IROQUOIS PIPELINE OPERATING COMPANY AND
TENNESSEE GAS PIPELINE COMPANY
AGREEMENT WITH RESPECT TO
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
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This Agreement dated this 15th day of March 1991, by and between
Tennessee Gas Pipeline Company, a Delaware corporation ("Tennessee") and
Iroquois Pipeline Operating Company, a Delaware corporation ("Operator").
WITNESSETH:
WHEREAS, Iroquois Gas Transmission System was formed pursuant to a
General Partnership Agreement effective as of January 10, 1989, to construct and
operate an interstate natural gas pipeline from a point on the international
border near Iroquois, Ontario through the states of New York and Connecticut
across Long Island Sound to a point near South Commack, Long Island, New York to
transport natural gas on behalf of various Shippers;
WHEREAS, Iroquois Gas Transmission System, L.P. was formed pursuant to
a Limited Partnership Agreement effective as of November 30, 1989 ("Partnership
Agreement") and all rights, liabilities, duties and obligations of Iroquois Gas
Transmission System have been assigned to and assumed by Iroquois Gas
Transmission System, L.P.;
WHEREAS, pursuant to Section 9.5 of the General Partnership Agreement,
the Partnership and TransCanada Iroquois Ltd. ("TCIL") have executed an
Operating Agreement effective as of January 10, 1989 ("Operating Agreement") and
the Partnership initially designated TCIL to manage the design, construction,
operation, maintenance, and administration of the Iroquois Gas Transmission
System; and
WHEREAS, the rights and obligations of TCIL under the Operating
Agreement have been assigned to the Operator; and
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WHEREAS, Operator desires that Tennessee perform for Operator certain
of the functions and responsibilities which have been delegated to the Operator
under the Operating Agreement; and
WHEREAS, Tennessee is willing and able to assume such functions and
responsibilities on the terms and conditions set forth below:
NOW THEREFORE, in consideration of the representations, covenants and
premises hereinafter set forth, the Parties agree as follows:
1. Definitions.
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As used in this Agreement, the definitions used in the Partnership and
Operating Agreements shall, except as specifically provided herein,
have the same meanings in this Agreement. In addition, the following
words and terms shall have the meanings set forth herein:
1.1. Accounting Procedure. The accounting procedure set forth in
Exhibit "A" hereto.
1.2. Completion Date. The date on which the construction and testing
of the Facilities authorized under Section 4.10 of the
Partnership Agreement are substantially completed and the
Facilities are available for service.
1.3. Day. A period of twenty-four (24) consecutive hours commencing at
8:00 a.m. Eastern Standard Time.
1.4. Month. A period of time beginning on the first Day of a calendar
month and ending at the same time on the first Day of the next
succeeding calendar month.
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1.5. Year. Each twelve (12) Month period beginning on the first Day of
a calendar year and ending on the first Day of the next calendar
year, provided that the first year hereunder shall begin on the
earlier of the Completion Date and the date upon which Tennessee
is first requested to undertake services pursuant to Section
2.1.2, and shall end on the first Day of the following calendar
year and further provided that the last contract year shall end
at the end of the term provided in Section 9.1 of this Agreement,
unless extended by mutual agreement between Tennessee and
Operator.
1.6. Party. Tennessee or Operator and "Parties" shall mean both
Tennessee and Operator.
1.7. Partnership. The Iroquois Gas Transmission System, L.P. and any
successor entities thereto.
2. Relationship of the Parties.
2.1. Scope of Agreement.
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2.1.1. Upon and subject to the terms and conditions of this
Agreement and commencing with the Completion Date,
Operator and Tennessee hereby agree that Tennessee shall
undertake the obligations and perform the services
specified in Section 3 of this Agreement.
2.1.2. Prior to the Completion Date, Tennessee shall perform
such services as Tennessee and the Operator may mutually
agree upon as necessary and
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appropriate to ensure a smooth transition from
construction to operation of the Facilities. During such
period, the Operator will endeavor in good faith to
utilize Tennessee employees as construction inspectors
and supervisors where feasible. Prior to construction by
the Operator of any Incremental Expansion, the Operator
and Tennessee shall negotiate an agreement with respect
to coordination of their respective construction and
operation responsibilities.
2.2. Tennessee's Authority to Execute Contracts. Subject to any
procedures established by the Operator with the consent of
Tennessee, which consent shall not unreasonably be withheld,
Tennessee may, on its own behalf, execute contracts relating to
performance of Tennessee's duties under this Agreement. Tennessee
shall nor be authorized to execute any contract on behalf of the
Operator without the prior express written consent of the
Operator and shall not be authorized to execute any contract on
behalf of the Partnership without the prior express written
consent of the Management Committee. Consistent with the
foregoing, Tennessee may enter into contracts (including
contracts for the purchase of property) in the name of the
Partnership for which Tennessee has budget authority to incur
expenditures pursuant to Section 5.2 of this Agreement.
3. Tennessee's Operation and Maintenance Responsibilities.
3.1. Tennessee's Responsibilities. Subject to (i) the prior approval
of the Operator with respect to those matters enumerated in
Sections 9.2.6 and 9.2.7 of the
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Partnership Agreement, and (ii) prior budget authorizations by
the Operator pursuant to Section 5.2 of this Agreement,
Tennessee, commencing with the Completion Date, shall have the
general responsibility for the day-to-day operation and
maintenance of the Facilities as set forth herein:
3.1.1. Tennessee shall provide all field operating and
maintenance services with respect to the Facilities,
including but not limited to routine and emergency
repairs, right-of-way upkeep and surveillance, gas
measurement servicing, calibration and volume
determination, operational planning and related
budgeting, engineering and technical services, and minor
capital projects not otherwise budgeted as directed by
Operator. The Operator shall provide Tennessee with
reasonable access to, and upon request by Tennessee
copies of, records necessary for Tennessee to perform its
operation and maintenance responsibilities under this
Agreement, including without limitation as built
construction drawings of the Facilities, right-of-way
records, and design studies. Landowner contacts shall be
the responsibility of the Operator, which shall employ
right-of-way agents for that purpose.
3.1.2. Tennessee shall maintain accurate and itemized accounting
records in accordance with Required Accounting Practice
for operation and maintenance of the Facilities, together
with any information reasonably required by the Operator
relating to such records. Unless otherwise directed by
the Operator, Tennessee shall be deemed to be in
compliance
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with its record keeping responsibilities under this
Section 3.1.2 if it maintains such records in a manner
that is consistent with Tennessee's own reports to FERC.
3.1.3. Tennessee shall prepare proposed operating and
maintenance budgets and schedules for the review and
approval of the Operator pursuant to Section 5.2 of this
Agreement.
3.1.4. Tennessee shall perform gas control and dispatch
responsibilities for the Facilities for a period of time
ending the earlier of April 30, 1997 or such time as
Operator has elected to begin performing these functions.
Tennessee shall cooperate with Operator in the transition
of such functions. With the consent of Tennessee, the
time period during which Tennessee performs such
functions may be extended by Operator. Upon completion of
the transition, Tennessee shall cease to allocate costs
to the performance of such functions, and Operator shall
not be responsible for any such costs after Operator
begins performing these functions. Gas control and
dispatch responsibilities include
(a) control of all Iroquois Gas Transmission System,
L.P.'s valves, flow regulators and measurement
facilities at all points within the United States at
which gas enters of exits the Facilities;
(b) dispatch of gas in accordance with nomination
schedules submitted to it by the Operator;
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(c) measurement of volumes actually received and
delivered;
(d) response (relating to valves, flow regulators and
measurement) to emergency conditions as necessary to
assure safe operation of the Facilities.
Until the transition of such gas control and
dispatch responsibilities to Operator is complete,
(a) Tennessee shall arrange to make operating data
with respect to gas entering or exiting the
Facilities, including pressures, Btu content,
volumes and quantities in dekatherms, and such other
data as agreed by Tennessee and Operator, available
on a real time electronic basis where feasible to
the Operator and/or TransCanada PipeLines Limited
("TCPL") at the same time such data is available to
Tennessee; (b) the Operator shall cause to be
provided to Tennessee, on a real time electronic
basis, where feasible the following data (and such
other data as agreed by Tennessee and Operator) with
respect to the operation of TCPL's system: volume,
Btu content, operating pressure and volume
allocations at the interconnection between TCPL and
the Facilities, at the same time such data is
available to the Operator; (c) the Operator shall
have responsibility for receiving and accepting
nominations from the Shippers and shall schedule
volumes on the Facilities in accordance with such
nominations for
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dispatch by Tennessee pursuant to the Partnership's
tariff and applicable federal regulations; and (d)
Tennessee shall advise the Operator promptly when
Tennessee becomes aware that allocations and
nominations received from the Operator are
inconsistent with scheduled transportation volumes
for downstream or upstream transportation or with
actual receipts and deliveries, and Operator shall
act promptly to assure to the extent practicable
that resulting imbalances do not exceed any limits
in the Partnership's tariff.
The Operator shall coordinate all scheduled
transportation volumes with upstream and downstream
systems.
3.1.5. [RESERVED FOR FUTURE USE].
3.1.6. Tennessee shall make reports to and consult with the
Operator and/or the Management Committee regarding all
duties, responsibilities and actions of Tennessee under
this Agreement in the form and at the times reasonably
requested by the Operator. The Operator and Tennessee
shall meet regularly during construction of the
Facilities, and quarterly thereafter, to discuss
Tennessee's performance of its obligations hereunder.
Such meetings shall be attended by at least one
representative each of Operator and Tennessee
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3.1.7. Except as otherwise provided by applicable laws or
governmental regulations or as otherwise directed by the
Operator, Tennessee shall retain all charts, records,
books of account, plans, designs, studies and reports and
other documents related to the operation and maintenance
of the Facilities for a period of three (3) years from
the date of completion of the activity to which such
records relate. Tennessee shall provide the Operator with
copies of all changes to the as-built construction
drawings for the Facilities which result from the
performance of Tennessee's services and responsibilities
under this Agreement. All charts, records, books of
account, plans, designs, studies and reports and other
documents related to the operation and maintenance of the
Facilities will be transferred to the Operator at the end
of the term as defined in Section 9 or upon termination
as defined in Section 10.
3.1.8. Tennessee shall make immediate reports to the Operator of
all nonroutine occurrences that Tennessee determines may
have a significant adverse impact upon the operation
and/or maintenance of the Facilities and make a follow-up
report at an appropriate time on the response to each
nonroutine occurrence.
3.1.9. Tennessee shall perform, and shall be reimbursed for
notwithstanding any budgetary limitations, such other
duties as are reasonably requested by the Operator or as
are necessary or appropriate to discharge Tennessee's
responsibilities under this Agreement.
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3.1.10. While the Operator and Tennessee recognize that the
Operator is ultimately responsible for securing necessary
permits and authorizations, and filing necessary reports
with appropriate federal, state, or local agencies,
Tennessee is responsible for ensuring that the Facilities
are operated in accordance with all such permits and
authorizations and shall promptly provide the Operator
with all reports which are requested by the Operator,
including information demonstrating such compliance with
permits and authorizations.
3.1.11. In performing its duties under the Agreement, Tennessee
shall conform to the procedures and directives of the
Operator.
3.1.12. Tennessee will consult with the Operator with respect to
any changes in assignments of responsibilities of
employees of Tennessee providing services under this
Agreement.
3.2. Tennessee's Authority to Perform Unbudgeted Maintenance and
Repairs. Tennessee is authorized to perform maintenance and
repairs to the Facilities which have not been included in the
most recent budget approved by the Operator pursuant to Section
5.2 of this Agreement, provided that the total cost of all such
unbudgeted maintenance and repairs in any of the Partnership's
fiscal years shall not exceed the amount permitted under Section
5.2 of this Agreement. Tennessee is authorized to make emergency
maintenance and repairs to the facilities at any time
irrespective of budget authorization. The authority under this
Section 3.2
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shall not extend to non-emergency modifications to any high
pressure components of the Facilities without the approval of the
Operator.
3.3. Tennessee's Right to Request Instructions From Operator.
Tennessee may at any time, if it reasonably deems it to be
necessary or appropriate, request instructions from the Operator
with respect to any matter contemplated by this Agreement and may
defer action thereon pending the receipt of such instructions.
Tennessee shall be fully protected in acting in accordance with
the instructions of the Operator or in omitting to act pending
the receipt of such instructions, and shall have no liability
pursuant to Section 6.1 hereof for any act in good faith in
compliance therewith, or for its good faith failure to act
pending receipt thereof.
3.4. Design and Construction Procedures Proposed by Operator.
Responsibility for the design and construction of the Facilities
(which term includes all initial Facilities and all Incremental
Expansions) has been delegated to and shall be performed by the
Operator under the Operating Agreement. Tennessee will have, for
a reasonable time prior to completion of the design process, full
access and input to the final design and construction plans for
the Facilities proposed by the Operator to the Partnership.
3.5. Operating Agreement. Tennessee acknowledges that the functions
and responsibilities which it is to perform under this Agreement
are to fulfill certain of the Operator's functions and
responsibilities to the Partnership under the Operating
Agreement. Section 3.1 of the Operating Agreement permits the
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Partnership, acting in accordance with Section 9.2.6(k) of the
Partnership Agreement, to change the authority and responsibility
delegated to the Operator under Section 3 of the Operating
Agreement. It is understood and agreed that if the Partnership so
changes any authority and/or responsibility delegated to the
Operator under the Operating Agreement, which the Operator, in
turn, has contracted for Tennessee to perform in this Agreement,
then the Operator may modify the authority and responsibility of
Tennessee under Section 3 of this Agreement solely to conform to
such change. Operator will inform Tennessee within five (5) days
of any change so made by the Management Committee. Any change so
made by the Operator shall be effective and binding on Tennessee
under this Agreement twenty-five (25) days after notice of such
change is given to Tennessee, provided, however, that all costs,
expenses and liabilities incurred by Tennessee in implementing,
or as a result of, such change shall be reimbursable costs under
Section 5 of this Agreement and such change in and of itself
shall not give rise to liability under Section .8.1 hereof.
Notwithstanding the foregoing, if Tennessee notifies Operator
during the twenty-five day period following notice of any such
change that such change is unacceptable to Tennessee, Tennessee
shall have the right to terminate this Agreement, effective upon
one year's notice to Operator. In that case, Tennessee be bound
by the change so made but will remain fully obligated to continue
to perform all of its obligations hereunder during such one-year
period as if such change had not been made; provided, however,
that Operator may terminate this
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Agreement upon thirty (30) days written notice to Tennessee at
any time during such one-year period.
Tennessee further acknowledges that the Operator's performance of
its obligations under this Agreement is dependent upon the
performance of the Partnership under the Operating Agreement.
Therefore, Tennessee agrees that the Operator shall not be liable
in any manner for any default under this Agreement which results
in whole or in part, directly or indirectly from a default by the
Partnership under the Operating Agreement. In the event of a
default by the Operator under this Agreement which results in
whole or in part, directly or indirectly from a default by the
Partnership under the Operating Agreement, the Operator hereby
assigns to Tennessee any rights which the Operator may have under
the Operating Agreement to seek and receive damages from the
Partnership to the extent that the Partnership's default has
caused or contributed to the Operator's default hereunder.
Tennessee further acknowledges and consents to the assignment by
the Operator to the Partnership under Section 3.4 of the
Operating Agreement of certain of the Operator's rights to seek
and receive damages from Tennessee under this Agreement in the
event of a default by the Operator to the Partnership under the
Operating Agreement which results in whole or in part, directly
or indirectly from a default by Tennessee under this Agreement.
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4. Tennessee's Employees, Consultants and Subcontractors.
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4.1. Tennessee's Employees, Consultants and Subcontractors. Tennessee
shall employ or retain and have supervision over the Persons
(including consultants and professional service or other
organizations) required by Tennessee to perform its duties and
responsibilities hereunder in an efficient and economically
prudent manner. Tennessee shall pay all reasonable expenses in
connection therewith, including compensation, salaries and wages,
overhead and administrative expense incurred by Tennessee and its
Affiliates, and, if applicable, social security taxes, workers'
compensation insurance, retirement and insurance benefits and
other such expenses. All authorized expenses pursuant to this
Section shall be reimbursed to Tennessee by the Operator as
provided in the Accounting Procedure.
4.2. Affiliates of Tennessee or Partners. Tennessee shall be
authorized to utilize, as it deems necessary, the services of its
corporate Affiliates, provided that such services are utilized on
terms materially no less favorable to the Operator than those
prevailing at the time for comparable services of unaffiliated
independent parties. Tennessee shall also be authorized to
utilize, as it deems necessary, the services of independent
contractors, including the services of any Partner's corporate
Affiliates, provided that the services of any such corporate
Affiliate are utilized on terms materially no less favorable to
the Operator than those prevailing at the time for comparable
services of unaffiliated independent parties, and Tennessee shall
negotiate contracts for such services and execute the same.
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In performing under this Agreement, Tennessee may utilize
facilities, including structures, equipment, aircraft, supplies,
and personnel in common with facilities and personnel used in the
operation of Tennessee's system. The cost (including overhead) of
such shared facilities and personnel shall be allocated in
accordance with the Accounting Procedure.
4.3. Standards for Tennessee and its Employees. Tennessee shall
perform its services and carry out its responsibilities hereunder
and shall require all of its employees, contractors,
subcontractors and materialmen furnishing labor, material or
services for performance of Tennessee's services and
responsibilities under this Agreement to carry out their
responsibilities, in accordance with sound, workmanlike and
prudent practices of the gas pipeline industry and in compliance
with all relevant laws, statutes, ordinances, safety codes,
regulations and rules of governmental authorities having
jurisdiction applicable to the Facilities and applicable
standards and specifications established by the Partnership and
the Operator subject to the consent of Tennessee, which consent
shall not unreasonably be withheld.
4.4. Non-Discrimination. In performing under this Agreement, Tennessee
will not discriminate against any employee or applicant for
employment because of race, creed, color, religion, sex, national
origin, age or handicap, and will comply with all provisions of
Executive Order 11246 of September 24, 1965 and any successor
order thereto, to the extent that such provisions are applicable
to Tennessee, the Operator and/or the Partnership. The provisions
of this Section 4.4 shall be
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applicable to any contractors, consultants and/or subcontractors
retained in connection herewith.
4.5. Alcohol and Drug Testing Warranty and Certification. Where either
Party is responsible for the construction, operation, maintenance
and/or emergency response associated with any facilities under
this Agreement, such Party shall be in compliance with the terms
of the United States Department of Transportation Federal
Pipeline Safety Drug Testing and Alcohol Misuse Prevention
Program regulations as provided in 49 C.F.R., Part 199.
Each Party certifies and warrants to the other Party that:
(a) It has a Drug Testing Policy in written form; and it is
in current compliance with that policy; and
(b) It will require each contractor and/or subcontractor it
hires to also have a written Drug Testing Policy and to
be in compliance with that policy if applicable to the
work the contractor and/or subcontractor is to perform;
and
(c) It and its contractors and/or subcontractors will remain
in compliance with those policies during the term or any
extension thereof of this Agreement;
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(d) It and its contractor's and/or subcontractors' Drug
Testing Policy is in compliance with U.S. Department of
Transportation Research and Special Programs
Administration Regulations and Rules for the Control of
Drug Use in Natural Gas, Liquefied Natural Gas, and
Hazardous Liquid Pipeline Operations for Transportation
Workplace Drug Testing Programs, Final Rule (49 CFR,
Part 199), Procedures for Transportation Workplace Drug
Testing Programs, Final Rule (49 CFR, Part 40) and U.S.
Department of Transportation Federal Highway
Administration's Controlled Substances Testing, Final
Rule (49 CFR, Parts 391 and 394) where applicable to the
work to be performed by such Party, its contractors or
subcontractors under this Agreement; and
(e) It maintains and follows a written alcohol misuse plan
that conforms to the requirements of 49 CFR Parts 40 and
199.
5. Financial and Accounting.
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5.1. Accounting and Compensation.
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5.1.1. Tennessee shall keep a full and complete account of all
costs, expenses and expenditures incurred by it in
connection with its obligations hereunder in the manner
set forth in the Accounting Procedure.
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5.1.2. Tennessee shall be reimbursed by the Operator for all
reasonable and proper costs, expenses and expenditures
paid by it in connection with its obligations hereunder
at the rate and in the manner set forth in the Accounting
Procedure; provided, however, that costs incurred by
Tennessee under Section 8.1 of this Agreement shall not
be reimbursed by the Operator. It is the intent of the
Parties that Tennessee shall carry out its services
hereunder on a fully reimbursed basis, pursuant to the
provisions of this Agreement without profit or loss. To
the extent that Tennessee incurs such profit or loss
appropriate adjustments will promptly be made to
eliminate such profit or loss.
5.2. Budgets. As soon as practicable, Tennessee shall prepare and
submit for approval of the Operator an initial estimate of
capital, operating and maintenance expenditures and expenses
which Tennessee anticipates for the first Year. Annually
thereafter, on or before each October 1, Tennessee shall prepare
and submit for approval of the Operator an estimate of capital,
operating and maintenance expenditures and expenses which
Tennessee anticipates for the ensuing Year broken down into such
individual line items and including such supporting documentation
and data as the Operator may reasonably require. Except as the
Operator may otherwise direct, the budget approved by the
Operator and then in effect shall constitute authorization of
Tennessee to incur the expenditures contained in such budget and
to incur expenditures up to ten percent (10%) in excess of the
amount set forth for any line item in such budget, provided
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that the total of all such expenditures in excess of budgeted
line item amounts shall not exceed five percent (5%) of the total
amount of such budget. Tennessee shall immediately inform the
Operator of any facts which Tennessee believes may increase or
decrease any line item in the most recent budget approved by the
Operator by ten percent (10%) or more or increase or decrease the
total amount of such budget by five percent (5%) or more.
Tennessee acknowledges that the estimates of capital, operating
and maintenance expenditures and expenses which it provides to
the Operator each Year pursuant to this Section 5.2 shall,
following review and preliminary concurrence by the Operator, be
utilized by the Operator in preparing the budget estimates which
the Operator submits to the Partnership each Year pursuant to
Section 5.2 of the Operating Agreement. Tennessee further
acknowledges that the budget for Tennessee's activities approved
by the Operator each Year will reflect the budget for these
expenses and expenditures approved by the Partnership for such
Year pursuant to Section 5.2 of the Operating Agreement.
The Operator shall notify Tennessee of its approval or
disapproval of Tennessee's budget no later than thirty (30) days
after Management Committee approval of Operator's budget. If
Operator fails to notify Tennessee in writing of the approval or
disapproval of any budget within thirty (30) days of Management
Committee approval of Operator's budget, then Operator shall be
deemed to have approved such budget. If Operator timely notifies
Tennessee of its disapproval of all or part of a budget but then
fails to approve a revised budget before the time that such
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budget is to take effect, then Tennessee shall perform under the
last budget as approved by the Operator until such time as the
Operator issues its approval, provided, however, that if the
Operator's partial budget disapproval relates to Tennessee's
first full Year budget, then Tennessee is nonetheless authorized
to incur costs set forth in any approved line item in such budget
but may not incur costs in connection with any disapproved line
items in a total amount exceeding fifteen percent (15%) of the
total of all disapproved amounts, until Operator has approved a
revised budget. If during the period covered by approved budget,
Tennessee determines that an adjustment to the estimated costs
set forth in the approved budget is necessary or appropriate,
then Tennessee shall submit to the Operator for approval an
adjusted budget. Subject to Operator's consent to the adjustment
(which shall not be unreasonably withheld), Operator shall
promptly submit such adjusted budget to the Management Committee
for approval. Operator shall notify Tennessee no later than
thirty (30) days after Management Committee approval of the
adjusted budget. If Operator fails to notify Tennessee in writing
of its approval or disapproval of the adjusted budget within
thirty (30) days of Management Committee action on such adjusted
budget, then Operator shall be deemed to have approved such
adjusted budget. If Operator timely notifies Tennessee of its
disapproval of such adjusted budget, Tennessee shall continue to
perform under the approved budget without the adjustment(s).
5.3. Disputed Charges. The Operator may, within the time provided in
the Accounting Procedure, take written exception to any bill or
statement rendered by Tennessee
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for any expenditure or any part thereof, on the ground that the
same was not a reasonable, authorized, and proper cost incurred
by Tennessee in connection with its obligations under this
Agreement. The Operator shall be entitled to withhold payment of
any amount of the bill or the statement which it disputes. If the
Operator nevertheless pays the amount in full, such payment shall
not be deemed a waiver of the right of the Operator to recoup any
contested portion of any bill or statement. However, if the
amount as to which such written exception is taken or any part
thereof is ultimately determined in accordance with Section 12 of
this Agreement not to be a reasonable, authorized, and proper
expense incurred by Tennessee in connection with its obligations
under this Agreement, such amount or portion thereof (as the case
may be) which has been paid by the Operator shall be refunded by
Tennessee to the Operator together with interest thereon during
the period from the date of payment by the Operator to the date
of refund by Tennessee at a rate (which in no event shall be
higher than the maximum rate permitted by applicable law) equal
to the rate designated by Morgan Guaranty Trust Company from time
to time as its prime rate, plus one percent. If the Operator has
withheld payment in accordance with this section, and the amount
or portion thereof in dispute is ultimately determined to be a
reasonable, authorized, and proper expense in accordance with
Section 12 of the Agreement, such amount or portion thereof shall
be remitted to Tennessee, with interest as calculated in the
foregoing sentence.
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5.4. Audit and Examination. Upon fifteen (15) Days' notice in writing
to Tennessee, the Operator shall have the right during normal
business hours to audit or examine, at its expense, all books and
records of Tennessee relating to its performance of its
obligations under this Agreement, provided, however, that the
total number of full audits commenced in any Year shall not
exceed two. Such rights shall include the right to meet with
Tennessee's internal and independent auditors to discuss matters
relevant to the audit or examination.
The Operator shall have twenty-five (25) Months after the close
of a Year in which to make an audit of Tennessee's records for
such Year. Absent fraud or intentional concealment or
misrepresentation by Tennessee or its employees, and except for
any adjustments which may arise from FERC compliance audits,
Tennessee shall neither be required nor permitted to adjust any
item unless a claim therefor is presented or adjustment is
initiated within twenty-five (25) Months after the close of the
Year in which the statement therefor is rendered, and in the
absence of such timely claims or adjustments, the bills and
statements rendered shall be conclusively established as correct;
provided, however, this shall not prevent adjustment resulting
from physical inventory of the Facilities and other property. Any
audit requested by Operator under this Section 5.4 may be
conducted by representatives of the Partnership or of any
Partner. Representatives of the Partnership or of any Partner may
accompany the Operator during any audit under this Section 5.4
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6. Independent Contractor.
6.1. Independent Contractor. In performing services pursuant to this
Agreement, Tennessee shall be an independent contractor and not
an employee, agent or servant of the Operator and this Agreement
does not create any partnership or joint venture between
Tennessee and the Operator.
7. Intellectual Property.
7.1. Inventions and Copyrights. Any (i) inventions, whether patentable
or not, developed or invented, or (ii) copyrightable material,
developed by Tennessee or its employees while engaged exclusively
in the performance of services under this Agreement shall, unless
otherwise directed, be assigned to Partnership, which shall have
the exclusive right to the exploitation thereof.
7.2. Confidentiality. The Operator and Tennessee shall comply with the
provisions applicable to confidential information set out in
Section 13.12 of the Partnership Agreement, which provisions are
incorporated herein by reference as if set out in full.
7.3. License to Tennessee. The Operator hereby grants to Tennessee an
irrevocable, royalty-free, non-exclusive and non-assignable
license to use, during the term of this Agreement, any
confidential information provided to the Operator or Tennessee
and designated as such by the Operator, or generated by the
Partnership, the Operator or Tennessee during the term of this
Agreement. For
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purposes of this Section 7.3, confidential information shall
include, but shall not be limited to, inventions (whether
patented or not) and copyrighted or copyrightable material. As a
condition precedent to the effectiveness of the aforesaid license
to use, Tennessee hereby expressly agrees that it will utilize
such confidential information solely in connection with the
performance of its duties hereunder and further expressly agrees
that it will be subject to and bound by the provisions set forth
in Section 13.12 of the Partnership Agreement as if it were a
Partner. Upon termination of this Agreement, Tennessee shall
return all confidential information which has been provided to
it, together with all reproductions thereof in Tennessee's
possession, pursuant to the aforesaid license to use, to the
Person from which it obtained such confidential information.
8. Indemnification, Litigation, Insurance and Liability.
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8.1. Tennessee's Indemnity. Tennessee shall indemnify and hold the
Operator, its employees or agents harmless from and against:
8.1.1. all actions or failures to act by Tennessee which are
not within the scope of Tennessee's authority under this
Agreement or any express direction of the Operator;
8.1.2. claims for non-payment of any and all contributions,
withholding deductions or taxes measured by the wages,
salaries or compensation paid to Persons employed by
Tennessee in connection herewith except for
<PAGE>
claims associated with or resulting from good faith
efforts to contest such taxes.
8.2. Operator's Indemnity.
---------------------
8.2.1. Inasmuch as the services to be provided by Tennessee
hereunder are to be furnished and performed for only the
reimbursements provided in the Accounting Procedure, the
Operator, subject to the limitations set forth in this
Section 8.2.1, shall indemnify and save harmless
Tennessee and its officers, agents and employees against
all actions, claims, demands, costs and liabilities (to
the extent only that such actions, claims, demands,
costs and liabilities are not satisfied by insurance
carried pursuant to Section 8.3.1 below) arising out of
the acts (or failure to act) of Tennessee, its officers,
agents and employees acting in good faith within the
scope of Tennessee's authority under this Agreement,
including actions, claims, demands, costs and
liabilities resulting from the negligence of Tennessee,
its officers, agents and employees, and Tennessee, its
officers, agents, and employees shall not be liable for
any obligations, liabilities, or commitments incurred by
or on behalf of the Operator as a result of any such
acts (or failure to act). Notwithstanding any other
provision of this Agreement, the Operator's obligation
to indemnify Tennessee shall be limited to that portion
of any claim for indemnification by Tennessee for which
the Operator is reimbursed by the Partnership pursuant
to the Operating Agreement, provided, however, that if
the Partnership fails to
<PAGE>
reimburse the Operator for any portion of a claim for
indemnification by Tennessee, the Operator hereby
assigns to Tennessee the Operator's rights and
obligations pursuant to Sections 5.3 and 8.2 of the
Operating Agreement with respect to such indemnification
amount and the Operator shall have no further liability
to Tennessee with respect to such indemnification.
Tennessee, its officers, agents and employees shall not
be indemnified for any actions, claims, demands, costs
and liabilities resulting from their gross negligence or
willful misconduct.
8.2.2. Any and all claims, damages or causes of action against
Tennessee in favor of anyone other than the Partnership
or the Operator arising out of Tennessee's performance
of obligations under this Agreement which are not
covered by insurance in accordance with Section 8.3 of
this Agreement shall be settled or litigated and
defended by Tennessee in accordance with its best
judgment and discretion when either (A) (i) the amount
involved is less than a ceiling amount to be established
by the Operator, (ii) no injunctive or similar relief is
sought, and (iii) no criminal sanction is sought; or (b)
the action is one for which Tennessee is required to
provide indemnification pursuant to Section 8.1 of this
Agreement; otherwise, such decision shall be made by the
Operator, and any settlement or defense thereof by
Tennessee shall be controlled by the Operator.
8.3. Insurance.
----------
<PAGE>
8.3.1. The Partnership shall carry and maintain insurance to
protect Tennessee, its officers, agents and employees
against all actions, claims, demands, costs and
liabilities arising out of the negligence of Tennessee,
its officers, agents and employees in connection with
their good faith acts (or failure to act) under this
agreement. Such insurance shall name Tennessee as an
additional named insured. The Partnership shall provide
Tennessee with at least ninety (90) days prior written
notice of any cancellation, termination or material
alteration of such insurance.
8.3.2. Tennessee shall require its contractors, subcontractors
or consultants, to carry and maintain at a minimum the
following insurance for the benefit of the Partnership,
the Operator and Tennessee: $1,000,000 Combined Single
Limit with $2,000,000 Aggregate; and Worker's
Compensation Insurance in accordance with statutory
limits.
8.3.3. Tennessee may carry and maintain such other insurance
for its own account as it may deem necessary, but in the
event other insurance is carried, unless otherwise
directed by the Operator, Tennessee agrees to waive, and
agrees to undertake in good faith to have its insurers
waive, any rights of subrogation they may have against
the Operator, the Partnership and the individual
Partners thereof, or the Affiliates of any of them,
and/or their directors, officers, employees, servants or
agents.
<PAGE>
8.3.4. With respect to claims and losses for damage, injury or
destruction of property which is a part of the
Facilities, which property is covered by insurance other
than insurance provided for in Section 8.3.1 of this
Agreement, it is agreed that: (i) neither the Operator
nor Tennessee shall have any rights of recovery against
one another, nor against the Affiliates of each, nor the
insurers of any of them, and their rights of recovery
are mutually waived, and (ii) that Tennessee shall not
have any rights of recovery against the Partnership or
any of the Partners thereof, or against the Affiliates
of any of them, or the insurers of any of them, and its
rights of recovery are waived. All such policies of
insurance purchased to cover the Facilities or any part
thereof, or the operation (in any respect) or
maintenance of the Facilities or any part thereof, or
any gas transported or handled therein, shall be
endorsed properly to effectuate this waiver of recovery,
provided, however, that if Tennessee or the Operator is
unable, despite its best efforts, to obtain such an
endorsement, then the other Party may waive or
appropriately modify this requirement.
8.4. Limitation of Liability. Tennessee and the Operator hereby agree
that any claim against the Partnership which may arise hereunder
shall be made only against the assets of the Partnership and that
all rights to proceed against the Partners and the assets of the
Partnership, as a result of any such claim or any obligations
arising therefrom, are hereby expressly waived.
9. Term.
-----
<PAGE>
9.1. Term. This Agreement shall be effective as of (Date of Execution)
and shall continue until December 31, 2000, and thereafter on a
year-to-year basis subject to termination by the Operator or
Tennessee upon one-year's written notice to the other Party,
unless sooner terminated pursuant to Section 10 of this
Agreement. Prior to the expiration or termination of this
Agreement, Tennessee shall cooperate with the Operator to
facilitate an orderly transition to either the Operator or its
designee of the performance of services being provided by
Tennessee. The Parties recognize that the Operator or its
designee may solicit for employment Tennessee employees
previously dedicated to the performance of services under this
Agreement upon the expiration or termination of this Agreement.
10. Termination.
10.1. Removal of Tennessee.
---------------------
10.1.1. The Operator may terminate this Agreement with or
without cause, upon one year's notice to Tennessee. If
the Operator terminates this Agreement in accordance
with this section, then the Operator shall reimburse
Tennessee for any unreimbursed costs incurred by
Tennessee pursuant to Section 5.1 of this Agreement.
10.1.2. In the event of a material default by Tennessee in the
performance of its obligations under this Agreement
which shall have continued for a period of fifty-five
(55) Days after written notice thereof by the Operator
to
<PAGE>
Tennessee, the Operator may terminate this Agreement by
written notice to Tennessee, provided, however, that no
termination shall occur if: (a) Tennessee has initiated
action to cure such material default but, despite its
best efforts, has been unable to complete cure within
such fifty-five (55) Day period and Tennessee's actions
to complete cure are continuing in good faith beyond the
end of the fifty-five (55) Day period or (b) such
default results in whole or in part, directly or
indirectly, from a default by the Partnership under the
Operating Agreement or as a result of actions of the
Partnership or from a material default by the Operator
under this Agreement.
10.2. Continuing Default by Operator. In the event of a material
default by the Operator in the performance of its obligations
under this Agreement and the continuance of such material default
for a period of sixty (60) days after written notice thereof by
Tennessee to Operator, Tennessee may, by written notice to the
Operator, terminate this Agreement; provided, however, that no
termination as set forth above shall occur if: (a) the Operator
has initiated action to cure such material default but, despite
its best efforts, has been unable to complete such cure within
such sixty (60) day period, and the Operator's actions to
complete cure are continuing in good faith beyond the end of the
sixty (60) day period or (b) such default results in whole on
part, directly or indirectly, from a default by the Partnership
under the Operating Agreement or as a result of actions of the
Partnership.
<PAGE>
10.3. [[RESERVED FOR FUTURE USE].
---------------------------
10.4. Additional Events of Termination. In addition to termination in
accordance with Sections 10.1 and 10.2, this Agreement shall
terminate:
10.4.1. Upon termination of the Operating Agreement, whether
terminated with or without cause; provided, however,
that if the Operating Agreement is terminated with cause
and such cause is unrelated to any default by Tennessee
under this Agreement, then Tennessee shall have the
opportunity to negotiate with the Partnership with
respect to designation of Tennessee as Operator or
continuation of this Agreement.
10.4.2. [RESERVED FOR FUTURE USE].
10.4.3. [RESERVED FOR FUTURE USE].
10.4.4. If Tennessee and the Operator mutually agree to
terminate this Agreement.
10.4.5. If Tennessee, upon one year's prior notice to the
Operator, terminates this Agreement.
10.5. Tennessee's Costs, Expenses and Actions Upon Termination Or
Expiration. In addition to any costs for which the Operator may
be obliged to reimburse Tennessee pursuant to Section 5 of this
Agreement upon the expiration or termination of this Agreement,
Operator shall not be obliged to reimburse Tennessee for any
costs and expenses incurred by Tennessee in connection with the
winding up of Tennessee's duties under this Agreement except as
follows:
<PAGE>
In the event of a termination of the Agreement by the Operator
prior to December 31, 2000, the severance of employees fully
dedicated to the performance of service under this agreement
shall be funded by the Operator; severance benefits shall equal
the then applicable severance packages for employees of El Paso
Energy Corporation; provided, however, that the Operator shall
not be required t fund such severance in the event the Operator
or its designee tenders employment that is substantially similar
in duties and compensation to such employees (whether or not
those employees accept such offer of employment).
11. Survival of Obligations.
------------------------
11.1. Survival of Obligations. The termination of this Agreement shall
not discharge either Party from any obligation which it owes to
the other Party by reason of any transaction, commitment or
agreement entered into, or any loss, cost, damage, expense or
liability which shall occur or arise (or the circumstances,
events or basis of which shall occur or arise) prior to such
termination. It is the intent of the Parties that any obligation
owed by a Party to the other Party (whether the same shall be
known or unknown at the termination hereof, or whether the
circumstances, events or basis of the same shall be known or
unknown at the termination hereof) shall survive the termination
of this Agreement.
12. Law of the Contract and Arbitration.
------------------------------------
12.1. Law of the Contract. This Agreement shall be construed and
interpreted under the laws of the State of Delaware, without
regard to the principles of conflicts of laws.
<PAGE>
12.2. Arbitration.
------------
12.2.1. In the event that the Partners are unable to agree on any
of the matters set forth herein, either Tennessee or the
Operator may upon written notice prior to the
commencement of legal proceedings related to such dispute
call for submission of such matter to arbitration. The
Party requesting arbitration shall set forth in such
notice in adequate detail the issues to be arbitrated,
and within ten (10) Days from the receipt of such notice
the other Party may set forth in adequate detail
additional related issues requesting arbitration shall
set forth in such notice in adequate detail the issues to
be arbitrated and within ten (10) Days from the receipt
of such notice the other Party may set forth in adequate
detail additional related issues to be arbitrated. If
arbitration is invoked by either Party, the decision of
the arbitrators shall be final and binding upon all
parties.
12.2.2. It is the intent of the Parties that, to the extent
practicable, such binding arbitration shall be conducted
by a person knowledgeable and experienced in the type of
matter that is the subject of the dispute. In the event
the Parties are unable to agree upon such person, then
each Party shall select a person that it believes has the
qualifications set forth above as its designated
arbitrator, and such arbitrators so designated shall
mutually agree upon a similarly qualified third person to
complete the arbitration panel, provided, however, that
if one of the Parties fails to select its designated
arbitrator as specified herein within thirty (30) Days of
<PAGE>
receiving written notice from the other Party that such
other Party has selected its designated arbitrator, then
the arbitration provided for herein shall be conducted by
the one arbitrator so designated. In the event that the
persons selected by the Parties are unable to agree on a
third member of the panel within sixty (60) Days after
their selection, such person shall be designated by the
American Arbitration Association. Upon final selection of
the entire panel, such panel shall, as expeditiously as
possible, render a decision on the matter submitted for
arbitration. The arbitration shall be conducted in
accordance with the commercial arbitration rules of the
American Arbitration Association. The substantive law
governing any arbitration shall be the law of the State
of Delaware.
12.2.3. Upon the determination of any such dispute, the
arbitrators shall bill the costs attributable to such
binding arbitration to the Party whose petition they
determine is farthest away from the actual decision
rendered; provided, however, that the arbitrators shall
be empowered to apportion such costs between the Parties
if they deem it appropriate.
12.2.4. It is the intent of the Parties that once arbitration is
invoked by either Party pursuant to the provisions of
this Section 12 that the matters set for arbitration be
decided as set forth herein and the Parties shall not
seek to have this Section 12 rendered unenforceable or to
have such matter decided in any other way, provided,
however, that nothing herein shall prevent the Parties
from negotiating a settlement of any issue at any time.
<PAGE>
13. Force Majeure.
--------------
13.1. Effect of Force Majeure. In the event that either Tennessee or
the Operator is rendered unable, by reason of an event of force
majeure, as defined herein, to perform, wholly or in part, any
obligation or commitment set forth in this contract, then upon
such Party's giving notice and full particulars of such event as
soon as practicable after the occurrence thereof, the obligations
of both Parties, except for unpaid financial obligations arising
prior to such event of force majeure, shall be suspended to the
extent and for the period of such force majeure condition.
13.2. Nature of Force Majeure. The term "force majeure" as employed in
this Agreement shall mean acts of God, strikes, lockouts or
industrial disputes or disturbances, civil disturbances, arrests
and restraint from rulers of people, interruptions by government
or court orders, present and future valid orders, decisions or
rulings of any government or regulatory entity having proper
jurisdiction, acts of the public enemy, wars, riots, blockades,
insurrections, inability to secure labor or inability to secure
materials, including inability to secure materials by reason of
allocations promulgated by authorized governmental agencies,
epidemics, landslides, lightning, earthquakes, fire, storms,
floods, washouts, inclement weather which necessitates
extraordinary measures and expense to construct facilities and/or
maintain operations, explosions, breakage or accident to
machinery or lines of pipe, freezing of pipelines, inability to
obtain or delays in obtaining easements or rights-of-way, the
making of repairs or
<PAGE>
alterations to pipelines or plants, suspension of the obligations
of the Operator and the Partnership under the Operating Agreement
due to an event of force majeure as defined in the Operating
Agreement, or any other cause, whether of the kind herein
enumerated or otherwise, not reasonably within the control of the
Party claiming force majeure.
13.3. Non-Force Majeure Situations. Neither the Operator nor Tennessee
shall be entitled to the benefit of the provisions of Section
13.1 of this Agreement under the following circumstances:
13.3.1. To the extent that the failure was caused by the Party
claiming suspension having failed to remedy the condition
by taking all reasonable acts, short of litigation, if
such remedy requires litigation, and having failed to
resume performance of such commitments or obligations
with reasonable dispatch;
13.3.2. If the failure was caused by failure of the Party
claiming suspension to request or pay necessary funds in
a timely manner, or with respect to the payment of any
amounts then due hereunder;
13.3.3. To the extent that the failure was caused or contributed
to by the gross negligence or willful misconduct of the
Party claiming suspension.
13.4. Resumption of Normal Performance. Should there be an event of
force majeure affecting performance hereunder, the Parties shall
cooperate to take all reasonable
<PAGE>
steps to remedy such event with all reasonable dispatch to ensure
resumption of normal performance.
13.5. Strikes and Lockouts. Settlements of strikes and lockouts shall
be entirely within the discretion of the party affected, and the
requirement in Sections 13.1.1 and 13.4 of this Agreement that
any event of 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 parties directly or indirectly
involved in such strikes or lockouts when such course is
inadvisable in the discretion of the party having such
difficulty.
14. General.
--------
14.1. Effect of Agreement. This Agreement and the Accounting Procedure
reflect the whole and entire agreement among the Parties with
respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral and written, among the
Parties with respect to the subject matter hereof. Except as
provided in Section 3.5, this Agreement and the Accounting
Procedure can be amended, restated or supplemented only by the
written agreement of Tennessee and the Operator.
14.2. Notices. Unless otherwise specifically provided in this
Agreement, any written notice or other communication shall be
sufficiently given or shall be deemed given upon receipt if sent
by telecopy and, if mailed, on the fifth (5th) business
<PAGE>
day following the date on which the same is mailed by registered
or certified mail, postage prepaid, or by other mutually
acceptable means, addressed:
14.2.1. If to the Operator, to Craig Frew,, President, Iroquois
Pipeline Operating Company, One Corporate Drive, Suite
600, Shelton, CT 06484, or such other person and/or
address as may be designated from time to time by written
notice to Tennessee.
14.2.2. If to Tennessee, to Robert G. Hall, Jr., Northern
Division Director, Tennessee Gas Pipeline Co., 8 Anngina
Dr., Enfield, CT 06082, or such other person and/or
address as may be designated from time to time by written
notice to the Operator.
14.3. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.4. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
14.5. Waiver. No waiver by any Party of any default by any other Party
in the performance of any provision, condition or requirement
herein shall be deemed to be a waiver of, or in any manner
release the other Party from, performance of any other provision,
condition or requirement herein, nor shall such waiver be deemed
to be a waiver of, or in any manner a release of the other party
from
<PAGE>
future performance of the same provision, condition or
requirement. Any delay or omission of any Party to exercise any
right hereunder shall not impair the exercise of any such right,
or any like right, accruing to it thereafter. No waiver of a
right created by this Agreement by one Party shall constitute a
waiver of such right by the other Party except as may otherwise
be required by law with respect to Persons not parties hereto.
The failure of one Party to perform its obligations hereunder
shall not release the other Party from the performance of such
obligations.
14.6. Assignability. This Agreement shall not be assigned by either
Tennessee or the Operator, without the written consent of the
other, which consent shall not be unreasonably withheld by either
Party, provided, however, that either Party may assign this
Agreement to a corporation which is an Affiliate of the
transferrer on the same terms and conditions specified in Section
11.3.1 of the Partnership Agreement for a transfer by a Partner
of its interest in the Partnership Agreement, which provisions
are incorporated herein by reference as if set out in full (the
Party which is not seeking to transfer its interest in this
Agreement shall determine whether the conditions set forth in
Section 11.3.1(a) have been satisfied and whether to grant the
approval set forth in Section 11.3.1(b)). Any assignment
hereunder shall be effective on the first Day of the Month
following the Month during which the assignment is completed.
This Agreement and all of the obligations and rights herein
established shall adhere to and be binding upon and
<PAGE>
shall inure to the benefit of the respective successors and
assigns of the respective Parties hereto.
14.7. References to Money. All references in this Agreement to, and
transactions hereunder in, money shall be to or in Dollars of
the United States of America.
14.8. Severability. Should any provision of this Agreement be deemed
in contradiction with the laws of any jurisdiction in which it
is to be performed or unenforceable for any reason, such
provision shall be deemed null and void, but this Agreement
shall remain in force in all other respects. Should any
provision of this Agreement be or become ineffective because of
changes in applicable laws or interpretations thereof or should
this Agreement fail to include a provision that is required as a
matter of law, the validity of the other provisions of this
Agreement shall not be affected thereby. If such circumstances
arise, the Parties hereto shall negotiate in good faith
appropriate modifications to this Agreement to reflect those
changes that are required by law.
14.9. Third Persons. Except as contemplated herein, nothing herein
expressed or implied is intended or shall be construed to confer
upon or to give any Person not a Party hereto any rights or
remedies under or by reason of this Agreement.
14.10. Laws and Regulatory Bodies. This Agreement and the obligations
of the Parties hereunder are subject to all applicable laws,
rules, orders and regulations of governmental authorities having
jurisdiction and, in the event of conflict, such
<PAGE>
laws, rules, orders and regulations of governmental authorities
having jurisdiction shall control.
14.11. Remedies Cumulative. Remedies provided under the provisions of
this Agreement shall be cumulative and, except as to the
agreement for binding arbitration contained in Section 12 hereof
or as otherwise explicitly stated herein, shall be in addition
to the remedies provided by law or in equity.
14.12. Approval of Partnership of Management Committee. Unless
otherwise specified, when the approval or other action of the
Partnership or its Management Committee is required under this
Agreement such requirement shall be deemed to require approval
of 65% of the Percentage Interests of the Partners entitled to
vote on the matter (voting individually and not as members of
any bloc.
14.13. Tennessee's Office. Tennessee will consult with, and obtain the
approval of, the Operator prior to changing the location of
those offices directly involved in the performance of its
obligations hereunder.
14.14. Section Numbers. Unless otherwise indicated, references to
Section numbers are to Sections of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of this 15th day of March,
1991.
ATTEST: OPERATOR
IROQUOIS PIPELINE OPERATING COMPANY
By:
----------------------------- ----------------------------
Title: ----------------------------
By:
----------------------------- ----------------------------
Title: ----------------------------
TENNESSEE GAS PIPELINE COMPANY
By:
---------------------------------
Agent and Attorney-in-Fact
<PAGE>
EXHIBIT A
ACCOUNTING PROCEDURE TO AGREEMENT BETWEEN
IROQUOIS PIPELINE OPERATING COMPANY AND
TENNESSEE GAS PIPELINE COMPANY
WITH RESPECT TO IROQUOIS GAS TRANSMISSION SYSTEM
ARTICLE I
General Provision
1.01 Statements and Billings. Tennessee shall bill the Operator, on or
before the twenty-fifth day of each month (or as soon as possible thereafter)
for the actual costs and expenses for the previous month and any adjustments
which may be necessary to correct prior estimated billings to actual. Such bills
submitted by Tennessee will be summarized by appropriate classifications
indicative of the nature thereof.
1.02 Payment by Operator. The Operator shall pay to Tennessee all bills
presented as provided in the Iroquois Pipeline Operating Company and Tennessee
Gas Pipeline Company Agreement with Respect to Iroquois Gas Transmission System
("IPOC/Tennessee Agreement") on or before thirty (30) days from the date such
invoice is rendered. If payment is not made within such time, the unpaid balance
shall bear interest until paid at a rate (which in no event shall be higher than
the maximum rate or rates permitted by applicable law) equal to the rate
designated by the Morgan Guaranty Trust Company from time to time as its prime
rate plus one percent. Payment by or on behalf of the Operator shall not be
deemed a waiver of the right to recoup any amount in question.
1.03 Adjustments. Except for any adjustments which may arise from FERC
Compliance Audits, payment of any such bills shall not prejudice the right of
the Operator to protest or question the correctness thereof; provided, however,
that, absent fraud or intentional concealment
<PAGE>
or misrepresentation by Tennessee or its employees, all bills and statements
rendered to the Operator by Tennessee during any calendar year shall
conclusively be presumed to be true and correct after 25 months following the
end of any such calendar year, unless prior to the end of said 25-month period
the Operator takes written exception thereto and makes claim on Tennessee for
adjustment; provided, however this shall not prevent adjustment resulting from
physical inventory of the Facilities and other Partnership property. No
adjustment to any bill or statement favorable to Tennessee shall be made unless
it is made within 23 months following the end of the calendar year in which such
bill or statement was rendered by Tennessee.
1.04 Financial Records. Tennessee shall maintain accurate books and
records in accordance with the Required Accounting Practice covering all of
Tennessee's actions under this IPOC/Tennessee Agreement.
ARTICLE II
Capital Items
2.01 Operator shall be responsible for the purchase of capital items,
which responsibility may be delegated to Tennessee. Except for items included in
a previously approved budget that remains in effect, prior to the acquisition of
any capital item in the name or on behalf of the Partnership, Tennessee shall
prepare and submit to the Operator a forecast of the cost of such capital item.
Upon approval of such forecast or of the proposed purchase by the Operator,
Tennessee shall have authority to purchase such capital item in Partnership's
name without further approval or action by the Operator or the Partnership. To
the extent Tennessee owns property necessary or desirable for the operation and
maintenance of the Facilities which (i) under the accounting rules and
regulations, if any, at the time in effect, might be capitalized, (ii)
<PAGE>
Tennessee in its sole discretion is willing to transfer for consideration to
Partnership, and (iii) can be transferred by Tennessee to Partnership free and
clear of all prior liens and encumbrances, Tennessee, if approved by the
Operator, may so transfer such property to Partnership and charge the Operator
the net book value thereof as reflected on the books of Tennessee on the date of
transfer, and any applicable warehousing fees.
2.02 For purposes of this Article II, "capital item" means any
property, real or personal, costing more than a ceiling amount to be established
by mutual agreement of the Operator and Tennessee which might be capitalized
under the accounting rules and regulations, if any, at the time prescribed by
the regulatory body or bodies under the jurisdiction of which the Partnership is
at the time operating. Currently the ceiling amount under this section is five
hundred dollars ($500).
2.03 Tennessee shall be responsible for the maintenance of all
Operator-owned capital items used for the operation and maintenance of the
Facilities. The Operator shall reimburse Tennessee for expenses involved in the
maintenance of such capital items.
ARTICLE III
Costs, Expenses and Expenditures
Subject to the limitations hereinafter prescribed and the provisions of
the IPOC/Tennessee Agreement to which this Accounting Procedure is an exhibit,
Tennessee shall charge the Operator for all costs and expenses incurred by
Tennessee (except those costs incurred under Section 8.1 of the IPOC/Tennessee
Agreement in connection with the performance of its duties and responsibilities
under the IPOC/Tennessee Agreement (hereinafter collectively
<PAGE>
referred to as "Performance of Tennessee's Responsibilities"), including but not
limited to the following items:
3.01 Rentals. All rentals paid by Tennessee, except that the Operator
shall not be responsible for any rentals of warehouse space by Tennessee except
upon prior consent by the Operator. Tennessee will bill a flat fee of
$2,500/month for use of its properties, tools and furniture that it uses in
providing services to the Operator.
3.02 General Office Operating Costs. General office operating costs,
which shall include but not be limited to the cost of printing, reproduction,
office supplies, telephone, telegraph, telecopy, telefax, computer services and
similar electronic services, rents and other supplies and expenses, but shall
exclude the administrative and general expenses described in Section 3.14
hereof. General office operating costs shall be calculated for each department
of Tennessee or its Affiliates that incurs costs in connection with the
provision of services under the IPOC/Tennessee Agreement and shall be computed
by taking the product of (i) the ratio of the amount of time worked in
connection with the provision of such services by the employees of Tennessee or
its Affiliates in the applicable department to the total amount of time worked
by the employees of Tennessee or its Affiliates in such department, and (ii) the
total amount of general office operating costs in such department.
3.03 Labor Costs.
(a) Salaries and wages of employees of Tennessee directly engaged
in connection with the Performance of Tennessee's Responsibilities and, in
addition, amounts paid as salaries and wages of others employed from time to
time in connection therewith. Such salaries and wages shall be loaded to include
Tennessee's actual cost of holiday, vacation, sickness and jury
<PAGE>
service benefits and other customary allowances for time not worked paid to
persons whose salaries and wages are chargeable under this subsection 3.03(a).
(b) Expenditures or contributions made pursuant to assessments
imposed by governmental authority which are applicable to salaries, wages and
costs chargeable under subsection 3.03(a) above, including but not limited to
FICA taxes and federal and state unemployment taxes.
(c) Expenditures made by Tennessee for the cost of plans for
employers' group life insurance, hospitalization, disability, pension,
retirement, savings and other benefit plans, which are applicable to salaries
and wages chargeable under subsection 3.03(a) above.
(d) The costs set forth in Sections 3.03(a), (b) and (c) above
shall be reviewed annually and adjusted as necessary to ensure that all such
factors charged to the Operator will be consistent with this agreement and in
line with what Tennessee has historically charged to the Operator.
(e) In calculating such labor costs, the following terms and
conditions shall apply:
(1) Tennessee classifies its Northern Division headquarters
personnel expenses as FERC account 850 "Operation
Supervision and Engineering" and not FERC account 920
"Administrative and General Salaries".
(2) The determination of the A&G billed to the Operator
reflects the provisions of paragraph 1.
(3) Tennessee charges the Operator a 25% labor allocation for
select Northern Division headquarters personnel who have
consistent management or
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administrative responsibility for field operations
relating to the Facilities. Subject to the provisions of
paragraph 4, those select positions include:
Northern Division Director
Division Operations Manager
Principle Administrative Specialist
Administrative Specialist
(4) Tennessee charges the Operator a 50% labor allocation
for the Nassau Area Manager who has direct management
responsibility for the Tennessee Field employees
dedicated to the Operator.
(5) Tennessee and the Operator agree that the individuals in
the select positions may, from time to time, be assigned
to special projects which may not involve responsibility
for the Facilities. In these circumstances, the labor
allocation otherwise applicable for such individual as
set forth above shall not apply.
3.04 Reimbursable Expenses of Employees. Reasonable personal expenses
of employees whose salaries and wages are chargeable under subsection 3.03(a)
hereof. As used herein, the term "personal expenses" shall mean the usual
out-of-pocket expenditures incurred by employees in the performance of their
duties and for which such employees are reimbursed. Tennessee shall maintain
documentation for such expenses in accordance with the standards of the Internal
Revenue Service.
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3.05 Exclusive Stations and Offices. The cost of acquiring,
constructing and operating any stations or offices devoted to Tennessee's
operation and maintenance of the Facilities, less any consideration received by
Tennessee upon transfer of capital items to the Partnership under Article II.
3.06 Material, Equipment and Supplies. So far as is reasonably
practical and consistent with efficient and economical operation: (1) it is
contemplated that material, equipment and supplies will be owned by the
Partnership and purchased or furnished for its account; and (2) only such
material shall be obtained for the Facilities as may be required for immediate
use, and the accumulation of surplus stock shall be avoided. To the extent
reasonably possible, Tennessee shall take advantage of discounts available by
early payments and pass such benefits on to the Operator and the Partnership.
Material, equipment and supplies furnished by Tennessee shall be priced at cost
plus Tennessee's actual carrying costs as approved by the Operator in its most
recent budget.
3.07 Transportation. Transportation of employees, equipment and
material and supplies necessary for the Performance of Tennessee's
Responsibilities. It is anticipated that all transportation equipment utilized
by Tennessee for performing Tennessee's Responsibilities will be owned by
Tennessee and will be billed to the Operator at reasonable rates based on
Tennessee's actual costs.
3.08 Services.
(a) The cost of contract services and utilities procured from
outside sources.
(b) Use and service of vehicles, equipment and facilities
furnished by Tennessee.
3.09 Legal Expenses and Claims. All costs and expenses of handling,
investigating and settling litigation or claims arising by reasons of the
Performance of Tennessee's
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Responsibilities, including, but not limited to, attorney's fees, court costs,
costs of investigation or procuring evidence and any judgments paid or amounts
paid in settlement or satisfaction of any such litigation or claims. Tennessee
shall credit the Operator and/or Partnership for judgments received or amounts
received in settlement of litigation, with respect to any claim asserted on
behalf of the Operator or Partnership.
3.10 Taxes. All taxes (except those measured by income) of every kind
and nature assessed or levied upon or incurred by Tennessee in connection with
the Performance of Tennessee's Responsibilities, including charges for late
payments arising from extensions of the time for filing which is caused by
Partnership or Operator, or which result from Tennessee's good faith efforts to
contest the amount of application of any tax.
3.11 Insurance. Net of any returns, refunds, or dividends, all premiums
paid and expenses incurred for insurance allowable under or required to be
carried under the IPOC/Tennessee Agreement for the benefit of Tennessee, the
Operator and/or Partnership.
3.12 Permits, License and Bond. Costs of permits, licenses and bond
premiums necessary in the performance of Tennessee's Responsibilities.
3.13 Audit Expenses. All cost and expenses incurred by Tennessee in
connection with audits requested by Operator pursuant to Section 5.4.
3.14 Administrative and General Expense. All administrative and general
expenses including and not limited to outside services, materials, rents,
equipment maintenance, office supplies, as well as salaries and related benefits
of personnel other than those referred to in Section 3.03, who render service to
Tennessee, including but not limited to Accounting, Administrative, Audit,
Public Relations, Personnel, Purchasing, Legal and Treasury, shall be charged at
a rate computed according to the rate formula specified in Exhibit B. The rate
shall be
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applied monthly to the total direct expenses (defined as the sum of the expenses
listed in 3.01 to 3.12 herein) incurred and charged by Tennessee to perform
Tennessee's responsibilities. The charge under this formula allocates
administrative and general overhead costs incurred in connection with effective
and efficient discharge of Tennessee's obligations.
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EXHIBIT B
A&G RATE FORMULA
Labor
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The combined salary plus benefits amount will be multiplied by 1.25 to account
for a 25 percent A&G rate.
Remaining Components
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The remaining components of Tennessee's budget will be multiplied by 1.07 per
line item to account for a 7 percent A&G rate.
