SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 12, 1994
BLACK HILLS CORPORATION
State of South Dakota File Number 1-7978 IRS Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number (605) 348-1700
<PAGE>
Item 5. Other Events
On September 9, 1994, Black Hills Corporation ("Company") entered into
a Power Integration Agreement with Montana-Dakota Utilities Co., a Division
of MDU Resources Group, Inc. ("MDU"). The Agreement provides that for a
period of 10 years commencing January 1, 1997, the Company will supply all
electric power and energy required by MDU for its electric service area in
and around Sheridan, Wyoming. MDU's Sheridan service area has experienced
a 45 MW peak and a load factor of approximately 60 percent. The Company
has experienced a 284 MW peak for its entire system.
The agreement is subject to the approval of the Federal Energy
Regulatory Commission. MDU awarded the agreement to the Company after an
extensive open competitive proposal process.
The agreement further provides that the Company and MDU will share
equal ownership in a combustion turbine to be constructed at such time as
the Company's system will require a new peaking resource. Both companies
will receive the benefit of lower unit costs from a turbine that will be
larger than either company could justify on its own.
Because the Company will be able to serve the Sheridan load without
constructing additional facilities on which to earn a return, the Company
believes that the sale will not have a direct significant impact on
earnings. However, because the additional 45 MW load will allow the
Company to operate more efficiently, the Company anticipates that the sale
will require lower rate increases in late 1995 when the Company completes
Neil Simpson Unit #2, an 80 MW coal-fired electric generating plant ("NS
#2") now under construction near Gillette, Wyoming. The Company believes
that the timing of the sale to commence shortly after NS #2 goes into
operation and the 10-year term will allow the Company to place NS #2 into
rate base as a base load plant with less risk of regulators disallowing a
portion of the new plant.
The Company believes that being able to successfully compete for sales
such as the MDU Sheridan load further positions the Company to continue to
be more competitive in an emerging open wholesale power market.
Attached is a copy of the news release released September 9, 1994.
Item 7.
(c) Exhibits.
The following Exhibits are filed as a part of this report and as
Exhibits to the Registration Statement on S-3 (Registration No. 33-54329):
Exhibit 10(gg) Power Integration Agreement, dated September 9,
1994, between the Company and Montana-Dakota
Utilities Co., a Division of MDU Resources
Group, Inc.
Exhibit 99 News Release dated September 9, 1994.
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 hereunto duly authorized.
BLACK HILLS CORPORATION
By /s/ DALE E. CLEMENT
Dale E. Clement, Senior Vice
President - Finance
Dated: September 12, 1994
POWER INTEGRATION AGREEMENT
This Power Integration Agreement, dated as of September 9,
1994, is entered into by and between BLACK HILLS CORPORATION, a
South Dakota corporation, doing business as Black Hills Power and
Light Company, and Montana-Dakota Utilities Co., a Division of
MDU RESOURCES GROUP, INC., a Delaware corporation.
1. RECITALS AND DEFINITIONS.
1.1 Definitions. The following capitalized words and
phrases when used in this Agreement shall have the respective
meanings as follows:
"Agreement" is this Power Integration Agreement
including all exhibits attached hereto.
"Annual Fixed Costs" of either party are the levelized
fixed costs as determined under Exhibit A.
"BHC" is Black Hills Corporation, a South Dakota
corporation, doing business as Black Hills Power and Light
Company.
"BHC Furnished Capacity" is 60 percent of the peak load
of the MDU Sheridan Service Territory during each calendar month
of the Service Term.
"Black Hills' System" has the same meaning as set forth
in the Pacific Contract and, pursuant to this Agreement, also
includes a Black Hills contracted transmission path from
Pacific's System to the Pacific/MDU Interconnection.
"Combustion Turbine" is a combustion turbine to be
fired either with fuel oil and/or natural gas of an approximate
name plate size of 70 MW to be constructed at a time and place as
provided at Section 3.1 and the CT Agreement.
"Commercial Date" is the date the Combustion Turbine is
in commercial operation under Prudent Utility Practice. The
Commercial Date shall be the first day of a calendar month.
"CT Agreement" is the Construction, Ownership and
Operating Agreement between BHC and MDU, a copy of which is
attached as Exhibit B.
"CT Term" is a period of time commencing with the
Commercial Date and terminating ten years thereafter.
"FERC" is the Federal Energy Regulatory Commission of
the United States.
"MDU" is Montana-Dakota Utilities Co., a Division of
MDU Resources Group, Inc., a Delaware corporation.
"MDU Furnished Capacity" is 40 percent of the peak load
of the MDU Sheridan Service Territory during each calendar month
of the Service Term.
"MDU Sheridan Service Territory" is MDU's existing
service territory in the City of Sheridan and Sheridan County,
Wyoming as it exists at this time and includes any modifications
thereof during the Service Term.
"Notice of Intent to Construct" is the notice to be
given under Section 3.1 of this Agreement.
"Pacific" is PacifiCorp, an Oregon corporation.
"Pacific Contract" is the Power Sales Agreement, dated
as of the 31st day of December, 1983, entered into by and between
Pacific and BHC as may be amended from time to time. The Pacific
Contract expires December 31, 2023.
"Pacific/MDU Interconnection" is the interconnection
where Pacific delivers electric energy from Pacific's System at
230 kV to MDU's 230/46 kV substation situated in Sheridan County,
Wyoming.
"Prudent Utility Practice" at any particular time means
either (a) any of the practices, methods and acts engaged in or
approved by a significant portion of the electric utility
industry prior thereto or (b) any of the practices, methods or
acts, which, in the exercise of reasonable judgment in the light
of the facts known at the time the decision was made, could have
been expected to accomplish the desired result at the lowest
reasonable cost consistent with reliability, safety and
expedition. Prudent Utility Practice is not intended to be
limited to the optimum practice, method or act, to the exclusion
of all others, but rather to be a spectrum of possible practices,
methods or acts. Prudent Utility Practice shall also include
those practices, methods and acts that are required by applicable
laws and final orders or regulations of regulatory agencies
having jurisdiction.
"Remaining CT Term" is that period of time commencing
at the end of the Service Term and ending on the last day of the
CT Term.
"Service Term" shall commence at 12:00 a.m. on January
1, 1997 and shall terminate at 12:00 midnight on December 31,
2006.
"Term" means the same as defined in the CT Agreement.
Other capitalized terms and phrases used in this Agreement that
are not otherwise defined herein but are defined in the CT
Agreement shall have the meaning as set forth in the CT
Agreement.
1.2 Recitals. During the Service Term, MDU requires a
supply of electric capacity and energy to serve the needs of its
electric retail customers in its MDU Sheridan Service Territory.
BHC will have system energy and capacity available to meet MDU's
requirements, but BHC anticipates that Black Hills' System will
at some future time require a combustion turbine as an additional
peaking resource. MDU desires to participate in the construction
of the Combustion Turbine to meet the capacity requirements of
its MDU Sheridan Service Territory at such time BHC's integrated
resource planning requires the Combustion Turbine in its
resources. The parties enter into this Agreement to integrate
resources of Black Hills' System and the MDU Sheridan Service
Territory by providing from Black Hills' System the capacity and
energy requirements of MDU and, at such time the Combustion
Turbine is constructed, by providing capacity for MDU from MDU's
interest in the Combustion Turbine.
2. DELIVERY OF CAPACITY AND ENERGY.
2.1 System Capacity and Energy. During the Service
Term, BHC shall provide and MDU shall acquire at 230 kV all of
the electric capacity and energy requirements to serve MDU's
retail customers in the MDU Sheridan Service Territory except
where MDU purchases capacity and associated energy in excess of
55 megawatts as provided at Section 4.6.
2.2 Points of Delivery. By scheduling capacity and
energy under the Pacific Contract, BHC shall cause Pacific to
deliver at no wheeling charge to MDU all of the MDU capacity and
energy requirements as set forth in Section 2.1 over Pacific's
System to the Black Hills' System at the Pacific/MDU
Interconnection.
2.3 Control Area Services. BHC shall be responsible
for area control service to the MDU Sheridan Service Territory at
no cost to MDU. BHC will provide, at no cost to MDU, telemetry
equipment and a communication channel from the Pacific/MDU
Interconnection to BHC's system control. All costs incurred by
BHC to provide control area services, including, but not limited
to, load following, telemetry, regulation, reserves, and control
area accounting, shall be paid by BHC.
2.4 Sheridan-Johnson REA. Deliveries of electric
power and energy for Sheridan-Johnson Rural Electrification
Association ("Sheridan-Johnson") at the Pacific/MDU
Interconnection shall not be included in determining deliveries
to MDU under Section 4.0, nor shall transformer and distribution
line losses incurred between the Sheridan-Johnson meters on MDU's
system and the Pacific/MDU Interconnection be included in
determining deliveries to MDU.
2.5 Monthly Accounting. MDU shall read meters at the
Pacific/MDU Interconnection and provide a printout of all data
required by BHC. Meters shall be read and such data shall be
supplied to BHC on a timely basis in coordination with the
Western Area Power Administration schedule in Wyoming.
3. COMBUSTION TURBINE.
3.1 Time and Place of Construction of Combustion
Turbine. At its sole discretion, BHC shall determine the time
and the place of the construction of the Combustion Turbine as
provided in the CT Agreement; provided, the place of construction
shall be within BHC's service territory as it exists on the date
of this Agreement, or within a 20-mile radius thereof, or MDU
Sheridan Service Territory. At such time BHC has made the
decision to accept proposals for the construction of the
Combustion Turbine, BHC shall give MDU a written Notice of Intent
to Construct disclosing the place of the construction of the
Combustion Turbine and the estimated Commercial Date of the
Combustion Turbine. The period of time between the Notice to
Construct and the estimated Commercial Date shall be at least 24
months. While BHC anticipates the need for the Combustion
Turbine before the end of the Service Term, BHC reserves the
right in its sole discretion to determine that the Combustion
Turbine is not needed and will not be constructed during the
Service Term. BHC further reserves the right to construct
combustion turbines at any time at locations other than those
locations specified in the first sentence of this Section 3.1;
and in that event, none of such turbines shall constitute the
Combustion Turbine described in this Agreement.
3.2 Ownership Interest in Combustion Turbine. If the
Commercial Date is scheduled during the Service Term, MDU and BHC
shall each acquire and own an undivided 50 percent interest in
the Combustion Turbine.
3.3 Use of Turbine Output. Operation, control and use
of the output of the Combustion Turbine is set forth in the CT
Agreement.
4. PRICES AND PAYMENTS.
4.1 Payments for BHC Furnished Capacity. For the BHC
Furnished Capacity MDU shall pay BHC monthly the following rates:
<PAGE>
Capacity Charge
Calendar Year ($KW/Mo)
1997 13.60
1998 13.70
1999 13.80
2000 13.90
2001 14.00
2002 14.10
2003 14.20
2004 14.30
2005 14.40
2006 14.50
4.2 Payments for MDU Furnished Capacity. Prior to the
Commercial Date, MDU shall pay BHC monthly the following rates
for the MDU Furnished Capacity:
Capacity Charge
Calendar Year ($KW/Mo)
1997 5.461
1998 5.468
1999 5.477
2000 5.485
2001 5.493
2002 5.502
2003 5.511
2004 5.520
2005 5.529
2006 5.539
After the Commercial Date, MDU Furnished Capacity shall be deemed
furnished from MDU's ownership interest in the Combustion
Turbine.
4.3 Fixed Cost Payments and Operating Expenses for
Combustion Turbine During Service Term. Commencing on the
Commercial Date and continuing for the balance of the Service
Term, the following payments shall be made each month:
(a) If the name plate megawatts in the Combustion
Turbine owned by MDU are in excess of MDU Furnished Capacity for
that month, BHC shall pay MDU one-twelfth of MDU's Annual Fixed
Costs per megawatt for such excess megawatts.
(b) If the name plate megawatts in the Combustion
Turbine owned by MDU are less than MDU Furnished Capacity for
that month, MDU shall pay to BHC one-twelfth of BHC's Annual
Fixed Costs per megawatt for such deficiency.
(c) BHC shall pay all Operating Expenses and Fuel
Costs of the Combustion Turbine during the Service Term.
(d) The CT Agreement in Section 5 thereof sets
forth the responsibility for the Operating Expenses and Fuel
Costs following the Service Term.
4.4 Payments for Energy. For all energy delivered to
serve the MDU Sheridan Service Territory during the Service Term,
MDU shall pay BHC monthly the following megawatthour rates:
Energy Charge
Calendar Year ($/MWh)
1997 15.66
1998 16.28
1999 16.94
2000 17.61
2001 18.32
2002 19.05
2003 19.81
2004 20.61
2005 21.43
2006 22.29
4.5 New Direct Taxes Adjustment. If BHC experiences
increased costs during the Service Term from its generating
facilities and power and energy purchase contracts, as such
facilities and contracts exist from time to time, due to new
legislation adopted after the date of this Agreement authorizing
a governmental authority or authorities to impose a direct tax or
taxes (whether a transaction tax, CO2 or other emissions tax or
energy tax) on electric generation fueled by coal, natural gas or
other hydrocarbons, the rates under Section 4.4 shall be
increased to reflect MDU's pro rata share of those costs. MDU's
share of these costs for each billing month shall be the product
of (i) BHC's actual costs per megawatthour incurred by BHC as a
result of such new taxes from all generated energy from BHC's
electric generating plants (including BHC's interest in jointly
owned plants) and energy purchased during that billing month,
times (ii) the megawatthours of energy delivered by BHC to MDU
during that month.
4.6 Adjustment for Additional Capacity. If the MDU
Sheridan Service Territory requires capacity in excess of 55
megawatts during the Service Term, the rates in Section 4.1, 4.2
and 4.4 shall be increased to just and reasonable rates for that
capacity and associated energy delivered by BHC in excess of 55
megawatts to reflect BHC's costs to serve that additional
capacity; provided, MDU at its option may purchase any capacity
in excess of the 55 megawatts and associated energy and
transmission service from others. If BHC and MDU are unable to
agree on the amount of BHC's costs in delivering capacity in
excess of 55 megawatts and associated energy, the dispute shall
be settled by arbitration under Section 6.
4.7 Payment Schedule During Service Term. Commencing
on the fifth working day of February 1997 and continuing on the
fifth working day of each month thereafter until and including
the fifth working day of January, 2007, BHC shall send to MDU by
telephone facsimile and by mailing, first class postage prepaid,
an invoice for the capacity and energy delivered to MDU under
this Agreement for the previous month. Each invoice shall also
set forth any payments due from BHC to MDU pursuant to Section
4.3 as credits to the amount owed by MDU. MDU shall pay each
invoice by the 10th working day of the month by wire transfer.
Simple interest shall accrue on any amount not paid when due at a
rate of 125 percent of Chemical Bank's prime rate in effect
during the period of delinquency.
5. GOVERNMENTAL REGULATION.
5.1 Filing. The parties shall submit this Agreement
for filing to the FERC. If the FERC issues an order not
accepting this Agreement, including the CT Agreement, for filing
in its entirety and without change, the parties shall: (i)
exercise best efforts to amend this Agreement to comply with such
FERC order, or (ii) terminate this Agreement.
5.2 Fixed Contract. The terms, conditions, and
formulae for prices for service specified in this Agreement and
the CT Agreement shall remain in effect for the terms therein and
shall not be subject to change through application to the FERC
pursuant to the provisions of Section 205 of the Federal Power
Act absent the agreement of the parties. The parties covenant
that neither shall request relief from any of the provisions of
this Agreement pursuant to the provisions of Section 206 of the
Federal Power Act absent the agreement of the parties. The
foregoing statutory references are intended to include any
subsequent similar enactments.
6. ARBITRATION.
If any dispute arises under this Agreement as to any factual
matter, the parties shall submit the factual dispute to a board
of three arbiters, one to be selected by each party and the
parties to agree on the selection of a third arbiter. If the
parties are unable to agree on the third arbiter, the parties
shall request the senior district judge of the United States
District Court of the District of Wyoming to submit a list of
five (5) persons. Each party shall alternately strike one name
from the list, the first exercise to be determined by lot. The
last person remaining on the list shall serve as the third
arbiter. Except as otherwise set forth herein, the arbitration
shall be held under the rules of the American Arbitration
Association. The arbiters shall render their decision in writing
not later than thirty days after the matter has been submitted to
them, and the decision of a majority of the board of arbiters of
the factual dispute shall be binding on the parties. Each party
shall bear the expense of preparing and presenting its own case,
and the expense of the arbitrators shall be equitably divided
between the Owners by the arbitrators.
7. UNCONTROLLABLE FORCES.
Neither party to this Agreement shall be considered to be in
default in performance of any obligation hereunder if failure of
performance shall be due to uncontrollable forces. The term
"uncontrollable forces" means any cause beyond the control of the
party affected, including, but not limited to, failure of
facilities, flood, earthquake, storm, fire, lightning, epidemic,
war, riot, civil disturbance, labor disturbance, sabotage, and
restraint by court order or public authority, which by exercise
of due foresight such party could not reasonably have been
expected to avoid, and which by exercise of due diligence it
shall be unable to overcome. A party shall not, however, be
relieved of liability for failure of performance if such failure
be due to causes arising out of its own negligence or to
removable or remediable causes which it fails to remove or remedy
with reasonable dispatch. Any party rendered unable to fulfill
any obligation by reason of uncontrollable forces shall exercise
due diligence to remove such inability with all reasonable
dispatch. Nothing contained herein, however, shall be construed
to require a party to prevent or settle a strike against its
will.
8. NOTICES.
Any notice, demand, or request provided for in this
Agreement shall be deemed properly served, given, or made if
delivered in person or sent by registered or certified mail,
postage paid and return receipt requested, to the person so
designated as its authorized representative. The titles and
addresses of the authorized representatives hereunder are as
follows:
For BHC: President
Black Hills Corporation
625 Ninth Street
P. O. Box 1400
Rapid City, South Dakota 57709
For MDU: President
Montana-Dakota Utilities Co.
400 North Fourth Street
Bismarck, ND 58501
By giving written notice to the other party, a party may change
the title and address for the purpose of receiving notice
hereunder.
9. WAIVER.
Any waiver by a party of its rights with respect to default
under this Agreement, or with respect to any other matter arising
in connection with this Agreement, shall not be deemed to be a
waiver with respect to any subsequent default or matter. No
delay in asserting or enforcing any right hereunder shall be
deemed a waiver of such right.
10. SEVERABLE OBLIGATIONS.
Except where specifically stated in this Agreement to be
otherwise, the duties, obligations, and liabilities of the
parties are intended to be several and not joint or collective.
Nothing contained in this Agreement shall ever be construed to
create an association, trust, partnership, or joint venture or to
impose a trust or partnership duty, obligation, or liability on
or with regard to either party. Each party shall be individually
and severally liable for its own obligations under this
Agreement.
11. AMENDMENTS.
No amendment of this Agreement shall be effective without
written approval of each party.
12. ASSIGNMENT.
This Agreement shall not be assigned to any third party
without the written consent of the other, and such consent shall
not be withheld unreasonably; provided, this Agreement shall
inure to and be binding upon the successors in interest of
substantially all of the electric properties of the respective
parties and, if just MDU's electric system serving the MDU
Sheridan Service Territory is sold or transferred to another
entity, or condemned through the exercise of eminent domain, to
the successor in interest to MDU's electric system serving the
MDU Sheridan Service Territory.
13. CHOICE OF LAW.
The parties in their performance of their obligations
hereunder shall conform to all applicable laws, rules and
regulations and, to the extent that their operations may be
subject to the jurisdiction of state or federal regulatory
agencies, subject to the terms of valid applicable orders of any
of such agencies. This Agreement shall be subject to and be
construed under the laws of the State of Wyoming.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date set forth in the first paragraph hereof.
BLACK HILLS CORPORATION
By /s/ Daniel P. Landguth
Its Chief Executive Officer
MONTANA-DAKOTA UTILITIES CO., a
Division of MDU RESOURCES GROUP,
INC.
By /s/ Joseph R. Maichel
Its President
<PAGE>
Exhibit A
ANNUAL FIXED COSTS
Introduction
This Appendix sets forth the elements and techniques to
calculate the annual fixed costs of the Combustion Turbine under
Section 4.3 for the Service Term and Section 5.2(b) of the CT
Agreement for the Remaining CT Term.
The Annual Fixed Cost is the per-MW sum of: (a) initial
levelized annual fixed cost, (b) subsequent levelized annual
fixed costs (if any), and (c) other fixed annual charges,
including but not limited to property taxes, insurance, and taxes
other than income tax.
Section A1: Discussion of Methodology
Levelized fixed charges are the basis of annual fixed costs
hereunder. While actual capital-related charges associated with
an investment may vary considerably from year to year, the
levelized fixed charge translates these charges into a level
annual amount which remains constant over time. The present
values of the two streams (varying versus constant) are equal.
The levelized fixed charge includes three basic components:
(a) return on investment, given a specific capital structure and
cost of capital; (b) recovery of investment, given the
appropriate depreciation period related to the investment; and
(c) income tax requirements, given tax law considerations. These
components are commonly expressed as: (a) interest expense on
debt and return required by shareholders; (b) book depreciation;
and (c) income taxes incorporating the effects of investment tax
credits and tax depreciation.
An initial levelized annual charge rate will be applied to
the original investment of the Combustion Turbine. The rate will
be recalculated effective each January 1 only in the event of a
change during the preceding calendar year in any of the
following: (a) the common equity or (b) income tax law, but not
to be applied retroactively.
Subsequent levelized annual fixed charge rates will be
calculated each year to reflect the most current information and
will be applied each year to the amount of capital additions,
replacements (less credit for net salvage and insurance proceeds,
if any) and betterments of the Combustion Turbine completed
through the end of the preceding calendar year.
Section A2: Determination of Annual Fixed Costs
Annual Fixed Costs will be determined by (a) adding the
amounts calculated under Sections A2.1 through A2.5 and (b)
dividing the total by the name plate rating of the Combustion
Turbine in MW.
A2.1. The initial levelized annual fixed charge rate
determined annually in accordance with Section A3 of this
Exhibit, multiplied by the party's original investment to
complete the Combustion Turbine.
A2.2. The sum for such year of each of the subsequent
levelized annual fixed charges determined for each year from the
Commercial Date to date. Each subsequent annual levelized fixed
charge shall be determined by multiplying (a) the subsequent
levelized annual fixed charge rate, as calculated in accordance
with Section A3, below, by (b) the party's dollar investment in
capital additions, replacements (less credit for net salvage and
insurance proceeds, if any), and betterments of the Combustion
Turbine, completed during the calendar year immediately preceding
establishment of such subsequent levelized annual fixed charge.
A2.3. All ad valorem taxes imposed upon the Combustion
Turbine.
A2.4. Any tax, assessment, payment in lieu of taxes, or
other charge imposed by any governmental body assessed or charged
against the parties relating to the Combustion Turbine, excluding
ad valorem taxes and state and federal income taxes and taxes
covered under Section 4.5 of the Agreement.
A2.5. All insurance premiums incurred related to the
Combustion Turbine.
Section A3: Elements of Levelized Annual Fixed Charge Rates
A3.1 Capital Structure: For purposes of calculating
initial levelized annual fixed charge rates and subsequent
levelized annual fixed charge rates, the capital structure will
remain constant for the duration of this Agreement. The capital
structure is:
Long-Term Debt 55%
Preferred Stock 5%
Common Stock Equity 40%
Total Capital 100%
A3.2 Cost of Capital:
A3.2.1. Long-Term Debt: Bond interest applicable in
the calculation of each initial levelized annual fixed charge
rate will be the Utility Long Bond Rate in effect within the 12-
month period prior to the Commercial Date. Bond interest
applicable in the calculation of each subsequent levelized annual
fixed charge rate for future capital additions, replacements, or
betterments shall be the Utility Long Bond Rate, in effect during
the twelve-month period prior to the date of the completion of
construction of the capital additions, replacements or
betterments for which the subsequent levelized annual fixed
charge rate is calculated. For the purposes herein, the Utility
Long Bond Rate is the average interest charge on A-rated first
mortgage bonds of a term of 20 to 25 years being issued by
electric utilities during the period of time for which the
calculation is being determined.
A3.2.2. Preferred Stock. Return on preferred stock
applicable in the calculation of each levelized annual fixed
charge rate shall be 50 basis points above the Utility Long Bond
Rate used to calculate that rate.
A3.2.3. Common Stock Equity. Return on common stock
equity applicable in the calculation of each initial levelized
annual fixed charge rate and each subsequent levelized annual
fixed charge rate shall be as agreed to by the parties from time
to time. In the event the parties are unable to agree to the
return on common stock equity, either party may apply to the FERC
for resolution of the dispute.
A3.3 Book Depreciation: Book depreciation charges shall
be at a straight-line rate based on a twenty-five (25) year life
in calculating the initial levelized annual fixed charge rates.
Book depreciation charges for subsequent levelized annual fixed
charge rates shall be based on the estimated service life.
A3.4. Income Tax Requirements: Income tax requirements
applicable in calculating both initial and subsequent levelized
annual fixed charge rates shall be based on the following items;
provided, subsequent changes in tax laws shall be incorporated in
computing levelized annual fixed charge rates for periods
following such tax law change:
A3.4.1. The federal corporate income tax rate
(currently thirty-five percent (35%)).
A3.4.2. A state corporate income tax rate. Any
state corporate income tax rate shall be applied on a composite
revenue weighted average in each state in which retail service is
provided by the party for which the rate is being determined.
A3.4.3. Use of Modified Accelerated Cost Recovery
System (MACRS) method of tax depreciation.
A3.4.4. Investment Tax Credits allowed, if any, in
accordance with the provisions of the Internal Revenue Code, as
amended, regardless of whether a party is able to use such
credits.
A3.4.5. Income taxes shall be computed using the
normalization method of accounting.
A3.4.6. The tax basis will be the actual percentage
relationship between book basis and tax basis of the Combustion
Turbine.
<PAGE>
EXHIBIT B
CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT
between
Black Hills Corporation
and
Montana-Dakota Utilities Co.,
a Division of MDU Resources, Inc.
Dated: September 9, 1994
<PAGE>
TABLE OF CONTENTS
1. RECITALS AND DEFINITIONS
1.1 Definitions
1.2 Recitals
2. OWNERSHIP AND CONSTRUCTION OF COMBUSTION TURBINE
2.1 Ownership
2.2 Determination of Site and Construction Term
2.3 Determination of Design and Engineering
2.4 Construction Budget
2.5 Payments for Construction
2.6 Accounting
2.7 Close of Account
3. OPERATOR
3.1 BHC Operator
3.2 Operator's Obligations
3.3 No Assignment of Operator's Duties
3.4 Agency Authority
3.5 Work Force
3.6 Training Program
3.7 Liens
3.8 Remedy and Release
4. USE OF COMBUSTION TURBINE
4.1 During Service Term
4.2 During Remaining CT Term
4.3 After the CT Term
4.4 Failure of MDU to Schedule
4.5 Notification
4.6 Black Hills' System Capacity in Lieu of MDU Schedule
4.7 Capability Limits
4.8 Operations
5. PAYMENTS
5.1 During the Service Term
5.2 During the Remaining CT Term
5.3 After the CT Term
5.4 Oil and Spare Parts Inventory
5.5 Payment Schedule
6. OPERATION AND MAINTENANCE
6.1 Operating Budget
6.2 Additional Expenses0
7. SCHEDULING OF OUTAGES
7.1 Scheduled Outages
7.2 Emergency Outages
8. ACCOUNTING AND REPORTS
8.1 Records
8.2 FERC Accounting
8.3 Audits and Contract Limitation to Make Claim
8.4 Subchapter K IRC Exclusion
9. INSURANCE
9.1 Procurement
9.2 Waiver of Subrogation
10. CAPITAL ADDITIONS
10.1 Determination of Capital Additions
10.2 Construction of Elective Capital Addition
10.3 Construction of Capital Addition
10.4 Payment
10.5 Budget for Additions
11. LICENSES AND PERMITS
12. LIABILITIES
12.1 Mutual Release
12.2 Construction Damage Losses
13. DEFAULTS
13.1 Written Demand
13.2 Default
13.3 Dispute Notification
13.4 Arbitration of Disputes
13.5 Remedy for Default
13.6 Interest
13.7 Additional Remedies
13.8
14. UNCONTROLLABLE FORCES
15. WAIVER OF RIGHT TO PARTITION
16. TRANSFER AND ASSIGNMENTS: SECURED INTERESTS
17. OBLIGATIONS ARE SEVERAL
18. ARBITRATION
19. APPLICABLE LAW AND REGULATIONS
20. NOTICES
21. ADDITIONAL DOCUMENTS
22. END OF COMBUSTION TURBINE
23. TERM
24. OPTION AND RIGHT OF FIRST REFUSAL
24.1 Right to Cause BHC to Purchase Combustion Turbine
24.2 BHC's Right of First Refusal
24.3 Sale Subject to Agreement
25. MISCELLANEOUS
25.1 Headings
25.2 Singular/plural
25.3 No Third-Party Beneficiaries
25.4 Amended Only By Executed Writing
<PAGE>
EXHIBIT B
CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT
This Construction, Ownership and Operation Agreement, dated
as of September 9, 1994, is entered into between BLACK HILLS
CORPORATION, a South Dakota corporation, doing business as Black
Hills Power and Light Company, and Montana-Dakota Utilities Co.,
a Division of MDU RESOURCES GROUP, INC., a Delaware corporation.
1. RECITALS AND DEFINITIONS.
1.1 Definitions. The following capitalized words and
phrases when used in this Agreement shall have the respective
meanings as follows:
"Additions and Replacements" are additions and
replacements of portions or all of the Combustion Turbine as the
Operator may determine during the Term in the application of
Prudent Utility Practice to cause the Combustion Turbine to be
operational and in compliance with law. Additions and
Replacements are those additions and replacements which would
under generally accepted accounting principles be capitalized.
"Agreement" is this Construction, Ownership and
Operation Agreement.
"BHC" is Black Hills Corporation, one of the parties to
this Agreement.
"Capital Additions" means additions, betterments and
replacements to the Combustion Turbine necessary to assure design
capability and reliability or that are required by law, or by
order or regulation of a governmental agency having jurisdiction.
"Capital Retirements" means those physical elements of
the Combustion Turbine removed from service or used with the
intent that the item so removed will not be placed back into
service.
"Combustion Turbine" is a combustion turbine to be
fired either with fuel oil and/or natural gas of an approximate
name plate size of 70 megawatts.
"Commercial Date" is the date the Combustion Turbine is
in commercial operation under Prudent Utility Practice. The
Commercial Date shall be the first day of a calendar month.
"Construction" means all activities necessary for
planning, engineering, acquisition and erection of the Combustion
Turbine and of Capital Additions and Elective Capital Additions
thereto.
"Costs of Construction" are all costs allocable to
Construction (excluding costs of fuel and allowance for funds
used during construction), after giving appropriate consideration
to credits relating to such costs and proceeds from dispositions
of surplus property. Without limiting the generality of the
foregoing, such costs shall include:
(a) All costs of preliminary site investigation and
development costs, land acquisition, architectural and
engineering services, labor, materials, equipment, supplies,
operator and other personnel training, testing, permits and
licenses, legal services, Capital Additions and Elective Capital
Additions;
(b) Payroll of Operator's employees, including fringe
benefits, allocated on an actual time basis including related
fringe benefits and payroll taxes;
(c) Traveling expenses including use of Operator's
transportation equipment;
(d) All costs of insurance obtained pursuant to
Section 9 hereof and applicable to Construction;
(e) All costs relating to injury and damage claims
arising out of Construction less proceeds of insurance maintained
in accordance with Section 9 hereof or insurance under any
contract for Construction entered into pursuant to Section 2 or
Section 10 hereof; and
(f) All federal, state and local taxes and payments in
lieu of taxes legally required to be paid in connection with
Construction, except any tax or payment in lieu of taxes assessed
or charged directly against any individual Owner unless such tax
or payment was assessed or charged to the individual Owner on
behalf of the Combustion Turbine.
"CT Term" is a period of time commencing with the
Commercial Date and terminating ten years thereafter.
"Elective Capital Additions" means additions,
betterments and replacements to the Combustion Turbine that are
not Capital Additions.
"Fuel Costs" are the costs of fuel oil or natural gas
acquired to fuel the Combustion Turbine.
"MDU" is Montana-Dakota Utilities Co., a Division of
MDU Resources Group, Inc., one of the parties to this Agreement.
"Net Generating Capability" is the total amount of
electrical energy which the Combustion Turbine is capable of
generating, due allowance being made for legal, regulatory or
physical constraints then obtaining, less the amount used in the
production thereof, as determined at any time by the Operator.
"Operating Expenses" are all expenses incurred in or
relating to the operation and maintenance of the Combustion
Turbine, including, but not limited to:
(a) Payroll of Operator's employees (including fringe
benefits), allocated on an actual time basis including related
fringe benefits and payroll taxes;
(b) Materials and supplies, including related
purchasing and handling costs, spare parts inventory and costs of
acquiring and maintaining fuel oil inventory;
(c) Traveling expenses, including use of Operator's
transportation equipment;
(d) All costs relating to injury and damage claims
arising out of operation and maintenance of the Combustion
Turbine less proceeds of insurance maintained in accordance with
Section 9 hereof.
(e) Auxiliary power costs;
(f) All federal, state or local taxes and payments in
lieu of taxes (legally required to be paid in connection with the
operation of the Combustion Turbine) except any tax, or payment
in lieu of taxes, assessed or charged directly against an
individual Owner unless such tax or payment was assessed or
charged to the individual Owner on behalf of the Combustion
Turbine; and
(g) Administrative and general expenses in an amount
equal to a percentage of the total expenses detailed in
paragraphs (a) through (g), but not including premium cost for
insurance procured pursuant to Section 9. The applicable
percentage shall be established annually on the basis of the
previous year's actual expenses. The percentage shall be a
ratio, the numerator of which is the Operator's administrative
and general expenses and the denominator of which is the
Operator's utility direct expenses to which such administrative
and general expense applies.
"Operator" is BHC or MDU if BHC sells its interest in
the Combustion Turbine, and MDU exercises the option to become
the Operator as provided at Section 3.3.
"Owners" are BHC and MDU.
"Owners Committee" is a committee composed of two
persons, one to be designated to serve from time to time by each
party to this Agreement.
"Percentage Share" is each party's respective ownership
interest in the Combustion Turbine as set forth at Section 2.1.
"Power Agreement" is the Power Integration Agreement,
dated as of the same date of this Agreement and entered into
between BHC and MDU.
"Prudent Utility Practice" at any particular time means
either (a) any of the practices, methods and acts engaged in or
approved by a significant portion of the electric utility
industry prior thereto or (b) any of the practices, methods or
acts, which, in the exercise of reasonable judgment in the light
of the facts known at the time the decision was made, could have
been expected to accomplish the desired result at the lowest
reasonable cost consistent with reliability, safety and
expedition. Prudent Utility Practice is not intended to be
limited to the optimum practice, method or act, to the exclusion
of all others, but rather to be a spectrum of possible practices,
methods or acts. Prudent Utility Practice shall also include
those practices, methods and acts that are required by applicable
laws and final orders or regulations of regulatory agencies
having jurisdiction.
"Remaining CT Term" is that period of time commencing
at the end of the Service Term and ending on the last day of the
CT Term.
"Term" commences with the Commercial Date and
terminates at a date the Combustion Turbine as originally
constructed, reconstructed, or added to is not, or cannot be
made, capable of producing electricity consistent with Prudent
Utility Practice or the requirements of governmental agencies
having jurisdiction, plus any time required for ending the
Combustion Turbine pursuant to Section 22; provided, the Term
shall end earlier at the close of the sale transaction if BHC
purchases MDU's interest in the Combustion Turbine under Section
24 or by agreement of the parties.
If the duration of any term or condition of this
Agreement shall be subject to the rule against perpetuities or a
similar or related rule, then the effectiveness of such term or
condition shall not extend beyond (a) the maximum period of time
permitted under such rule or (b) the specific applicable period
of time expressed in this Agreement, whichever is shorter. For
purposes of applying the rule against perpetuities or a similar
or related rule, the measuring lives in being shall be those of
the officers and directors of BHC and MDU shown in their
respective 1993 annual reports, together with all such listed
persons' children and grandchildren living on the date of
execution of this Agreement. As used herein, the terms
"children" and "grandchildren" shall have their primary generally
accepted meaning of descendants, including persons who are
legally adopted.
Other capitalized terms and phrases used in this Agreement that
are not otherwise defined herein but are defined in the Power
Agreement shall have the same meaning as set forth in the Power
Agreement.
1.2 Recitals. The Power Agreement provides for BHC
supplying electric capacity and energy to MDU for its MDU
Sheridan Service Territory, and under the terms thereof, the
Combustion Turbine may be constructed at a time to be determined
by BHC to provide for capacity to Black Hills' System and to
allow MDU to provide a portion of the capacity for its MDU
Sheridan Service Territory from an interest in the Combustion
Turbine. This Agreement sets forth the terms of the
construction, ownership and operation of the Combustion Turbine.
2. OWNERSHIP AND CONSTRUCTION OF COMBUSTION TURBINE.
2.1 Ownership. Each party shall own as its Percentage
Share an undivided 50 percent interest in the Combustion Turbine.
2.2 Determination of Site and Construction Term. BHC
shall determine the site of the Combustion Turbine; provided, the
site shall be within the service territory of BHC as it exists at
this time, or within a 20-mile radius thereof, or the MDU
Sheridan Service Territory. In its sole discretion, BHC shall
determine the time the Construction is to take place and the
Commercial Date.
2.3 Determination of Design and Engineering. BHC
shall determine the design and engineering of the Combustion
Turbine; provided, that the design and engineering shall first be
presented to the Owners Committee in time for a thorough review
by both parties. BHC shall take into consideration all comments
of members of the Owners Committee before determining the final
design and engineering of the Combustion Turbine and shall make
its decision based on Prudent Utility Practices.
2.4 Construction Budget. As soon as BHC determines
the timing of the Construction of the Combustion Turbine, BHC
shall submit to the Owners Committee for its comments a budget
setting forth an estimate of amounts expected to be expended for
Costs of Construction and an estimated cash flow schedule for
each calendar quarter during Construction.
2.5 Payments for Construction. The Operator shall
periodically notify MDU a reasonable period of time in advance,
as determined from time to time by the Operator, or in the event
of an emergency as soon as practicable, of expenditures for Costs
of Construction and the required payment schedule. Whether or
not such amounts are specified in a budget, each Owner shall pay
its Percentage Share of such amounts as needed so that the
Operator will have funds available to pay Construction Costs.
2.6 Accounting. On or before the 26th day of each
month, the Operator shall render to MDU a statement showing for
the preceding calendar month all Costs of Construction incurred
by the Operator during such preceding month. Any variance
between such statement of actual Costs of Construction and the
amounts deposited by the Owners in the previous month shall be
added to or deducted from the respective Owner's obligations for
such Costs of Construction in the month or months succeeding the
issuance of such statement.
2.7 Close of Account. Within a reasonable time after
the Commercial Date as is reasonably possible, the Operator shall
make a final accounting of all Construction Costs for the initial
Construction.
3. OPERATOR.
3.1 BHC Operator. BHC shall be the Operator of the
Combustion Turbine on behalf of and for the account of Owners
subject to the terms, conditions and covenants contained in this
Agreement. Except as otherwise herein provided, the Operator, as
agent for and on behalf of Owners, shall construct, operate and
maintain the Combustion Turbine, hire all Combustion Turbine
personnel, and pay all Costs of Construction and Operating
Expenses.
3.2 Operator's Obligations. BHC accepts the
appointment as Operator and agrees that it will construct,
operate and maintain the Combustion Turbine in accordance with
Prudent Utility Practice, and any applicable laws, regulations,
orders, permits and licenses, now or hereafter in effect, of any
governmental authority.
3.3 No Assignment of Operator's Duties. Unless MDU
shall give its consent in writing, the Operator shall not assign
its responsibility as Operator to any person except in connection
with an assignment of its entire Percentage Share. In the event
BHC sells its interest in the Combustion Turbine to another
entity, BHC shall give written notice to MDU of such sale, and
MDU shall thereupon have the option to become the Operator of the
Combustion Turbine and thereby enure to all rights and assume all
obligations of the Operator under this Agreement. MDU may
exercise the option by giving BHC written notice thereof within
60 days of the receipt of notice of the sale.
3.4 Agency Authority. Operator is hereby granted and
shall have the power to exercise authority to do everything
necessary, proper and usual, in the ordinary course of business,
for effecting the purpose of its agency, including, but not
limited to, the power to enter into contracts with third parties
for and on behalf of the Owners, the power to make and receive
payments, the power to initiate, compromise or settle claims with
third parties, the power to act as agent in its own name, and the
power to appoint subagents. The grant of such agency powers to
Operator shall remain in effect until the end of the Term.
3.5 Work Force. The Operator shall maintain a force
of able and efficient manpower. The work force will be employed
in the classifications necessary to construct, operate and
maintain the Combustion Turbine. The Operator shall negotiate
any contracts entered into with unions and set wage scales for
nonunion personnel.
3.6 Training Program. Operator shall maintain a
training program to assure the availability of qualified
personnel for Construction, operation and maintenance of the
Combustion Turbine. If such training program utilizes facilities
of the Operator other than Combustion Turbine, the costs of such
training shall be allocated on an equitable basis to either Costs
of Construction or Operating Expenses.
3.7 Liens. Operator shall pay promptly all sums due
employees or due any governmental or other agency on their behalf
or on account of their employment and shall not permit any
material or labor claims to be filed against the property of the
Owners, other than claims that are being contested in good faith.
3.8 Remedy and Release. Except for Operator's gross
negligence, the sole remedy of MDU for failure by BHC to operate
and maintain the Combustion Turbine in accordance with this
Section 3 shall be to obtain specific performance of the
obligations set forth herein. MDU waives all rights for damages
for any such failure, except for Operator's gross negligence, and
releases BHC from all liability caused directly or indirectly
from such failure.
4. USE OF COMBUSTION TURBINE.
4.1 During Service Term. During the Service Term as
set forth in the Power Agreement, BHC is entitled to schedule for
its purposes all capacity and energy from the Combustion Turbine,
and MDU shall have no rights to such capacity and energy but
shall be entitled to payments as provided at Section 4.3 of the
Power Agreement.
4.2 During Remaining CT Term. MDU shall have an
option, to be exercised before December 31, 2006 by written
notice to BHC, to have the right to schedule for its purposes
during the Remaining CT Term up to, but not to exceed, its
Percentage Share of the Net Generating Capability; and BHC shall
have the right to schedule for its purposes its Percentage Share.
If MDU fails to exercise that option, BHC is entitled to schedule
all capacity and energy from the Combustion Turbine during the
Remaining CT Term, and MDU shall have no rights to such capacity
and energy but shall be entitled to payments as provided at
Section 5.2(b)(ii).
4.3 After the CT Term. After the CT Term and for the
balance of the Term of this Agreement, each party shall have the
right to schedule for its purposes up to, but not to exceed, its
Percentage Share of the Net Generating Capability.
4.4 Failure of MDU to Schedule. During the Term, BHC
shall have the right to schedule for its purposes any Net
Generating Capability MDU could have scheduled, but did not,
under Sections 4.2 and 4.3.
4.5 Notification. MDU shall provide BHC through its
dispatchers its estimated hourly schedule of generation up to its
authorized amount in a timely fashion as normally required by
Prudent Utility Practice.
4.6 Black Hills' System Capacity in Lieu of MDU
Schedule. At any time MDU schedules capacity and energy as
authorized herein, BHC may as an alternative to operating the
Combustion Turbine furnish MDU the scheduled capacity and energy
from Black Hills' System delivered at the Combustion Turbine. In
that event, MDU shall pay BHC the Fuel Costs that would have been
consumed to comply with MDU's schedule.
4.7 Capability Limits. The Operator shall determine
the operating limits and operating capability of the Combustion
Turbine and shall promptly notify MDU of any change therein.
4.8 Operations. The Operator shall, subject to
unscheduled outages, operate the Combustion Turbine as scheduled
by the Owners and shall hold deviations from schedule to a
minimum. Unless otherwise agreed among the Owners, actual
generation shall be apportioned between the Owners in proportion
to the generation schedules of the respective Owners.
5. PAYMENTS.
5.1 During the Service Term. During the Service Term,
the obligations of each party are set forth in Section 4.3 of the
Power Agreement.
5.2 During the Remaining CT Term. During the
Remaining CT Term, the obligation of each party to pay costs are
as follows:
(a) If MDU exercises its option granted at
Section 4.2, each of the Owners shall pay its respective
Percentage Share of the Operating Expenses, and the Fuel Costs
for the fuel consumed to generate the capacity and energy
scheduled by it.
(b) If MDU does not exercise its option granted
at Section 4.2, BHC shall pay (i) all Operating Expenses and Fuel
Costs; and (ii) MDU Annual Fixed Costs per megawatt for MDU's
interest in the Combustion Turbine.
5.3 After the CT Term. After the CT Term and during
the balance of the Term of this Agreement, each of the Owners
shall pay its respective Percentage Share of the Operating
Expenses and shall pay the Fuel Costs for the fuel consumed to
generate the capacity and energy scheduled by it.
5.4 Oil and Spare Parts Inventory. MDU shall
pay Black Hills its Percentage Share of the fuel oil and spare
parts inventory maintained for the Combustion Turbine at the
following time:
(a) If MDU exercises its option granted at
Section 4.2, the payment shall be made on the first day of the
Remaining CT Term.
(b) If MDU does not exercise its option granted
at Section 4.2, the payment shall be made on the last day of the
Remaining CT Term.
5.5 Payment Schedule. During those months MDU is
obligated to pay its Percentage Share of Operating Expenses and
Fuel Costs and based upon invoices rendered by BHC, MDU shall pay
the Operator by the 15th day of each month an amount equal to the
estimated obligation for MDU that month for Operating Expenses
and Fuel Costs.
On or before the fifth business day of each month, the
Operator shall render to MDU an invoice showing for the preceding
calendar month all Operating Expenses and Fuel Costs incurred by
the Operator during such preceding month and the amounts thereof
MDU is obligated to pay. Any variance between such statement and
the estimated amounts previously paid by MDU for that month shall
be added to or deducted from MDU's obligation for succeeding
months. MDU shall pay the invoice by the 15th day of the month
the invoice is rendered. Interest at Chemical Bank's prime rate
shall be added to underpayments and deducted from overpayments of
estimated amounts. During those months BHC is obligated to pay
MDU Annual Fixed Costs, BHC shall pay MDU one-twelfth of the
Annual Fixed Cost each month by the 15th day of the month for
which the payment is being made.
6. OPERATION AND MAINTENANCE.
6.1 Operating Budget. On or before October 1 of each
year, the Operator shall submit to the Owners Committee for its
comments a budget of its estimate of Operating Expenses by
calendar months for the operating year beginning January 1 next
following. Such comments shall be provided no later than
December 1 in any such year. After taking into account all
comments of both members of the Owners Committee, the final
budget shall be determined by BHC. Each budget shall include
such items of expenditures for replacement and repair of the
Combustion Turbine as are normal to projects of a similar
character and shall provide an adequate contingency item for
emergency repairs and replacements. BHC will submit to the
Owners Committee any budget revision which changes the budget by
10% or more during any calendar year which MDU shall promptly
consider. After taking into account all comments of both members
of the Owners Committee, the final budget revision shall be
determined by BHC.
The Owners recognize that it will be necessary for continued
operation of the Combustion Turbine, or to maintain the
Combustion Turbine in operable condition, that the Operator be in
a position to meet commitments for payroll, repairs and
replacements, materials and supplies, services and other expenses
of a continuing nature in order that it may fulfill its
obligations as Operator under this Agreement. Accordingly,
notwithstanding any of the provisions of this Section, the
Operator, on behalf of the Owners, may make all expenditures in
the normal course of business or in an emergency, as necessary
for the proper and safe operation and maintenance of the
Combustion Turbine and the Owners will advance or reimburse their
respective Percentage Share of such expenditures when provided in
this Agreement.
6.2 Additional Expenses. To the extent not set forth
in the annual budget, the Operator will provide, not later than
the first of each month, a schedule of payments to be made of
Operating Expenses in such month. The Operator may, during the
month, notify MDU of additional dates or additional amounts, if
unanticipated obligations are incurred.
7. SCHEDULING OF OUTAGES.
7.1 Scheduled Outages. Scheduled outages for
maintenance shall be as required by the manufacturers' applicable
conditions of sale and delivery of the affected facilities and
equipment. Maintenance shall be in such month and year and for
such periods of time as shall be determined by (i) the Operator
during the period of time that MDU has no right to schedule
capacity and energy from the Combustion Turbine, and (ii) by the
agreement of both members of the Owners Committee during that
period of time that MDU has the right to schedule capacity and
energy from the Combustion Turbine. The Operator shall submit
all proposed scheduled maintenance outage periods to the Owners
Committee at least once a year with a sufficient lead time to
allow both members of the Owners Committee to respond to BHC
before the final maintenance schedule is determined.
7.2 Emergency Outages. In the event of emergency
outages, or forced outages, or reductions in Combustion Turbine
for any reason, the Operator shall determine a normal schedule
for repair or replacement or other restoration.
8. ACCOUNTING AND REPORTS.
8.1 Records. The Operator shall keep adequate records
of Project Construction and operations, including records
necessary to reflect the efficiency of Project operations and
maintenance programs, and to record generation of power, and
shall keep other records as required by regulatory authorities.
All records shall be made available for inspection by the Owners
as desired and copies shall be furnished the Owners upon request.
8.2 FERC Accounting. All accounts shall be kept so as
to permit conversion to the system of accounts prescribed for
electric utilities by the FERC, or any successor commission, but
the manner in which accounts are kept pursuant to this Agreement
is not intended to be determinative of the manner in which they
are treated in the books of account of the Owners.
8.3 Audits and Contract Limitation to Make Claim. MDU
may request the Operator from time to time, but no more than once
a year, to cause all books and records to be audited by MDU's
internal auditing staff or by independent Certified Public
Accountants of national reputation selected by Operator with the
approval of MDU, which approval shall not be unreasonably
withheld. Copies of such audits shall be supplied to each Owner.
The cost of such independent auditors shall be shared equally by
the parties.
Each party waives any claim against the other party for any
incorrect payments under this Agreement if notice of such claim
is not given the other party within two years after the incorrect
payments were made.
8.4 Subchapter K IRC Exclusion. Operator shall
prepare and the Owners shall make the appropriate election under
regulations promulgated under Section 761 of the Internal Revenue
Code to have the organization which the Owners may be deemed to
comprise excluded from the provisions of Subchapter K of the
Code.
9. INSURANCE.
9.1 Procurement. The Operator shall procure at the
earliest practicable time and thereafter maintain in effect at
all times hereinafter provided, to the extent available at
reasonable cost and in accordance with standards prevailing in
the utility industry for projects of similar size and nature,
adequate insurance coverage of the Combustion Turbine with
responsible insurers, with each Owner as a named assured as its
respective interests may appear, to protect and insure against:
employer's liability, public liability for bodily injury and
property damage, all risks of physical damage to property or
equipment, including transportation and installation perils, and
such other insurance as the Owners deem necessary, with
reasonable limits and subject to appropriate exclusions, and
deductibles.
9.2 Waiver of Subrogation. Each Owner shall ensure
that each of its policies of insurance that may be applicable to
any claims arising in connection with the Project shall include
broad-form contractual coverage or contain a waiver of the
insurer's rights of subrogation against, or name as additional
assureds, the other Owner and its respective agents and
employees. To the extent permitted by its insurance policies,
each Owner waives any rights of subrogation against the other
Owner, its agents and employees, for losses, costs, damages, or
expenses arising out of the Construction, operation, maintenance,
reconstruction or repair of the Project.
10. CAPITAL ADDITIONS.
10.1 Determination of Capital Additions. After timely
notifying the Owners Committee and taking into account all
comments from both members of the Owners Committee, BHC shall
determine the necessity of a Capital Addition or an Elective
Capital Addition. The Operator shall prepare and deliver to the
Owners Committee a cost estimate of such Capital Addition, or
Elective Capital Addition.
10.2 Construction of Elective Capital Addition. If the
Owners agree, the Operator shall proceed with construction of an
Elective Capital Addition, with the costs thereof to be borne by
the Owners in proportion to their Percentage Shares. Without
Agreement the Operator shall proceed with an Elective Capital
Addition at the request of an Owner at such Owner's sole cost;
provided that such Elective Capital Addition does not diminish
the entitlement or increase the costs of the other Owner.
10.3 Construction of Capital Addition. The Operator
shall proceed with construction of a Capital Addition with the
costs thereof to be borne by the Owners in proportion to their
Percentage Shares.
10.4 Payment. The Operator shall notify MDU not less
than 20 days in advance of a required Capital Addition payment,
and MDU shall make payments to the Operator at the time when the
Operator needs such funds to pay the costs of Construction of the
Capital Addition.
10.5 Budget for Additions. On or before October 1 of
each year, Operator shall submit to the Owners Committee a budget
of its estimate of expenditures required to be made for Capital
Additions or Elective Capital Additions pursuant to this section,
for the calendar year beginning January 1 next following.
Issuance and receipt of such budget shall not obligate either
Owner to proceed with construction of such additions or bear the
costs thereof, other than pursuant to the provisions of this
Section 10.
11. LICENSES AND PERMITS.
Upon the expiration of any licenses or permits required for
the operation of the Combustion Turbine, or should any additional
or further licenses or permits be required, the Owners agree to
file timely applications for a new or further license or permit,
as the case may be, to be held as tenants in common in the
undivided interests set forth hereinabove.
12. LIABILITIES.
12.1 Mutual Release. Each of the Owners releases the
other and its agents and employees from liability for any claims
for loss or damage, including claims for consequential loss or
damage, arising out of the ownership, Construction, operation,
maintenance or repair of the Combustion Turbine, due to
negligence, excluding gross negligence, including but not limited
to loss of use and loss of profit.
12.2 Construction Damage Losses. Any loss, cost,
liability, damage and expense to the Owners or either of them,
arising out of the Construction of the Combustion Turbine and
based upon injury to or death of persons or damage to or loss of
property including the Combustion Turbine or other property of
Owners and other persons, to the extent not covered by
collectible insurance, shall be charged to Costs of Construction.
13. DEFAULTS.
13.1 Written Demand. Upon failure of an Owner to make
or cause to be made any payment when due, or to perform or cause
to be made or performed any other obligation to be made or
performed, the other Owner may make written demand upon said
Owner for such payment or performance.
13.2 Default. If the failure of an Owner is to make a
payment when due and such failure is not cured within five (5)
days from the date of a demand made pursuant to Section 13.1, it
shall constitute a default at the expiration of such period.
13.3 Dispute Notification. If an Owner shall dispute a
default asserted against it, then such Owner shall timely make or
cause to be made payment of any sums in dispute or perform the
obligation in dispute but may do so under protest. Such protest
shall be in writing, shall specify the reasons upon which the
protest is based and a copy thereof shall be mailed to the other
Owner. Upon resolution of such dispute, the payments advanced or
made between Owners, as in this paragraph provided, shall be
adjusted appropriately.
13.4 Arbitration of Disputes. All disputes referred to
in Section 13.3 above shall be submitted to arbitration pursuant
to Section 18 to determine the extent, if any, of the obligation
of the Owner disputing such default. If payment or performance
is timely made under protest, an act of default shall not be
deemed to have occurred.
13.5 Remedy for Default. In the event that an Owner is
in default because of failure to make payments when due, then the
following shall occur during the period such Owner is in default
unless the nondefaulting Owner elects otherwise in writing:
The defaulting Owner's Percentage Share of the output
of the Project shall be deemed to be assigned to the Operator on
behalf of the nondefaulting Owner during the period of default
and may be sold by the Operator and the proceeds applied to the
amounts owed by the defaulting Owner pursuant to the Project
Agreements.
In the event of a default, the nondefaulting Owner is authorized
to execute, deliver and file such notices, demands, agreements,
consents, financing statements, applications and other documents
as are necessary or appropriate to implement the provisions of
this subsection to the full extent legally possible. In the
event that any of the provisions of this subsection are waived by
the nondefaulting Owner or are held to be unenforceable by
competent authority, then the remaining provisions shall be
severable and in full force and effect.
13.6 Interest. Payments not made when due by an Owner
may be advanced by the other Owner and, if so advanced, shall
bear simple interest at the rate of 125% of Chemical Bank's prime
rate in effect during the period of delinquency.
13.7 Additional Remedies. In addition to the rights
granted in this Section 13, any nondefaulting Owner may take any
action, at law or in equity, including an action for specific
performance, to enforce this Agreement and to recover for any
loss, damage or payment advances, including attorneys' fees in
all trial and appellate courts and collection costs incurred by
reason of such default.
13.8 Section 13.5 shall not create an encumbrance prior
to the lien of any existing mortgage, loan or credit agreement of
either Owner except to the extent permitted thereunder.
14. UNCONTROLLABLE FORCES.
No Owner shall be considered to be in default in the
performance of any of its obligations hereunder, other than
obligations of such Owner to pay costs and expenses, if failure
of performance shall be due to uncontrollable forces. The term
"uncontrollable forces" shall mean any cause beyond the control
of the Owner failing to perform, and which, by the exercise of
reasonable diligence, such Owner is unable to overcome, and shall
include but not be limited to an act of God, fire, flood,
explosion, strikes, labor disputes, labor or materials shortages,
sabotage, an act of the public enemy, civil or military
authority, including court orders, injunctions, and orders of
government agencies with proper jurisdiction prohibiting acts
necessary to performance hereunder or permitting any such act
only subject to unreasonable conditions, insurrection or riot, an
act of the elements, failure of equipment, inability to obtain or
ship materials or equipment because of the effect of similar
causes on suppliers or carriers or failure of any governmental
agency to timely act. Nothing contained herein shall be
construed so as to require an Owner to settle any strike or labor
dispute in which it may be involved. Any Owner rendered unable
to fulfill any obligation by reason of uncontrollable forces
shall exercise due diligence to remove such inability with all
reasonable dispatch.
15. WAIVER OF RIGHT TO PARTITION.
So long as the Combustion Turbine or any part thereof as
originally constructed, reconstructed or added to is used or
useful for the generation of electric power and energy, or to the
end of the period permitted by applicable law, whichever first
occurs, the Owners waive their right to partition whether by
partition in kind or sale and division of the proceeds thereof,
and agree that they will not resort to any action at law or in
equity to partition and further waive the benefit of all laws
that may now or hereafter authorize such partition of the
properties comprising the Combustion Turbine. It is agreed that
this covenant shall be deemed to run with the land.
16. TRANSFER AND ASSIGNMENTS: SECURED INTERESTS.
All or any part of the interest of each Owner in the
Combustion Turbine or any part thereof may be transferred and
assigned as follows, but not otherwise:
(a) To any mortgagee, trustee, or other secured party,
as security for bonds or other indebtedness of such Owner,
present or future, and such secured party may transfer or assign
the interest given as security pursuant to or in lieu of, a
foreclosure of the lien (or the exercise of power of sale) held
by such secured party, provided that the transferee or assignee
assumes all the duties and obligations of the Owner making the
transfer or assignment.
(b) To any person in the electric utility business
into which or with which the Owner making the transfer may be
merged or consolidated or to which the Owner transfers
substantially all of its assets.
(c) To any person the stock or ownership of which is
wholly owned by the Owner making the transfer.
(d) To any other person with a written consent of the
other Owner.
(e) By MDU to any person after complying with the
conditions of Section 24.
17. OBLIGATIONS ARE SEVERAL.
The duties, obligations and liabilities of the Owners
hereunder are intended to be several and not joint or collective
and no Owner shall be jointly or severally liable for the acts,
omissions, or obligations of the other Owner. Nothing herein
contained shall be construed to create an association, joint
venture, partnership, or impose a partnership duty, obligation or
liability, between the Owners. No Owner shall have a right or
power to bind the other Owner without its express written
consent, except as expressly provided in this Agreement.
18. ARBITRATION.
If any dispute arises under this Agreement as to any factual
matter, the parties shall submit the factual dispute to a board
of three arbiters, one to be selected by each party and the
parties to agree on the selection of a third arbiter. If the
parties are unable to agree on the third arbiter, the parties
shall request the senior district judge of the United States
District Court of the District of Wyoming to submit a list of
five (5) persons. Each party shall alternately strike one name
from the list, the first exercise to be determined by lot. The
last person remaining on the list shall serve as the third
arbiter. Except as otherwise set forth herein, the arbitration
shall be held under the rules of the American Arbitration
Association. The arbiters shall render their decision in writing
not later than thirty days after the matter has been submitted to
them, and the decision of a majority of the board of arbiters of
the factual dispute shall be binding on the parties. Each party
shall bear the expense of preparing and presenting its own case,
and the expense of the arbitrators shall be equitably divided
between the Owners by the arbitrators.
19. APPLICABLE LAW AND REGULATIONS.
The Owners in their performance of their obligations
hereunder shall conform to all applicable laws, rules and
regulations and, to the extent that their operations may be
subject to the jurisdiction of state or federal regulatory
agencies, subject to the terms of valid and applicable orders of
any such agencies. This Agreement shall be subject to the laws
of the State of South Dakota.
20. NOTICES.
Any notice, demand, or request provided for in this
Agreement shall be deemed properly served, given, or made if
delivered in person or sent by registered or certified mail,
postage paid and return receipt requested, to the person so
designated as its authorized representative. The titles and
addresses of the authorized representatives hereunder are as
follows:
For BHC: President
Black Hills Corporation
625 Ninth Street
P. O. Box 1400
Rapid City, South Dakota 57709
For MDU: President
Montana-Dakota Utilities Co.
400 North Fourth Street
Bismarck, North Dakota 58501
By giving written notice to the other party, a party may change
the title and address for the purpose of receiving notice
hereunder.
21. ADDITIONAL DOCUMENTS.
Each Owner, upon request by the other Owner, shall make,
execute and deliver any and all documents reasonably required to
implement the terms of this Agreement.
22. END OF COMBUSTION TURBINE.
When in the agreement of both members of the Owners
Committee the Combustion Turbine can no longer be made capable of
producing electricity consistent with Prudent Utility Practice or
the requirements of governmental agencies having jurisdiction, or
when part or all of the Combustion Turbine is removed from
service, Operator shall sell all salable parts of the portion of
the Combustion Turbine being removed from service to the highest
bidders; provided, however, if the entire Combustion Turbine is
being removed from service and if Operator should determine that
the Combustion Turbine will bring a greater amount at salvage if
sold as a unit than it would if it were dismantled and the
salable parts removed and sold, then Operator may sell the
Combustion Turbine as a unit to the highest bidder. After
deducting all costs of ending the Combustion Turbine, including,
without limiting the generality of the foregoing, the cost of
decommissioning, razing all structures and disposing of the
debris and meeting all applicable requirements of law, Operator
shall close any remaining Combustion Turbine accounts and, if
there are net proceeds, distribute to each Owner its Percentage
Share of such proceeds. In the event such costs of ending the
Combustion Turbine exceed available funds, each Owner shall pay
its Percentage Share of such excess as incurred.
23. TERM.
This Agreement shall continue for the Term.
24. OPTION AND RIGHT OF FIRST REFUSAL.
24.1 Right to Cause BHC to Purchase Combustion Turbine.
MDU shall have an option to cause BHC to purchase MDU's interests
in the Combustion Turbine as of the last date of the CT Term.
The purchase price to be paid by BHC to MDU shall be the original
cost depreciated of MDU's interests therein (including any fuel
oil and spare parts inventory owned by MDU) as determined by
generally accepted accounting principles. MDU may exercise its
option by giving BHC written notice thereof on or before the last
day of the Service Term. Upon the payment of the purchase price,
MDU shall transfer to BHC title to its interests in the
Combustion Turbine free of any liens or encumbrances caused or
created by MDU through its mortgage indentures or otherwise.
24.2 BHC's Right of First Refusal. If MDU does not
exercise its option to cause BHC to purchase its interest in the
Combustion Turbine as of the end of the CT Term as provided in
Section 24.1, MDU may sell its interest therein at any time after
the CT Term; provided, before MDU may sell its interest to an
entity other than BHC, MDU must first offer BHC in writing a
right of first refusal. Within 90 days following the receipt of
the right of first refusal, BHC shall have an option to acquire
MDU's interest in the Combustion Turbine at a purchase price
equal to MDU's original cost depreciated as determined by
generally accepted accounting principles. BHC's option shall be
exercised by written notice to MDU. If BHC fails to exercise its
option, MDU may sell its interest in the Combustion Turbine to
any other entity.
24.3 Sale Subject to Agreement. The purchaser of MDU's
interest in the Combustion Turbine shall be bound by the terms
and provisions of this Agreement, and BHC shall retain all of its
rights to the operation, control and capacity and energy output
of the Combustion Turbine as set forth in this Agreement.
25. MISCELLANEOUS.
25.1 Headings. The headings of the Sections of this
Agreement are inserted for convenience of reference only and
shall not affect the meaning or construction thereof.
25.2 Singular/plural. The singular of any term in this
Agreement shall encompass the plural and the plural the singular,
unless the context otherwise indicates.
25.3 No Third-Party Beneficiaries. This Agreement is
made solely for the benefit of the Owners, and is not, and shall
not be construed to be, made for the benefit of any person not a
party hereto.
25.4 Amended Only By Executed Writing. This Agreement
shall not be amended except by written instrument executed,
acknowledged and delivered by each of the Owners.
IN WITNESS WHEREOF, the Owners have executed this Agreement
in duplicate.
BLACK HILLS CORPORATION
By /s/ Daniel P. Landguth
Its Chief Executive Officer
MONTANA-DAKOTA UTILITIES CO., a
Division of MDU RESOURCES GROUP,
INC.
By /s/ Joseph R. Maichel
Its President
Exhibit 99
Release Date: Daniel Landguth
Chairman, President and CEO
September 9, 1994
Barbara Thirstrup
Manager of Governmental
and Public Affairs
Rapid City, S.D.--Black Hills Corporation, operating its electric utility
as Black Hills Power and Light Company, announced today that it has entered
into a ten-year contract with Montana-Dakota Utilities Co. Beginning
January 1, 1997, BHC will supply electric power and energy for all of MDU's
electric service requirements for its Sheridan, Wyoming service territory.
The contract is subject to the approval of the Federal Energy Regulatory
Commission.
In announcing the new contract, Dan Landguth, BHC's CEO, stated:
Customers of both MDU and BHC will benefit from this
contract. Because MDU awarded the contract through
extensive open competitive proposals, MDU is purchasing
the power for its Sheridan area customers at the lowest
available market-based rates.
BHC benefits as well, as the sale will increase the
company's revenues an estimated $90 million over the
ten-year contract period. This is significant for both
customers and shareholders of BHC. Because of the
sale, a lower rate increase than had previously been
estimated will be required in late 1995 when BHC
completes the Neil Simpson Unit No. 2, an 80 megawatt
coal-fired electric generating plant now under
construction near Gillette, Wyoming.
For BHC shareholders, the sale will allow the company
to operate more efficiently and will position the
company to be more competitive in an emerging open
wholesale power market.
BHC and MDU further mutually benefit because of their
agreement to share equal ownership in a new combustion
turbine. The turbine will be constructed at such time
that BHP's system will require a new peaking resource.
By building the turbine together, both companies
receive the benefits of lower unit costs from a turbine
that will be larger than either company could justify
on its own.
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