingency plans for mission critical
processes. A steering committee of the Company's executive management has
reviewed and will continue to review the Year 2000 project progress on a regular
basis.
As of March 31, 1999, the Company has incurred approximately $164,000
of remediation costs related to Year 2000 which has been expensed and expects to
incur an additional $23,000 to complete the remediation costs. The Company has
been utilizing working capital to fund its Year 2000 compliance program and
anticipates that it will continue to do so. The Company's internal costs with
respect to the Year 2000 project have not been separately identified, but
Management believes that they are immaterial.
The Company's goal is that Year 2000 issues will be addressed on
schedule and in a manner that will prevent such issues from having a material
effect on the Company's business, financial condition and result of operations.
While the Company has and will be pursuing Year 2000 compliance, there can be no
assurance that the Company and its vendors will be successful in identifying and
addressing all material Year 2000 issues.
FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not historical in nature
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, but are not
limited to, its ability to successfully achieve internal performance goals,
competition, the effects of state and federal regulation, including rate relief
to recover increased capital and operating costs, general economic conditions,
and specific conditions in the Company's service area. Additional factors that
may impact forward-looking statements include the Company's dependence on
external suppliers, partners, operators, service providers, and governmental
agencies and their ability to upgrade their business systems and measurement and
control systems in order to mitigate the potential adverse effects of the Year
2000 issue.
14
<PAGE> 15
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company does not have any derivative financial instruments such as
futures, forwards, swaps and options. Also, the Company has no market
risk-sensitive instruments held for trading purposes. At March 31, 1999 the
Company had approximately $59.5 million of long-term debt at fixed interest
rates. Interest rates range from 7.27% to 9.00% and the maturity dates of such
debt extend to 2014. See the information provided under the captions "The
Company", "Gas Supply", and "Liquidity and Capital Resources" in the Company's
Form 10-K for the fiscal year ended September 30, 1998 for a discussion of the
Company's risks related to regulation, weather, gas supply, and the
capital-intensive nature of the Company's business.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
10(a) Transportation agreement between Mobile Gas Service
Corporation and Alabama Power Company dated
February 18, 1999 (1)
10(b) Agreement for Firm and Interruptible Storage Service
between Bay Gas Storage Company, Ltd. And Southern
Company Services, Inc. dated April 1, 1999 (1)
10(c) Agreement for Firm Intrastate Transportation services
between Bay Gas Storage Company, Ltd. And Alabama
Power Company dated April 8, 1999 (1)
27 Financial Data Schedule (EDGAR version only)
(1) Confidential portions of this exhibit have been omitted and previously
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment made in accordance with Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed no reports on Form 8-K.
SIGNATURES
Pursuant to the requirements 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.
MOBILE GAS SERVICE CORPORATION
(Registrant)
Date: May 17, 1999 /s/ John S. Davis
------------------------- --------------------------------------
John S. Davis
President and
Chief Executive Officer
Date: May 17, 1999 /s/ Charles P. Huffman
------------------------- --------------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10(a) Transportation agreement between Mobile Gas Service Corporation and
Alabama Power Company dated February 18, 1999 (1)
10(b) Agreement for Firm and Interruptible Storage Service between Bay Gas
Storage Company, Ltd. And Southern Company Services, Inc. dated April
1, 1999 (1)
10(c) Agreement for Firm Intrastate Transportation services between Bay Gas
Storage Company, Ltd. And Alabama Power Company dated April 8, 1999
(1)
27 Financial Data Schedule (EDGAR version only)
</TABLE>
(1) Confidential portions of this exhibit have been omitted and previously
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment made in accordance with Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
17
<PAGE> 1
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(a)
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of
February, 1999 by and between MOBILE GAS SERVICE CORPORATION, an Alabama
corporation, with a mailing address of P. O. Box 2248, Mobile, Alabama 36652,
herein called "Mobile Gas," and ALABAMA POWER COMPANY, an Alabama corporation,
with a mailing address of 600 North 18th Street, Birmingham, Alabama, 35291,
herein called "Customer."
Whereas, Customer desires to use natural gas for the operation of
Customer's proposed electric and steam generation facilities to be located in
Theodore, Alabama (the "Plant"); and
Whereas, Mobile Gas operates a system for the distribution of natural
gas from natural gas transmission pipelines and processing plants and Customer
intends that it will purchase natural gas from third parties ("Customer's
Suppliers") who will deliver such gas to Mobile Gas for redelivery to the Plant.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I - TRANSPORTATION SERVICE
1.1 Mobile Gas shall transport volumes of natural gas up to the "Contract Demand
Volume" of Customer's gas, as defined in Exhibit A which is attached hereto and
made part of this Agreement. Customer will pay Mobile Gas for all natural gas
transported by Mobile Gas to the Plant and agrees to accept and pay for service
subject to the terms and conditions hereof:
1.2 The RATE for such transportation service and the minimum billings
hereunder are as specified in Exhibit A which is attached hereto and
made part of this Agreement. The rate is a special negotiated rate.
1.3 Customer may request that the Contract Demand Volume be increased by
delivering a written request to Mobile Gas for such increase. Mobile Gas may
approve or decline such request in its discretion (such request being deemed to
be declined if Mobile Gas does not approve the request within thirty (30) days
after the date of receipt thereof). In the event Mobile Gas approves such a
request, it may specify an effective date for the requested increase in the
Contract Demand Volume, such date to be not later than 24 months after the
approval date.
<PAGE> 2
1.4 Except as otherwise specified in this section, Mobile Gas shall be the sole
transporter of natural gas to the Plant during the term of this Agreement for
the Contract Demand Volume. If during the term of this Agreement Mobile Gas, due
to default by Mobile Gas or force majeure affecting Mobile Gas is unable to
deliver adequate volumes, Customer may obtain transportation of gas volumes from
other sources for the duration of such default or force majeure.
ARTICLE II - TERM OF AGREEMENT
2.1 The term of this Agreement shall be ***, beginning on the Commencement Date,
as herein defined, and shall be automatically extended for a period of *** from
each expiration date of such term or any automatic extension thereof unless
either party shall notify the other in writing not less than ninety (90) days
prior to the expiration date, or the expiration of any two year extension of
such expiration date, of its intention to terminate this Agreement.
2.2 The "Commencement Date" shall be the first day of the month following the
earlier of (i) the date Customer first takes redelivery of natural gas from
Mobile Gas at the Point of Redelivery, or (ii) six (6) months from the date of
this Agreement.
2.3 Notwithstanding the provisions of Section 2.1, the provisions of this
Agreement that by their sense and context are applicable to the parties' rights
and obligations under this Agreement prior to the Commencement Date, shall be
effective as of the effective date hereof. The provisions of this Agreement,
that by their sense and context survive the termination or expiration of this
Agreement, shall survive the same.
2.4 This Agreement may only be terminated prior to the expiration of the initial
term or a renewal term hereof, if any, as the case may be:
(a) by Mobile Gas, (i) in accordance with Section 5.3, or (ii)
after occurrence of any other material breach by Customer in
the performance of its obligations hereunder and the
continuance of such breach thirty (30) days after written
notice by Mobile Gas to Customer of such breach and demand by
Mobile Gas that Customer cure same.
(b) by Customer after occurrence of any material breach by
Mobile Gas in the performance of its obligations hereunder and
the continuance of such breach thirty (30) days after written
notice by Customer to Mobile Gas of such breach and demand by
Customer that Mobile Gas cure same. In the event of
termination by either party under this Section 2.4 Customer
shall not owe any minimum bill payments as provided for in
Exhibit A beyond the date of termination.
(c) by Customer if Mobile Gas fails to deliver
nominated gas at the Point of Redelivery for a period
of forty-five (45) consecutive days for any reason,
including the occurrence of force majeure.
2
<PAGE> 3
ARTICLE III - QUALITY
3.1 The volumes of natural gas delivered hereunder shall be measured at an
equivalent pressure base of 14.73 pounds per square inch absolute (psia) and an
assumed atmospheric pressure of 14.7 psia, and at a temperature base of 60
degrees Fahrenheit. The volume of natural gas determined hereunder shall be
adjusted to give effect to Boyle's Law in accordance with standard procedure.
3.2 The quality of the gas delivered by Customer's Suppliers to Mobile Gas shall
be pipeline quality, and:
(a) Shall be dehydrated and shall in no event have a water
content in excess of seven (7) pounds of water per million
(1,000,000) cubic feet of gas measured at a pressure base of
14.73 psi and at a temperature base of 60 degrees Fahrenheit,
as determined by dew point or other moisture measuring
equipment in general use in the industry.
(b) Shall not contain more than one (1) grain of hydrogen
sulfide per one hundred (100) cubic feet as determined by
quantitative methods in general use in the industry.
(c) Shall not contain more than twenty (20) grains of total
sulphur, including hydrogen sulfide, per one hundred (100)
cubic feet as determined by quantitative methods in general
use in the industry.
(d) Shall not contain in excess of:
(i) Three percent (3.0%) by volume carbon dioxide.
(ii) Two tenths percent (0.2%) by volume oxygen
(e) Shall be commercially free from dust, gum, gum-forming
constituents or other liquid or solid matter which might
become separate from the gas in the course of transportation
through pipelines.
(f) Shall be commercially free of water and other
objectionable liquids at the temperature and pressure at which
the gas is delivered. (g) Shall contain no less than 800 Btu
per cubic foot nor more than 1200 Btu per cubic feet at
standard temperature and pressure.
ARTICLE IV - POINTS OF DELIVERY AND REDELIVERY
4.1 The Points of Delivery by Customer's Suppliers to Mobile Gas shall be as
specified in Exhibit B. From time to time during the term of this Agreement,
3
<PAGE> 4
Customer may change the Primary Point(s) of Delivery hereunder by giving at
least thirty (30) days advance written notice of such change (the "Primary Point
Change"). Mobile Gas shall accept the Primary Point Change as long as sufficient
capacity is available in its Bellingrath Pipeline System, including but not
limited to the pipeline, meter station, and interconnects, to transport the
requested volume from the newly designated Primary Point(s) of Delivery to
Customer's Plant. If sufficient capacity is not available, Mobile Gas shall give
written notification to Customer within fifteen (15) days of receipt of
Customers notice of Primary Point Change of its non-acceptance of the Primary
Point Change.
4.2 The Secondary Point(s) of Delivery by Customer's Suppliers to Mobile Gas
shall be as specified in Exhibit B. Transportation service from Secondary Points
of Delivery shall be on an interruptible basis. Customer shall have no bumping
rights at Secondary Points of Delivery. Mobile Gas shall receive nominated gas
at one or more Secondary Points, as long as sufficient capacity is available in
its Bellingrath Pipeline System, including but not limited to the pipeline,
meter station, and interconnects, to transport the requested volume from the
designated Secondary Point(s) of Delivery to the Plant.
4.3 Customer's Suppliers shall make delivery to the Points of Delivery at a
minimum pressure of 650 pounds per square inch gauge to enable Mobile Gas to
redeliver gas to Customer. Mobile Gas shall not be obligated to redeliver gas at
the Point of Redelivery unless adequate pressures are available at the Points of
Delivery.
4.4 The Point of Redelivery of natural gas hereunder to Customer shall be the
Customer's weld connection downstream of the Mobile Gas Metering Facilities, as
such term is defined below. Maintenance by Mobile Gas of gas pressure of a
minimum of 450 and maximum of 500 pounds per square inch gauge at the Point of
Redelivery shall constitute redelivery of gas for purpose of this Agreement.
Customer shall not be obligated to accept gas at the Point of Redelivery unless
the gas is redelivered at a minimum of 450 pounds per square inch gauge.
4.5 The gas shall be redelivered by Mobile Gas to Customer in like good order
and condition and at quality in accordance with specifications as set forth in
Article III of this Agreement.
4.6 Customer shall be responsible for construction of its pipeline from the
Point of Redelivery to its Plant. Mobile Gas shall at its expense construct such
facilities as may be necessary to enable it to receive gas at the Point(s) of
Delivery stated on Exhibit B and to redeliver gas to Customer at the Point of
Redelivery at the Contract Demand Volume on the Commencement Date. Mobile Gas
shall construct, own, and operate a metering station and necessary monitoring,
and recording equipment to provide accurate measurement and custody transfer of
the gas from Mobile Gas to Customer (the "Metering Facilities.") The Metering
Facilities shall be constructed and operated in accordance with industry
standards. The Metering Facilities shall be located either on the Plant site or
at a mutually acceptable location outside the Plant, at the discretion of Mobile
Gas. If the Metering Facilities are located on the Plant site, Customer shall
provide, within thirty (30) days of this Agreement, Mobile Gas such easement or
easements, in form reasonably acceptable to Mobile Gas, for the Metering
Facilities covering approximately 100 feet by 100 feet of Customer's property,
and for construction of pipelines, including above and below ground facilities
4
<PAGE> 5
to the Point of Redelivery as shall cross property owned or leased by Customer,
as well as for maintenance of the Metering Facilities on Customer's premises.
ARTICLE V - BILLING
5.1 On or before the seventh (7th) working day of each calendar month Mobile Gas
shall render to Customer a statement of the amount of gas transported hereunder
by Mobile Gas to Customer during the preceding calendar month (and with respect
to the first such statement, for the portion of a month, if any, between the
date first gas is made available and the Commencement Date), and shall also
render a bill for all gas so transported. On or before the twenty-first (21st)
day of each calendar month, Customer shall make payment to the address stated in
Article X.
5.2 In the event that Customer disputes any amount shown on a statement issued
by Mobile Gas to Customer, Customer shall pay the undisputed amount, which shall
in no event be less than the minimum bill, and notify Mobile Gas of the disputed
amount and the reasons for the dispute at the time payment is due. Mobile Gas
shall not suspend further delivery as a result of Customer's failure to pay the
disputed amount. Mobile Gas and Customer shall endeavor to amicably resolve the
disputed amount prior to institution of arbitration. The parties are not
obligated to pursue amicable resolution for more than sixty (60) days, then the
matter shall be submitted to arbitration. If it is finally determined that
Customer has underpaid the amount actually due, Customer shall remit any amount
due, with interest equal to 2% in excess of the "prime rate" reported in the
Wall Street Journal or any successor thereto, within ten (10) days of the
earlier of the next monthly invoice or within thirty (30) days of dispute
resolution. If it is finally determined that Customer has overpaid the amount
actually due, Mobile Gas shall remit any refund, with interest equal to 2% in
excess of the "prime rate" reported in the Wall Street Journal or any successor
thereto, within ten (10) days of the earlier of the next monthly invoice or
within thirty (30) days after Customer's receipt of an adjusted billing
statement from Mobile Gas.
5.3 Should Customer fail to pay any amount due, and Customer has not notified
Mobile Gas of a disputed amount pursuant to Section 5.2 above (except for any
minimum billings as specified in Exhibit A falling due during any period of
force majeure invoked by Mobile Gas pursuant to Section 6.1) when the same is
due, Mobile Gas shall give notice and interest shall accrue on all unpaid
amounts from the date due until paid at a rate of interest equal to 2% in excess
of the "prime rate" reported in the Wall Street Journal or any successor
thereto. Should such failure to pay continue for ten (10) days, Mobile Gas may
suspend deliveries of gas hereunder, and the exercise of such right shall be in
addition to any and all remedies available to Mobile Gas. Should such failure to
pay continue for ninety (90) days after written notice is given by Mobile Gas to
Customer of such failure to pay, Mobile Gas may terminate this Agreement, and
the exercise of such right shall be in addition to any and all remedies
available to Mobile Gas. Such termination shall not relieve Customer of its
payment obligations hereunder.
5
<PAGE> 6
ARTICLE VI - FORCE MAJEURE
6.1 In the event Mobile Gas is rendered unable, wholly or in part, by reason of
force majeure to carry out its obligations under this Agreement, it is agreed
that Mobile Gas shall give notice and reasonably full particulars of such force
majeure, in writing by either mail, hand delivery, or facsimile, to Customer
within a reasonable time after the occurrence of the cause relied on, and the
obligations of Mobile Gas, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for no
longer period, and such cause shall, so far as possible, be remedied with all
reasonable dispatch.
6.2 In the event the Customer is rendered unable, wholly or in part, by reason
of force majeure to carry out its obligations under this Agreement (other than
the obligation to make payment of amounts due according to Article V, which
obligations shall not be affected by events of force majeure), it is agreed that
Customer shall give notice and reasonably full particulars of such force
majeure, in writing by either mail, hand delivery, or facsimile, to Mobile Gas
within a reasonable time after the occurrence of the cause relied on, and the
obligations of Customer, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for no
longer period, and such cause shall, so far as possible, be remedied with all
reasonable dispatch.
6.3 The term, "force majeure," as employed herein shall mean acts of God;
strikes, lockouts, or other industrial disturbances; conditions arising from a
change in governmental laws, orders, rules or regulations; acts of public enemy;
wars; blockades; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; storms; floods; washouts; arrests and restraints of
governments and people; civil disturbances; explosions; breakage or accident to
machinery or lines of pipe; the necessity for making repairs, tests or
alterations to machinery or lines of pipe; freezing of wells or lines of pipe;
partial or entire failure of wells, processing or gasification and gas
manufacturing facilities; and any other causes, whether of the kind herein
enumerated or otherwise, not within the control of the party claiming
suspension, and which by the exercise of due diligence, such party is unable to
prevent or overcome. Such term shall likewise include: (a) those instances where
either Mobile Gas or Customer is required to obtain servitudes, rights-of-way,
grants, permits or licenses to enable such party to fulfill its obligations
under this-Agreement; such party is unable to acquire, at reasonable costs, and
after the exercise of reasonable diligence, such servitudes, rights-of-way,
grants, permits or licenses, and (b) those instances where either Mobile Gas or
Customer's suppliers or transporters or Customer is required to furnish
materials and supplies for the purpose of constructing or maintaining facilities
or is required to secure permits or permissions from any governmental agency to
enable such party to fulfill its obligations under this Agreement and such party
is unable to acquire, or is delayed in acquiring, at reasonable costs, and after
the exercise of reasonable diligence, such materials and supplies, permits and
permissions. Force majeure shall not include failure of gas supply due to
pricing considerations.
6.4 It is understood and agreed that the settlement of strikes or lockouts shall
be entirely within the discretion of the party having the difficulty, and that
the
6
<PAGE> 7
above requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes or lockouts by acceding to
the demands of the opposing party when such course is inadvisable in the
discretion of the party having the difficulty.
ARTICLE VII - LAW GOVERNING
7.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of Alabama.
ARTICLE VIII - ARBITRATION
8.1 Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled exclusively by arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association.
8.2 All arbitration pursuant to this Agreement shall be held at Mobile, Alabama.
8.3 There shall be three arbitrators. One of the arbitrators shall be appointed
by Mobile Gas, the second by Customer, and the third shall be a neutral
arbitrator selected by these two arbitrators. Such neutral arbitrator shall be
chairman of the arbitration panel.
8.4 The arbitration shall be decided by a majority vote of the arbitration
panel. The cost of arbitration, including the fees of the arbitrators, shall be
borne by the losing party, unless the arbitrators decide otherwise.
ARTICLE IX - NOMINATION PROCEDURE
9.1 Customer shall provide to Mobile Gas an hourly and daily confirming
nomination to match the nomination made from Customer's Suppliers and/or
transporters. Customer's confirmation may be made by voice or fax prior to 3
P.M., Mobile Alabama time, the day before a weekday delivery and prior to 3
P.M., Mobile Alabama time, on the Friday before any weekend or Monday delivery.
A copy of Mobile Gas' standard nomination form to be used by Customer is
attached hereto as Exhibit C. If, within one hour of Mobile Gas receiving
Customer and supplier and/or transporter's nomination Customer does not receive
from Mobile Gas notice that Customer's nomination is not confirmed, then the
nomination shall be deemed accepted and confirmed. Mobile Gas shall have
personnel available to receive nominations and issue confirmations.
7
<PAGE> 8
9.2 Mobile Gas and Customer understand that maintaining gas balance between
receipts and deliveries is important to the success of both Customer's and
Mobile Gas' operations hereunder. Both parties agree to use their best efforts
to exchange information necessary to maintain gas balances. Customer agrees to
use all reasonable efforts to balance its deliveries to the Point(s) of Delivery
with its receipts at the Point(s) of Redelivery. If Customer fails to do so,
Mobile Gas may, in addition to its imbalance remedies set forth in 9.3, take
such action as may be necessary to maintain the integrity of its system.
9.3 The parties shall use all reasonable efforts to avoid imposition of
imbalance charges, penalties, or fees by any supplier or transporter. If, during
any month, Customer or Mobile Gas receives an invoice from a supplier or
transporter which includes imbalance charges, the parties shall use their best
efforts to promptly determine the validity as well as the cause of such
imbalance charges. If the parties determine that the imbalance charges were
incurred as a result of Customer's actions or inactions (which shall include,
but shall not be limited to, Customer's failure to accept quantities of gas at
the Point(s) of Redelivery equal to the nominated gas), then Customer shall pay
for such imbalance charges or reimburse Mobile Gas for such imbalance charges
paid by Mobile Gas to the transporter or supplier. If the parties determine that
the imbalance charges were incurred as a result of Mobile Gas's actions or
inactions, then Mobile Gas shall pay for such imbalance charges, or reimburse
Customer for such imbalance charges paid by Customer to the transporter or
supplier.
ARTICLE X - NOTICES
10.1 Whenever any notice, request, demand, statement or payment is required or
permitted to be given under any provision of this Agreement, unless expressly
provided otherwise, such shall be in writing, signed by or on behalf of the
person giving the same, and shall be deemed to have been given and received upon
the actual receipt (including the receipt of a telecopy or facsimile of such
notice) at the address of the parties as follows:
For Billing:
Mobile Gas: Customer:
Mobile Gas Service Corporation Alabama Power Company
P. O. Box 2248 600 N. 18th Street 5S-0104
Mobile, Alabama 36652 Birmingham, Alabama 35291
Attn: Rhonda Ashford
8
<PAGE> 9
For Contract Administration:
Mobile Gas: Customer:
Mobile Gas Services Corporation Southern Company Services, Inc.
P.O. Box 2248 P. O. Box 2641, 14N-8162
Mobile, Alabama 36652 Birmingham, Alabama 35202
Attn: Director, Industrial Services Attn: Vice President, Fuel
Services
with copy to:
Southern Company Services, Inc.
P. O. Box 2641, 14N-8162
Birmingham, Alabama 35202
Attn: Fuels Manager, Alabama
Power
For Operational Matters:
For Mobile Gas: For Customer:
Mobile Gas Services Corporation Southern Company Services, Inc.
P. O. Box 2248 P.O. Box 2641 , 14N-8162
Mobile, Alabama 36652 Birmingham, Alabama 35202
Attn: Gas Control Department Attn: Ken Damsgard
Telephone: (334) 476-2120 Telephone: (205) 257-5887
Telecopy: (334) 476-8292 Telecopy: (205) 257-6803
10.2 The parties may in addition, according to the procedure of 10.1, from time
to time designate and furnish to the other in writing the name(s), address(es),
and fax number(s), of the person or persons responsible for natural gas
nominations.
ARTICLE XI - ENTIRE AGREEMENT
11.1 This instrument embodies the entire Agreement and understanding between the
parties hereto. There are no Agreements, understandings, conditions, warranties,
or representatives, oral or written, express or implied, with reference to the
subject matter hereof that are not merged herein or superseded hereby.
ARTICLE XII - SPECIAL PROVISIONS
The following Special Provisions for TRANSPORTATION are made a part
hereof:
9
<PAGE> 10
12.1 A "day" when used in this Agreement shall mean a twenty-four (24) hour
period ending at 9:00 A.M. Mobile, Alabama Time.
12.2 (a) The accuracy of Mobile Gas' measuring equipment shall be verified at
reasonable intervals and, if required, Customer may have its representative
present. Mobile Gas shall not be required to verify the accuracy of such
metering equipment more frequently than once in any six-(6) month period. Mobile
Gas or Mobile Gas' representatives shall give Customer at least one (1) day
prior notice of any routine tests of the time of all tests of meters.
(b) In the event Customer shall notify Mobile Gas that it desires a
special test of any measuring equipment, the parties shall cooperate to secure a
prompt verification of the accuracy of such equipment. The expense of any
special test, if called for, shall be borne by Customer if the measuring
equipment tested is found to be in error not more than two percent (2%). If,
upon test, Mobile Gas' measuring equipment is found to be in error by not more
then two percent (2%), previous recordings of such equipment shall be considered
accurate in computing deliveries in gas, but such equipment shall be adjusted at
once to record accurately. If, upon test, Mobile Gas' measuring equipment shall
be found to be inaccurate by an amount exceeding two percent (2%) at a recording
corresponding to an average hourly rate of flow for the period since the last
preceding test, then any previous calculations based on recordings of such
equipment shall be corrected to zero error for any period that is known
definitely, but in case the period is not known or agreed upon, such correction
shall be for a period equal to one-half the time elapsed since the date of the
last test.
(c) In the event a Mobile Gas meter is out of service or registering
inaccurately, the volume of gas delivered shall be determined:
(1) By using the registration of check meter or
meters; if installed and agreed accurately
registering; or, in the absence of (1);
(2) By correcting the error if the percentage of
error is ascertainable by calibration, tests, or
mathematical calculation; or, in the absence of
(1) and (2), then;
(3) By estimating the quantity of delivery by
deliveries during periods of similar conditions
when the meter was registering accurately.
(d) Mobile Gas and Customer shall each preserve for a period of at
least two (2) years all test data, charts, and other similar records. Each
party, or their designated representatives, shall at all reasonable times have
the right to audit such records and accounts to verify all such costs, fees, and
charges including without limitation the gas balance, receipt and delivery
records.
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<PAGE> 11
(e) Mobile Gas shall install, own, and operate types of meters and
chromatography in general use and acceptance in the industry to measure gas
redelivered hereunder.
(f) Mobile Gas shall provide a signal or signals, including gas flow,
pressure, and analysis data from its measurement equipment, such that the
Customer may monitor the gas flow.
12.3 (a) Mobile Gas agrees to protect, defend, indemnify, and hold harmless the
Customer, its officers, directors, agents, contractors and/or employees from and
against any claims, demands, losses, damages, suits and expenses, for damages
and/or injury to persons and/or property which may be brought against Customer,
its officers, directors, agents, contractors and/or employees arising out of, or
resulting from, the transportation of natural gas from the Point of Delivery to
the Point of Redelivery pursuant to the terms and conditions expressed herein,
excepting for damages and injuries caused by the sole negligence of Customer.
(b) Customer agrees to protect, defend, indemnify, and hold harmless Mobile Gas,
its officers, directors, agents, contractors, and/or employees from and against
any claims, demands, losses, damages, suits and expenses, for damages and/or
injury to persons and/or property which may be brought against Mobile Gas, its
officers, directors, agents, contractors and/or employees arising out of, or
resulting from, the transportation of natural gas by Customer or its agents or
contractors to the Point of Delivery and from the Point of Redelivery to and
through its Plant and facilities, excepting for damages and injuries caused by
the sole negligence of Mobile Gas.
12.4 (a) Customer warrants for itself, its successors and assigns, that it will
have at the time of delivery of gas for transportation hereunder good title or
valid right to deliver such gas hereunder; that the gas it delivers hereunder
shall be free and clear of all liens, encumbrances, or claims whatsoever; and
that it will indemnify Mobile Gas and save it harmless from all claims, suits,
actions, damages, costs and expenses arising directly or indirectly from or with
respect to the title to gas tendered to Mobile Gas hereunder.
(b) As between Customer and Mobile Gas, Customer shall be in control
and possession of the gas transported hereunder prior to delivery to Mobile Gas
at the Point of Delivery and after delivery by Mobile Gas to Customer at the
Point of Redelivery, and Mobile Gas shall be in control and possession of the
gas after the receipt of the same at the Point of Delivery and until delivery by
Mobile Gas to Customer at the Point of Redelivery. The risk of loss for all gas
transported hereunder shall be and remain with the party having control and
possession of the gas as herein provided.
12.5 The authorized agents of Mobile Gas shall have, at all reasonable times,
the right of access to the Plant premises for the purpose of examining,
maintaining and inspecting its meters. Mobile Gas representatives shall, at all
reasonable times, comply with Plant rules, including security rules and drug and
alcohol policy, updated copies of which will be furnished to Mobile Gas from
time to time. Mobile Gas shall be responsible for selecting and providing for
its employees suitable hard hats, safety glasses, protective hearing devices and
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<PAGE> 12
steel toe footwear as may be required or approved by applicable rules or
regulations.
12
<PAGE> 13
12.6 So long as all amounts due and payable to Mobile Gas at such time have
been paid by customer, Mobile Gas agrees to transport additional volumes of gas
to Customer for a period of up to ten (10) days beyond the termination of this
Agreement in order to bring into balance any imbalance that exists at the
termination of this Agreement.
12.7 This Agreement shall not be assigned or transferred by either party
without prior written consent of the other party, which consent shall not be
unreasonably withheld. Provided, however, that either party may assign this
Agreement to an affiliate with equal or greater creditworthiness which is a
successor owner or operator upon written notice to, but without consent of the
other party. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the respective legal representatives, successors and
assigns of the parties hereto.
12.8 In the event one or more of the provisions contained herein shall for any
reasons be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
12.9 Any changes, modifications or alterations of this Agreement shall not be
effective unless in writing, signed by authorized representatives of the parties
hereto in accord with Section 10.1, and no course of dealing between the parties
shall be construed to alter the terms hereof, except as expressly stated herein.
12.10 Mobile Gas shall at all times, for a period of at least three (3) years
from the month in which transportation service was provided, maintain accurate
books and accounts, in accordance with generally accepted accounting principles,
of its costs, fees and charges of any nature invoiced to Customer hereunder.
Customer or its designated representatives shall at all reasonable times have
the right to audit such books and accounts to verify all such costs, fees, and
charges including without limitation the gas balance, receipt and delivery
records. After three (3) years, all books and accounts are deemed final.
12.11 Customer has designated Southern Company Services, Inc. ("SCS") as its
agent for the purpose of locating, processing and arranging for delivery of gas
to Customer's plants. SCS shall act for Customer in giving and receiving notices
and nominations, negotiating and administering this Agreement, and for any other
purpose as may be authorized by Customer. Customer may designate a new agent
from time to time by giving Mobile Gas written notice in accordance with Article
X, and authorization of SCS to act as agent for Customer thereupon, shall cease
and the new agent shall have such authority.
12.12 Mobile Gas shall promptly pay its subcontractors for services rendered,
labor performed, or materials, equipment, supplies or tools used in the
performance of this contract, and shall promptly notify Customer of any claims
or any lien by or against Mobile Gas or any subcontractor for which, if
established, APC or any of its property might become liable.
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<PAGE> 14
12.13 This Agreement is subject to the rules and orders of the Alabama Public
Service Commission.
12.14 This Agreement is contingent upon approval by the Alabama Public Service
Commission.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its officer thereunto dully authorized as of the date first above
written.
WITNESS: MOBILE GAS SERVICE CORPORATION
/s/ Randall W. Duke By: /s/ W. G. Coffeen, III
Its: Vice President
WITNESS ALABAMA POWER COMPANY
/s/ W. Kenneth Mooney By: /s/ Earl B. parsons, Jr.
Its: Sr. Vice President
14
<PAGE> 15
EXHIBIT A
MOBILE GAS SERVICE CORPORATION
TRANSPORTATION SERVICE CONDITIONS
1. Special Monthly Transportation Rate "A"
<TABLE>
<CAPTION>
MMBtu per month RATE
<S> <C>
If less than *** *** Per MMBtu
If over ***
First *** *** per MMBtu for the first
*** MMBtu transported
during the month
Next *** *** per MMBtu for all MMBtu
above *** MMBtu
transported during the month
Over *** *** per MMBtu for all MMBtu
over *** MMBtu during the
month.
</TABLE>
2. Minimum Billing
The minimum monthly bill for such transportation will be *** of Contract
Demand Volume.
3. Contract Demand Volume
Contract Demand Volume shall be *** MMBtu per day, not to exceed *** MMBtu
per hour from the Commencement Date until August 16, 2000. Beginning August
16, 2000, the Contract Demand Volume shall be *** MMBtu per day, not to
exceed *** MMBtu per hour.
4. Rate Adjustment
The rates and minimum bill shall be adjusted by the annual percentage
(upward or downward) in the "CPI" on the anniversary date and year-to-year
thereafter for as long as this agreement shall remain in full force and
effect.
In no year shall the annual percentage change in the "CPI" be taken to be
more than 3 (three) percent upward or downward.
The term "CPI" means the Consumer Price Index (CPI) for All Urban Consumers
as published by the U. S. Department of Labor, Bureau of Labor Statistics,
or, in the event the CPI is discontinued during the term hereof, such
successor index as may be mutually agreed upon by the parties.
15
<PAGE> 16
EXHIBIT B
POINTS OF DELIVERY
The Points of Delivery under this Agreement are as follows:
Primary Delivery Point:
The Interconnect between the Williams Plant Tailgate and the
pipeline facilities of Mobile Gas Service Corporation in
Mobile County, Alabama, as this point becomes available.
Secondary Delivery Points:
The Interconnect between the Mobil Exploration and
Production Plant Tailgate and the pipeline facilities of
Mobile Gas Service Corporation in Mobile County, Alabama
The Interconnect between the Shell (Yellowhammer) Plant
Tailgate and the pipeline facilities of Mobile Gas Service
Corporation in Mobile County, Alabama
The Interconnect between the Koch Gateway Pipeline Company
pipeline and the pipeline facilities of Mobile Gas Services
Corporation in Mobile County, Alabama (SLN 17158)
Additional Secondary Points of Delivery may be added upon the parties'
mutual agreement in writing.
The parties acknowledge that Mobile Gas may use facilities of third
parties for transportation of Customer's gas at no additional costs to Customer.
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<PAGE> 17
EXHIBIT C
Nomination To: Mobile Gas Service Corporation
Nomination From:
<TABLE>
<CAPTION>
Daily
Nom Start End Volume Delivery Delivery Upstream
Type Date Date (MMBtu) Point Type Supplier Contract
- ----- ------ ------- ------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Daily 1-1-99 1-31-99 *** *** Firm *** XXX
- ----- ------ ------- ------- -------- ------------- -------- --------
Daily 1-1-99 1-31-99 *** *** Interruptible XXX XXX
- ----- ------ ------- ------- -------- ------------- -------- --------
</TABLE>
17
<PAGE> 18
Exhibit D
COMPLIANCE WITH LAWS
Customer is a government contractor under an Area-Wide Utilities Service
Contract with the General Services Administration of the United States
Government. Mobile Gas agrees that the provisions contained in the Federal
Acquisition Regulation referred to below shall, as if set forth herein in full
text, be incorporated into and form a part of this Contract and Mobile Gas shall
comply therewith, if the amount of such Contract and the circumstances
surrounding its performance meet the criteria set out in each of the provisions
referred to below, for incorporation of the provision(s) into contracts between
Customer and others:
(1) 52.203-6 Restrictions on Subcontractor Sales to the
Government
(2) 52.203-7 Anti-Kickback Procedures
(3) 52.222-26 Equal Opportunity
(4) 52.223-2 Clean Air and Water
(5) 52.223-14 Toxic Chemical Release Reporting.
Upon request, Customer will provide the full text of any of the above provisions
or clauses incorporated herein by reference.
Mobile Gas hereby warrants that Mobile Gas is not debarred, suspended or
proposed for debarment as a contractor or subcontractor to any department,
agency or other division of the U.S. Government.
18
<PAGE> 1
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(b)
FIRM AND INTERRUPTIBLE STORAGE SERVICE AGREEMENT
BY AND BETWEEN
BAY GAS STORAGE COMPANY, LTD.
AND
SOUTHERN COMPANY SERVICES, INC.,
as agent of Alabama Power Company, Georgia Power Company, Gulf Power Company,
Mississippi Power Company and Savannah Electric and Power Company
CONTRACT NUMBER FSMC99
DATED [AS OF]
April 1, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
I. Gas to be Received, Stored and Delivered 2
II. Performance Obligation 3
III. Delivery Pressure 4
IV. Point(s) of Receipt and Delivery 4
V. Title and Risk of Loss 5
VI. Term 5
VII. Default and Termination 6
VIII. Rates 6
IX. Taxes 7
X. Notices 8
XI. Nominations 9
XII. General Terms and Conditions;
Statement of Conditions for Gas Storage;
Operational Procedures 10
XIII. Miscellaneous 10
<PAGE> 3
FIRM AND INTERRUPTIBLE STORAGE SERVICE AGREEMENT
THIS FIRM AND INTERRUPTIBLE STORAGE SERVICE AGREEMENT (this "Contract")
is made and entered into as of the 1st day of April, 1999, by and between BAY
GAS STORAGE COMPANY, LTD., an Alabama limited partnership ("Bay Gas") which is
the owner and operator of the Storage Facilities defined below, and SOUTHERN
COMPANY SERVICES, INC., as agent of Alabama Power Company, Georgia Power
Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and
Power Company ("Shipper")(collectively referred to herein as Parties and
individually as Party).
W I T N E S S E T H:
WHEREAS, Bay Gas is the operator of certain underground gas storage
facilities located near McIntosh, Alabama (the "Storage Facilities"); and
WHEREAS, Shipper desires to contract for a portion of the storage
capacity of the Storage Facilities, and desires that Bay Gas receive at the
Point(s) of Receipt herein specified on Exhibit "A" attached hereto, certain
quantities of gas from the pipeline facilities identified therein for the
purpose of injecting and storing such gas for Shipper (or for its account) in
such Storage Facilities, and that Bay Gas deliver such gas into the pipeline
facilities identified on Exhibit "A" attached hereto at the Point(s) of Delivery
therein specified; and
WHEREAS, Bay Gas desires to perform such services for Shipper, all to
be provided pursuant and subject to the terms and conditions hereof.
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bay Gas and Shipper hereby agree
as follows:
ARTICLE I
GAS TO BE RECEIVED, STORED AND DELIVERED
1.1 Contract Quantities. Subject to the terms and conditions
established herein and in Bay Gas Storage Company's Statement of Conditions
(notwithstanding the provisions of Paragraphs A.1 and A.2 of the Statement of
Conditions), Bay Gas shall provide the following capacities to Shipper, provided
that under no circumstances will Bay Gas be obligated to provide to Shipper
capacities in excess of the maximum quantities set forth below:
(a) Firm Withdrawal - a Firm Maximum Daily Withdrawal Quantity ("FMDWQ")
of *** MMBtu per day;
(b) Firm Storage - a Firm Maximum Storage Quantity ("FMSQ") in the Storage
Facilities equal to *** MMBtu.
2
<PAGE> 4
(c) (1) Firm Injection - a Firm Maximum Daily Injection Quantity ("FMDIQ")
of *** MMBtu per day and;
(2) Interruptible Injection - an Interruptible Maximum Daily Injection
Quantity ("IMDIQ") of *** MMBtu per day.
The FMDIQ and the IMDIQ will be known collectively as "Injection
Quantities".
1.2 Gas Tendered. Shipper shall tender or cause to be tendered to Bay
Gas at the Point(s) of Receipt herein specified on Exhibit "A" attached hereto
any gas which Shipper desires to have injected into storage hereunder. The
obligation of Bay Gas to receive gas shall not exceed: at any Point of Receipt
the lesser of the Injection Quantities for such Point of Receipt or the total
daily volume that Shipper or its designee is able and willing to tender at such
Point of Receipt; or the aggregate Injection Quantities for all Points of
Receipt. Shipper shall also receive or cause to be received gas requested to be
withdrawn from storage at the Point(s) of Delivery herein specified on Exhibit
"A" attached hereto upon tender for delivery by Bay Gas.
1.3 Gas Received and Delivered. Subject to the operating conditions of
the pipeline(s) delivering or receiving gas for Shipper's account, Bay Gas shall
receive gas for injection from Shipper at the Point(s) of Receipt and deliver
gas to Shipper at the Point(s) of Delivery herein specified on Exhibit "A"
attached hereto as scheduled by Shipper from time to time; provided that Bay Gas
shall not be obligated to receive for injection any quantity of gas if the
injection of the same would cause the quantity of gas stored in the Storage
Facilities for Shipper's account ("Shipper's Gas Storage Inventory") to exceed
the total of Shipper's FMSQ as stated above; nor shall Bay Gas be obligated at
any time to deliver more gas to Shipper than Shipper has in its then-current
Shipper's Gas Storage Inventory.
1.4 Gas to be Withdrawn on Termination. Shipper must have all of its
gas withdrawn by the end of the term of this Contract. If at any time service
pursuant to this Contract is canceled or terminated prior to the end of the term
specified herein, Shipper shall be required to withdraw its gas within a sixty
(60) day balancing period after the determination by Bay Gas that any
unwithdrawn volumes exist, the maximum number of days allowed for withdrawal to
be determined by dividing: (i) the volume of gas Shipper is required to
withdraw, by (ii) fifty percent (50%) of Shipper's FMDWQ. If Bay Gas is unable
to withdraw any volume requested by Shipper, up to fifty percent (50%) of
Shipper's FMDWQ, the period shall be extended accordingly. If the gas is not
withdrawn within the specified time period, Bay Gas shall take title to such gas
not withdrawn.
ARTICLE II
PERFORMANCE OBLIGATION
3
<PAGE> 5
2.1 Firm and Interruptible Service. All Firm service rendered under
this Contract shall be provided to Shipper except in the case of force majeure
as described in Section XIV in the General Terms and Conditions. All
Interruptible service rendered under this contract shall be fully interruptible.
Bay Gas shall not be obligated to provide capacities in excess of those stated
in Section I of this Contract.
2.2 Curtailed Capacity. During periods of curtailed capacity Bay Gas
shall, pursuant to Statement of Conditions Section "III.C", provide available
capacity pro rata based on Shipper's Maximum Daily Injection/Withdrawal Quantity
as applicable. Shipper's pro rata share shall be determined by comparing
Shipper's Maximum Daily Injection/Withdrawal Quantity to the lesser of 100% of
Bay Gas' daily capacities, or the total amount of daily capacity contracted to
firm customers of Bay Gas.
ARTICLE III
DELIVERY PRESSURE
Delivery Pressure. Shipper is obligated to deliver gas at the Point(s)
of Receipt identified in Exhibit "A" at a pressure sufficient for Bay Gas to
transport such gas to its storage facility recognizing that the amount of such
pressure required may vary based on the operations of the Bay Gas pipeline;
provided however, Shipper is not required to deliver gas at the Point(s) of
Receipt at pressure(s) greater than stated in Exhibit "A".
ARTICLE IV
POINT(S) OF RECEIPT AND DELIVERY
4.1 Point(s) of Receipt. The Point(s) of Receipt for all gas to be
tendered by Shipper to Bay Gas for injection into the Storage Facilities shall
be as specified on Exhibit "A" attached hereto, and the maximum daily quantity
of gas which Bay Gas is obligated to receive from Shipper at each individual
Point of Receipt shall not exceed the maximum stated thereon.
4.2 Point(s) of Delivery. The Point(s) of Delivery for all gas to be
tendered by Bay Gas to Shipper for delivery pursuant to the terms hereof shall
be as specified on Exhibit "A" attached hereto, and the maximum quantities of
gas which Bay Gas is obligated to deliver to Shipper at each such Point of
Delivery shall not exceed the maximum stated thereon.
4.3 Addition / Deletion of Point(s) of Receipt or Delivery. Bay Gas and
Shipper may add or delete Point(s) of Receipt or Delivery from time to time by
mutual agreement evidenced by a signed amendment to Exhibit "A".
4
<PAGE> 6
ARTICLE V
TITLE AND RISK OF LOSS
5.1 Title. Title to the natural gas stored by Bay Gas and delivered to
Shipper hereunder shall, at all times, be in Shipper's name. Bay Gas makes no
warranty of title whatsoever. Shipper warrants for itself, its successors and
assigns, that it will have at the time of delivery of gas for storage hereunder
good title or valid right to deliver such gas stored hereunder. Shipper warrants
for itself, its successors and assigns, that the gas it delivers hereunder shall
be free and clear of all liens, encumbrances, or claims whatsoever; and that it
will indemnify Bay Gas and save it harmless from all claims, suits, actions,
damages, costs and expenses arising directly or indirectly from or with respect
to the title to gas tendered to Bay Gas hereunder.
5.2 No Encumbrance on Stored Gas. Bay Gas covenants that it shall
neither cause nor allow any cloud or encumbrance of any nature to arise by,
through or under Bay Gas with respect to Shipper's title to any gas tendered to
Bay Gas for storage, and agrees to deliver such gas pursuant to this Agreement
free from all liens and adverse claims arising by, through or under Bay Gas, and
that it will indemnify, protect, and save Shipper harmless from all claims,
suits, actions, damages, costs and expenses arising directly or indirectly from
the same.
5.3 Control and Possession. As between Shipper and Bay Gas: Shipper
shall be in control and possession of the gas prior to delivery to Bay Gas for
injection at the Point(s) of Receipt and after delivery by Bay Gas to Shipper at
the Point(s) of Delivery, and, shall indemnify and hold Bay Gas harmless from
any damage or injury caused thereby except for damages and injuries caused by
the sole negligence of Bay Gas; and, Bay Gas shall be in control and possession
of the gas after the receipt of the same for injection at the Point(s) of
Receipt and until delivery by Bay Gas to Shipper at the Point(s) of Delivery,
and, shall indemnify and hold Shipper harmless from any damage or injury caused
thereby, except for damages and injuries caused by the sole negligence of
Shipper. The risk of loss for all gas injected into, stored in and withdrawn
from the Storage Facilities shall be and remain with the Party having control
and possession of the gas as herein provided.
ARTICLE VI
TERM
6.1 Primary Term; Renewal Term. This Contract shall be effective as of
April 1, 1999 and shall continue in full force and effect through *** ("Primary
Term"). At the end of the Primary Term the Parties have the option to extend the
Contract for an additional *** period pursuant to Section 8.2. This additional
*** period from *** through *** shall be defined as the "Renewal Term".
6.2 Cancellation. Notwithstanding any other provision of this Contract
or any Exhibits hereto, the Parties agree that if an event of Force Majeure
5
<PAGE> 7
occurs which causes Bay Gas to be unable to provide storage services for a
period of forty-five (45) consecutive days, Shipper may terminate this Contract
upon written notice to Bay Gas.
ARTICLE VII
DEFAULT AND TERMINATION
7.1 If either Party hereto shall fail to perform any of the covenants
or obligations imposed upon it by virtue of this Contract (except where such
failure shall be excused under any of the provisions hereof), then in such event
the other Party may, at its option, terminate this Contract by proceeding as
follows: the Party not in default shall cause a written notice to be served upon
the Party in default, stating specifically the cause for terminating this
Contract and declaring it to be the intention of the Party giving the notice to
terminate the same; whereupon, the in default shall have thirty (30) days after
receipt of the aforesaid notice which to remedy or remove the cause or causes of
default stated in the notice of termination and if, within said period of thirty
(30) days, the Party in default does so remedy and remove such cause or causes,
and fully indemnifies the Party not in breach, then such notice shall be
nullified and this Contract shall continue in full force and effect. In the
event the Party in default does not so remedy and remove the cause or causes of
default, or does not fully indemnify the Party giving the notice for such
Party's actual damages as a result of such breach within said period of thirty
(30) days, then this Contract shall become null and void from and after the
expiration of said period; provided, however, that if such default be remedied
but no indemnification therefor has been made due to a bona fide dispute between
the Parties as to the amount thereof, then this Contract shall not terminate,
but the Party not in default shall have the right to seek recovery of its actual
damages as provided by law. Notwithstanding any provision to the contrary in the
Statement of Conditions or the General Terms and Conditions, any termination for
breach of this Contract shall be carried out strictly in accordance with this
section.
7.2 Any cancellation of this Contract pursuant to the provisions of
this Article VII shall be without prejudice to the right of the Party not in
default to collect any amounts then due it and without waiver of any other
remedy to which the Party not in default may be entitled.
ARTICLE VIII
RATES
8.1 Storage Charges. In accordance with the billing procedures
described in Section X of the General Terms and Conditions, Shipper shall pay to
Bay Gas during the Primary Term of the Contract the following charges which
include all existing taxes:
(a) Firm Services Monthly Demand Charge - *** per MMBtu of Shipper's
FMSQ for each month of the Primary Term of the Contract; plus
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<PAGE> 8
(b) Injection and Withdrawal Charges - *** for each MMBtu of gas
received by Bay Gas for injection into storage hereunder
("Injection Charge") and *** for each MMBtu of gas delivered by
Bay Gas to Shipper hereunder ("Withdrawal Charge") during the
Primary Term of the Contract. Bay Gas reserves the right to
exchange gas in lieu of physically injecting or withdrawing
nominated gas volumes, and gas so exchanged shall be accounted
and charged for as having been injected or withdrawn as
nominated.
(c) Fuel Charge - A Fuel Charge shall be paid by permitting Bay Gas
to retain *** of all volumes of gas tendered by Shipper for
injection at the Storage Facility during the Primary Term of the
Contract. Upon measurement of volumes tendered by Shipper for a
given day, *** of the total amount measured shall be applied to
satisfy Shipper's fuel cost obligation hereunder, and the
remaining *** shall be applied to computing compliance with the
applicable FMDIQ and FMSQ, and computing the amount of Shipper's
Gas Storage Inventory.
8.2 Renewal Term Rate. During the final year of the Primary Term of the
Contract the Parties shall agree on a rate for the Renewal Term of the Contract.
In the event the Parties can not agree on a rate for the Renewal Term the
Contract shall be terminated at the end of the Primary Term.
8.3 Suspension of Payments. In the event that Bay Gas is, due to an
event of force majeure as defined in the General Terms and Conditions, unable to
provide storage services, or a portion thereof, under this Contract for a
consecutive twenty (20) day period, then the obligation of Shipper to make
payment hereunder for such unavailable services, or a portion thereof, shall
thereafter be suspended until such service is again made available hereunder. In
the event that Bay Gas is, due to an event of force majeure or curtailment,
unable to provide storage services, or a portion thereof, under this Contract
for a consecutive twenty (20) day period within any calendar year, then any
subsequent curtailment or excused failure, during such calendar year, to provide
storage services hereunder shall result in a pro-rata reduction in the monthly
charges to be paid by Shipper for that month.
8.4 Rate Changes. The rates herein stated shall be effective for the
term of the Contract and shall not be changed in rate cases before the FERC or
other governing body, or by any other method.
ARTICLE IX
TAXES
9.1 Shipper agrees to pay to Bay Gas, by way of reimbursement, within
ten (10) days of receipt of an invoice for same, all taxes levied or imposed
upon Bay Gas after the date hereof; and any increases in existing taxes which
may be made effective after the date hereof, with respect to the storage of gas
hereunder. Bay Gas agrees to pass through to Shipper in its monthly billings any
savings resulting from decreases in existing taxes which may be made effective
after the date hereof, with respect to the storage of gas hereunder. In the
event that any
7
<PAGE> 9
additional taxes or increases in taxes are imposed and, should Bay Gas elect not
to challenge the same, then Shipper shall be subrogated to Bay Gas' rights to
challenge the same. In no event shall Shipper be required to pay any tax in a
greater amount than its pro-rata share.
9.2 The term "taxes" as used in Section 9.1 shall mean all taxes which
are now in existence or which may in the future be levied upon Bay Gas, or its
facilities or the storage of gas hereunder (other than ad valorem, capital
stock, income or excess profit taxes, or general franchise taxes imposed on
corporations on account of their corporate existence or on their right to do
business within the state as a foreign corporation and similar taxes),
including, but not limited to, gross receipts tax, street and alley rental tax,
licenses, fees and any other taxes, charges or fees of any kind levied, assessed
or made by any governmental authority on the act, right or privilege of
transporting, handling or delivering gas or using Bay Gas' Storage Facilities,
which is measured by the volume, heating value, value of the gas, or any fee in
respect to the gas or the storage, transportation or other handling thereof.
ARTICLE X
NOTICES
10.1 Whenever any notice, request, demand, statement, nominations or
payment is required or permitted to be given under any provision of this
Contract, unless expressly provided otherwise, such shall be in writing, signed
by or on behalf of the person giving the same, and shall be deemed to have been
given and received upon the actual receipt (including the receipt of a telecopy
or facsimile of such notice) at the address of the Parties as follows:
Notices and Contract Matters:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-1745
Shipper (notify both contacts
listed below):
Alabama Power Company Southern Company Services, Inc.
600 North 18th Street 14N-8162
Birmingham, AL 35291 600 North 18th Street
Attn: Senior Vice President - Southern Birmingham, AL 35203
Company Generation Attn: Vice President , Fuel Services
Invoices:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-1745
8
<PAGE> 10
Shipper: Contact
Alabama Power Company Attn: Manager, Fuel Services
600 North 18th Street
Birmingham, AL. 35291-0480
Delivery Notifications, Nominations:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-8292
Nights/Weekends: (334) 476-2120
Fax (334) 450-4758
Shipper: Contact:
Southern Company Services, Inc. Ken Damsgard: (205) 257-5887
600 North 18th Street Pager: (888) 391-7477
Birmingham, AL 35291 Vicki Gaston: (205)257-7194
Attn: Fuel Scheduling Shannon Neese: (205) 257-5803
Generation Desk: (205) 257-6301
10.2 Operating communications made by telephone or other mutually
agreeable means shall be confirmed in writing or by telecopy within two (2)
hours following same if confirmation is requested by either Party. To facilitate
such operating communications on a daily basis, lists of names, telephone and
telecopy numbers of appropriate operating personnel shall be exchanged by and
between Bay Gas and Shipper before commencement of service under this Contract.
Such lists shall be updated from time to time.
10.3 The addresses of the Parties may be revised upon written notice
given in accordance herewith, designating in such writing the new address of the
Party so affected.
ARTICLE XI
NOMINATIONS
11.1 Bay Gas shall use its best efforts to accept both verbal and
electronic changes in nominations twenty-four (24) hours per day in order to
accommodate Shipper's requests for such changes. Such changes shall be made as
soon as Bay Gas can practicably make such changes. Shipper shall confirm such
changes in writing or by telecopy within two (2) hours of requesting such
changes.
11.2 Bay Gas will maintain personnel and equipment available to receive
and act upon nomination changes and confirmations twenty-four (24) hours per
day.
9
<PAGE> 11
11.3 Written nominations and confirmations of verbal nominations will
be made on the nomination form attached hereto as Exhibit "D".
11.4 In the event that Bay Gas fails to obtain confirmation from
Shipper's transportation service of Shipper's nomination, Bay Gas shall notify
Shipper of such failure as soon as practicable.
ARTICLE XII
GENERAL TERMS AND CONDITIONS;
STATEMENT OF CONDITIONS FOR GAS STORAGE
The following are hereby incorporated herein and made a part of this
Contract as if fully set forth herein: (a) the General Terms and Conditions
attached hereto as Exhibit "B"; and the Statement of Conditions for NGPA Section
311(a)(2) Gas Storage Services attached hereto as Exhibit "C" (the "Statement of
Conditions"). Notwithstanding any provision to the contrary in Exhibit "B" or
"C", any conflict or inconsistency, either in construction or interpretation,
between the terms hereof and of such exhibits shall be resolved first in favor
of the terms hereof, and next in favor of the Statement of Conditions.
ARTICLE XIII
MISCELLANEOUS
13.1 Amendment. Neither this Contract nor any provisions hereof may
ever be amended, changed, modified or supplemented except by an agreement in
writing, duly executed by the Party to be charged with the same.
13.2 Assignment. Either Party may assign its rights, titles or
interests hereunder to any individual, bank, trustee, company or corporation
("Lender") as security for any note, notes, bonds or other obligations or
securities of such assignor. In the event of such an assignment by Bay Gas,
Shipper shall provide such financial information to the Lender, which is the
assignee of Bay Gas as may be reasonably requested by Bay Gas. Except as
specified in the first sentence of this Section 13.2, no assignment shall be
made without the written consent of the other Party hereto, which consent shall
not be unreasonably withheld; provided, however, that either Party may assign
this Agreement to a subsidiary with reasonably sufficient creditworthiness, as
the Parties shall agree, which is a successor owner or operator or agent upon
written notice to, but without the prior consent of, the other Party. Subject to
the foregoing, this Contract shall be binding upon and inure to the benefit of
the respective successors and assigns. No assignment provided for hereunder
shall in any way operate to enlarge, alter or change any obligation of the other
Party hereto nor shall the assignee be relieved of its obligations hereunder
without the express written consent of the non-assigning Party.
13.3 Invalid Provision. In the event one or more of the provisions
contained herein shall be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
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<PAGE> 12
other provision hereof and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein, provided
that the deletion of such invalid, illegal or unenforceable provision does not
materially change the intended nature and risk of the services provided
hereunder.
13.4 General Services Administration Regulation. Bay Gas agrees to
comply with the provisions attached hereto as Exhibit "E" and made a part
hereof.
IN WITNESS WHEREOF, the Parties have executed this Contract in one or
more copies or counterparts, each of which shall constitute and be an original
of this Contract effective between the Parties as of the date first-above
written.
COMPANY:
ATTEST: BAY GAS STORAGE COMPANY, LTD.
By MGS Storage Services, Inc., its managing
general partner
/s/ G. Edgar Downing, Jr. By: /s/ W. G. Coffeen, III
Its: Vice President
SHIPPER:
ATTEST: SOUTHERN COMPANY SERVICES, INC., as agent
of Alabama Power Company, Georgia Power
Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and
Power Company
/s/ Tommy Chisholm
By: /s/ Charles D. McCrary
Its: Executive Vice President
11
<PAGE> 13
EXHIBIT "A"
TO STORAGE AGREEMENT ("CONTRACT") BETWEEN
BAY GAS STORAGE COMPANY, LTD. AND ALABAMA POWER COMPANY
<TABLE>
<CAPTION>
MINIMUM
POINT(S) OF RECEIPT INJECTION QUANTITY PRESSURE
(MMBtus) (PSIG)
<S> <C> <C>
Interconnection between the Storage
Facilities and the pipeline facilities of
FGT in Mobile County, Alabama *** 625
(Interconnect ID: BG-1002)
Interconnection between the Storage
Facilities and the pipeline facilities of
KOCH GATEWAY in Mobile County, Alabama *** 575
(Interconnect ID: BG-1003)
</TABLE>
Gas may be scheduled for delivery at either or all of the Points of Receipt, in
quantities up to the maximum quantities indicated for each such Point, but the
cumulative total of deliveries at all Points of Receipt shall not exceed the
maximum quantity indicated for any single Point, unless otherwise agreed by
Company.
<TABLE>
<CAPTION>
FMDWQ
(MMBtus)
<S> <C>
POINT(S) OF DELIVERY
Interconnection between the Storage Facilities and
the pipeline facilities of FGT in Mobile County, Alabama ***
(Interconnect ID: BG-1002)
Interconnection between the Storage Facilities and
the pipeline facilities of KOCH GATEWAY in
Mobile County, Alabama ***
(Interconnect ID: BG-1003)
Interconnection between the Storage
Facilities and the facilities of FGT at
Olin in Washington County, Alabama ***
(Interconnect ID: BG-1005)
The weld connection between the Storage Facilities and Alabama Power Company's
pipeline downstream of the Bay Gas metering facility at Plant Barry in
Mobile County, Alabama (Interconnect ID: BG-1006) ***
</TABLE>
Gas may be scheduled for delivery at either or all of the Points of Delivery, in
quantities up to the maximum quantities indicated for each such Point, but the
cumulative total of deliveries at all Points of Delivery shall not exceed the
maximum quantity indicated for any single Point, unless otherwise agreed by
Company.
<PAGE> 14
EXHIBIT "B"
GENERAL TERMS AND CONDITIONS
TO
BAY GAS STORAGE COMPANY, LTD.'S
STORAGE AND TRANSPORTATION SERVICE AGREEMENTS
CONTENTS
SECTION DESCRIPTION PAGE
I. Definitions 1
II. Nominations, Balancing And 2
Excess Deliveries
III. Construction of Facilities 6
IV. Rate Adjustment 6
V. Regulatory Requirements 7
VI. Pressures 7
VII. Measurement 8
VIII. Measuring Equipment and Testing 9
IX. Quality 10
X. Billing, Accounting, Taxes and Reports 10
XI. Possession and Non-Odorization of Gas 12
XII. Warranty 13
XIII. Government Regulations 13
XIV. Force Majeure 13
XV. Notices 14
XVI. Creditworthiness 15
XVII. Miscellaneous 15
<PAGE> 15
SECTION I.
Definitions
A. The term, "gas", as used herein, shall mean natural gas as produced in its
natural state that meets the quality standards contained in these General
Terms and Conditions.
B. The term, "new taxes", as used herein, shall mean any tax, license, fee or
charge hereafter levied, assessed or made by any governmental authority on
the gas itself or on the act, right or privilege of producing, severing,
gathering, storing, transporting, handling, selling or delivering gas which
is measured by the volume, value, or sales price of the gas.
C. The term, "cubic foot of gas", as used herein, for the purpose of
measurement of the gas delivered hereunder is the amount of gas necessary
to fill a cubic foot of space when the gas is at an absolute pressure of
fourteen and seventy-three hundredths (14.73) pounds per square inch and at
a base temperature of sixty (60) degrees Fahrenheit.
D. The term, "BTU", as used herein, shall mean British Thermal Unit and, where
appropriate, the plural thereof, and the term, "MMBtu", shall mean one
million (1,000,000) BTU.
E. The term, "MCF", as used herein, shall mean one thousand (1,000) cubic feet
of gas.
F. The term, "day", as used herein, shall mean a period of twenty-four (24)
consecutive hours beginning and ending at 9:00 a.m., Central Clock Time.
G. The term, "thermally equivalent", as used herein, shall mean an equal
amount of heating value, expressed in BTU and measured under the
specifications and conditions contained hereunder.
H. The term, "month", as used herein, shall mean a period beginning on, and
including, the first (1st) day of the calendar month and extending to but
not including the first (1st) day of the following calendar month.
I. The term, "Storage Service Agreement", as used herein, shall mean an
agreement for the provision by Bay Gas of firm or interruptible storage
services; and the term, "Transportation Service Agreement", as used herein,
shall mean an agreement for the provision by Bay Gas of firm or
interruptible transportation services.
J. The term, "Maximum Daily Injection Quantity", as used herein, shall mean
the maximum volume of gas that Bay Gas will accept for injection into
storage for Shipper in any one day, as provided for in the Storage Service
Agreement.
K. The term, "Maximum Daily Withdrawal Quantity", as used herein, shall mean
the maximum volume of gas that Bay Gas will deliver from storage
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<PAGE> 16
for Shipper in any one day, as provided for in the Storage Service
Agreement.
L. The term, "Maximum Storage Quantity", as used herein, shall mean the
maximum volume of gas that Bay Gas will store for Shipper at any one time,
as provided for in the Storage Service Agreement.
M. The term, "Maximum Daily Transportation Quantity", as used herein, shall
mean the maximum volume of gas that Bay Gas will take delivery of, and
transport for redelivery, in any one day, as provided for in the
Transportation Service Agreement.
N. The term, "processed gas", as used herein, shall mean natural gas from
which gas liquids have been extracted.
O. The term "Unit Rate", as used herein, shall be defined for interruptible
storage service Shippers as follows:
(i.) The Monthly Demand Charge ("MDC") times the Interruptible Maximum
Storage Quantity ("IMSQ") times (ii.),
(ii.) the lesser of 12 or the number of months specified as the
Primary Term ("PT") of the Agreement. The product of (i.) and
(ii.) then added to (iii.).
(iii.) All other storage revenues excluding Fuel Charges assessed for
interruptible services for the last 12 billed months ("Rev."),
(iv.) the result of (iii.) divided by the IMSQ.
(i.e. Unit Rate = {[ MDC x IMSQ x (12 or PT if < 12)] + Rev.} / IMSQ)
P. The term, "work day" or "working day", as used herein, shall mean the days
Monday through Friday, inclusive, but excluding any federal holidays.
SECTION II.
Nominations, Balancing And Excess Deliveries
A. Nominations. Shipper shall furnish to Bay Gas a nomination on a form
acceptable to Bay Gas. All quantities shall be expressed in MMBtu per Day
and shall separately state Points of Receipt, Points of Delivery or Points
of Redelivery.
1. Shipper must deliver the nominations to Bay Gas by 11:30 A.M. Central
2
<PAGE> 17
ClockTime the working day prior to gas flow. Shipper may submit
nominations after such deadline up to 1:00 P.M. Central Clock Time for
the upcoming gas day. However, if acceptance of Shipper's nomination
submitted between 11:30 and 1:00 P.M. Central Clock Time would exceed
Shipper's Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity or Maximum Storage Quantity or Maximum Daily Transportation
Quantity, or would cause interruption of another shipper's scheduled
service, then such nomination will be accepted or rejected by Bay Gas
at Bay Gas' sole discretion.
2. Shipper may submit, and Bay Gas will accept, nominations after 1:00
P.M. for the upcoming gas day or during the current gas day on a best
efforts basis. If acceptance of Shipper's nomination for service would
exceed Shipper's Maximum Daily Injection Quantity or Maximum Daily
Withdrawal Quantity or Maximum Storage Quantity or Maximum Daily
Transportation Quantity, or would cause interruption of another
shipper's scheduled service, then such nomination will be accepted or
rejected at Bay Gas' sole discretion.
3. Nominations made in accordance with this Section II A shall not become
effective until Bay Gas has confirmed the nominated storage receipts
(injections) and deliveries (withdrawals), or transportation
deliveries and redeliveries, with upstream and downstream parties.
Shipper shall designate the appropriate person(s) with authority to
confirm nominations and to resolve allocation issues on a
24-hour-basis.
4. The parties intend that the volumes of gas received or delivered or
redelivered will be equal to the confirmed nominations. To the extent
that gas quantities actually received or delivered or redelivered may
be greater than or less than the confirmed nominations, the parties
intend that such variance will be treated in accordance with an
Accounting Allocation Agreement entered into between the parties.
5. Bay Gas shall not be obligated, during any hour, to receive or to
deliver or to redeliver a total volume of gas in excess of one
twenty-fourth (1/24th) of the lesser of (a) Shipper's aggregate
Maximum Daily Injection Quantity or Maximum Daily Withdrawal Quantity,
or Maximum Daily Transportation Quantity or (b) Shipper's accepted
nomination volumes. The parties intend that from time to time Shipper
and Bay Gas may mutually agree to a flow rate above or below a uniform
hourly rate.
B. Balancing. Bay Gas will accept for storage injection or deliver for
withdrawal, or for transportation delivery and redelivery, on a daily
basis, volumes thermally equivalent to volumes nominated and scheduled,
less appropriate compressor fuel and lost-and-unaccounted-for gas
(collectively called "Company Use") charges, unless otherwise mutually
agreed to in writing. All imbalances between actual and nominated
3
<PAGE> 18
injection volumes or withdrawal volumes, or between delivery volumes and
redelivery volumes, shall be treated as imbalance under, and received in
accordance with, the Storage or Transportation Service Agreement(s) under
which the gas in question is delivered to or from the storage or
transportation facilities. Gas delivered to Bay Gas for withdrawal or
redelivery hereunder on each day shall be at constant uniform rates as
practicable throughout such day.
1. If Shipper is advised by any upstream third party of the need to
reduce or suspend deliveries of gas scheduled for delivery to or from
storage, or for transportation delivery and redelivery, Shipper shall
immediately notify Bay Gas orally, and shall confirm such notification
in writing, of such reduction or suspension.
2. Nothing in this Section II B shall limit Bay Gas' right to take action
as may be required to adjust injections or withdrawals of gas,
including suspending storage services or to adjust deliveries and
redeliveries, including suspending transportation services, in order
to alleviate conditions that threaten the integrity of its system.
3. In the absence of an executed Accounting Allocation Agreement between
Shipper and Bay Gas as described in Section II A. 4, balancing
procedures shall be as specified in this Section II B. If an
Accounting Allocation Agreement is in effect between Shipper and Bay
Gas, such Agreement shall take precedence over the provisions
specified in this Section II B.
4. If there is more than one supply source (whether at a single or at
multiple Points of Receipt or Delivery) nominated to be received for
Storage or Transportation, the nomination will identify how and which
supply source(s) should be allocated by means of a Receipt
Pre-Determined Allocation ("RPDA") specified in the nomination. In
accounting for the volumes delivered or redelivered by Bay Gas, in
circumstances where multiple services are provided at any Point of
Delivery or Redelivery, the sequence of volumes delivered shall be
determined by the Delivery Pre-Determined Allocation ("DPDA")
specified by Shipper in its most recent nomination. The nomination
will identify which supply source(s) should be allocated in the event
gas is not or cannot be delivered or redelivered as nominated.
5. To the extent feasible, all volumes received by or delivered to Bay
Gas at a Point of Receipt or Delivery shall be allocated in accordance
with the confirmed nominations for that point. In the event the actual
volumes received by Bay Gas do not equal the confirmed nominations for
that point, any underage or overage will be allocated as follows:
(a) First, in accordance with the effective RPDAs submitted by
Shipper (or Shipper's suppliers). Shipper agrees that such
an allocation is binding on Shipper.
4
<PAGE> 19
(b) Then, if there is no effective RPDA, pro rata to the extent
applicable based on confirmed nominations, as applicable.
Shipper agrees that such an allocation is binding on
Shipper.
6. To the extent feasible, all volumes delivered or redelivered by Bay
Gas at a Point of Delivery or Redelivery shall be allocated in
accordance with the confirmed nominations for that point. In the event
the actual volumes delivered by Bay Gas do not equal the confirmed
nominations for that point, any underage or overage will be allocated
as follows:
(a) First, in accordance with the effective DPDAs submitted by
Shipper (or Shipper's suppliers). Shipper agrees that such
an allocation is binding on Shipper.
(b) Then, if there is no effective DPDA, pro rata to the extent
applicable based on confirmed nominations, as applicable.
Shipper agrees that such an allocation is binding on
Shipper.
7. Each Shipper shall be responsible for ensuring that its suppliers
submit Pre-Determined Allocations ("PDAs", which include RPDAs or
DPDAs) as provided herein using a form acceptable to Bay Gas. Unless
otherwise agreed, all PDAs must be submitted to Bay Gas via facsimile
or other agreed upon electronic means on or before the date the PDA is
to be effective. Such PDA shall specify how any underage or overage
from the confirmed nominated volumes should be allocated among the
entities listed on the PDA. Bay Gas shall acknowledge receipt and
acceptance of the PDA by returning acknowledgment of the PDA to
Shipper via mutually agreeable means. Bay Gas acceptance is contingent
on Bay Gas being able to administer the allocation submitted by the
Shipper.
8. To the extent that actual injections or actual withdrawals, or actual
deliveries or actual redeliveries, for each Shipper do not exactly
match confirmed nominations for any day, Bay Gas will attempt to
balance any such differences among Bay Gas and the upstream or
downstream entities, without impacting Shipper, whenever possible. If
an upstream or downstream entity requires a Balancing Agreement for
which any fee is required, Shipper agrees to reimburse Bay Gas for any
incurred expenses.
C. Storage Balance Reconciliation. To the extent Shipper and Bay Gas agree, in
writing, that imbalances may be accounted for under the Shipper's Storage
Service Agreement, and to the extent Shipper has sufficient storage
capacity, Bay Gas will issue a formal storage balance notice to Shipper by
the 20th of the month following the injection/withdrawal month ("the Notice
Month"), reflecting the effect of Shipper's storage balance or any
imbalance. Shipper understands and
5
<PAGE> 20
agrees to contact or cause to be contacted, the parties that deliver
injection volumes to Bay Gas, or receive withdrawal volumes from Bay Gas,
for the Shipper's account to confirm any imbalance.
Following the termination of the Storage Service Agreement, Shipper shall
be required to either (a) transfer title to any volumes of gas in storage
to a third party with whom Bay Gas has a Storage Service Agreement, with
such transfer to be subject to any injection conditions or charges
applicable to such third party, or (b) withdraw such volumes from storage
within a sixty (60) day balancing period after the determination by Bay Gas
that any such volumes exist, or within such longer period of time mutually
agreed upon by Shipper and Bay Gas. Shipper agrees that at the end of the
above sixty (60) day balancing period, Bay Gas will, for any storage
volumes not withdrawn, take title to such gas and such title is to pass
automatically without cost to Bay Gas.
D. Excess Deliveries. In the event that Shipper, from time to time, desires to
have injected into or withdrawn from storage, or to have transported, or to
have transported, quantities of gas in excess of the Maximum Daily
Injection Quantity or Maximum Daily Withdrawal Quantity, or Maximum Daily
Transportation Quantity, respectively, which Bay Gas is obligated to accept
or deliver or redeliver under storage or transportation arrangements for
Shipper on any day under a Storage or Transportation Service Agreement,
Shipper may request injection or withdrawal or transportation of such
excess gas, and Bay Gas in its sole discretion may accept or deliver or
redeliver all or any part of such gas subject to the restrictions of these
General Terms and Conditions.
SECTION III.
Construction of Facilities
Under no circumstances shall Bay Gas be obligated to construct or add
facilities to receive or deliver or redeliver gas under a Storage or
Transportation Service Agreement, or to increase the capacity of Bay Gas'
pipeline system or storage or transportation facilities. Upon Shipper's written
request to evaluate connections of new facilities, Bay Gas will prepare and
submit to Shipper a construction cost estimate. All new or additional facilities
that may be required for the delivery of acceptable gas to Bay Gas, or for the
delivery or redelivery of gas to the receiving party or parties will be
constructed, maintained, owned and operated by Bay Gas, except as may otherwise
be expressly agreed in writing. The design and installation of all facilities
shall be in accordance with the specifications then used by Bay Gas for like or
similar facilities. Shipper shall bear the cost of all such new connections,
unless otherwise mutually agreed.
SECTION IV.
Rate Adjustment
A. Rates charged for services shall be negotiated between Bay Gas and Shipper.
Bay Gas reserves the right to seek authorization from the
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<PAGE> 21
Federal Energy Regulatory Commission ("FERC") or other appropriate agency
to increase, decrease or restructure the rates (including market based
rates), and Company Use charges in effect at any time as may be found
necessary to assure Bay Gas' right to charge and collect fair and equitable
rates within the meaning of Section 311 (a)(2) of the Natural Gas Policy
Act of 1978 ("NGPA") and the FERC's rules and regulations thereunder.
Nothing herein contained shall be construed to deny any Shipper any rights
which it may have under FERC rules and regulations, including the right to
participate fully in rate proceedings by intervention or otherwise to
contest changes in rates and Company Use charges in whole or part. In
addition to the rates above, Shipper shall pay in advance all applicable
state and federal filing, reporting and application fees incurred by Bay
Gas for providing such services.
B. Bay Gas may at any time provide firm or interruptible storage services at
different rates from the market based rates approved by the FERC for Bay
Gas' NGPA Section 311(a)(2) services. Nothing herein shall obligate or
require, or be construed to obligate or require, Bay Gas to offer or
continue such different rates.
SECTION V.
Regulatory Requirements
Bay Gas' interstate services shall be in accordance with and subject to
the requirements of Section 311(a)(2) of the NGPA and the rules and regulations
of the FERC thereunder. Bay Gas' intrastate services shall be in accordance with
and subject to the laws, rules and regulations of the State of Alabama.
Bay Gas agrees to proceed with reasonable diligence during the term of
the Storage or Transportation Service Agreement with the filing for and
prosecution of any authorizations as may be required for the storage or
transportation of the gas hereunder or the rate(s) charged therefor. Bay Gas
reserves the right to pursue any necessary regulatory filings with FERC and any
other governmental or regulatory body having jurisdiction in such matter as it
deems to be in its best interest, including the right to file whatever pleadings
and motions it deems desirable. In the event Bay Gas has obtained such necessary
regulatory authorization, but the terms and conditions are significantly
different than those terms originally filed with the regulatory agency, or in
the event FERC rejects or modifies Bay Gas' Statement of Conditions for NGPA
Section 311(a)(2) Gas Storage and Transportation Services, as same may be
amended by Bay Gas from time to time, Bay Gas shall pursue other reasonable
options to continue providing such services or, at Bay Gas' option, shall
terminate such services as provided in Article VII, Right to Terminate Services,
of Bay Gas' Statement of Conditions.
SECTION VI.
Pressures
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<PAGE> 22
Bay Gas shall operate its storage facilities at pressures which will
accommodate the withdrawal of gas in accordance with Bay Gas' outstanding firm
service storage commitments. Bay Gas shall operate its transportation facilities
at pressures which will accommodate the redelivery of gas in accordance with Bay
Gas' outstanding firm service transportation commitments. Shipper shall be
obligated to deliver gas for injection or for transportation, at a pressure
sufficient for Bay Gas to transport such gas to and inject into its storage
facility, or to transport such gas for redelivery, recognizing that the amount
of such pressure will vary based on the operation of the Bay Gas pipeline.
SECTION VII.
Measurement
A. The gas received for injection or delivered for withdrawal at the storage
facilities, or delivered or redelivered at the transportation facilities,
shall be measured with meters constructed and installed, and whose
computations of volume are made, in accordance with the provisions of
ANSI-API 2530-AGA-3, latest revision as adopted by Bay Gas.
B. The temperature of the gas shall be determined by a recording thermometer
so installed that it will record the temperature of the gas flowing through
the meters. The average of the record to the nearest one degree (1 degree)
Fahrenheit, obtained while gas is being delivered, shall be the applicable
flowing gas temperature for the period under consideration. For all
measurement of gas required in this Section, the BTU content per cubic foot
shall be determined for a cubic foot of gas at a temperature of sixty
degrees (60 degrees) Fahrenheit, at an absolute pressure of fourteen and
seventy-three hundredths (14.73) pounds per square inch on a dry basis.
C. The BTU, specific gravity, carbon dioxide, and nitrogen content of the gas
shall be determined by the use of an on-line chromatograph or by a
chromatographic analysis of the gas obtained by a continuous sample or spot
sampling method. The results of any sample taken with an on-line
chromatograph shall be applied to the month in which the sample was taken.
D. Adjustment for the effect of supercompressibility shall be made according
to the provisions of the latest version of either NX-19 or AGA Committee
Report No. 8, as required by Paragraph A. of this Section and as adopted by
Bay Gas, for the average conditions of pressure, flowing temperature, and
specific gravity at which the gas was measured during the period under
consideration and with the proportionate values of carbon dioxide and
nitrogen in the gas delivered included in the computation of the applicable
supercompressibility factors.
E. If at any time during the term hereof a new method or technique is
developed with respect to gas measurement or the determination of the
factors used in such gas measurement, such new method or technique may
8
<PAGE> 23
be substituted for the gas measurement set forth in this Section on the
date such method or technique is adopted by Bay Gas.
SECTION VIII.
Measuring Equipment and Testing
A. General. The construction, ownership, operation and maintenance of any
measuring equipment necessary to accomplish the storage receipt of gas for
injection by Bay Gas for the account of Shipper and the delivery of gas
withdrawn by Bay Gas for the account of Shipper, or the transportation
delivery of gas to Bay Gas for the account of Shipper and the redelivery of
gas by Bay Gas for the account of shipper shall be the responsibility of
Bay Gas. Shipper shall at all reasonable times have access to the premises
of Bay Gas for inspections, insofar as such premises are connected with any
matter or thing covered hereby. The operation of measuring equipment and
changing of charts shall be done only by the employees or agents of Bay
Gas.
B. Testing and Repair of Equipment.
1. Bay Gas shall keep its own measuring equipment accurate and in repair,
making periodic tests to verify the condition of meter tubes, orifice
plate, and chart recorder or flow computer. Bay Gas agrees to give
Shipper(s) seven (7) calendar days notice prior to such tests of the
measuring equipment so that, if desired, Shipper(s) may have its
representative present. Shipper(s) shall have the right to challenge
the accuracy of Bay Gas' equipment, and when challenged, the equipment
shall be tested, calibrated and, if required, repaired by Bay Gas, the
cost of such special test to be borne by Bay Gas if the percentage of
the inaccuracy is found to be more than two percent (2%), but if the
percentage of inaccuracy is found to be two percent (2%) or less, the
cost of such special test shall be borne by the Shipper(s). If upon
any test the percentage of inaccuracy is found to be in excess of two
percent (2%), registrations thereof shall be corrected for a period
extending back to the time such inaccuracy occurred, if such time is
ascertainable, and if not ascertainable, then back one-half (1/2) of
the time elapsed since the last date of calibration. Any measuring
equipment found to be measuring inaccurately by one percent (1%) or
more shall be adjusted at once to read accurately.
2. If, for any reason, the meter(s) are out of service or out of repair
so that the amount of gas received or delivered cannot be ascertained
or computed from the readings thereof, the gas received or delivered
during the period such meter(s) are out of service or out of repair
shall be estimated and agreed upon by the parties hereto by the use of
the first applicable of the following methods:
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(a) By comparative utilization of any like check measuring
equipment if such check measuring equipment can be proven
and verified to be measuring accurately; or
(b) By computing the error if the percentage of error is
ascertainable by calibration, test or mathematical
calculation; or
(c) By estimating the quantity received or delivered by
reference to actual receipts or deliveries during preceding
periods under similar conditions when Bay Gas' measuring
equipment was registering accurately.
C. Inspection of Charts and Records. The charts and records from the measuring
equipment shall remain the property of Bay Gas and shall be kept on file
for a period of time not less than two (2) years from the end of the
calendar year in which the charts and records were generated or prepared.
At any time within such period, upon written request by Shipper, records or
charts from the measuring equipment, together with calculations therefrom,
will be submitted for Shipper's inspection and verification subject to
return to Bay Gas within thirty (30) days from receipt thereof. All
inquiries regarding this Section VIII, including but not limited to,
measurement charts, records or audits of charts and records, shall be
directed to Bay Gas.
SECTION IX.
Quality
The gas delivered by either party to the other hereunder shall meet or
exceed the quality specifications of the transporting pipeline which receives or
delivers such gas to the other party hereunder.
SECTION X.
Billing, Accounting, Taxes and Reports
A. Billings and Payments.
1. For the purpose of billing and accounting for the gas delivered
hereunder, the day shall begin at 9:00 a.m. Central Clock Time and
extend to 9:00 a.m. the following day, and the month (hereinafter
called "billing month") shall begin at 9:00 a.m. Central Clock Time on
the first (1st) day of the calendar month and extend to 9:00 a.m. on
the first (1st) day of the following calendar month.
2. Bay Gas shall render to its Shippers, by mail or facsimile, on or
before the first (1st) day of each month an invoice setting forth the
demand charges as applicable. Within ten (10) days from the date of
the invoice, Shipper agrees to make payment to Bay Gas by wire
transfer to the AmSouth Bank of Alabama, crediting Bay Gas'
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<PAGE> 25
account number 83794638 for such firm demand charges for the account
of Shipper at the Delivery Point(s) during the current month.
3. On or before the fifteenth (15th) day of each calendar month, Bay Gas
shall render or cause to be rendered, by mail or facsimile, to all
Shippers an invoice of the amount due for the preceding month setting
forth the total quantity of gas (1) received by Bay Gas from Shipper
for injection into the storage facilities, or delivered by shipper to
Bay Gas for transportation; (2) delivered by Bay Gas to Shipper for
withdrawal from the storage facilities, or redelivered by Bay Gas to
Shipper after transportation; (3) gas balance at the beginning and end
of the injection/withdrawal, or transportation, month and (4) the
rates and charges for storage or transportation services hereunder
during such billing month. Billings for volumes transported shall be
determined on a dry basis.
4. Within ten (10) days from the date of the fifteenth (15th) day
invoice, Shipper shall pay Bay Gas the amount due for all gas
injected, withdrawn or stored, or transported, by Bay Gas for the
account of Shipper during the injection/withdrawal, or transportation,
month. Payments to Bay Gas shall be made either by wire transfer to
the AmSouth Bank of Alabama, crediting Bay Gas' account number
83794638, or by check such that funds are available to Bay Gas on or
before the tenth (10th) day after the date of the invoice. If
rendering of an invoice by Bay Gas is delayed after the fifteenth day
of the month, then the time of payment shall be extended accordingly
unless Shipper is responsible for such delay.
B. Late Payment. In the event Shipper shall fail to pay any amount due Bay Gas
when the same is due, Bay Gas shall have the option of accruing interest at
a varying rate per annum (based on a year of 365 or 366 days, as the case
may be) which shall be one hundred fifteen percent (115%) of the prime rate
charged by the AmSouth Bank of Alabama to its largest and most creditworthy
commercial borrowers on ninety (90) day commercial loans (but in no event
greater than the maximum rate of interest permitted by law) with
adjustments in such rate, for any period during which the same shall be
overdue, such interest to be paid when the amount past due is paid. Shipper
shall not be required to pay interest on any amount billed which is in good
faith disputed in writing by Shipper and is ultimately determined to be in
error; provided, however, interest shall be due if such amount billed is
found not to be in error. If a portion of an invoice is disputed, Shipper
shall pay when due the portion of the invoice not in dispute. If such
failure to pay continues for thirty (30) days after the payment due date,
Bay Gas may suspend deliveries of gas, subject to Bay Gas providing
forty-eight (48) hours written notice, during normal working hours, of such
intention to suspend deliveries; provided, however, that if Shipper, in
good faith, disputes the amount of any such bill or part thereof and pays
to Bay Gas such amounts as Shipper concedes to be correct, and
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<PAGE> 26
furnishes and maintains a good and sufficient surety bond in an amount, and
with sureties satisfactory to Bay Gas, conditioned upon the payment of any
amounts ultimately found due upon such bills after a final determination,
then Bay Gas shall not be entitled to suspend further delivery due to
failure to pay such bills. In the event Shipper's financial position
significantly deteriorates from that on the execution date of the Storage
or Transportation Service Agreement, advance cash payments or acceptable
security (including but not limited to an irrevocable letter of credit from
a financial institution in an amount acceptable to Bay Gas) shall be given
by Shipper upon demand of Bay Gas. Bay Gas may, without waiving any other
rights or remedies it may have, withhold further delivery until such
payment is received. In the event Bay Gas pursues collection on late
payment, Shipper shall be liable for all expenses and costs, including
court costs and attorneys' fees, incurred as a result of such failure to
pay on time.
C. Tax Reimbursement. Shipper agrees to reimburse Bay Gas for all new taxes
(federal, state, local or other) that may be levied upon or paid by Bay
Gas, with respect to the services performed hereunder.
D. Examination of Books, Records and Charts. Each party shall have the right
during reasonable working hours to examine the books, records and charts of
the other party to the extent necessary to verify the accuracy of any
statement, payment calculations or determinations made pursuant to the
provisions contained herein. If any such examination shall reveal, or if
either party shall discover, any error in its own or the other party's
statements, payment calculations or determinations, then proper adjustment
and correction thereof shall be made as promptly as practicable thereafter.
The accuracy of any statement, payment calculations or determinations made
pursuant to the provisions contained herein shall be conclusively presumed
to be correct after two (2) years from the end of the calendar year in
which the charts and records were generated or prepared if not challenged
in writing prior thereto.
SECTION XI.
Possession and Non-Odorization of Gas
As between Shipper and Bay Gas, Shipper shall be in exclusive control
and possession of the gas deliverable and responsible for any damage or injury
caused thereby until the same shall have been received by Bay Gas for injection
at the storage facilities, or until delivered at the transportation facilities,
and after delivery of the gas for the account of Shipper for withdrawal at the
storage facilities, or after redelivery for the account of Shipper at the
transportation facilities. After delivery of gas for injection or transportation
by Shipper to Bay Gas, and until delivery by Bay Gas to Shipper or Shipper's
designee upon withdrawal or until redelivery after transportation, Bay Gas shall
be in exclusive control and possession thereof and responsible for any injury or
damage caused thereby. Neither Bay Gas nor Shipper assume any obligation to
odorize any gas delivered to the other.
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<PAGE> 27
SECTION XII.
Warranty
Shipper warrants that it will have and maintain good and marketable
title or the right to deliver for a third party owning good and marketable title
all gas tendered for injection, storage and withdrawal under a Storage Service
Agreement, and all gas delivered for transportation under a Transportation
Service Agreement, and that such gas shall be free and clear of all liens and
adverse claims; and each party agrees, with respect to the gas delivered by it,
to indemnify the other against all suits, actions, debts, accounts, damages,
costs (including attorney's fees), losses and expenses arising from or out of
any adverse claims of any and all persons to or against said gas.
SECTION XIII.
Government Regulations
A. All of the provisions of any Storage or Transportation Service Agreement
are hereby expressly made subject to all present and future applicable
federal or state laws, orders, rules and regulations of governmental
authorities having jurisdiction. Except as otherwise provided herein, in
the event any provision of a Storage or Transportation Service Agreement or
of these General Terms and Conditions is found to be inconsistent with or
contrary to any such law, order, rule or regulation, the latter shall be
deemed to control, and the Storage or Transportation Service Agreement and
these General Terms and Conditions, to the extent possible, shall be
regarded as modified accordingly and as so modified shall continue in full
force and effect.
B. The parties hereto recognize that a Storage or Transportation Service
Agreement has been entered into by Bay Gas in the good faith understanding
that all acts, obligations and services performed by Bay Gas hereunder, and
the charges therefor, are exempt from the regulation of FERC or any
successor federal governmental authority, except as presently provided by
Section 311(a)(2) of the NGPA and FERC's relevant regulations thereunder.
Bay Gas reserves the right to terminate a Storage or Transportation Service
Agreement immediately if, in the opinion of counsel for Bay Gas, any act
shall occur or be seriously threatened which is in any way inconsistent
with such understanding.
C. Equal Employment Opportunity. Bay Gas and Shipper agree to comply with any
and all applicable executive orders and acts pertaining to equal employment
opportunity.
SECTION XIV.
Force Majeure
A. In the event of either party being rendered unable, wholly or in part, by
reason of force majeure to carry out its obligations under any
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<PAGE> 28
Storage or Transportation Service Agreement (other than the obligation to
make payment of amounts due hereunder), it is agreed that such party shall
give notice and reasonably full particulars of such force majeure, in
writing or by facsimile, to the other party within a reasonable time after
the occurrence of the cause relied on, and the obligations of the party
giving such notice, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but
for no longer period, and such cause shall, so far as possible, be remedied
with all reasonable dispatch.
B. The term, "force majeure," as employed herein shall mean acts of God;
strikes, lockouts, or other industrial disturbances; conditions arising
from a change in governmental laws, orders, rules or regulations; acts of
public enemy; wars; blockades; insurrections; riots; epidemics; landslides;
lightning; earthquakes; fires; storms; floods; washouts; arrests and
restraints of governments and people; civil disturbances; explosions;
breakage or accident to machinery or lines of pipe; the necessity for
making repairs, tests or alterations to machinery or lines of pipe;
freezing of wells or lines of pipe; partial or entire failure of wells,
processing or gasification and gas manufacturing facilities; and any other
causes, whether of the kind herein enumerated or otherwise, not within the
control of the party claiming suspension, and which by the exercise of due
diligence, such party is unable to prevent or overcome. Such term shall
likewise include: (a) those instances where either Bay Gas or Shipper is
required to obtain servitudes, rights-of-way, grants, permits or licenses
to enable such party to fulfill its obligations under a Storage or
Transportation Service Agreement; the inability of such party in acquiring,
at reasonable costs, and after the exercise of reasonable diligence, such
servitudes, rights-of-way, grants, permits or licenses, and (b) those
instances where either Bay Gas or Shipper is required to furnish materials
and supplies for the purpose of constructing or maintaining facilities or
is required to secure permits or permissions from any governmental agency
to enable such party to fulfill its obligations under a Storage or
Transportation Service Agreement; the inability of such party to acquire,
or the delays on the part of such party in acquiring, at reasonable costs,
and after the exercise of reasonable diligence, such materials and
supplies, permits and permissions. Force majeure shall not include failure
of gas supply due to pricing considerations.
C. It is understood and agreed that the settlement of strikes or lockouts
shall be entirely within the discretion of the party having the difficulty,
and that the above requirement that any force majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes or
lockouts by acceding to the demands of the opposing party when such course
is inadvisable in the discretion of the party having the difficulty.
SECTION XV.
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Notices
Except as herein otherwise provided, any communication, notice,
request, demand, statement or bill provided for in a Storage or Transportation
Service Agreement which any party may desire to give to any other party shall be
made in writing and mailed by first class mail to the post office address of the
party intended to receive the same, as the case may be, at the addresses each
respective party shall designate in the Storage or Transportation Service
Agreement or change by subsequent formal written notice to the other. Routine
communications, including monthly statements and payments, may be mailed by
either certified or ordinary first class mail.
SECTION XVI.
Creditworthiness
Bay Gas shall not be required to commence service or, subject to the
following timing provisions, to continue to provide service under a Storage or
Transportation Service Agreement with any Shipper, that (a) is or has become
insolvent; (b) has applied for bankruptcy under Chapter 11 of the Bankruptcy
Code, or which is subject to similar proceedings under state or federal law; or
(c) when requested by Bay Gas to demonstrate creditworthiness, fails to do so in
Bay Gas' reasonable judgment, in light of previous payment experience and the
prudent credit analysis of information available; provided, however, that any
such Shipper that is receiving service shall continue to receive service for a
period of fifteen (15) days after written notice by Bay Gas of any such
circumstance, and shall continue thereafter to receive service if, within such
fifteen (15) day notice period, such Shipper (a) deposits with Bay Gas and
maintains, on account, an amount which would be due for three (3) months service
at the full Maximum Daily Withdrawal Quantity, or the full Maximum Daily
Transportation Quantity, including an amount of the current gas imbalance plus,
an amount equal to the three (3) highest cashout payments, if any, incurred
during the previous twelve months, or (b) furnishes good and sufficient
security, which may include an acceptable standby letter of credit, or monthly
prepayment agreement or other security as reasonably determined by Bay Gas, of a
continuing nature and in an amount equal to such amounts which would be due for
service. If such payment on account or payment security is not received within
such fifteen (15) day notice period, Bay Gas may, without waiving any rights or
remedies it may have, suspend further service for a period of ten (10) days. If
such payment on account or a payment security is not received within such ten
(10) day suspension period, then Bay Gas shall no longer be obligated to
continue to provide service to such Shipper. Further, if such payment on account
or a payment security is not received within sixty (60) days after the end of
such suspension period, Bay Gas may terminate its obligations to provide service
under all agreements between Shipper and Bay Gas, which termination shall not
affect any of Bay Gas' claims or remedies it may have under any Storage or
Transportation Service Agreement.
SECTION XVII.
Miscellaneous
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A. Headings and Subheadings. The headings and subheadings contained in the
Storage or Transportation Service Agreement are used solely for convenience
and do not constitute a part of the Storage or Transportation Service
Agreement between the parties hereto, nor should they be used to aid in any
manner in construing the Storage or Transportation Service Agreement.
B. Successors and Assigns. The Storage or Transportation Service Agreement
shall be binding upon and inure to the benefit of the respective successors
and assigns of the parties hereto, but no assignment shall relieve any
party of its obligations hereunder unless such party is expressly released
in writing from said obligations by the party to which it is obligated.
C. Entire Agreement. The Storage or Transportation Service Agreement, the
Statement of Conditions for NGPA Section 311(a)(2) for Gas Storage and
Transportation Services, and these General Terms and Conditions constitute
the entire agreement of the parties hereto as to the matters contained
herein, and there are no oral promises, agreements or warranties affecting
same.
D. Non-Waiver. The waiver of any default or right to require performance under
a Storage or Transportation Service Agreement shall not operate as a waiver
of any future default or right to require performance, whether of like or
different character or nature.
E. Jurisdiction and Venue. The parties agree that a Storage or Transportation
Service Agreement shall be governed by and construed in accordance with the
laws of the State of Alabama, excluding any conflicts of law, rule or
principle that might refer such construction to the laws of another state
and that venue shall be in the State of Alabama for services performed in
Alabama, with respect to any cause of action brought under or with respect
to a Storage or Transportation Service Agreement.
F. Confidentiality. The terms of any Storage or Transportation Service
Agreement shall be kept confidential by the parties except to the extent
that any information must be disclosed to a third party as required by law,
for either party's financial needs or for the purpose of effectuating any
Storage or Transportation Service Agreement.
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EXHIBIT "C"
BAY GAS STORAGE COMPANY's
STATEMENT OF CONDITIONS FOR
NGPA SECTION 311 (a)(2) GAS
STORAGE AND TRANSPORTATION SERVICES
Dated December 22, 1998.
Bay Gas Storage Company, Ltd. ("Bay Gas"), a natural gas storage public
utility that qualifies as an intrastate pipeline company providing services
within the meaning of Natural Gas Policy Act of 1978 ("NGPA") Section 2 (16) and
Section 284.1 (a) of the Federal Energy Regulatory Commission's ("Commission")
regulations, files this amended Statement of Conditions For NGPA Section 311
(a)(2) Gas Storage and Transportation Services, pursuant to the Commission's
regulations. 18 C.F.R. Section 284.123 (e). Firm and interruptible gas storage
and transportation-only services, on terms and conditions authorized by the
Commission and accepted by Bay Gas, shall be provided by Bay Gas pursuant to
NGPA Section 311 (a)(2), 15 U.S.C. Section 3371 (a)(2), and the Commission's
implementing Orders, Rules and Regulations, to qualified Shippers that comply
with the conditions set forth in this Statement and with the terms and
conditions contained in Bay Gas' Storage or Transportation Service Agreement
executed with Shipper.
I.
BAY GAS' BASIC STATUS AND FUNCTION
Bay Gas is a gas storage public utility, certificated by the Alabama
Public Service Commission and subject to regulation by that Commission, which
qualifies as an intrastate pipeline company providing storage and transportation
services within the meaning of NGPA Section 2 (16) and Section 284.1 (a) of this
Commission's regulations. Any such NGPA Section 311 (a)(2) services that Bay Gas
provides will be consistent with, and shall not infringe on, Bay Gas' status and
function as a non-Federal-jurisdictional intrastate pipeline, and shall not
subject Bay Gas to this Commission's Natural Gas Act jurisdiction. 18 C.F.R.
Section 284.3.
<PAGE> 32
II.
QUALIFIED SHIPPERS
Besides other conditions contained in this Statement, Bay Gas' services
are available only to a Shipper that enters into a Service Agreement mutually
acceptable to Bay Gas and Shipper. All transactions for storage or
transportation of gas that has flowed, or will flow, in interstate commerce must
qualify under NGPA Section 311 (a)(2) and 18 C.F.R. Part 284 of Subchapter I.
If, in the opinion of Bay Gas' counsel, such qualified status of Shipper or its
proposed transaction is in doubt, then Shipper must apply for and receive a
final, non-appealable ruling from this Commission, or successor agency thereto,
affirming such qualifying status of Shipper and its proposed transaction, prior
to commencement of services by Bay Gas.
III.
CAPACITY AVAILABILITY, SCHEDULING AND ALLOCATIONS
AND CURTAILMENTS
A. Capacity Availability
1. Storage service shall be conditioned on availability of sufficient
injection rate capacity, field storage capacity and withdrawal rate
capacity (collectively called "Capacity," and including pipeline
transportation service capacity) to perform the service in accordance
with the terms and conditions set forth in this Statement of
Conditions without detriment or disadvantage to services by or for the
account of Bay Gas. Transportation service shall be conditioned on
availability of sufficient Capacity to perform the service in
accordance with the terms and conditions set forth in this Statement
of Conditions without detriment or disadvantage to services by or for
the account of Bay Gas. Bay Gas reserves all rights to retain
sufficient Capacity for its intrastate, non-Federal-jurisdictional
firm and interruptible services and for its operational swings
attributable to firm and interruptible storage services prior to
making Capacity available
<PAGE> 33
by contract to NGPA Section 311 (a)(2) Shippers. Once Capacity is made
available to NGPA Section 311 (a)(2) Shippers, such Capacity shall be
scheduled, allocated or curtailed only as set forth in Sections III. B
and C here.
2. Storage service availability further shall be conditioned on Bay Gas
receiving an acceptable market value, in Bay Gas' sole judgment, for
such storage services, determined when a request for storage service
is received. Bay Gas reserves all rights to refuse a request for
storage service that, in Bay Gas' sole judgment, might provide less
than market value. Apart from such Bay Gas judgment as to market
value, Bay Gas' judgment shall be exercised on a non-discriminatory
basis.
3. Criteria applied to requests for NGPA Section 311 (a)(2) services
shall be the same as criteria applied to requests for intrastate,
non-Federal-jurisdictional services.
4. Shipper shall be responsible for making all arrangements for its
transportation of gas to be injected into or withdrawn from storage
through Bay Gas' storage services. Bay Gas reserves all rights to
refuse storage service for any otherwise qualified Shipper if Bay Gas
determines that such storage would be detrimental to Bay Gas' storage
operations in any way, including, without limitation, Bay Gas' storage
compression and affected processing operations.
B. Scheduling and Allocations
Bay Gas shall schedule contracted services according to these
principles:
1. Nomination deadlines shall be as prescribed in Bay Gas'
General Terms and Conditions.
2. Bay Gas will be under no obligation to schedule the
injection of gas into storage or the withdrawal of gas from
storage until Bay Gas has confirmed the availability of
Shipper's transportation
<PAGE> 34
service to or from Bay Gas' storage services for the gas concerned.
Subject to the foregoing subsection "1." and this subsection "2.",
firm storage and transportation services shall be scheduled before
interruptible services in all instances, regardless of the relative
service rates to be paid.
3. In-field transfer of title (transfer of gas balances in the storage
field between storage service agreements) may be made only with Bay
Gas' approval.
4. Interruptible storage service Shippers paying a higher Unit Rate, as
defined in Bay Gas' General Terms and Conditions, shall be scheduled
ahead of interruptible storage service Shippers paying a lower Unit
Rate. If, because of changes in available Capacity at any time, Bay
Gas is required to reschedule interruptible Shippers that are
injecting, storing or withdrawing gas and are paying the same Unit
Rate, then the Capacity shall be rescheduled pro rata based on
applicable contract quantities for said Shippers.
5. Bay Gas reserves the right to interrupt service to an interruptible
Shipper injecting, storing or withdrawing gas, in order to enable Bay
Gas to provide service to another, bumping, interruptible Shipper
injecting, storing or withdrawing gas, if such Shipper is paying a
higher Unit Rate to Bay Gas.
6. All overrun volumes in excess of a storage service Shipper's contract
quantities nominated for delivery by Shipper shall be scheduled
according to the above subsections "4." and "5." only after all other
storage service Shippers' nominated volumes equal to or less than each
Shippers' Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity are scheduled.
7. Bay Gas may reschedule Capacity on a daily basis, or on such other
periodic basis as is necessary for Bay Gas to recognize the priority
of new storage or transportation service Shippers or any changes in
the priorities of existing such Shippers, and to
<PAGE> 35
conform to its storage system operational requirements. Such
priorities or changes will include, but will not be limited
to, those instances involving a storage service Shipper paying
a higher Unit Rate for interruptible service and firm storage
service Shippers changing volumes within their Maximum Daily
Injection Quantity or Maximum Daily Withdrawal Quantity.
However, such changes in scheduling shall not at any time bump
any existing firm Shipper.
C. Curtailments
1. General. If curtailment of storage or transportation service is
required, volumes shall be curtailed in the reverse order of the
priority in effect at the time of curtailment established during
scheduling as set forth in Section "III. B" above. Intrastate,
non-Federal-jurisdictional firm and interruptible services shall be
curtailed in a manner determined solely by Bay Gas, but in no event
shall such curtailments have a different priority than similar
types of services for NGPA Section 311 (a)(2) Shippers.
2. Reduction of Services. Without limitation to the foregoing, Bay Gas
shall have the right to reduce receipts, deliveries, injections or
withdrawals of gas on any day below a storage service Shipper's
Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity, or below the storage rights applicable, for repair,
overhaul, replacement or construction of pipelines, compressors,
metering, regulating or other production, gathering and
transmission facilities and equipment, or to maintain system
integrity; provided, however, that with respect to routine repair
and maintenance, Bay Gas will implement restrictions for scheduling
purposes only, not for curtailment, and will attempt to schedule
such activity during a period when it will not result in limitation
of firm service or when such limitation will be
<PAGE> 36
minimized, and after consulting with the Shippers that could be
affected.
3. Notice of Curtailment. For shippers under all firm services, Bay Gas
shall provide notice of any curtailment as far in advance as feasible.
Services reserved by Bay Gas for system operations shall be curtailed
last, in consideration of the need to preserve system integrity. If
capacity is curtailed and two or more firm Shippers have the same
priority according to this Section "III. C", firm Shippers shall be
allocated their pro rata share of capacity based on their Maximum
Daily Injection Quantity or Maximum Daily Withdrawal Quantity or
Maximum Daily Transportation Quantity, as applicable. If firm Shippers
nominate fewer than their respective curtailment period entitlements,
the difference shall be allocated pro rata among those firm Shippers
with unsatisfied nominations. All non-firm Shippers shall be allocated
their pro rata share of Capacity based on their nominations in effect
at the time of the curtailment.
4. Limitation of Firm Services. While firm services are not ordinarily
interrupted by nominations for firm service within Shipper's Maximum
Daily Injection Quantity or Maximum Daily Withdrawal Quantity or
Maximum Daily Transportation Quantity, Bay Gas may decline to schedule
firm service for any of the following reasons:
(a) if Shipper tenders gas which does not conform to applicable
pressure requirements of the Storage or Transportation
Service Agreement
(b) if Shipper tenders gas which does not conform to the gas
quality requirements of both the upstream and downstream
entities' gas quality requirements
(c) for reasons of force majeure
(d) due to routine repair and maintenance to be reasonably
determined by Bay Gas
<PAGE> 37
(e) due to delinquency in payment by Shipper
(f) to rectify imbalances or to conform physical flows to
nominations
(g) to maintain system integrity, or
(h) if there is a dispute over title, ownership or right to
tender, receive or deliver gas.
IV.
MINIMUM STORAGE SERVICE VOLUME
Bay Gas shall not be obligated to furnish storage service to any
Shipper whose average daily gas volume tendered for storage in a given month is
less than 100 MMBtu per day. Such storage Shipper's obligation to tender gas for
delivery shall be suspended and modified for the time and to the extent that Bay
Gas does not accept deliveries due to Shipper's inability to deliver such
minimum average daily volume. If the amount of gas subsequently tendered for
delivery once again is less than such minimum average daily volume, Bay Gas
shall have the right to cancel the Storage Service Agreement at any time on
thirty (30) days written notice to Shipper. Bay Gas shall be deemed released
from all obligations and liabilities, direct or indirect, under such Storage
Service Agreement on the effective date of such a cancellation.
V.
RECEIPT AND DELIVERY
Bay Gas shall have sole operational control over the injection of gas
into, the retention of gas within, and the withdrawal of gas from, Bay Gas'
system storage facilities. A Shipper seeking to direct gas into storage shall
nominate "Storage" as the Point of Delivery on Bay Gas' system and shall
identify the number of the Storage Service Agreement to be used for the receipt
of such gas into storage. A Shipper seeking to withdraw gas from storage shall
nominate "Storage" as the Point of Redelivery from Bay Gas' system and shall
identify the number of the Storage Service Agreement under which the gas is to
be withdrawn from storage. Bay Gas shall have sole
<PAGE> 38
operational control over the transportation of gas on Bay Gas' system from the
Point of Delivery to the Point of Redelivery. For transportation service,
"Delivery" shall mean the act of causing gas to be transported to the Points of
Delivery, and "Redelivery" shall mean the transportation of gas from the Points
of Delivery to the Points of Redelivery.
VI.
GENERAL TERMS AND CONDITIONS
FOR GAS STORAGE AND TRANSPORTATION
Amended General Terms and Conditions to Bay Gas Storage Company, Ltd.'s
Storage and Transportation Service Agreements, dated December 22, 1998, are
incorporated by reference as part of this Statement of Conditions. Shipper's
failure to comply with the provisions in Section II, Nominations, Balancing And
Excess Deliveries, of such General Terms and Conditions shall relieve Bay Gas of
its obligation to perform services, and, if such failure to comply unreasonably
interferes, in Bay Gas' judgment, with Bay Gas' control over its system
facilities, then Bay Gas may, at its option, cease services and terminate any
related Service Agreements or other agreements, without limitation of Bay Gas'
rights or remedies at law or in equity.
VII.
RIGHT TO TERMINATE SERVICES
Bay Gas reserves the right to discontinue, on a non-discriminatory
basis, all services that subject Bay Gas to the non-discriminatory access
requirements of 18 C.F.R. Part 284, and any subsequent Commission Orders, Rules
or Regulations applicable to such services. Bay Gas may cancel the affected
Service Agreements at any time on ninety (90) days prior written notice to
Shippers if Bay Gas has no other reasonable options available that will allow
the continuation of such Service Agreements. Bay Gas shall be relieved of all
obligations and liabilities on the effective date of such
<PAGE> 39
notice of discontinuance and cancellation. Bay Gas additionally reserves the
right to terminate any interruptible Service Agreement if the Shipper either has
not executed the Service Agreement within thirty (30) days of receiving such
Agreement, or has failed to nominate service under such Agreement within one (1)
year after execution of the Agreement.
VIII.
COMPLIANCE WITH LAW AND SURVIVABILITY
If any part of this Statement of Conditions conflicts with, or
violates, any Commission or other Judicial, Governmental or Regulatory Body's
Orders, Rules or Regulations, such part shall be deemed void, but shall not
affect the remaining provisions of this Statement. Bay Gas shall not be liable
to any party with a Service Agreement subject to this Statement that loses
priority status or any other rights enumerated in this Statement because of the
issuance by the Commission or other Judicial, Governmental or Regulatory Body of
any Orders, Rules or Regulations affecting this Statement of Conditions.
IX.
CHANGES TO THIS STATEMENT OF CONDITIONS
Bay Gas reserves the right to add to, delete or modify the conditions
in this Statement without prior notice.
X.
AUTHORITY OF STATEMENT OF CONDITIONS
This Statement of Conditions, and the incorporated General Terms and
Conditions (see Section "VI." above) take precedence over conflicting language
in any of Bay Gas' Service Agreements or amendments thereto, unless such
language specifically states that it is an exception to this Statement, and then
only to the extent of such stated exception.
<PAGE> 40
EXHIBIT "D"
Nomination To: Bay Gas Storage
Nomination From: Southern Company Services
<TABLE>
<CAPTION>
Daily
Nom Start End Volume Delivery Delivery Upstream
Type Date Date (MMBtu) Pipe Point Contract
- ---------------- ------------- ------------- ------------------- ------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Inject
DAILY
TOTAL:
- ---------------- ------------- ------------- ------------------- ------------------ ---------------------- ----------------------
</TABLE>
<TABLE>
<CAPTION>
Daily
Nom Start End Volume Delivery Delivery Upstream
Type Date Date (MMBtu) Pipe Point Contract
- --------------------- ------------ ------------- ------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Withdrawal
DAILY
TOTAL:
- --------------------- ------------ ------------- ------------------ ------------------ --------------------- --------------------
</TABLE>
<PAGE> 41
EXHIBIT "E"
COMPLIANCE WITH LAWS
Shipper is a government contractor under an Area-Wide Utilities Service Contract
with the General Services Administration of the United States Government. Bay
Gas agrees that the provisions contained in the Federal Acquisition Regulation
referred to below shall, as if set forth herein in full text, be incorporated
into and form a part of this Contract and Bay Gas shall comply therewith, if the
amount of such Contract and the circumstances surrounding its performance meet
the criteria set out in each of the provisions referred to below, for
incorporation of the provision(s) into contracts between Shipper and others:
(1) 52.203-6 Restrictions on Subcontractor Sales to the
Government
(2) 52.203-7 Anti-Kickback Procedures
(3) 52.222-26 Equal Opportunity
(4) 52.223-2 Clean Air and Water
(5) 52.223-14 Toxic Chemical Release Reporting
Upon request, Customer will provide the full text of any of the above provisions
or clauses incorporated herein by reference.
<PAGE> 42
Bay Gas hereby warrants that Bay Gas is not debarred, suspended or proposed for
debarment as a contractor or subcontractor to any department, agency or other
division of the U.S. Government.
<PAGE> 1
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(c)
FIRM INTRASTATE TRANSPORTATION AGREEMENT
BY AND BETWEEN
BAY GAS STORAGE COMPANY, LTD.
AND
ALABAMA POWER COMPANY
Contract No. FSMB99
Dated [as of] April 8, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
I. Definitions 1
II. Gas to be Transported 2
III. Pressure 2
IV. Point(s) of Receipt and Delivery 2
V. Term 3
VI. Rates 3
VII. Quality 3
VIII. Properly Nominated Gas 4
IX. Measurement 5
X. Billings and Payments 7
XI. Taxes 8
XII. Regulatory Bodies 8
XIII. Right to Deliver and Risk of Loss 9
XIV. Default and Termination 10
XV. Notices 11
XVI. Force Majeure 12
XVII. General Terms and Conditions 13
XVIIl. Miscellaneous 13
<PAGE> 3
FIRM INTRASTATE TRANSPORTATION AGREEMENT
THIS FIRM INTRASTATE TRANSPORTATION AGREEMENT (this "Contract" or
"Agreement") is made and entered into as of the 8th day of April, 1999, by and
between BAY GAS STORAGE COMPANY, LTD., an Alabama limited partnership ("Bay
Gas") which is the owner and operator of a 22.5 mile intrastate pipeline from
Axis, Alabama to McIntosh, Alabama and ALABAMA POWER COMPANY, ("Shipper")
(collectively referred to herein as Parties and individually as Party).
W I T N E S S E T H:
WHEREAS, Shipper wishes to obtain firm transportation services through
a portion of Bay Gas' system for gas to be used in the operation of Shipper's
proposed combined-cycle electric generation facility to be located at Shipper's
Plant Barry in Mobile County, Alabama (the "Plant"); and
WHEREAS, Bay Gas is willing to provide such transportation on a firm
basis;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenant and agreements herein contained, the parties hereto consent and agree
as follows:
ARTICLE I - DEFINITIONS
For the purpose of this Contract, unless expressly stated otherwise,
the following definitions shall be applicable:
(a) The term "gas" shall mean natural gas in its natural state
produced from wells, including casinghead gas produced with crude
oil, natural gas from wells and residue gas resulting from
processing both casinghead gas and gas well gas.
(b) The term "Btu" shall mean British Thermal Unit.
(c) A "day" shall mean the twenty-four (24) hour period beginning at
9:00 AM local time on each calendar day and ending at 9:00 AM
local time on the following day.
(d) The term "MCF" shall mean one thousand (1,000) cubic feet at a
pressure of fourteen and seventy-three hundredths (14.73) psia
and at a temperature of sixty degrees (60(o) Fahrenheit.
(e) The term MMBtu shall mean 1,000,000 Btu.
(f) A "month" shall mean that period of time beginning at 9:00 AM
local time on the first day of a calendar month and ending at
9:00 AM local time on the first day of the following calendar
month.
(g) The term "psia" shall mean pounds per square inch absolute.
(h) The term "psig" shall mean pounds per square inch gauge.
1
<PAGE> 4
(i) The term "year" shall mean a period of twelve (12) consecutive
months.
(j) "Receipt" shall mean the act of causing gas to be transported to
the Points of Receipt.
(k) "Delivery" shall mean the transportation of gas from the Points
of Receipt to the Points of Delivery.
ARTICLE II - GAS TO BE TRANSPORTED
2.1 Maximum Daily Transportation Quantity. Subject to the terms and
conditions established herein, Bay Gas shall, on a firm basis, take delivery of
a Maximum Daily Transportation Quantity ("MDTQ"), to be determined pursuant to
Section 2.2 below, of gas that Shipper tenders or causes to be tendered to Bay
Gas at the hereinafter described Point(s) of Receipt. Each day Bay Gas shall
redeliver to Shipper at the Point of Delivery, as reflected in Exhibit "A", a
quantity of gas containing a total quantity of Btu which is equal to that
contained in the gas Shipper delivered or caused to be delivered to Bay Gas on
such days.
2.2 Initial and Increased MDTQ. Notwithstanding anything in this
Agreement to the contrary, from the Commencement Date, as defined below, until
the earlier of June 1, 2001, or the Commercial Operation Date of Shipper's third
gas-fired generation unit at the Plant (as mutually agreed upon by the Parties),
the MDTQ shall be *** MMBtu. From the earlier of June 1, 2001, or the Commercial
Operation Date of Shipper's third gas-fired generation unit at the Plant, until
the Commercial Operation Date of Shipper's fourth gas-fired generation unit at
the Plant (as mutually agreed upon by the Parties) the MDTQ shall be *** MMBtu.
On the Commercial Operation Date of the fourth unit the MDTQ shall be *** MMBtu.
If the Commercial Operation Date of the fourth unit does not occur before June
1, 2003, Bay Gas may notify Shipper that the MDTQ in this Agreement is
restricted to *** MMBtu.
ARTICLE III - PRESSURE
3.1 Receipt Pressure. Shipper is obligated to deliver gas to the
Point(s) of Receipt at a pressure sufficient for Bay Gas to receive such gas
into its pipeline; provided however, Shipper is not required to deliver gas at
the Point(s) of Receipt at pressure(s) greater than those indicated on Exhibit
"A".
3.2 Delivery Pressure. Bay Gas shall redeliver gas at the Point of
Delivery at a pressure of not less than 500 psig, nor greater than 1200 psig.
ARTICLE IV - POINTS OF RECEIPT AND DELIVERY
4.1 Point(s) of Receipt. Gas delivered to Bay Gas shall be delivered to
Bay Gas at a point as specified on Exhibit "A" attached hereto, and the maximum
daily quantity of gas which Bay Gas shall, subject to the terms hereof, receive
from Shipper at each individual Point of Receipt shall not exceed the MDTQ
stated
2
<PAGE> 5
thereon. In no case shall Bay Gas be required to receive more than the MDTQ as
stated in Section 2.2 herein.
4.2 Point of Delivery. Gas shall be delivered at a point as specified
on Exhibit "A" attached hereto, and the maximum daily quantity of gas which Bay
Gas shall, subject to the terms hereof, deliver to Shipper at each individual
Point of Delivery shall not exceed the MDTQ stated thereon.
4.3 Point(s) Amendments. Bay Gas and Shipper may add or delete Point(s)
of Receipt or Delivery from time to time by mutual agreement evidenced by a
signed amendment to Exhibit "A".
ARTICLE V - TERM
5.1 Term. The term of this Agreement shall be ***, beginning on the
Commencement Date (the "Term"), as herein defined, and shall be automatically
extended for periods of one (1) year from each expiration date of such term or
any automatic extension thereof unless either Party shall notify the other in
writing not less than ninety (90) days prior to the expiration date, or the
expiration of any one (1) year extension of such expiration date, of its
intention to terminate this Agreement.
5.2 Commencement Date. The "Commencement Date" shall be the earlier of
(i) the first day of the month following the date ninety (90) days after
written notification by Shipper that the Plant is commercially operational
(the "Commercial Operation Date") or (ii) the date Shipper first takes
redelivery of natural gas (excluding test gas) from Bay Gas at the Point of
Delivery. In no case shall the Commencement Date be later than July 1, 2000.
5.3 Testing Period. Notwithstanding paragraph 5.2 hereof, Bay Gas
agrees to provide Shipper service under the terms and conditions of this
Agreement for a reasonable period of time prior to the Commencement Date for
testing.
ARTICLE VI - RATES
6.1 Transportation Charges. During the Term of the contract, Shipper
shall pay to Bay Gas the following charges:
Firm Services Daily Demand Charge - *** per MMBtu of Shipper's MDTQ as specified
in Article II herein for each day of the contract term.
6.2 Test Gas Transportation Charges. Shipper shall pay to Bay Gas ***
per MMBtu for each MMBtu delivered to Shipper at the Point of Delivery.
ARTICLE VII - QUALITY
7.1 Quality Specifications. The gas delivered referenced by either
party to the other hereunder shall meet the following quality specifications:
a. Be commercially free of dust, gum, gum-forming constituents,
gasoline, and other solid and/or liquid matter, including
but
3
<PAGE> 6
not limited to water, gas treating chemicals and well
completion fluids and debris, which may become separated
from the gas during transportation thereof.
b. Contain not more than one (1) grain of hydrogen sulphide per
one hundred (100) cubic feet, nor more than twenty (20)
grains of total sulfur per one hundred (100) cubic feet.
c. The gas delivered hereunder shall not contain more than two
percent (2%) by volume of oxygen, and shall not contain more
than three percent (3%) by volume of carbon dioxide.
d. Have a heating value of not less than nine hundred fifty
(950) Btu's per cubic feet.
e. Have a temperature of not more than one hundred twenty
degrees Fahrenheit (120 F), nor less than forty degrees
Fahrenheit (40 F).
f. Shall be dehydrated and shall in no event have a water
content in excess of seven (7) pounds of water per million
(1,000,000) cubic feet of gas measured at a pressure base of
14.73 psi and at a temperature base of 60 degrees
Fahrenheit, as determined by dew point or other moisture
measuring equipment in general use in the industry.
ARTICLE VIII - PROPERLY NOMINATED GAS; IMBALANCES
8.1 Proper Nomination. Shipper must Properly Nominate any gas for which
Shipper requests Receipt and Delivery. "Properly Nominate" means that Shipper's
dispatcher shall send Bay Gas' dispatcher timely prior notice, sufficient to
meet the requirements of all pipelines, gatherers or distributors involved in
the Shipper gas delivery to the Point(s) of Receipt of the volumes of gas
Shipper desires to transport to the Point of Delivery. Such notice shall be at
least twenty-four (24) hours prior to the earliest regularly scheduled
nomination deadline of the pipelines/distributors delivering gas at the Point(s)
of Receipt for gas to be delivered commencing on the first day of a month and
one hour earlier than such deadline for any subsequent nomination. All gas
received and delivered hereunder shall be received and delivered in as nearly
equal daily and hourly quantities as operating conditions permit. Shipper
intraday or late nominations of gas hereunder will be accepted by Bay Gas on a
best efforts basis. If acceptance of Shipper's nomination would exceed the MDTQ,
or cause interruption of another shipper's scheduled service, then such
nomination will be accepted or rejected at Bay Gas' sole discretion.
8.2 Imbalances at the Point of Delivery. Imbalances that take place at
the Point of Delivery shall be monitored by Bay Gas on a real-time basis, and
Bay Gas shall seek to correct such imbalances, first by requesting the
cooperation of the applicable interstate pipeline, and next by utilizing the
storage service Agreement in place between Bay Gas and Southern Company
Services, Inc., as the agent of Shipper (the "Storage Agreement"). Shipper will
notify Bay Gas of any change to its schedule that would create imbalances and
Bay Gas will in turn seek the cooperation of the applicable interstate pipeline.
To the extent that such
4
<PAGE> 7
cooperation is not granted, or such cooperation is not granted in the amount
needed to avoid imbalances, Bay Gas shall utilize the Storage Agreement to
either inject or withdraw gas from storage.
8.3 Seamless Transactions. Bay Gas agrees to take all actions
reasonably necessary to provide "Seamless Service" to Shipper under this
Agreement. As used in this Agreement the term "Seamless Service" means that the
nominations, scheduling, resolution of imbalances and any other procedures or
matters reasonably determined to effect service to Shipper via Bay Gas' service
under this Agreement shall be coordinated with the applicable interstate
pipeline company and implemented such that Shipper will, to the extent
reasonably possible, be relieved of any duplicative administrative activity that
might otherwise be necessary. To facilitate such Seamless Service, Shipper may,
subject to the interstate pipeline company's approval, assign the obligations
set forth in Section 8.1 ("Proper Nomination") above to the applicable
interstate pipeline company. Bay Gas agrees to use reasonable efforts to have
operational balancing agreements in place with Florida Gas Transmission and Koch
Gateway Pipeline Company in order to facilitate the provision of Seamless
Service.
8.4 Imbalances at the Point(s) of Receipt.
(a) If, during any month, Shipper receives an invoice from a
supplier or transporter which includes imbalance charges, the Parties shall
use their best efforts to promptly determine the validity, as well as the
cause, of such imbalance charges. If the Parties determine that the
imbalance charges were incurred as a result of Shipper's actions or
inactions (which shall include, but not be limited to, Shipper's failure to
accept quantities of gas equal to the nominated gas), then Shipper shall
pay for such imbalance charges. If the Parties determine that the imbalance
charges were incurred as a result of Bay Gas' actions or inactions, then
Bay Gas shall pay for such imbalance charges or reimburse Shipper for such
imbalance charges paid by Shipper.
(b) Bay Gas may, at its sole discretion, choose to receive all or
a portion of the gas nominated for receipt from Koch Gateway Pipeline's
("Koch") system for transportation hereunder at either the "Primary Koch
Receipt Point" or the "Secondary Koch Receipt Point", or both, as listed on
Exhibit "A". Shipper and Bay Gas agree that Bay Gas will communicate
directly with Koch to facilitate such scheduling changes as may be needed.
(c) At Koch's request, Bay Gas shall receive gas for transport
hereunder at the Koch Secondary Receipt Point in amounts up to 25,000 MMBtu
per day. Provided however that Bay Gas shall not be required to make such
capacity available until Koch has fully utilized the capacity of its
pipeline facilities between its mainline and the Bay Gas pipeline on behalf
of Bay Gas or Bay Gas customers.
ARTICLE IX - MEASUREMENT
9.1 Unit of Volume Measurement. The unit of volume for measurement of
gas Received and Delivered hereunder shall be one (1) cubic foot of gas at a
base temperature of sixty degrees Fahrenheit (60 F) and at an absolute pressure
of fourteen and seventy-three hundredths (14.73) pounds per square inch. All
fundamental constants, observations, records, and procedures involved in
determining and/or verifying the quantity and other characteristics of gas
5
<PAGE> 8
delivered hereunder shall, unless otherwise specified herein, be in accordance
with the standards prescribed in Reports No. 3 and/or 7 of the American Gas
Association, as now and from time to time amended or supplemented. All
measurements of gas shall be determined by calculation into terms of such unit.
All quantities given herein, unless expressly stated otherwise, are in terms of
such unit. Notwithstanding the foregoing, it is agreed that, for all purposes,
the Btu content of the gas Received and Delivered hereunder shall be measured on
an "as delivered" basis rather than a fully saturated or "wet" basis.
9.2 Facilities to be Constructed by Bay Gas. Bay Gas shall construct at
its expense, and own, maintain and operate the metering station and associated
facilities, including without limitation a gas chromatograph, pressure recorder,
gas measuring equipment, tie-in piping and (the "Meter Station"), and such other
necessary monitoring, odorization and recording equipment that must be installed
to provide accurate measurement and custody transfer, and to deliver gas at the
pressure required in Article III (the "Equipment"). The Meter Station and
Equipment (collectively, the "Facilities") will be located at a mutually
acceptable site either on the Plant site or at a location outside of the Plant.
If the facilities are located on Shipper's property, Shipper shall provide to
Bay Gas such easement or easements, in form reasonably acceptable to Bay Gas,
for the Facilities and for construction of pipelines, to the Point of Delivery.
Upon selection of the site, Shipper shall prepare a drawing reflecting the
location of the Facilities, and the drawing shall be attached hereto as Exhibit
"E". Bay Gas shall obtain all permits, licenses, authorizations, certificates
and other required governmental approvals necessary for the construction and
operation of the Facilities ("Governmental Approvals"). Shipper shall be
responsible for the construction and maintenance of its pipeline and any
associated equipment from the Point of Delivery into the Plant. Bay Gas shall
provide a signal or signals, including gas flow, pressure, and analysis data
from measurement equipment, such that the Shipper may monitor the gas flow.
9.3 Timely Completion of Facilities. Time is of the essence in the
construction of the Facilities. Bay Gas agrees that the Facilities shall be
completed and ready for testing no later than August 15, 1999. If Bay Gas fails
to obtain required Governmental Approvals by July 1, 1999, then either Party may
terminate the Agreement without further liability or obligation to the other
Party.
9.4 Measurement Accuracy. Bay Gas shall provide for verifying the
accuracy of the measuring equipment at least once in each one hundred eighty
(180) day period. If Shipper desires a special test of any measuring equipment,
it will promptly notify Bay Gas and the parties shall then cooperate to secure a
prompt verification of the accuracy of such equipment. The expenses of any such
special test, if requested by Shipper, shall be borne by Shipper if the
measuring equipment tested is found to be accurate within the limits of plus or
minus two percent (2%) of error. For the purposes of measurement and meter
calibration, the atmospheric pressure shall be assumed to be fourteen and
seventy-three hundredth (14.73) pounds per square inch, irrespective of
variations in natural atmospheric pressure from time to time. Bay Gas shall
notify Shipper at least one (1) business day prior to conducting any test of any
measuring equipment. Shipper and Bay Gas, upon request, shall have the right to
be present at any test of any measuring equipment.
6
<PAGE> 9
9.5 Measurement Corrections. If upon any test the metering equipment is
found to be inaccurate, in the aggregate, by two percent (2%) or more, either
plus or minus, registration thereof and any payment based upon such registration
shall be corrected at the rate of such inaccuracy for any period of inaccuracy
which is definitely known or agreed upon, or if not known or agreed upon, then
for a period extending back one-half (1/2) of the time elapsed since the day of
the last calibration,. Following any test, any metering equipment found to be
inaccurate to any degree shall be adjusted immediately to measure accurately;
however, if any inaccuracy is less than two percent (2%), all prior readings and
measurements shall be deemed to be accurate and no adjustments to any prior
reading shall be made. If, for any reason, any meter is out of service or out of
repair so that the quantity of gas delivered through such meter cannot be
ascertained or computed from the readings thereof, the quantity of gas so
delivered during such period shall be estimated and agreed upon by the parties
hereto upon the basis of the best available data, using the first of the
following methods which is feasible:
a. by using the registration of any check measuring equipment,
if installed and registering accurately;
b. by correcting the error if the percentage of error is
ascertainable by calibration, test, or mathematical
calculation; or
c. by estimating the quantity of gas deliveries by deliveries
during preceding periods under similar conditions when the
meter was registering accurately.
9.6 Pressure & Temperature Correction. The measurement hereunder shall
be corrected for deviation from Boyle's Law at the pressure and temperature
under which gas is delivered hereunder.
ARTICLE X - BILLINGS AND PAYMENTS
10.1 Statement Rendered. By the tenth (10th) day of each month, Bay Gas
shall render to Shipper a statement for the preceding month properly identifying
the applicable Point(s) of Receipt and Point of Delivery and showing the total
quantity of gas received from and delivered hereunder.
10.2 Payment. Subject to Section 10.3 below, Shipper shall pay Bay Gas
the full amount reflected on the statements rendered at the address stated in
Section 15.1 on or before the twentieth (20) day of each calendar month. If the
twentieth day shall fall upon a weekend or legal holiday, then such payment may
be made on the first regular business day subsequent to such twentieth day. In
the event that Shipper fails to pay such amounts when due, interest shall accrue
on all unpaid amounts from the date due until paid at a rate of interest equal
to the lesser of: (i) the rate of interest quoted as the "prime rate" of Bay
Gas' bank to its largest and most credit-worthy commercial customers, plus 2%;
or (ii) the highest legal rate of interest allowed by law (the "Interest Rate").
10.3 Corrections. In the event an error is discovered in the amount
billed in any statement rendered by Bay Gas, such error shall be adjusted within
thirty (30) days of the discovery of the error. In the event a dispute arises
7
<PAGE> 10
as to the amount payable in any statement rendered, Shipper shall pay the
undisputed amount, and shall notify Bay Gas of the disputed amount and the
reasons for the dispute at the time payment is due. Bay Gas shall not suspend
delivery of gas as a result of Shipper's failure to pay the disputed amount. The
parties agree to work in good faith to resolve the subject dispute in a timely
fashion. The Parties are not obligated to pursue amicable resolution for more
than sixty (60) days, then the matter may be submitted to arbitration. If it is
finally determined that Shipper has underpaid the amount actually due, Shipper
shall remit any amount due, with interest at the Interest Rate, within ten (10)
days. If it is determined that Shipper has overpaid the amount actually due, Bay
Gas shall remit any refund, with interest at the Interest Rate, within ten (10)
days. All statements shall be considered final, and any and all objections
thereto are deemed waived, unless made in writing within twenty-four (24) months
of Shipper's receipt thereof.
ARTICLE XI - TAXES
11.1 Tax Changes. Shipper agrees to pay to Bay Gas, by way of
reimbursement, within ten (10) days of receipt of an invoice for same, all taxes
levied or imposed upon Bay Gas after the date hereof; and any increases in
existing taxes which may be made effective after the date hereof, with respect
to the transport of gas hereunder. Bay Gas agrees to pass through to Shipper in
its monthly billings any savings resulting from decreases in existing taxes,
which may be made effective after the date hereof, with respect to the transport
of gas hereunder. In the event that any additional taxes or increases in taxes
are imposed and, should Bay Gas elect not to challenge the same, then Shipper
shall be subrogated to Bay Gas' rights to challenge the same. In no event shall
Shipper be required to pay any tax in a greater amount than its pro-rata share.
11.2 Tax Definition. The term "taxes" as used in Section 11.1 shall
mean all taxes which are now in existence or which may in the future be levied
upon Bay Gas, or its facilities or the transportation of gas hereunder (other
than ad valorem, capital stock, income or excess profit taxes, or general
franchise taxes imposed on corporations on account of their corporate existence
or on their right to do business within the state as a foreign corporation and
similar taxes), including, but not limited to, gross receipts tax, street and
alley rental tax, licenses, fees and any other taxes, charges or fees of any
kind levied, assessed or made by any governmental authority on the act, right or
privilege of transporting, handling or delivering gas or using Bay Gas'
pipeline, which is measured by the volume, heating value, value of the gas, or
any fee in respect to the gas or the transportation or other handling thereof.
ARTICLE XII - REGULATORY BODIES
12.1 APSC Approval. This Contract is subject to the approval of the
Alabama Public Service Commission.
12.2 General Services Administration Regulation. Bay Gas agrees to
comply with the additional provisions attached hereto as Exhibit "D" and made a
part hereof.
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<PAGE> 11
ARTICLE XIII - RIGHT TO DELIVER AND RISK OF LOSS
13.1 Right to Deliver. Shipper warrants for itself, its successors and
assigns, that it will have at the time of delivery of gas hereunder the valid
right to deliver such gas hereunder. Shipper warrants for itself, its successors
and assigns, that the gas it delivers hereunder shall be free and clear of all
liens, encumbrances, or claims as against Shipper and that it will indemnify Bay
Gas and save it harmless from all claims, suits, actions, damages, costs and
expenses arising directly or indirectly from or with respect to the right to
deliver gas tendered to Bay Gas hereunder.
13.2 No Encumbrance on Delivered Gas. Bay Gas covenants that it shall
neither cause nor allow any cloud or encumbrance of any nature to arise by,
through or under Bay Gas with respect to the title of any gas delivered to Bay
Gas, and agrees to deliver such gas pursuant to this Contract free from all
liens and adverse claims arising by, through or under Bay Gas, and that it will
indemnify, protect, and save Shipper harmless from all claims, suits, actions,
damages, costs and expenses arising directly or indirectly from the same.
13.3 Hold Harmless.
(a) Bay Gas shall protect, defend, indemnify, and hold harmless
Shipper, its officers, directors, agents and/or employees from and against
all claims, demands, losses, damages, suits and expenses relating to death
of and/or injury to persons and/or damage to property (unless due to the
sole negligence of Shipper) arising out of, or resulting from, the
transportation of natural gas from the Point of Receipt to the Point of
Delivery pursuant to the terms and conditions of this Agreement.
(b) Shipper shall protect, defend, indemnify, and hold harmless
Bay Gas, its officers, directors, agents and/or employees from and against
any claims, demands, losses, damages, suits and expenses relating to death
of and/or injury to persons, and/or damage to property (unless due to the
sole negligence of Bay Gas) resulting from, the transportation of natural
gas by Shipper or its agents to the Point of Receipt and from the Point of
Delivery to and through the facilities of Shipper.
13.4 Hold Harmless - Gas Quality. Each party hereto recognizes that the
quality of gas redelivered by Bay Gas is of the utmost importance. The parties
further recognize that due to the volumes of gas transported hereunder the
quality of the natural gas redelivered hereunder will be greatly impacted by the
quality of gas received at the Point of Receipt. Accordingly, in the event Bay
Gas accepts for delivery gas which meets the quality specifications specified in
Article VII, but redelivers gas to Shipper which does not meet those
specifications ("non-conforming gas") and such non-conforming gas causes damage
to the property of Shipper, Bay Gas shall be responsible for such property
damage. However, if the gas delivered to the Point of Receipt by Shipper does
not meet the quality specifications specified in Article VII of this Agreement,
then Bay Gas shall not be responsible for any damage to the property of the
Shipper as a result of the redelivery by it of such gas.
13.5 Shipper's Equipment. Shipper shall install equipment at its
facilities to remove liquids which may be present in the natural gas stream. The
Parties hereto agree that Shipper shall be responsible for any property damage
that may result from the failure of such equipment.
9
<PAGE> 12
ARTICLE XIV - DEFAULT AND TERMINATION
14.1 Failure to Perform. If either Party hereto shall fail to perform
any of the covenants or obligations imposed upon it by virtue of this Contract
(except where such failure is provided for under any of the provisions hereof),
then in such event the other Party may, at its option, terminate this Contract
by proceeding as follows: the Party not in default shall provide a written
notice to be served upon the Party in default, stating specifically the cause
for terminating this Contract and declaring it to be the intention of the Party
giving the notice to terminate the same; whereupon, the Party in default shall
have thirty (30) days after receipt of the aforesaid notice in which to remedy
or remove the cause or causes of default stated in the notice of termination and
if, within said period of thirty (30) days, the Party in default does so remedy
and/or remove such cause or causes, and fully indemnifies the Party not in
breach for the direct actual damages of the Party which are associated with such
default, then such notice shall be nullified and this Contract shall continue in
full force and effect. In the event the Party in default does not so remedy
and/or remove the cause or causes of default, or does not fully indemnify the
Party giving the notice for such Party's actual damages as a result of such
breach within said period of thirty (30) days, then this Contract shall
terminate from and after the expiration of said period; provided, however, that
if such default is remedied but no indemnification therefor has been made due to
a bona fide dispute between the parties as to the amount thereof, then this
Contract shall not terminate, but the Party not in default shall have the right
to seek recovery of its direct damages as provided by law. Any termination for
breach of this Contract shall be carried out strictly in accordance with this
section.
14.2 Right to Collect Amount Due. Any cancellation of this Contract
shall be without prejudice to the right of the Party not in default to collect
any amounts then due it and without waiver of any other remedy to which the
Party not in default may be entitled.
14.3 Bay Gas Right to Terminate. This Agreement may be terminated by
Bay Gas if Bay Gas does not obtain authorization from the appropriate regulatory
authorities to provide service under this Agreement which is acceptable to Bay
Gas, or Bay Gas does not obtain Government Approvals which are acceptable to Bay
Gas in its sole, but reasonably exercised discretion and which Bay Gas
determines are needed to provide service to Shipper at the Plant. Provided,
however, that Bay Gas agrees to give Shipper notice of any unacceptable terms
and conditions within ten (10) days after issuance.
14.4 Shipper Right to Terminate.
(a) Shipper may terminate this Agreement if Bay Gas fails to
deliver nominated gas at the Point of Delivery for a period of forty-five
(45) consecutive days for any reason, including the occurrence of force
majeure.
(b) In the event Bay Gas, on an ongoing basis, fails to deliver
gas meeting the gas specifications or pressure required under this
Agreement, the Parties will endeavor to identify and correct the quality
and/or pressure problem being incurred. In the event a satisfactory
solution is not obtained
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<PAGE> 13
within forty-five (45) days of the Shipper notifying Bay Gas of the
problem, Shipper may terminate this Agreement.
ARTICLE XV - NOTICES
15.1 Notices. Whenever any notice, request, demand, statement or
payment is required or permitted to be given under any provision of this
Contract, unless expressly provided otherwise, such shall be in writing, signed
by or on behalf of the person giving the same, and shall be deemed to have been
given and received upon the actual receipt (including the receipt of a telecopy
or facsimile of such notice) at the address of the parties as follows:
Notices and Contract Matters:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-8292
Shipper (notify both contacts listed below):
Alabama Power Company Southern Company Services, Inc.
600 North 18th Street 14N-8162
Birmingham, AL 35291 600 North 18th Street
Attn: Senior Vice President - Southern Birmingham, AL 35203
Company Generation Attn: Vice President , Fuel
Services
Invoices:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-8292
Shipper: Contact
Alabama Power Company Attn: Manager, Fuel Services
600 North 18th Street
Birmingham, AL. 35291-0480
Delivery Notifications, Nominations:
Company: Contact
Bay Gas Storage Company, Ltd. Gordon Royce / Harris Oswalt
Post Office Box 1368 Telephone: (334) 450-4688
Mobile, Alabama 36633 Fax: (334) 476-8292
Nights/Weekends: (334) 476-2120
Fax (334) 450-4758
Shipper: Contact:
Southern Company Services, Inc. Ken Damsgard: (205) 257-5887
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<PAGE> 14
600 North 18th Street Pager: (888) 391-7477
Birmingham, AL 35291 Vicki Gaston: (205)257-7194
Attn: Fuel Scheduling Shannon Neese: (205) 257-5803
Generation Desk: (205) 257-6301
15.2 Acceptable Communication Methods. Operating communications made by
telephone or other mutually agreeable means shall be confirmed in writing or by
telecopy within two (2) hours following same if either Party request
confirmation. To facilitate such operating communications on a daily basis,
lists of names, telephone and telecopy numbers of appropriate operating
personnel shall be exchanged by and between Bay Gas and Shipper before
commencement of service under this Contract. Such lists may be updated from time
to time.
15.3 Address Revisions. The addresses of the parties may be revised
upon written notice given in accordance herewith, designating in such writing
the new address of the Party so affected.
ARTICLE XVI - FORCE MAJEURE
16.1 In the event Bay Gas is rendered unable, wholly or in part, by
reason of force majeure to carry out its obligations under this Agreement, it is
agreed that Bay Gas shall give notice and reasonably full particulars of such
force majeure, in writing by either mail, hand delivery, or facsimile, to
Shipper within a reasonable time after the occurrence of the cause relied on,
and the obligations of Bay Gas, so far as they are affected by such force
majeure, shall be suspended during the continuance of any inability so caused,
but for no longer period, and such cause shall, so far as possible, be remedied
with all reasonable dispatch.
16.2 In the event Shipper is rendered unable, wholly or in part, by
reason of force majeure to carry out its obligations under this Agreement (other
than the obligation to make payment of amounts due hereunder), which obligations
shall not be affected by events of force majeure), it is agreed that Shipper
shall give notice and reasonably full particulars of such force majeure, in
writing by either mail, hand delivery, or facsimile, to Bay Gas within a
reasonable time after the occurrence of the cause relied on, and the obligations
of Shipper, so far as they are affected by such force majeure, shall be
suspended during the continuance of any inability so caused, but for no longer
period, and such cause shall, so far as possible, be remedied with all
reasonable dispatch.
16.3 The term, "force majeure," as employed herein shall mean acts of
God; strikes, lockouts, or other industrial disturbances; conditions arising
from a change in governmental laws, orders, rules or regulations; acts of public
enemy; wars; blockades; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; storms; floods; washouts; arrests and restraints of
governments and people; civil disturbances; explosions; breakage or accident to
machinery or lines of pipe; the necessity for making repairs, tests or
alterations to machinery or lines of pipe; freezing of wells or lines of pipe;
partial or entire failure of wells, processing or gasification and gas
manufacturing facilities; and any other causes, whether of the kind herein
12
<PAGE> 15
enumerated or otherwise, not within the control of the Party claiming
suspension, and which by the exercise of due diligence, such Party is unable to
prevent or overcome. Such term shall likewise include: (a) those instances where
either Bay Gas or Shipper is required to obtain servitudes, rights-of-way,
grants, permits or licenses to enable such Party to fulfill its obligations
under this Agreement; and such Party is unable to acquire, at reasonable costs,
and after the exercise of reasonable diligence, such servitudes, rights-of-way,
grants, permits or licenses, and (b) those instances where either Bay Gas or
Shipper is required to furnish materials and supplies for the purpose of
constructing or maintaining facilities or is required to secure permits or
permissions from any governmental agency to enable such Party to fulfill its
obligations under this Agreement and such Party is unable to acquire, or is
delayed in acquiring, at reasonable costs, and after the exercise of reasonable
diligence, such materials and supplies, permits and permissions. Force majeure
shall not include failure of gas supply due to pricing considerations.
16.4 It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the Party having the
difficulty, and that the above requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of the opposing Party when such
course is inadvisable in the discretion of the Party having the difficulty.
ARTICLE XVII - GENERAL TERM AND CONDITIONS
17.1 General Terms and Conditions. The following are hereby
incorporated herein and made a part of this Contract as if fully set forth
herein: (a) the General Terms and Conditions attached hereto as Exhibit "B"; and
(b) the Statement of Conditions for NGPA Section 311(a)(2) Gas Storage Services
attached hereto as Exhibit "C" (the "Statement of Conditions"). Any conflict or
inconsistency, either in construction or interpretation, between the terms
hereof and of such exhibits shall be resolved first in favor of the terms
hereof, and next in favor of the Statement of Conditions.
ARTICLE XVIII - MISCELLANEOUS
18.1 Headings. The subject headings of the articles and sections of
this Contract are intended for the sole purpose of convenient reference and are
not intended, nor shall the same be construed, to be a part of this Contract or
considered in any interpretation hereof.
18.2 Amendment. Neither this Contract nor any provisions hereof may
ever by amended, changed, modified or supplemented except by an agreement in
writing, duly executed by the Party to be charged with the same.
18.3. Waiver. No failure by either Party to enforce the performance of
any obligation of the other Party under this Contract shall operate as a waiver
of such obligation or default, or as a waiver of any other right or default,
whether of a like or different character.
13
<PAGE> 16
18.4. Choice of Law. As to all matters of construction and
interpretation, this Contract shall be interpreted, construed and governed by
the laws of the State of Alabama, excluding any conflict of laws rule which
would direct the application of the law of another jurisdiction.
18.5. Succession. Either Party may assign its rights, titles or
interest hereunder to any individual, bank, trustee, company or corporation as
security for any note, notes, bonds, or other obligations or securities of such
assignor, but not otherwise, without the written consent of the other Party
hereto. Shipper may assign, upon notice to but without prior consent of Bay Gas,
this Agreement to any Southern Company subsidiary successor owner or operator of
the Plant with reasonably sufficient creditworthiness, as the Parties shall
agree. Except as provided herein, neither Party may assign this Agreement
without the prior written consent of the other. No assignment provided for
hereunder shall in any way operate to enlarge, alter or change any obligation of
the other Party hereto.
18.6. Right of Examination. Both Shipper and Bay Gas shall maintain,
for a period of not less than three (3) years from the month in which
transportation service was provided, accurate books and accounts, in accordance
with generally accepted accounting principles, of its costs, fees and charges of
any nature invoiced to Shipper hereunder. Each Party, or its representatives,
shall have the right to examine, at any reasonable time, the books, records and
charts of the other to the extent necessary to verify the accuracy of any
statement, chart or computation made under or pursuant to the provisions of this
Agreement. All books, records and charts related to any statement, charge or
computation made hereunder shall be retained and available for review or
inspection for a period of two (2) years.
18.7. Authority. Shipper and Bay Gas hereby represent and warrant that
each has the full right, power and authority to enter into this Contract, and
that this Contract will not violate the provisions of any other contract or
agreement to which Shipper or Bay Gas, respectively, is a party.
18.8. Limitation of Liability. Neither Party shall be liable to the
other for consequential damages in the nature of (a) loss of profit or revenue
resulting from the failure of the other Party to perform in accordance with the
requirements of this Agreement; (b) damages suffered by either Party as a result
of the loss of the use of its power system or production facilities; (c) cost of
purchased or replacement power; (d) damages suffered by customers of a Party for
service interruptions or curtailment; or (e) cost of capital, without regard to
the cause or causes related thereto, including, without limitation, the
negligence of any Party, whether such negligence be sole, joint or concurrent,
or active or passive. The Parties acknowledge the duty to mitigate damages
hereunder.
18.9 Agent of Shipper. Shipper has designated Southern Company
Services, Inc. ("SCS") as its agent for the purpose of locating, processing and
arranging for delivery of gas to Shipper's plant. SCS shall act for Shipper in
giving and receiving notices and nominations, negotiating and administering this
agreement, and for any other purpose as may be authorized by Shipper. Shipper
may designate a new agent from time to time by giving Bay Gas written notice in
accordance with Article XV, and authorization of SCS to act as agent for Shipper
thereupon shall cease and the new agent shall have such authority.
14
<PAGE> 17
IN WITNESS WHEREOF, the Parties have executed this Contract in one or
more copies or counterparts, each of which shall constitute and be an original
of this Contract effective between the Parties as of the date first above
written.
Bay Gas:
ATTEST: BAY GAS STORAGE COMPANY, LTD.
By MGS Storage Services, Inc., its managing
general partner
/s/ G. Edgar Downing, Jr. By: /s/ W. G. Coffeen, III
Its: Vice President
Shipper:
ATTEST: ALABAMA POWER COMPANY
/s/ Jane Hawkins By: /s/ Earl B. Parsons, Jr.
Its: Sr. Vice President
15
<PAGE> 18
EXHIBIT "A"
TO FIRM INTRASTATE TRANSPORTATION AGREEMENT ("CONTRACT") BETWEEN BAY GAS
STORAGE COMPANY, LTD. AND ALABAMA POWER COMPANY
<TABLE>
<CAPTION>
POINT(S) OF RECEIPT MDTQ Minimum
(MMBtu) Pressure
(psig)
<S> <C> <C>
Primary FGT Receipt Point:
Interconnection between the pipeline facilities of Up to 625
Bay Gas and the interstate pipeline facilities of ***
Florida Gas Transmission in Mobile County, Alabama
(Interconnect ID: BG-1002)
Primary Koch Receipt Point:
Interconnection between the pipeline facilities of Up to 575
Bay Gas and the interstate pipeline facilities of ***
Koch Gateway Pipeline in Mobile County, Alabama
(Interconnect ID: BG-1003)
Secondary Koch Receipt Point:
Interconnection between the pipeline facilities of Up to 600
Mobile Gas Service Corporation and the interstate ***
pipeline facilities of Koch Gateway Pipeline at
Jacintoport in Mobile County, Alabama (Koch SLN #
9305)
</TABLE>
Gas may be scheduled for receipt at either or all of the Primary Point(s) of
Receipt, in quantities indicated herein, provided, however, that the cumulative
total daily receipts shall not exceed the MDTQ as stated in Section 2.2. The
Secondary Koch Receipt Point shall be scheduled pursuant to Section 8.4(b) and
8.4(c) herein. Bay Gas shall enter into all necessary agreements with Mobile Gas
Service Corporation to facilitate receipt from Koch and delivery to Bay Gas.
<TABLE>
<CAPTION>
POINT OF DELIVERY MDTQ Minimum
(MMBtu) Pressure
(psig)
<S> <C> <C>
The weld connection between the pipeline facilities
of Bay Gas and the pipeline facilities of Shipper Up to 500
located downstream of the Bay Gas metering facility ***
at Plant Barry (Interconnect ID: BG-1006)
</TABLE>
Gas may be scheduled for delivery at the Point of Delivery in quantities up to
the MDTQ as indicated in Section 2.2 herein.
* This limitation may be waived by Bay Gas at its sole discretion pursuant to
Section 8.4(b)
<PAGE> 19
EXHIBIT "B"
GENERAL TERMS AND CONDITIONS
TO
BAY GAS STORAGE COMPANY, LTD.'S
STORAGE AND TRANSPORTATION SERVICE AGREEMENTS
CONTENTS
SECTION DESCRIPTION PAGE
I. Definitions 1
II. Nominations, Balancing And 2
Excess Deliveries
III. Construction of Facilities 6
IV. Rate Adjustment 6
V. Regulatory Requirements 7
VI. Pressures 7
VII. Measurement 8
VIII. Measuring Equipment and Testing 9
IX. Quality 10
X. Billing, Accounting, Taxes and Reports 10
XI. Possession and Non-Odorization of Gas 12
XII. Warranty 13
XIII. Government Regulations 13
XIV. Force Majeure 13
XV. Notices 14
XVI. Creditworthiness 15
XVII. Miscellaneous 15
<PAGE> 20
SECTION I.
Definitions
A. The term, "gas", as used herein, shall mean natural gas as produced in its
natural state that meets the quality standards contained in these General
Terms and Conditions.
B. The term, "new taxes", as used herein, shall mean any tax, license, fee or
charge hereafter levied, assessed or made by any governmental authority on
the gas itself or on the act, right or privilege of producing, severing,
gathering, storing, transporting, handling, selling or delivering gas which
is measured by the volume, value, or sales price of the gas.
C. The term, "cubic foot of gas", as used herein, for the purpose of
measurement of the gas delivered hereunder is the amount of gas necessary
to fill a cubic foot of space when the gas is at an absolute pressure of
fourteen and seventy-three hundredths (14.73) pounds per square inch and at
a base temperature of sixty (60) degrees Fahrenheit.
D. The term, "BTU", as used herein, shall mean British Thermal Unit and, where
appropriate, the plural thereof, and the term, "MMBtu", shall mean one
million (1,000,000) BTU.
E. The term, "MCF", as used herein, shall mean one thousand (1,000) cubic feet
of gas.
F. The term, "day", as used herein, shall mean a period of twenty-four (24)
consecutive hours beginning and ending at 9:00 a.m., Central Clock Time.
G. The term, "thermally equivalent", as used herein, shall mean an equal
amount of heating value, expressed in BTU and measured under the
specifications and conditions contained hereunder.
H. The term, "month", as used herein, shall mean a period beginning on, and
including, the first (1st) day of the calendar month and extending to but
not including the first (1st) day of the following calendar month.
I. The term, "Storage Service Agreement", as used herein, shall mean an
agreement for the provision by Bay Gas of firm or interruptible storage
services; and the term, "Transportation Service Agreement", as used herein,
shall mean an agreement for the provision by Bay Gas of firm or
interruptible transportation services.
J. The term, "Maximum Daily Injection Quantity", as used herein, shall mean
the maximum volume of gas that Bay Gas will accept for injection into
storage for Shipper in any one day, as provided for in the Storage Service
Agreement.
K. The term, "Maximum Daily Withdrawal Quantity", as used herein, shall mean
the maximum volume of gas that Bay Gas will deliver from storage
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<PAGE> 21
for Shipper in any one day, as provided for in the Storage Service
Agreement.
L. The term, "Maximum Storage Quantity", as used herein, shall mean the
maximum volume of gas that Bay Gas will store for Shipper at any one time,
as provided for in the Storage Service Agreement.
M. The term, "Maximum Daily Transportation Quantity", as used herein, shall
mean the maximum volume of gas that Bay Gas will take delivery of, and
transport for redelivery, in any one day, as provided for in the
Transportation Service Agreement.
N. The term, "processed gas", as used herein, shall mean natural gas from
which gas liquids have been extracted.
O. The term "Unit Rate", as used herein, shall be defined for interruptible
storage service Shippers as follows:
(i.) The Monthly Demand Charge ("MDC") times the Interruptible Maximum
Storage Quantity ("IMSQ") times (ii.),
(ii.) the lesser of 12 or the number of months specified as the
Primary Term ("PT") of the Agreement. The product of (i.) and
(ii.) then added to (iii.).
(iii.) All other storage revenues excluding Fuel Charges assessed for
interruptible services for the last 12 billed months ("Rev."),
(iv.) the result of (iii.) divided by the IMSQ.
(i.e. Unit Rate = {[ MDC x IMSQ x (12 or PT if < 12)] + Rev.} / IMSQ)
P. The term, "work day" or "working day", as used herein, shall mean the days
Monday through Friday, inclusive, but excluding any federal holidays.
SECTION II.
Nominations, Balancing And Excess Deliveries
A. Nominations. Shipper shall furnish to Bay Gas a nomination on a form
acceptable to Bay Gas. All quantities shall be expressed in MMBtu per Day
and shall separately state Points of Receipt, Points of Delivery or Points
of Redelivery.
1. Shipper must deliver the nominations to Bay Gas by 11:30 A.M. Central
2
<PAGE> 22
ClockTime the working day prior to gas flow. Shipper may submit
nominations after such deadline up to 1:00 P.M. Central Clock Time for
the upcoming gas day. However, if acceptance of Shipper's nomination
submitted between 11:30 and 1:00 P.M. Central Clock Time would exceed
Shipper's Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity or Maximum Storage Quantity or Maximum Daily Transportation
Quantity, or would cause interruption of another shipper's scheduled
service, then such nomination will be accepted or rejected by Bay Gas
at Bay Gas' sole discretion.
2. Shipper may submit, and Bay Gas will accept, nominations after 1:00
P.M. for the upcoming gas day or during the current gas day on a best
efforts basis. If acceptance of Shipper's nomination for service would
exceed Shipper's Maximum Daily Injection Quantity or Maximum Daily
Withdrawal Quantity or Maximum Storage Quantity or Maximum Daily
Transportation Quantity, or would cause interruption of another
shipper's scheduled service, then such nomination will be accepted or
rejected at Bay Gas' sole discretion.
3. Nominations made in accordance with this Section II A shall not become
effective until Bay Gas has confirmed the nominated storage receipts
(injections) and deliveries (withdrawals), or transportation
deliveries and redeliveries, with upstream and downstream parties.
Shipper shall designate the appropriate person(s) with authority to
confirm nominations and to resolve allocation issues on a
24-hour-basis.
4. The parties intend that the volumes of gas received or delivered or
redelivered will be equal to the confirmed nominations. To the extent
that gas quantities actually received or delivered or redelivered may
be greater than or less than the confirmed nominations, the parties
intend that such variance will be treated in accordance with an
Accounting Allocation Agreement entered into between the parties.
5. Bay Gas shall not be obligated, during any hour, to receive or to
deliver or to redeliver a total volume of gas in excess of one
twenty-fourth (1/24th) of the lesser of (a) Shipper's aggregate
Maximum Daily Injection Quantity or Maximum Daily Withdrawal Quantity,
or Maximum Daily Transportation Quantity or (b) Shipper's accepted
nomination volumes. The parties intend that from time to time Shipper
and Bay Gas may mutually agree to a flow rate above or below a uniform
hourly rate.
B. Balancing. Bay Gas will accept for storage injection or deliver for
withdrawal, or for transportation delivery and redelivery, on a daily
basis, volumes thermally equivalent to volumes nominated and scheduled,
less appropriate compressor fuel and lost-and-unaccounted-for gas
(collectively called "Company Use") charges, unless otherwise mutually
agreed to in writing. All imbalances between actual and nominated
3
<PAGE> 23
injection volumes or withdrawal volumes, or between delivery volumes and
redelivery volumes, shall be treated as imbalance under, and received in
accordance with, the Storage or Transportation Service Agreement(s) under
which the gas in question is delivered to or from the storage or
transportation facilities. Gas delivered to Bay Gas for withdrawal or
redelivery hereunder on each day shall be at constant uniform rates as
practicable throughout such day.
1. If Shipper is advised by any upstream third party of the need to
reduce or suspend deliveries of gas scheduled for delivery to or from
storage, or for transportation delivery and redelivery, Shipper shall
immediately notify Bay Gas orally, and shall confirm such notification
in writing, of such reduction or suspension.
2. Nothing in this Section II B shall limit Bay Gas' right to take action
as may be required to adjust injections or withdrawals of gas,
including suspending storage services or to adjust deliveries and
redeliveries, including suspending transportation services, in order
to alleviate conditions that threaten the integrity of its system.
3. In the absence of an executed Accounting Allocation Agreement between
Shipper and Bay Gas as described in Section II A. 4, balancing
procedures shall be as specified in this Section II B. If an
Accounting Allocation Agreement is in effect between Shipper and Bay
Gas, such Agreement shall take precedence over the provisions
specified in this Section II B.
4. If there is more than one supply source (whether at a single or at
multiple Points of Receipt or Delivery) nominated to be received for
Storage or Transportation, the nomination will identify how and which
supply source(s) should be allocated by means of a Receipt
Pre-Determined Allocation ("RPDA") specified in the nomination. In
accounting for the volumes delivered or redelivered by Bay Gas, in
circumstances where multiple services are provided at any Point of
Delivery or Redelivery, the sequence of volumes delivered shall be
determined by the Delivery Pre-Determined Allocation ("DPDA")
specified by Shipper in its most recent nomination. The nomination
will identify which supply source(s) should be allocated in the event
gas is not or cannot be delivered or redelivered as nominated.
5. To the extent feasible, all volumes received by or delivered to Bay
Gas at a Point of Receipt or Delivery shall be allocated in accordance
with the confirmed nominations for that point. In the event the actual
volumes received by Bay Gas do not equal the confirmed nominations for
that point, any underage or overage will be allocated as follows:
(a) First, in accordance with the effective RPDAs submitted by
Shipper (or Shipper's suppliers). Shipper agrees that such
an allocation is binding on Shipper.
4
<PAGE> 24
(b) Then, if there is no effective RPDA, pro rata to the extent
applicable based on confirmed nominations, as applicable.
Shipper agrees that such an allocation is binding on
Shipper.
6. To the extent feasible, all volumes delivered or redelivered by Bay
Gas at a Point of Delivery or Redelivery shall be allocated in
accordance with the confirmed nominations for that point. In the event
the actual volumes delivered by Bay Gas do not equal the confirmed
nominations for that point, any underage or overage will be allocated
as follows:
(a) First, in accordance with the effective DPDAs submitted by
Shipper (or Shipper's suppliers). Shipper agrees that such
an allocation is binding on Shipper.
(b) Then, if there is no effective DPDA, pro rata to the extent
applicable based on confirmed nominations, as applicable.
Shipper agrees that such an allocation is binding on
Shipper.
7. Each Shipper shall be responsible for ensuring that its suppliers
submit Pre-Determined Allocations ("PDAs", which include RPDAs or
DPDAs) as provided herein using a form acceptable to Bay Gas. Unless
otherwise agreed, all PDAs must be submitted to Bay Gas via facsimile
or other agreed upon electronic means on or before the date the PDA is
to be effective. Such PDA shall specify how any underage or overage
from the confirmed nominated volumes should be allocated among the
entities listed on the PDA. Bay Gas shall acknowledge receipt and
acceptance of the PDA by returning acknowledgment of the PDA to
Shipper via mutually agreeable means. Bay Gas acceptance is contingent
on Bay Gas being able to administer the allocation submitted by the
Shipper.
8. To the extent that actual injections or actual withdrawals, or actual
deliveries or actual redeliveries, for each Shipper do not exactly
match confirmed nominations for any day, Bay Gas will attempt to
balance any such differences among Bay Gas and the upstream or
downstream entities, without impacting Shipper, whenever possible. If
an upstream or downstream entity requires a Balancing Agreement for
which any fee is required, Shipper agrees to reimburse Bay Gas for any
incurred expenses.
C. Storage Balance Reconciliation. To the extent Shipper and Bay Gas agree, in
writing, that imbalances may be accounted for under the Shipper's Storage
Service Agreement, and to the extent Shipper has sufficient storage
capacity, Bay Gas will issue a formal storage balance notice to Shipper by
the 20th of the month following the injection/withdrawal month ("the Notice
Month"), reflecting the effect of Shipper's storage balance or any
imbalance. Shipper understands and
5
<PAGE> 25
agrees to contact or cause to be contacted, the parties that deliver
injection volumes to Bay Gas, or receive withdrawal volumes from Bay Gas,
for the Shipper's account to confirm any imbalance.
Following the termination of the Storage Service Agreement, Shipper shall
be required to either (a) transfer title to any volumes of gas in storage
to a third party with whom Bay Gas has a Storage Service Agreement, with
such transfer to be subject to any injection conditions or charges
applicable to such third party, or (b) withdraw such volumes from storage
within a sixty (60) day balancing period after the determination by Bay Gas
that any such volumes exist, or within such longer period of time mutually
agreed upon by Shipper and Bay Gas. Shipper agrees that at the end of the
above sixty (60) day balancing period, Bay Gas will, for any storage
volumes not withdrawn, take title to such gas and such title is to pass
automatically without cost to Bay Gas.
D. Excess Deliveries. In the event that Shipper, from time to time, desires to
have injected into or withdrawn from storage, or to have transported, or to
have transported, quantities of gas in excess of the Maximum Daily
Injection Quantity or Maximum Daily Withdrawal Quantity, or Maximum Daily
Transportation Quantity, respectively, which Bay Gas is obligated to accept
or deliver or redeliver under storage or transportation arrangements for
Shipper on any day under a Storage or Transportation Service Agreement,
Shipper may request injection or withdrawal or transportation of such
excess gas, and Bay Gas in its sole discretion may accept or deliver or
redeliver all or any part of such gas subject to the restrictions of these
General Terms and Conditions.
SECTION III.
Construction of Facilities
Under no circumstances shall Bay Gas be obligated to construct or add
facilities to receive or deliver or redeliver gas under a Storage or
Transportation Service Agreement, or to increase the capacity of Bay Gas'
pipeline system or storage or transportation facilities. Upon Shipper's written
request to evaluate connections of new facilities, Bay Gas will prepare and
submit to Shipper a construction cost estimate. All new or additional facilities
that may be required for the delivery of acceptable gas to Bay Gas, or for the
delivery or redelivery of gas to the receiving party or parties will be
constructed, maintained, owned and operated by Bay Gas, except as may otherwise
be expressly agreed in writing. The design and installation of all facilities
shall be in accordance with the specifications then used by Bay Gas for like or
similar facilities. Shipper shall bear the cost of all such new connections,
unless otherwise mutually agreed.
SECTION IV.
Rate Adjustment
A. Rates charged for services shall be negotiated between Bay Gas and Shipper.
Bay Gas reserves the right to seek authorization from the
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Federal Energy Regulatory Commission ("FERC") or other appropriate agency
to increase, decrease or restructure the rates (including market based
rates), and Company Use charges in effect at any time as may be found
necessary to assure Bay Gas' right to charge and collect fair and equitable
rates within the meaning of Section 311 (a)(2) of the Natural Gas Policy
Act of 1978 ("NGPA") and the FERC's rules and regulations thereunder.
Nothing herein contained shall be construed to deny any Shipper any rights
which it may have under FERC rules and regulations, including the right to
participate fully in rate proceedings by intervention or otherwise to
contest changes in rates and Company Use charges in whole or part. In
addition to the rates above, Shipper shall pay in advance all applicable
state and federal filing, reporting and application fees incurred by Bay
Gas for providing such services.
B. Bay Gas may at any time provide firm or interruptible storage services at
different rates from the market based rates approved by the FERC for Bay
Gas' NGPA Section 311(a)(2) services. Nothing herein shall obligate or
require, or be construed to obligate or require, Bay Gas to offer or
continue such different rates.
SECTION V.
Regulatory Requirements
Bay Gas' interstate services shall be in accordance with and subject to
the requirements of Section 311(a)(2) of the NGPA and the rules and regulations
of the FERC thereunder. Bay Gas' intrastate services shall be in accordance with
and subject to the laws, rules and regulations of the State of Alabama.
Bay Gas agrees to proceed with reasonable diligence during the term of
the Storage or Transportation Service Agreement with the filing for and
prosecution of any authorizations as may be required for the storage or
transportation of the gas hereunder or the rate(s) charged therefor. Bay Gas
reserves the right to pursue any necessary regulatory filings with FERC and any
other governmental or regulatory body having jurisdiction in such matter as it
deems to be in its best interest, including the right to file whatever pleadings
and motions it deems desirable. In the event Bay Gas has obtained such necessary
regulatory authorization, but the terms and conditions are significantly
different than those terms originally filed with the regulatory agency, or in
the event FERC rejects or modifies Bay Gas' Statement of Conditions for NGPA
Section 311(a)(2) Gas Storage and Transportation Services, as same may be
amended by Bay Gas from time to time, Bay Gas shall pursue other reasonable
options to continue providing such services or, at Bay Gas' option, shall
terminate such services as provided in Article VII, Right to Terminate Services,
of Bay Gas' Statement of Conditions.
SECTION VI.
Pressures
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Bay Gas shall operate its storage facilities at pressures which will
accommodate the withdrawal of gas in accordance with Bay Gas' outstanding firm
service storage commitments. Bay Gas shall operate its transportation facilities
at pressures which will accommodate the redelivery of gas in accordance with Bay
Gas' outstanding firm service transportation commitments. Shipper shall be
obligated to deliver gas for injection or for transportation, at a pressure
sufficient for Bay Gas to transport such gas to and inject into its storage
facility, or to transport such gas for redelivery, recognizing that the amount
of such pressure will vary based on the operation of the Bay Gas pipeline.
SECTION VII.
Measurement
A. The gas received for injection or delivered for withdrawal at the storage
facilities, or delivered or redelivered at the transportation facilities,
shall be measured with meters constructed and installed, and whose
computations of volume are made, in accordance with the provisions of
ANSI-API 2530-AGA-3, latest revision as adopted by Bay Gas.
B. The temperature of the gas shall be determined by a recording thermometer
so installed that it will record the temperature of the gas flowing through
the meters. The average of the record to the nearest one degree (1 degree)
Fahrenheit, obtained while gas is being delivered, shall be the applicable
flowing gas temperature for the period under consideration. For all
measurement of gas required in this Section, the BTU content per cubic foot
shall be determined for a cubic foot of gas at a temperature of sixty
degrees (60 degrees) Fahrenheit, at an absolute pressure of fourteen and
seventy-three hundredths (14.73) pounds per square inch on a dry basis.
C. The BTU, specific gravity, carbon dioxide, and nitrogen content of the gas
shall be determined by the use of an on-line chromatograph or by a
chromatographic analysis of the gas obtained by a continuous sample or spot
sampling method. The results of any sample taken with an on-line
chromatograph shall be applied to the month in which the sample was taken.
D. Adjustment for the effect of supercompressibility shall be made according
to the provisions of the latest version of either NX-19 or AGA Committee
Report No. 8, as required by Paragraph A. of this Section and as adopted by
Bay Gas, for the average conditions of pressure, flowing temperature, and
specific gravity at which the gas was measured during the period under
consideration and with the proportionate values of carbon dioxide and
nitrogen in the gas delivered included in the computation of the applicable
supercompressibility factors.
E. If at any time during the term hereof a new method or technique is
developed with respect to gas measurement or the determination of the
factors used in such gas measurement, such new method or technique may
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be substituted for the gas measurement set forth in this Section on the
date such method or technique is adopted by Bay Gas.
SECTION VIII.
Measuring Equipment and Testing
A. General. The construction, ownership, operation and maintenance of any
measuring equipment necessary to accomplish the storage receipt of gas for
injection by Bay Gas for the account of Shipper and the delivery of gas
withdrawn by Bay Gas for the account of Shipper, or the transportation
delivery of gas to Bay Gas for the account of Shipper and the redelivery of
gas by Bay Gas for the account of shipper shall be the responsibility of
Bay Gas. Shipper shall at all reasonable times have access to the premises
of Bay Gas for inspections, insofar as such premises are connected with any
matter or thing covered hereby. The operation of measuring equipment and
changing of charts shall be done only by the employees or agents of Bay
Gas.
B. Testing and Repair of Equipment.
1. Bay Gas shall keep its own measuring equipment accurate and in repair,
making periodic tests to verify the condition of meter tubes, orifice
plate, and chart recorder or flow computer. Bay Gas agrees to give
Shipper(s) seven (7) calendar days notice prior to such tests of the
measuring equipment so that, if desired, Shipper(s) may have its
representative present. Shipper(s) shall have the right to challenge
the accuracy of Bay Gas' equipment, and when challenged, the equipment
shall be tested, calibrated and, if required, repaired by Bay Gas, the
cost of such special test to be borne by Bay Gas if the percentage of
the inaccuracy is found to be more than two percent (2%), but if the
percentage of inaccuracy is found to be two percent (2%) or less, the
cost of such special test shall be borne by the Shipper(s). If upon
any test the percentage of inaccuracy is found to be in excess of two
percent (2%), registrations thereof shall be corrected for a period
extending back to the time such inaccuracy occurred, if such time is
ascertainable, and if not ascertainable, then back one-half (1/2) of
the time elapsed since the last date of calibration. Any measuring
equipment found to be measuring inaccurately by one percent (1%) or
more shall be adjusted at once to read accurately.
2. If, for any reason, the meter(s) are out of service or out of repair
so that the amount of gas received or delivered cannot be ascertained
or computed from the readings thereof, the gas received or delivered
during the period such meter(s) are out of service or out of repair
shall be estimated and agreed upon by the parties hereto by the use of
the first applicable of the following methods:
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(a) By comparative utilization of any like check measuring
equipment if such check measuring equipment can be proven
and verified to be measuring accurately; or
(b) By computing the error if the percentage of error is
ascertainable by calibration, test or mathematical
calculation; or
(c) By estimating the quantity received or delivered by
reference to actual receipts or deliveries during preceding
periods under similar conditions when Bay Gas' measuring
equipment was registering accurately.
C. Inspection of Charts and Records. The charts and records from the measuring
equipment shall remain the property of Bay Gas and shall be kept on file
for a period of time not less than two (2) years from the end of the
calendar year in which the charts and records were generated or prepared.
At any time within such period, upon written request by Shipper, records or
charts from the measuring equipment, together with calculations therefrom,
will be submitted for Shipper's inspection and verification subject to
return to Bay Gas within thirty (30) days from receipt thereof. All
inquiries regarding this Section VIII, including but not limited to,
measurement charts, records or audits of charts and records, shall be
directed to Bay Gas.
SECTION IX.
Quality
The gas delivered by either party to the other hereunder shall meet or
exceed the quality specifications of the transporting pipeline which receives or
delivers such gas to the other party hereunder.
SECTION X.
Billing, Accounting, Taxes and Reports
A. Billings and Payments.
1. For the purpose of billing and accounting for the gas delivered
hereunder, the day shall begin at 9:00 a.m. Central Clock Time and
extend to 9:00 a.m. the following day, and the month (hereinafter
called "billing month") shall begin at 9:00 a.m. Central Clock Time on
the first (1st) day of the calendar month and extend to 9:00 a.m. on
the first (1st) day of the following calendar month.
2. Bay Gas shall render to its Shippers, by mail or facsimile, on or
before the first (1st) day of each month an invoice setting forth the
demand charges as applicable. Within ten (10) days from the date of
the invoice, Shipper agrees to make payment to Bay Gas by wire
transfer to the AmSouth Bank of Alabama, crediting Bay Gas'
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account number 83794638 for such firm demand charges for the account
of Shipper at the Delivery Point(s) during the current month.
3. On or before the fifteenth (15th) day of each calendar month, Bay Gas
shall render or cause to be rendered, by mail or facsimile, to all
Shippers an invoice of the amount due for the preceding month setting
forth the total quantity of gas (1) received by Bay Gas from Shipper
for injection into the storage facilities, or delivered by shipper to
Bay Gas for transportation; (2) delivered by Bay Gas to Shipper for
withdrawal from the storage facilities, or redelivered by Bay Gas to
Shipper after transportation; (3) gas balance at the beginning and end
of the injection/withdrawal, or transportation, month and (4) the
rates and charges for storage or transportation services hereunder
during such billing month. Billings for volumes transported shall be
determined on a dry basis.
4. Within ten (10) days from the date of the fifteenth (15th) day
invoice, Shipper shall pay Bay Gas the amount due for all gas
injected, withdrawn or stored, or transported, by Bay Gas for the
account of Shipper during the injection/withdrawal, or transportation,
month. Payments to Bay Gas shall be made either by wire transfer to
the AmSouth Bank of Alabama, crediting Bay Gas' account number
83794638, or by check such that funds are available to Bay Gas on or
before the tenth (10th) day after the date of the invoice. If
rendering of an invoice by Bay Gas is delayed after the fifteenth day
of the month, then the time of payment shall be extended accordingly
unless Shipper is responsible for such delay.
B. Late Payment. In the event Shipper shall fail to pay any amount due Bay Gas
when the same is due, Bay Gas shall have the option of accruing interest at
a varying rate per annum (based on a year of 365 or 366 days, as the case
may be) which shall be one hundred fifteen percent (115%) of the prime rate
charged by the AmSouth Bank of Alabama to its largest and most creditworthy
commercial borrowers on ninety (90) day commercial loans (but in no event
greater than the maximum rate of interest permitted by law) with
adjustments in such rate, for any period during which the same shall be
overdue, such interest to be paid when the amount past due is paid. Shipper
shall not be required to pay interest on any amount billed which is in good
faith disputed in writing by Shipper and is ultimately determined to be in
error; provided, however, interest shall be due if such amount billed is
found not to be in error. If a portion of an invoice is disputed, Shipper
shall pay when due the portion of the invoice not in dispute. If such
failure to pay continues for thirty (30) days after the payment due date,
Bay Gas may suspend deliveries of gas, subject to Bay Gas providing
forty-eight (48) hours written notice, during normal working hours, of such
intention to suspend deliveries; provided, however, that if Shipper, in
good faith, disputes the amount of any such bill or part thereof and pays
to Bay Gas such amounts as Shipper concedes to be correct, and
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furnishes and maintains a good and sufficient surety bond in an amount, and
with sureties satisfactory to Bay Gas, conditioned upon the payment of any
amounts ultimately found due upon such bills after a final determination,
then Bay Gas shall not be entitled to suspend further delivery due to
failure to pay such bills. In the event Shipper's financial position
significantly deteriorates from that on the execution date of the Storage
or Transportation Service Agreement, advance cash payments or acceptable
security (including but not limited to an irrevocable letter of credit from
a financial institution in an amount acceptable to Bay Gas) shall be given
by Shipper upon demand of Bay Gas. Bay Gas may, without waiving any other
rights or remedies it may have, withhold further delivery until such
payment is received. In the event Bay Gas pursues collection on late
payment, Shipper shall be liable for all expenses and costs, including
court costs and attorneys' fees, incurred as a result of such failure to
pay on time.
C. Tax Reimbursement. Shipper agrees to reimburse Bay Gas for all new taxes
(federal, state, local or other) that may be levied upon or paid by Bay
Gas, with respect to the services performed hereunder.
D. Examination of Books, Records and Charts. Each party shall have the right
during reasonable working hours to examine the books, records and charts of
the other party to the extent necessary to verify the accuracy of any
statement, payment calculations or determinations made pursuant to the
provisions contained herein. If any such examination shall reveal, or if
either party shall discover, any error in its own or the other party's
statements, payment calculations or determinations, then proper adjustment
and correction thereof shall be made as promptly as practicable thereafter.
The accuracy of any statement, payment calculations or determinations made
pursuant to the provisions contained herein shall be conclusively presumed
to be correct after two (2) years from the end of the calendar year in
which the charts and records were generated or prepared if not challenged
in writing prior thereto.
SECTION XI.
Possession and Non-Odorization of Gas
As between Shipper and Bay Gas, Shipper shall be in exclusive control
and possession of the gas deliverable and responsible for any damage or injury
caused thereby until the same shall have been received by Bay Gas for injection
at the storage facilities, or until delivered at the transportation facilities,
and after delivery of the gas for the account of Shipper for withdrawal at the
storage facilities, or after redelivery for the account of Shipper at the
transportation facilities. After delivery of gas for injection or transportation
by Shipper to Bay Gas, and until delivery by Bay Gas to Shipper or Shipper's
designee upon withdrawal or until redelivery after transportation, Bay Gas shall
be in exclusive control and possession thereof and responsible for any injury or
damage caused thereby. Neither Bay Gas nor Shipper assume any obligation to
odorize any gas delivered to the other.
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SECTION XII.
Warranty
Shipper warrants that it will have and maintain good and marketable
title or the right to deliver for a third party owning good and marketable title
all gas tendered for injection, storage and withdrawal under a Storage Service
Agreement, and all gas delivered for transportation under a Transportation
Service Agreement, and that such gas shall be free and clear of all liens and
adverse claims; and each party agrees, with respect to the gas delivered by it,
to indemnify the other against all suits, actions, debts, accounts, damages,
costs (including attorney's fees), losses and expenses arising from or out of
any adverse claims of any and all persons to or against said gas.
SECTION XIII.
Government Regulations
A. All of the provisions of any Storage or Transportation Service Agreement
are hereby expressly made subject to all present and future applicable
federal or state laws, orders, rules and regulations of governmental
authorities having jurisdiction. Except as otherwise provided herein, in
the event any provision of a Storage or Transportation Service Agreement or
of these General Terms and Conditions is found to be inconsistent with or
contrary to any such law, order, rule or regulation, the latter shall be
deemed to control, and the Storage or Transportation Service Agreement and
these General Terms and Conditions, to the extent possible, shall be
regarded as modified accordingly and as so modified shall continue in full
force and effect.
B. The parties hereto recognize that a Storage or Transportation Service
Agreement has been entered into by Bay Gas in the good faith understanding
that all acts, obligations and services performed by Bay Gas hereunder, and
the charges therefor, are exempt from the regulation of FERC or any
successor federal governmental authority, except as presently provided by
Section 311(a)(2) of the NGPA and FERC's relevant regulations thereunder.
Bay Gas reserves the right to terminate a Storage or Transportation Service
Agreement immediately if, in the opinion of counsel for Bay Gas, any act
shall occur or be seriously threatened which is in any way inconsistent
with such understanding.
C. Equal Employment Opportunity. Bay Gas and Shipper agree to comply with any
and all applicable executive orders and acts pertaining to equal employment
opportunity.
SECTION XIV.
Force Majeure
A. In the event of either party being rendered unable, wholly or in part, by
reason of force majeure to carry out its obligations under any
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Storage or Transportation Service Agreement (other than the obligation to
make payment of amounts due hereunder), it is agreed that such party shall
give notice and reasonably full particulars of such force majeure, in
writing or by facsimile, to the other party within a reasonable time after
the occurrence of the cause relied on, and the obligations of the party
giving such notice, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but
for no longer period, and such cause shall, so far as possible, be remedied
with all reasonable dispatch.
B. The term, "force majeure," as employed herein shall mean acts of God;
strikes, lockouts, or other industrial disturbances; conditions arising
from a change in governmental laws, orders, rules or regulations; acts of
public enemy; wars; blockades; insurrections; riots; epidemics; landslides;
lightning; earthquakes; fires; storms; floods; washouts; arrests and
restraints of governments and people; civil disturbances; explosions;
breakage or accident to machinery or lines of pipe; the necessity for
making repairs, tests or alterations to machinery or lines of pipe;
freezing of wells or lines of pipe; partial or entire failure of wells,
processing or gasification and gas manufacturing facilities; and any other
causes, whether of the kind herein enumerated or otherwise, not within the
control of the party claiming suspension, and which by the exercise of due
diligence, such party is unable to prevent or overcome. Such term shall
likewise include: (a) those instances where either Bay Gas or Shipper is
required to obtain servitudes, rights-of-way, grants, permits or licenses
to enable such party to fulfill its obligations under a Storage or
Transportation Service Agreement; the inability of such party in acquiring,
at reasonable costs, and after the exercise of reasonable diligence, such
servitudes, rights-of-way, grants, permits or licenses, and (b) those
instances where either Bay Gas or Shipper is required to furnish materials
and supplies for the purpose of constructing or maintaining facilities or
is required to secure permits or permissions from any governmental agency
to enable such party to fulfill its obligations under a Storage or
Transportation Service Agreement; the inability of such party to acquire,
or the delays on the part of such party in acquiring, at reasonable costs,
and after the exercise of reasonable diligence, such materials and
supplies, permits and permissions. Force majeure shall not include failure
of gas supply due to pricing considerations.
C. It is understood and agreed that the settlement of strikes or lockouts
shall be entirely within the discretion of the party having the difficulty,
and that the above requirement that any force majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes or
lockouts by acceding to the demands of the opposing party when such course
is inadvisable in the discretion of the party having the difficulty.
SECTION XV.
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Notices
Except as herein otherwise provided, any communication, notice,
request, demand, statement or bill provided for in a Storage or Transportation
Service Agreement which any party may desire to give to any other party shall be
made in writing and mailed by first class mail to the post office address of the
party intended to receive the same, as the case may be, at the addresses each
respective party shall designate in the Storage or Transportation Service
Agreement or change by subsequent formal written notice to the other. Routine
communications, including monthly statements and payments, may be mailed by
either certified or ordinary first class mail.
SECTION XVI.
Creditworthiness
Bay Gas shall not be required to commence service or, subject to the
following timing provisions, to continue to provide service under a Storage or
Transportation Service Agreement with any Shipper, that (a) is or has become
insolvent; (b) has applied for bankruptcy under Chapter 11 of the Bankruptcy
Code, or which is subject to similar proceedings under state or federal law; or
(c) when requested by Bay Gas to demonstrate creditworthiness, fails to do so in
Bay Gas' reasonable judgment, in light of previous payment experience and the
prudent credit analysis of information available; provided, however, that any
such Shipper that is receiving service shall continue to receive service for a
period of fifteen (15) days after written notice by Bay Gas of any such
circumstance, and shall continue thereafter to receive service if, within such
fifteen (15) day notice period, such Shipper (a) deposits with Bay Gas and
maintains, on account, an amount which would be due for three (3) months service
at the full Maximum Daily Withdrawal Quantity, or the full Maximum Daily
Transportation Quantity, including an amount of the current gas imbalance plus,
an amount equal to the three (3) highest cashout payments, if any, incurred
during the previous twelve months, or (b) furnishes good and sufficient
security, which may include an acceptable standby letter of credit, or monthly
prepayment agreement or other security as reasonably determined by Bay Gas, of a
continuing nature and in an amount equal to such amounts which would be due for
service. If such payment on account or payment security is not received within
such fifteen (15) day notice period, Bay Gas may, without waiving any rights or
remedies it may have, suspend further service for a period of ten (10) days. If
such payment on account or a payment security is not received within such ten
(10) day suspension period, then Bay Gas shall no longer be obligated to
continue to provide service to such Shipper. Further, if such payment on account
or a payment security is not received within sixty (60) days after the end of
such suspension period, Bay Gas may terminate its obligations to provide service
under all agreements between Shipper and Bay Gas, which termination shall not
affect any of Bay Gas' claims or remedies it may have under any Storage or
Transportation Service Agreement.
SECTION XVII.
Miscellaneous
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A. Headings and Subheadings. The headings and subheadings contained in the
Storage or Transportation Service Agreement are used solely for convenience
and do not constitute a part of the Storage or Transportation Service
Agreement between the parties hereto, nor should they be used to aid in any
manner in construing the Storage or Transportation Service Agreement.
B. Successors and Assigns. The Storage or Transportation Service Agreement
shall be binding upon and inure to the benefit of the respective successors
and assigns of the parties hereto, but no assignment shall relieve any
party of its obligations hereunder unless such party is expressly released
in writing from said obligations by the party to which it is obligated.
C. Entire Agreement. The Storage or Transportation Service Agreement, the
Statement of Conditions for NGPA Section 311(a)(2) for Gas Storage and
Transportation Services, and these General Terms and Conditions constitute
the entire agreement of the parties hereto as to the matters contained
herein, and there are no oral promises, agreements or warranties affecting
same.
D. Non-Waiver. The waiver of any default or right to require performance under
a Storage or Transportation Service Agreement shall not operate as a waiver
of any future default or right to require performance, whether of like or
different character or nature.
E. Jurisdiction and Venue. The parties agree that a Storage or Transportation
Service Agreement shall be governed by and construed in accordance with the
laws of the State of Alabama, excluding any conflicts of law, rule or
principle that might refer such construction to the laws of another state
and that venue shall be in the State of Alabama for services performed in
Alabama, with respect to any cause of action brought under or with respect
to a Storage or Transportation Service Agreement.
F. Confidentiality. The terms of any Storage or Transportation Service
Agreement shall be kept confidential by the parties except to the extent
that any information must be disclosed to a third party as required by law,
for either party's financial needs or for the purpose of effectuating any
Storage or Transportation Service Agreement.
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EXHIBIT "C"
BAY GAS STORAGE COMPANY's
STATEMENT OF CONDITIONS FOR
NGPA SECTION 311 (a)(2) GAS
STORAGE AND TRANSPORTATION SERVICES
Dated December 22, 1998.
Bay Gas Storage Company, Ltd. ("Bay Gas"), a natural gas storage public
utility that qualifies as an intrastate pipeline company providing services
within the meaning of Natural Gas Policy Act of 1978 ("NGPA") Section 2 (16) and
Section 284.1 (a) of the Federal Energy Regulatory Commission's ("Commission")
regulations, files this amended Statement of Conditions For NGPA Section 311
(a)(2) Gas Storage and Transportation Services, pursuant to the Commission's
regulations. 18 C.F.R. Section 284.123 (e). Firm and interruptible gas storage
and transportation-only services, on terms and conditions authorized by the
Commission and accepted by Bay Gas, shall be provided by Bay Gas pursuant to
NGPA Section 311 (a)(2), 15 U.S.C. Section 3371 (a)(2), and the Commission's
implementing Orders, Rules and Regulations, to qualified Shippers that comply
with the conditions set forth in this Statement and with the terms and
conditions contained in Bay Gas' Storage or Transportation Service Agreement
executed with Shipper.
I.
BAY GAS' BASIC STATUS AND FUNCTION
Bay Gas is a gas storage public utility, certificated by the Alabama
Public Service Commission and subject to regulation by that Commission, which
qualifies as an intrastate pipeline company providing storage and transportation
services within the meaning of NGPA Section 2 (16) and Section 284.1 (a) of this
Commission's regulations. Any such NGPA Section 311 (a)(2) services that Bay Gas
provides will be consistent with, and shall not infringe on, Bay Gas' status and
function as a non-Federal-jurisdictional intrastate pipeline, and shall not
subject Bay Gas to this Commission's Natural Gas Act jurisdiction. 18 C.F.R.
Section 284.3.
<PAGE> 37
II.
QUALIFIED SHIPPERS
Besides other conditions contained in this Statement, Bay Gas' services
are available only to a Shipper that enters into a Service Agreement mutually
acceptable to Bay Gas and Shipper. All transactions for storage or
transportation of gas that has flowed, or will flow, in interstate commerce must
qualify under NGPA Section 311 (a)(2) and 18 C.F.R. Part 284 of Subchapter I.
If, in the opinion of Bay Gas' counsel, such qualified status of Shipper or its
proposed transaction is in doubt, then Shipper must apply for and receive a
final, non-appealable ruling from this Commission, or successor agency thereto,
affirming such qualifying status of Shipper and its proposed transaction, prior
to commencement of services by Bay Gas.
III.
CAPACITY AVAILABILITY, SCHEDULING AND ALLOCATIONS
AND CURTAILMENTS
A. Capacity Availability
1. Storage service shall be conditioned on availability of sufficient
injection rate capacity, field storage capacity and withdrawal rate
capacity (collectively called "Capacity," and including pipeline
transportation service capacity) to perform the service in accordance
with the terms and conditions set forth in this Statement of
Conditions without detriment or disadvantage to services by or for the
account of Bay Gas. Transportation service shall be conditioned on
availability of sufficient Capacity to perform the service in
accordance with the terms and conditions set forth in this Statement
of Conditions without detriment or disadvantage to services by or for
the account of Bay Gas. Bay Gas reserves all rights to retain
sufficient Capacity for its intrastate, non-Federal-jurisdictional
firm and interruptible services and for its operational swings
attributable to firm and interruptible storage services prior to
making Capacity available
<PAGE> 38
by contract to NGPA Section 311 (a)(2) Shippers. Once Capacity is made
available to NGPA Section 311 (a)(2) Shippers, such Capacity shall be
scheduled, allocated or curtailed only as set forth in Sections III. B
and C here.
2. Storage service availability further shall be conditioned on Bay Gas
receiving an acceptable market value, in Bay Gas' sole judgment, for
such storage services, determined when a request for storage service
is received. Bay Gas reserves all rights to refuse a request for
storage service that, in Bay Gas' sole judgment, might provide less
than market value. Apart from such Bay Gas judgment as to market
value, Bay Gas' judgment shall be exercised on a non-discriminatory
basis.
3. Criteria applied to requests for NGPA Section 311 (a)(2) services
shall be the same as criteria applied to requests for intrastate,
non-Federal-jurisdictional services.
4. Shipper shall be responsible for making all arrangements for its
transportation of gas to be injected into or withdrawn from storage
through Bay Gas' storage services. Bay Gas reserves all rights to
refuse storage service for any otherwise qualified Shipper if Bay Gas
determines that such storage would be detrimental to Bay Gas' storage
operations in any way, including, without limitation, Bay Gas' storage
compression and affected processing operations.
B. Scheduling and Allocations
Bay Gas shall schedule contracted services according to these
principles:
1. Nomination deadlines shall be as prescribed in Bay Gas'
General Terms and Conditions.
2. Bay Gas will be under no obligation to schedule the
injection of gas into storage or the withdrawal of gas from
storage until Bay Gas has confirmed the availability of
Shipper's transportation
<PAGE> 39
service to or from Bay Gas' storage services for the gas concerned.
Subject to the foregoing subsection "1." and this subsection "2.",
firm storage and transportation services shall be scheduled before
interruptible services in all instances, regardless of the relative
service rates to be paid.
3. In-field transfer of title (transfer of gas balances in the storage
field between storage service agreements) may be made only with Bay
Gas' approval.
4. Interruptible storage service Shippers paying a higher Unit Rate, as
defined in Bay Gas' General Terms and Conditions, shall be scheduled
ahead of interruptible storage service Shippers paying a lower Unit
Rate. If, because of changes in available Capacity at any time, Bay
Gas is required to reschedule interruptible Shippers that are
injecting, storing or withdrawing gas and are paying the same Unit
Rate, then the Capacity shall be rescheduled pro rata based on
applicable contract quantities for said Shippers.
5. Bay Gas reserves the right to interrupt service to an interruptible
Shipper injecting, storing or withdrawing gas, in order to enable Bay
Gas to provide service to another, bumping, interruptible Shipper
injecting, storing or withdrawing gas, if such Shipper is paying a
higher Unit Rate to Bay Gas.
6. All overrun volumes in excess of a storage service Shipper's contract
quantities nominated for delivery by Shipper shall be scheduled
according to the above subsections "4." and "5." only after all other
storage service Shippers' nominated volumes equal to or less than each
Shippers' Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity are scheduled.
7. Bay Gas may reschedule Capacity on a daily basis, or on such other
periodic basis as is necessary for Bay Gas to recognize the priority
of new storage or transportation service Shippers or any changes in
the priorities of existing such Shippers, and to
<PAGE> 40
conform to its storage system operational requirements. Such
priorities or changes will include, but will not be limited
to, those instances involving a storage service Shipper paying
a higher Unit Rate for interruptible service and firm storage
service Shippers changing volumes within their Maximum Daily
Injection Quantity or Maximum Daily Withdrawal Quantity.
However, such changes in scheduling shall not at any time bump
any existing firm Shipper.
C. Curtailments
1. General. If curtailment of storage or transportation service is
required, volumes shall be curtailed in the reverse order of the
priority in effect at the time of curtailment established during
scheduling as set forth in Section "III. B" above. Intrastate,
non-Federal-jurisdictional firm and interruptible services shall be
curtailed in a manner determined solely by Bay Gas, but in no event
shall such curtailments have a different priority than similar
types of services for NGPA Section 311 (a)(2) Shippers.
2. Reduction of Services. Without limitation to the foregoing, Bay Gas
shall have the right to reduce receipts, deliveries, injections or
withdrawals of gas on any day below a storage service Shipper's
Maximum Daily Injection Quantity or Maximum Daily Withdrawal
Quantity, or below the storage rights applicable, for repair,
overhaul, replacement or construction of pipelines, compressors,
metering, regulating or other production, gathering and
transmission facilities and equipment, or to maintain system
integrity; provided, however, that with respect to routine repair
and maintenance, Bay Gas will implement restrictions for scheduling
purposes only, not for curtailment, and will attempt to schedule
such activity during a period when it will not result in limitation
of firm service or when such limitation will be
<PAGE> 41
minimized, and after consulting with the Shippers that could be
affected.
3. Notice of Curtailment. For shippers under all firm services, Bay Gas
shall provide notice of any curtailment as far in advance as feasible.
Services reserved by Bay Gas for system operations shall be curtailed
last, in consideration of the need to preserve system integrity. If
capacity is curtailed and two or more firm Shippers have the same
priority according to this Section "III. C", firm Shippers shall be
allocated their pro rata share of capacity based on their Maximum
Daily Injection Quantity or Maximum Daily Withdrawal Quantity or
Maximum Daily Transportation Quantity, as applicable. If firm Shippers
nominate fewer than their respective curtailment period entitlements,
the difference shall be allocated pro rata among those firm Shippers
with unsatisfied nominations. All non-firm Shippers shall be allocated
their pro rata share of Capacity based on their nominations in effect
at the time of the curtailment.
4. Limitation of Firm Services. While firm services are not ordinarily
interrupted by nominations for firm service within Shipper's Maximum
Daily Injection Quantity or Maximum Daily Withdrawal Quantity or
Maximum Daily Transportation Quantity, Bay Gas may decline to schedule
firm service for any of the following reasons:
(a) if Shipper tenders gas which does not conform to applicable
pressure requirements of the Storage or Transportation
Service Agreement
(b) if Shipper tenders gas which does not conform to the gas
quality requirements of both the upstream and downstream
entities' gas quality requirements
(c) for reasons of force majeure
(d) due to routine repair and maintenance to be reasonably
determined by Bay Gas
<PAGE> 42
(e) due to delinquency in payment by Shipper
(f) to rectify imbalances or to conform physical flows to
nominations
(g) to maintain system integrity, or
(h) if there is a dispute over title, ownership or right to
tender, receive or deliver gas.
IV.
MINIMUM STORAGE SERVICE VOLUME
Bay Gas shall not be obligated to furnish storage service to any
Shipper whose average daily gas volume tendered for storage in a given month is
less than 100 MMBtu per day. Such storage Shipper's obligation to tender gas for
delivery shall be suspended and modified for the time and to the extent that Bay
Gas does not accept deliveries due to Shipper's inability to deliver such
minimum average daily volume. If the amount of gas subsequently tendered for
delivery once again is less than such minimum average daily volume, Bay Gas
shall have the right to cancel the Storage Service Agreement at any time on
thirty (30) days written notice to Shipper. Bay Gas shall be deemed released
from all obligations and liabilities, direct or indirect, under such Storage
Service Agreement on the effective date of such a cancellation.
V.
RECEIPT AND DELIVERY
Bay Gas shall have sole operational control over the injection of gas
into, the retention of gas within, and the withdrawal of gas from, Bay Gas'
system storage facilities. A Shipper seeking to direct gas into storage shall
nominate "Storage" as the Point of Delivery on Bay Gas' system and shall
identify the number of the Storage Service Agreement to be used for the receipt
of such gas into storage. A Shipper seeking to withdraw gas from storage shall
nominate "Storage" as the Point of Redelivery from Bay Gas' system and shall
identify the number of the Storage Service Agreement under which the gas is to
be withdrawn from storage. Bay Gas shall have sole
<PAGE> 43
operational control over the transportation of gas on Bay Gas' system from the
Point of Delivery to the Point of Redelivery. For transportation service,
"Delivery" shall mean the act of causing gas to be transported to the Points of
Delivery, and "Redelivery" shall mean the transportation of gas from the Points
of Delivery to the Points of Redelivery.
VI.
GENERAL TERMS AND CONDITIONS
FOR GAS STORAGE AND TRANSPORTATION
Amended General Terms and Conditions to Bay Gas Storage Company, Ltd.'s
Storage and Transportation Service Agreements, dated December 22, 1998, are
incorporated by reference as part of this Statement of Conditions. Shipper's
failure to comply with the provisions in Section II, Nominations, Balancing And
Excess Deliveries, of such General Terms and Conditions shall relieve Bay Gas of
its obligation to perform services, and, if such failure to comply unreasonably
interferes, in Bay Gas' judgment, with Bay Gas' control over its system
facilities, then Bay Gas may, at its option, cease services and terminate any
related Service Agreements or other agreements, without limitation of Bay Gas'
rights or remedies at law or in equity.
VII.
RIGHT TO TERMINATE SERVICES
Bay Gas reserves the right to discontinue, on a non-discriminatory
basis, all services that subject Bay Gas to the non-discriminatory access
requirements of 18 C.F.R. Part 284, and any subsequent Commission Orders, Rules
or Regulations applicable to such services. Bay Gas may cancel the affected
Service Agreements at any time on ninety (90) days prior written notice to
Shippers if Bay Gas has no other reasonable options available that will allow
the continuation of such Service Agreements. Bay Gas shall be relieved of all
obligations and liabilities on the effective date of such
<PAGE> 44
notice of discontinuance and cancellation. Bay Gas additionally reserves the
right to terminate any interruptible Service Agreement if the Shipper either has
not executed the Service Agreement within thirty (30) days of receiving such
Agreement, or has failed to nominate service under such Agreement within one (1)
year after execution of the Agreement.
VIII.
COMPLIANCE WITH LAW AND SURVIVABILITY
If any part of this Statement of Conditions conflicts with, or
violates, any Commission or other Judicial, Governmental or Regulatory Body's
Orders, Rules or Regulations, such part shall be deemed void, but shall not
affect the remaining provisions of this Statement. Bay Gas shall not be liable
to any party with a Service Agreement subject to this Statement that loses
priority status or any other rights enumerated in this Statement because of the
issuance by the Commission or other Judicial, Governmental or Regulatory Body of
any Orders, Rules or Regulations affecting this Statement of Conditions.
IX.
CHANGES TO THIS STATEMENT OF CONDITIONS
Bay Gas reserves the right to add to, delete or modify the conditions
in this Statement without prior notice.
X.
AUTHORITY OF STATEMENT OF CONDITIONS
This Statement of Conditions, and the incorporated General Terms and
Conditions (see Section "VI." above) take precedence over conflicting language
in any of Bay Gas' Service Agreements or amendments thereto, unless such
language specifically states that it is an exception to this Statement, and then
only to the extent of such stated exception.
<PAGE> 45
EXHIBIT "D"
COMPLIANCE WITH LAWS
Shipper is a government contractor under an Area-Wide Utilities Service Contract
with the General Services Administration of the United States Government. Bay
Gas agrees that the provisions contained in the Federal Acquisition Regulation
referred to below shall, as if set forth herein in full text, be incorporated
into and form a part of this Contract and Bay Gas shall comply therewith, if the
amount of such Contract and the circumstances surrounding its performance meet
the criteria set out in each of the provisions referred to below, for
incorporation of the provision(s) into contracts between Shipper and others:
(1) 52.203-6 Restrictions on Subcontractor Sales to the
Government
(2) 52.203-7 Anti-Kickback Procedures
(3) 52.222-26 Equal Opportunity
(4) 52.223-2 Clean Air and Water
(5) 52.223-14 Toxic Chemical Release Reporting
Upon request, Shipper will provide the full text of any of the above provisions
or clauses incorporated herein by reference.
Bay Gas hereby warrants that Bay Gas is not debarred, suspended or proposed for
debarment as a contractor or subcontractor to any department, agency or other
division of the U.S. Government.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 124,468
<OTHER-PROPERTY-AND-INVEST> 1,585
<TOTAL-CURRENT-ASSETS> 25,978
<TOTAL-DEFERRED-CHARGES> 1,006
<OTHER-ASSETS> 6,389
<TOTAL-ASSETS> 159,426
<COMMON> 49
<CAPITAL-SURPLUS-PAID-IN> 18,326
<RETAINED-EARNINGS> 45,841
<TOTAL-COMMON-STOCKHOLDERS-EQ> 64,216
0
0
<LONG-TERM-DEBT-NET> 58,582
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 918
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 35,710
<TOT-CAPITALIZATION-AND-LIAB> 159,426
<GROSS-OPERATING-REVENUE> 23,087
<INCOME-TAX-EXPENSE> 2,244
<OTHER-OPERATING-EXPENSES> 15,991
<TOTAL-OPERATING-EXPENSES> 18,235
<OPERATING-INCOME-LOSS> 4,852
<OTHER-INCOME-NET> 187
<INCOME-BEFORE-INTEREST-EXPEN> 5,039
<TOTAL-INTEREST-EXPENSE> 1,280
<NET-INCOME> 3,759
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,759
<COMMON-STOCK-DIVIDENDS> 1,074
<TOTAL-INTEREST-ON-BONDS> 4,453<F1>
<CASH-FLOW-OPERATIONS> 12,255
<EPS-PRIMARY> .77<F2>
<EPS-DILUTED> .76<F2>
<FN>
<F1>TOTAL INTEREST ON BOOKS REPRESENTS INTEREST EXPENSE RELATED TO LONG-TERM
DEBT OUTSTANDING UNDER FIRST MORTGAGE BONDS AND LONG-TERM SECURED NOTES.
<F2>REPRESENTS BASIC AND DILUTED EARNINGS PER SHARE COMPUTED IN ACCORDANCE WITH
FASB 128.
</FN>
</TABLE>
