SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-8788
DELTA NATURAL GAS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 61-0458329
of Kentucky (I.R.S. Employer Identification No.)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Address of Principal Executive Offices) (Zip Code)
606-744-6171
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
YES____X_____. NO__________.
Common Shares, Par Value $1.00 Per Share
1,845,692 Shares Outstanding as of September 30, 1994.
<TABLE>
PART 1 - FINANCIAL INFORMATION
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Twelve Months Ended
September 30 September 30
<CAPTION>
1994 1993 1994 1993
<S> <C> <C> <C> <C>
OPERATING REVENUES $3,634,262 $3,585,499 $34,895,704 $31,340,531
OPERATING EXPENSES
Purchased gas $1,400,233 $1,322,413 $17,328,376 $14,510,675
Operation and maintenance 1,903,412 1,872,589 8,413,590 7,885,217
Depreciation and depletion 543,974 495,556 2,026,286 1,873,396
Taxes other than income taxes 207,384 205,885 876,976 804,779
Income taxes (375,600) (322,000) 1,456,000 1,509,800
Total operating expenses $3,679,403 $3,574,443 $30,101,228 $26,583,867
OPERATING INCOME (LOSS) $ (45,141) $ 11,056 $ 4,794,476 $ 4,756,664
OTHER INCOME AND DEDUCTIONS, NET 6,559 6,012 35,534 31,374
INCOME (LOSS) BEFORE INTEREST CHARGES $ (38,582) $ 17,068 $ 4,830,010 $ 4,788,038
INTEREST CHARGES 594,476 559,353 2,249,782 2,233,680
NET INCOME (LOSS) $ (633,058) $ 542,285 $ 2,580,228 $ 2,554,358
AVERAGE NUMBER OF COMMON
SHARES OUSTANDING 1,842,535 1,649,926 1,819,949 1,641,445
NET INCOME (LOSS) PER COMMON SHARE $ (.34) $ (.33) $ 1.42 $ 1.56
DIVIDENDS DECLARED PER COMMON SHARE $ .28 $ .275 $ 1.11 $ 1.09
</TABLE>
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
ASSETS September 30,1994 June 30, 1994 September 30, 1993
<S> <C> <C> <C>
UTILITY PLANT $ 80,006,773 $ 77,882,135 $ 72,965,898
Less-Accumulated provision
for depreciation (23,301,444) (22,862,469) (21,540,004)
Net utility plant $ 56,705,329 $ 55,019,666 $ 51,425,894
CURRENT ASSETS
Cash and cash equivalents $ 237,460 $ 156,547 $ 112,614
Accounts receivable - net 631,008 1,117,962 720,373
Gas in storage 514,827 352,572 2,543,599
Deferred gas cost 1,744,786 1,471,342 246,435
Materials and supplies 477,077 700,761 504,879
Prepayments 243,400 317,343 228,738
Total current assets $ 3,848,558 $ 4,116,527 $ 4,356,638
OTHER ASSETS
Cash surrender value of
officer's life insurance $ 277,603 $ 269,029 $ 252,887
Note receivable from officer 79,000 83,000 92,000
Unamortized debt expense and other 2,422,058 2,444,258 1,316,209
Total other assets 2,778,661 2,796,287 1,661,096
Total assets $ 63,332,548 $ 61,932,480 $ 57,443,628
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity $ 21,134,936 $ 22,164,791 $ 16,585,911
Long-term debt 24,500,000 24,500,000 19,588,336
Total capitalization $ 45,634,936 $ 46,664,791 $ 36,174,247
CURRENT LIABILITIES
Notes payable $ 6,425,000 $ 2,705,000 $ 8,635,000
Current portion of long-term debt 500,000 500,000 1,259,000
Accounts payable 1,398,809 2,133,840 2,874,161
Accrued taxes (158,314) 436,158 217,677
Refunds due customers 406,882 396,065 36,251
Customers' deposits 346,625 342,979 372,742
Accrued interest on debt 446,364 427,338 462,252
Accrued vacation 449,757 454,362 420,675
Other current and accrued
liabilities 312,849 314,888 313,801
Total current liabilities $ 10,127,972 $ 7,710,630 $ 14,591,559
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 5,116,400 $ 5,116,400 $ 4,123,500
Investment tax credits 921,800 921,800 993,300
Regulatory liability 1,312,500 1,312,500 1,359,100
Advances for construction
and other 218,940 206,359 201,922
Total deferred credits and other $ 7,569,640 $ 7,557,059 $ 6,677,822
Total liabilities $ 63,332,548 $ 61,932,480 $ 57,443,628
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<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND
SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Twelve Months Ended
Ended
September 30 September 30
<CAPTION>
<S> <C> <C> <C> <C>
1994 1993 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (633,058) $ (542,285) $ 2,580,228 $ 2,554,358
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion
and amortization 566,174 514,396 2,121,049 1,955,796
Deferred income taxes
and investment tax
credits - - 874,800 839,100
Other, net 158,475 28,963 576,221 326,754
Increase(decrease) in other assets 617,752 (931,301) 918,949 (1,979,236)
Increase (decrease) in other
liabilities (1,563,521) 924,792 (2,975,920) 1,085,735
Net cash provided by
operating activities $ (854,178) $ (5,435) $ 4,095,327 $ 4,782,507
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $(2,388,112) $(1,880,917) $(7,881,942) $(6,138,815)
Net cash used in
investing activities $(2,388,112) $(1,880,917) $(7,881,942) $(6,138,815)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common stock $ (515,933) $ (453,634) $(2,034,666) $(1,789,544)
Issuance of common stock 119,136 80,786 4,003,463 415,955
Issuance of debentures - - 15,000,000 -
Repayment of long-term debt - (8,065) (10,847,336) (590,076)
Increase (decrease) in
short-term debt 3,720,000 2,165,000 (2,210,000) 3,230,000
Net cash provided by
financing activities $ 3,323,203 $ 1,784,087 $ 3,911,461 $ 1,266,335
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 80,913 $ (102,265) $ 124,846 $ (89,973)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 156,547 214,879 112,614 202,587
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 237,460 $ 112,614 $ 237,460 $ 112,614
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 553,250 $ 524,049 $ 2,170,906 $ 2,124,154
Income taxes $ 229,443 $ - $ 944,443 $ 752,851
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DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Delta Natural Gas Company, Inc. (Delta or the Company) has four wholly-
owned subsidiaries. Delta Resources, Inc. (Resources) buys gas and resells it
to industrial customers on Delta's system and to Delta for system supply.
Delgasco, Inc. buys gas and resells it to Resources and to customers not on
Delta's system. Deltran, Inc. was formed to engage in potential pipeline
projects and is currently inactive. Enpro, Inc. owns and operates production
properties. All subsidiaries are included in the consolidated financial
statements. Intercompany balances and transactions have been eliminated.
(2) The accompanying information reflects, in the opinion of management, all
normal recurring adjustments necessary to present fairly the results for the
interim periods. Reference should be made to Delta's Form 10-K for the year
ending June 30, 1994 for additional footnote disclosures, including a summary
of significant accounting policies.
(3) On October 18, 1993, Delta completed the issuance and sale of $15,000,000
of 6 5/8% Debentures due October 1, 2023 and 170,000 shares of common stock.
The net proceeds of approximately $17,800,000 were used to repay certain long-
term debt (approximately $11.3 million, including call premium of $475,000) and
to repay a portion of Delta's short-term notes payable.
(4) Reference is made to Part II - Item 1 relative to the status of legal
proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for Delta for fiscal 1995 are expected to be
approximately $8.4 million, of which approximately $2.4 million was expended
during the three months ended September 30, 1994. Delta generates internally
only a portion of the cash necessary for its capital expenditure requirements
and finances the balance of its capital expenditures on an interim basis
through the use of its borrowing capability under its short-term line of
credit. The current line of credit is $15 million, of which approximately $6.4
million was borrowed at September 30, 1994. These short-term borrowings are
periodically repaid with long-term debt and equity securities as was done on
October 18, 1993, when the net proceeds of approximately $17.8 million from the
sale of $15,000,000 of debentures and 170,000 shares of common stock were used
to repay certain long-term debt and to repay short-term notes payable.
Delta's sales are seasonal in nature, and the largest proportion of cash
is received during the winter heating months when sales volumes increase
considerably. During non-heating months, cash needs for operations and
construction are partially met through short-term borrowings. Additionally,
most construction activity takes place during the non-heating season because of
more favorable weather conditions, thus increasing seasonal cash needs. As a
result, short-term borrowings increased from approximately $2.7 million at June
30, 1994 to $6.4 million at September 30, 1994.
The primary sources and uses of cash for the three and twelve month
periods ending September 30, 1994 and 1993 are summarized below:
Three Months Ended September 30,
1994 1993
Sources (uses)
Used in operating activities $ (854,178) $ (5,435)
Capital expenditures $ (2,388,112) $ (1,880,917)
Net short-term borrowings $ 3,720,000 $ 2,165,000
Common stock dividends $ (515,933) $ (453,634)
Issuance of common stock $ 119,136 $ 80,786
Repayment of long-term debt $ - $ (8,065)
Twelve Months Ended September 30,
Sources (Uses) 1994 1993
Provided by operating activities $ 4,095,327 $ 4,782,507
Capital expenditures $ (7,881,942) $ (6,138,815)
Net short-term borrowings $ (2,210,000) $ 3,230,000
Common stock dividends $ (2,034,666) $ (1,789,544)
Issuance of common stock $ 4,003,463 $ 415,955
Issuance of debentures $ 15,000,000 $ -
Repayment of long-term debt $(10,847,336) $ (590,076)
RESULTS OF OPERATIONS
Operating Revenues
The increase in operating revenues of approximately $3,555,000 for the
twelve months ended September 30, 1994 was primarily due to increased sales
volumes of 8.4% resulting from cooler weather in 1994 and from a 2.6% increase
in the number of customers served. Billed degree days were 106% of thirty-year
average degree days for the twelve months ended September 30, 1994 as compared
with 98.7% for the similar period of 1993. Also, contributing to this increase
was an increase in the cost of purchased gas for the period which was reflected
in rates billed to customers through Delta's gas cost recovery clause.
Operating Expenses
The increase in purchased gas expense for the twelve months ended
September 30, 1994 of approximately $2,818,000 was primarily due to an increase
in the cost of gas purchased and increased sales volumes of 8.4% as well as a
2.6% increase in the number of customers served.
The increases in depreciation and depletion expense for the three and
twelve months ended September 30, 1994 of approximately $48,000 and $153,000,
respectively, were primarily due to additional depreciable plant.
The increase in taxes other than income taxes for the twelve months ended
September 30, 1994 of approximately $72,000 was primarily due to increased
property taxes which resulted from increased plant, and to increased payroll
taxes which resulted from increased wages.
Changes in income taxes for the periods were primarily due to changes in
net income. The Omnibus Budget Reconciliation Act of 1993 did not result in
additional income taxes for Delta. The Company adopted Financial Accounting
Standards (FAS) No. 109 effective July 1, 1993, as required. The adoption of
FAS No. 109 did not have a material impact on the results of operations or
financial position of the Company.
FAS No. 106, "Employers' Accounting for Post-Retirement Benefits", and FAS
No. 112, "Employers' Accounting for Post-Employment Benefits", did not affect
the Company as Delta does not provide benefits for post-retirement or post-
employment other than the pension plan for retired employees.
Net Income (Loss) Per Common Share
The net income (loss) per common share was impacted by the additional
170,000 shares of common stock issued in October, 1993, as well as the common
shares issued under Delta's dividend reinvestment plan and shares issued to
employees during the 1994 periods. As a result, the average common shares
outstanding increased for the 1994 periods, and per share earnings were
decreased.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The detailed information required by Item 1 has been disclosed in previous
reports filed with the Commission and is unchanged from the information as
presented in Item 3 of Form 10-K for the period ending June 30, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10(a) - Gas purchase contract between Tennessee
Gas Marketing and Delta dated September 1,
1993.
10(b) - Gas purchase contract between Natural Gas
Clearinghouse and Delta dated November 1,
1993.
10(c) - Amendment dated September 1, 1994 to an
employment agreement dated June 1, 1992
between Delta and Glenn R. Jennings, an
officer.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the
Registrant during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELTA NATURAL GAS COMPANY, INC.
(Registrant)
/S/Glenn R. Jennings
DATE: November 7, 1994 Glenn R. Jennings
President & Chief Executive Officer
(Duly Authorized Officer)
/S/John F. Hall
John F. Hall
Vice President - Regulatory Matters
and Treasurer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit 10.A Gas Purchase Contract between Tennessee Gas Marketing
and Delta
Exhibit 10.B Gas Purchase Contract between Natural Gas Clearinghouse
and Delta
Exhibit 10.C Amendment to an Employment Agreement between Delta and
Glenn R. Jennings
Exhibit 27 Financial Data Schedule
GAS SALES AGREEMENT
BY AND BETWEEN
DELTA NATURAL GAS COMPANY
AS BUYER
AND
TENNESSEE GAS MARKETING COMPANY
AS SELLER
TABLE OF CONTENTS
ARTICLE HEADING PAGE
I Definitions 1
II Quantity and Nominations 2
III Price 4
IV Delivery Points 6
V Transportation and Storage
Arrangements 6
VI Term of Agreement 9
VII Title and Taxes 9
VIII Quality and Pressure 10
IX Measurement and Tests 10
X Processing 11
XI Billing and Payment 11
XII Regulatory Bodies 13
XIII Force Majeure 14
XIV Arbitration 15
XV Miscellaneous 16
Signature Page 19
GAS SALES AGREEMENT
THIS GAS SALES AGREEMENT made and entered into this
1st day of September, 1993, by and between DELTA NATURAL
GAS COMPANY, a Kentucky corporation, hereinafter referred to
as "Buyer", and TENNESSEE GAS MARKETING COMPANY, a Delaware
corporation, hereinafter referred to as "Seller".
W I T N E S S E T H T H A T:
WHEREAS, Buyer desires to purchase natural gas from
Seller under the terms and conditions of this Agreement; and
WHEREAS, Seller desires to sell natural gas to Buyer
under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and benefits to be derived hereunder, Buyer and Seller agree
as follows:
ARTICLE I
DEFINITIONS
Unless expressly stated otherwise, the following terms
as used in this Agreement shall mean:
1.1 The term "Btu" shall mean British Thermal Unit(s)
which shall mean that amount of heat energy required to raise
the temperature of one avoirdupois pound of water from fifty-
nine degrees Fahrenheit to sixty-degrees Fahrenheit
at standard atmospheric pressure, as determined on a
dry basis. All prices and charges paid hereunder shall be
computed on a "dry" Btu basis .
1.2 The term "day" shall mean the period of time
beginning at 8:00 a.m., Eastern Time Zone, on a calendar day
and ending at 8:00 a.m., Eastern Time Zone, on the following
calendar day. This definition will be revised to reflect any
changes in the definition of day set forth in the tariff of
Tennessee Gas Pipeline Company ("Tennessee").
1.3 The term "gas" shall include casinghead gas,
natural gas from gas wells, and residue gas resulting from
processing casinghead gas and gas well gas.
1.4 The term "Liquefiable Hydrocarbons" means all
hydrocarbons (except those hydrocarbons separated from the
gas stream by conventional single-stage, mechanical field
separation methods) or any mixture thereof that may be
extracted from the gas sold hereunder other than methane
(except for the nominal quantities lost during such
processing operations) including, but not limited to, natural
qasolines, butanes, propane and ethane.
1.5 The term "Liquid Hydrocarbons" means any
hydrocarbons which, in their natural state, are liquids and
which shall include any Liquefiable Hydrocarbons that
condense out of the gas stream during production or
transportation.
1.6 The term "Mcf" shall mean one thousand (1,000)
cubic feet at a pressure of fourteen and seventy-three
hundredths (14.73) pounds per square inch absolute and at a
temperature of sixty degrees (60o) Fahrenheit, with
correction from Boyle's Law.
1.7 The term "MMBtu" shall mean one million (1,000,000)
Btus.
1.8 The term "month" shall mean the period of time
beginning on the first calendar day of each calendar month
and ending on the first day of the following calendar month.
1.9 The term "year" shall mean a period of twelve (12)
consecutive months, commencing on the first day of the month
following the Effective Date, as defined in Article VI, and
each subsequent twelve (12) month period; provided that the
first year will include the period from the Effective Date
until the first day of the following month if the Effective
Date is not on the first day of a month.
ARTICLE II
QUANTITY AND NOMINATIONS
2.1 Nominated Quantity - Subject to the terms and
conditions of this Agreement, Buyer shall have the right to
nominate and purchase on each day of the term hereof a
quantity of gas between (a) one hundred percent (100%) of the
actual daily natural gas requirements of the residential and
commercial customers in Buyer's distribution system
downstream of the Delivery Point(s) and (b) the Maximum Daily
Quantity ("MDQ") (as that term is defined in Section 2.2).
2.2 Maximum Quantity - Notwithstanding anything to the
contrary herein, the maximum quantity of gas that Buyer is
entitled to purchase and receive and that Seller is obligated
to sell and deliver (or cause to be delivered) on each day of
the term hereof, shall be the lesser of (a) 17,361 MMBtu's
per day or (b) the maximum daily quantity that Seller can
deliver based upon the physical design parameters underlying
the firm transportation and storage contracts with Tennessee
Gas Pipeline Company (Tennessee) that are transferred to
Seller in accordance with Article V below (hereinafter
referred to as the "MDQ"). Upon the mutual agreement of the
parties, Seller may sell and Buyer may purchase quantities in
excess of the MDQ. The price and terms of such excess sales
will be mutually agreed upon by the Parties prior to the
delivery of such excess gas.
2.3 Nomination Requirements
2.3.1 Monthly Nomination - On or before the
earlier of (a) five business days prior to the first day of
the next month or (b) two business days prior to Tennessee's
nomination deadline for the next month, Buyer will provide
Seller with a nomination specifying the daily quantity of gas
to be purchased and received under this Agreement for each
day during the next month ("Daily Nominated Quantity").
2.3.2 Daily Adjustments - On or before 4:00 p.m.,
Central Time Zone on the day prior to Tennessee's nomination
deadline for the next day, Buyer may adjust its Daily
Nominated Quantity prospectively for any day during the
remainder of that month.
2.3.3 Manner of Submitting Nominations - Buyer may
provide the nominations set forth above in this section
either orally or in writing, but an oral nomination must be
followed by written confirmation within twenty-four (24)
hours.
2.4 Remedies for Failures to Deliver
2.4.1 Seller's Failure-to Deliver - If Seller is
unable to deliver to Buyer the Daily Nominated Quantity
during any month, and such inability to deliver is not
excused under this Agreement, including without limitation
due to an event of force majeure, then Seller shall reimburse
Buyer for the following amounts: (i) the difference, if
positive, between the price Buyer pays for a substitute
supply of gas and the Commodity Price, multiplied by the
quantity Seller fails to deliver in accordance with this
section; plus (ii) any reasonable incidental expenses
incurred in purchasing such substitute supplies (not to
exceed 15 cents per MMBtu multiplied by the quantities Seller
failed to deliver). Buyer agrees to act in good faith in
purchasing such substitute supplies of gas so as to minimize
Seller's obligations to Buyer hereunder. If Buyer, through
reasonable efforts is unable to obtain substitute supplies,
then Seller shall pay Buyer the difference between the
highest commodity price that was paid by Buyer for gas during
the last two years and the Commodity Price multiplied by the
quantity of substitute gas Buyer would otherwise have
purchased if such gas had been available, plus any reasonable
incidental expenses incurred in trying to locate such
substitute supplies (not to exceed 15 cents per MMBtu multiplied
by the quantities Seller failed to deliver). Seller shall
credit Buyer's invoice for any amounts owed under this
section on the next invoice.
2.4.2 Curtailment - In addition to the remedies
set forth in Section 2.4.1, if for any reason, including an
event of force majeure, Seller is unable to meet all of its
firm sales obligations with Seller's available supplies,
Seller will curtail its deliveries to all of its sales
customers in accordance with the end-use curtailment plan
contained in Tennessee's tariff; provided that if, during the
term of this Agreement, Tennessee's end-use curtailment plan
is suspended or terminated, then Seller agrees to provide
Buyer with no less than Buyer's pro-rata share of Seller's
available supplies on Tennessee based upon the actual
nominations of Seller's firm sales customers made during the
period of curtailment, after having interrupted 100% of
Seller's interruptible, non-firm sales to the extent that
such a curtailment would be useful in maintaining deliveries
to Buyer. Notwithstanding the above, subject to the rights
under the Firm Transportation Contract and the Firm Storage
Contract, Seller will deliver gas injected into storage under
the Firm Storage Contract for Buyer's account prior to
curtailing deliveries to Buyer.
2.4.3 Exclusive Remedy - The Parties agree that
the actual losses incurred by a Buyer as a result of Seller's
failure to deliver quantities would be uncertain and
impossible to determine with precision. As a result, payment
by Seller in accordance with Subsections 2.4.1 and the
deliveries in accordance with Section 2.4.2 above shall be
Seller's entire and sole liability to Buyer, and the right to
recover such payment and receive such deliveries shall be
Buyer's sole and exclusive remedy, for Seller's failure or
breach of its obligation to deliver the quantities set forth
in this Article. Payment by Seller pursuant to this Section
2.4 is reasonable compensation for such failures.
2.5 Flow Requirements - Unless permitted otherwise by
Tennessee, Buyer will receive gas at rates that are in
compliance with the terms of the Firm Transportation
Contract.
ARTICLE III
PRICE
3.1 Commodity Price
3.1.1 Price for Quantities within MDQ - The price
for all quantities of gas sold and delivered hereunder up to
the MDQ shall be equal to the arithmetic average of (a) the
prices posted in the applicable month in the first
publication of Inside FERC's Gas Marketing Report "Prices of
Spot Gas Delivered to Pipelines," for deliveries into
Tennessee in "Louisiana and Offshore", (b) the prices posted
in the applicable month in the first publication of Natural
Gas Intelligence for deliveries into Tennessee in "Zone 1"
and (c) the prices posted in the applicable month in the
first publication of Natural Gas Week's Gas Price Report for
deliveries into Tennessee in "South Louisiana" (the
arithmetic average of such three indices herein being
referred to as the "Commodity Price"). It is understood that
Buyer has paid Tennessee Gas Pipeline Company (Tennessee) a
one-time inventory charge in accordance with Article g of
Tennessee's Rate Schedule FS to purchase the gas existing in
storage for Buyer's account upon the Effective Date (herein
referred to as the "Initial Storage Balance"). Seller will
act as Buyer's agent in arranging for the withdrawal and
transportation of the Initial Storage Balance to the Delivery
Points. Subject to the reimbursement of the transportation
and storage costs set forth in Section 3.2, Seller will not
charge Buyer for each MMBtu of the Initial Storage Balance
withdrawn from storage and delivered to the Delivery Points.
For purposes of determining the quantities of gas withdrawn
under the Firm Storage Contract, unless the Parties mutually
agree to an alternate allocation arrangement the Initial
Storage Balance will be deemed to have been delivered first,
prior to any other quantities withdrawn from storage.
3.1.2 Price for Excess Gas - The price for any
quantities of gas sold and delivered hereunder in excess of
the MDQ shall be determined in accordance with Section 2.2.
3.2 Transportation and Storage Costs - In addition to
payments made above, Buyer shall reimburse Seller for (1) all
demand or reservation charges or surcharges paid by Seller
under the Firm Transportation Contract and Firm Storage
Contract transferred and delegated to Seller in accordance
with Article V below, including without limitation any demand
transition cost surcharges, (2) all commodity or volumetric
charges or surcharges paid by Seller under the Firm
Transportation Contract and Firm Storage Contract that are
associated with the gas sold under this Agreement, including
without limitation any volumetric transition costs, overrun
charges attributable to Buyer's actions, GRID charges, or AKA
charges that are incurred under such contracts or any
injection or withdrawal charges that are incurred under the
Firm Storage Contract that are required to build inventory
levels for Buyer or to serve Buyer's daily requirements (but
not to build inventory or to serve requirements of others),
(3) any fuel and loss costs paid by Seller incurred under the
Firm Transportation Contract and the Firm Storage Contract,
such costs to be equal to the amount of fuel and loss
quantities that Seller provided to Tennessee pursuant to such
contracts during the applicable month times the Commodity
Price and (4) any other costs, expenses or charges incurred
by Seller under such contracts (as such contracts and the
associated tariff provisions and charges may change from time
to time) that would have been incurred by Buyer if Buyer had
not transferred or delegated such contracts to Seller in
accordance with Article V below. If Seller receives any
credits or refunds for any of the charges under the Firm
Transportation and Firm Storage Contracts from Tennessee that
are paid by Buyer to Seller in accordance with the above,
then Seller will credit such refunds on the next invoice and
will remit any remaining refunds to Buyer in cash within
thirty days of receipt of payment by Tennessee.
3.3 Suspension of Indexes - If, during the term of this
Agreement, a specified index ceases to be published or a
specified index price is not published for a given month,
then the Parties will use the remaining index(es) to arrive
at the Commodity Price. However, if the specified indexes
cease to be published or the specified index prices are not
published for a given month, then the Parties will attempt to
agree upon a new index price for purposes of determining the
Commodity Price. If the Parties are unable to reach such
agreement by the expiration of the fifteenth (15th) day
immediately following the end of the month in which the
specified indexes or the specified pricing information in
such publications are not published, the method of setting
the price for gas for periods after such publication or
information in such publications are not published, shall be
determined by arbitration pursuant to Article XIV. The
arbitrators so selected shall be required to select an
alternate index or pricing mechanism that reflects the
current market value of gas delivered in Louisiana into
Tennessee's system.
ARTICLE IV
DELIVERY POINTS
4.1 Delivery Points - The Delivery Points for all gas
sold and delivered hereunder shall be at Buyer's citygate
stations specified in Exhibit A hereto.
4.2 Adjustments to Delivery Points - It is recognized
by both Parties that Seller's ability to deliver gas at the
Delivery Points set forth in Section 4.1 above is dependent
upon Seller's ability to utilize the Firm Transportation
Contract and the Firm Storage Contract transferred by Buyer
to Seller in accordance with Article V below. These
provisions are based on the tariff provisions approved in
FERC Docket No. RS92-23-000 on the date of execution of this
Agreement and Seller's ability to utilize such transferred
contracts to deliver the gas sold hereunder at the Delivery
Points set forth in Section 4.1 above. The terms of this
section shall be revised to reflect any substantial change in
Tennessee's tariff with regard to the utilization of such
contracts and delivery point flexibility, so as to place both
Parties in a relative position under this Agreement not
substantially different from the position the Parties had
prior to the change in such tariffs.
ARTICLE V
TRANSPORTATION AND STORAGE ARRANGEMENTS
5.1 Transfer of Transportation and Storage Arrangements
Buyer has firm transportation rights on Tennessee under Rate
Schedules FT-A and FT-G with a maximum daily quantity equal
to 17,361 Dths on its peak day (hereinafter referred to as
the "Firm Transportation Contracts"). Buyer has firm storage
rights on Tennessee under Rate Schedule FS with a maximum
storage quantity equal to 574,379 Dths and a maximum
withdrawal quantity equal to 10,160 Dths per day (hereinafter
referred to as the "Firm Storage Contract"). In order to
provide a citygate service to Buyer at the Delivery Points,
on the Effective Date of this Agreement, (a) Buyer and Seller
will execute a Blanket Authorization Agreement with
Tennessee, to permit Seller to act as Buyer's agent for all
of its arrangements with Tennessee covered by the Blanket
Authorization Agreement and (b) Seller, as Buyer's agent
pursuant to such Blanket Authorization Agreement, will
transfer or assign to Seller the Firm Transportation
Contracts and Firm Storage Contract in accordance with
Sections 11.3 and 12.3 of Article III of the General Terms
and Conditions of Tennessee's tariff, respectively. Seller
shall have full and complete control over the utilization of
such contracts, including without limitation the manner and
timing of any transportation, injections, and withdrawals of
gas under such contracts; provided that, notwithstanding the
Blanket Authorization Agreement, Seller may not amend the
primary delivery points under the Firm Transportation
Contracts or change the rate schedule under which such
services are offered, unless the Parties mutually agree
otherwise. Seller shall also have the right to use such
contracts to serve Seller's other customers; provided
however, that such use shall be subordinate to the use of the
contracts to serve Buyer's requirements under this Agreement.
Notwithstanding the above, Buyer will retain sufficient firm
capacity and storage rights under such agreements for
purposes of storing, withdrawing and transporting the Initial
Storage Balance to the Delivery Points; provided that Buyer
will appoint Seller as its agent for purposes of storing,
withdrawing and transporting the Initial Storage Balance
under the Firm Transportation Contracts and the Firm Storage
Contract. Such a transfer and agency arrangement shall be in
accordance with Tennessee's tariff and shall terminate upon
the expiration of this Agreement. If, prior to the transfer
of such rights, elections for receipt points, delivery
points, supply leg capacity, monthly maximum daily quantity
elections or any other similar elections must be given to
Tennessee, then Buyer will cooperate with Seller to make such
necessary elections as designated by Seller. If, for any
reason, the release or transfer of the Firm Transportation
Contracts or Firm Storage Contract to Seller is not
accomplished or is not maintained during the term of this
Agreement, then the Parties will attempt to amend this
Agreement to reflect the changed circumstances. If the
Parties are unable to renegotiate this Agreement within
ninety days, then either Party will have the right, upon
written notice, to terminate this Agreement.
5.2 Responsibility for Firm Transportation and Storage
Contracts - Subject to Buyer's obligation to reimburse Seller
in accordance with Section 3.2 above, upon the transfer of
the Firm Transportation Contracts and the Firm Storage
Contract, Seller shall assume all obligations and rights
under such contracts, including without limitation, the
obligation to submit nominations to Tennessee, to pay any
applicable demand or commodity charges, scheduling or
imbalance charges, or providing fuel and loss quantities.
Buyer and Seller shall cooperate to ensure that nominations
(including any necessary adjustments thereto) are made timely
to Tennessee and that such nominations reflect the actual
expected deliveries and receipts. Buyer shall be responsible
for advising Seller of all of the quantities to be delivered
at the Delivery Points, specifying (a) the quantities
purchased hereunder, the quantities purchased by Buyer from
other suppliers and any quantities purchased by Buyer's
customers from other suppliers and (b) the relative
scheduling priority of each such party. Buyer will provide
Seller such information in accordance with the procedures set
forth in Section 2.3 herein. Seller will provide Buyer
information concerning the quantities scheduled for delivery
by Tennessee at the Delivery Points and other information as
reasonably requested by Buyer as it becomes available.
5.3 Operational Balancing Agreements - Subject to the
terms below, Seller will be responsible to correct any
imbalances or variations under the Firm Transportation
Contracts and the Firm Storage Contract. It is understood
that Seller will have the right to correct such imbalances or
variations, pursuant to Rate Schedule FT-G through automatic
injections and withdrawals under the Firm Storage Contract.
In addition, Buyer agrees to appoint Seller as its agent to
enter into and maintain an Operational Balancing Agreement
(OBA) with Tennessee in accordance with Tennessee's tariff.
If Seller is unable to correct such imbalances or variations
through automatic injections and withdrawals under the Firm
Storage Contract as set forth above due to inventory levels
in storage for Buyer's account or otherwise, then any
variance between actual deliveries and confirmed nominations
at the Delivery Points will be allocated to the OBA. Seller
shall be responsible for correcting any such variation or
imbalance under the OBA; provided that Buyer will use
reasonable efforts to cooperate with Seller to correct any
such imbalance or variation under the OBA. Notwithstanding
the above, Buyer will reimburse Seller for any unauthorized
overrun charges or other charges or penalties that are
imposed without notice and without ability of either Party to
cure that are caused by Buyer's failure to take the
quantities nominated by Buyer in accordance with this
Agreement or are caused by Buyer's failure to respond to any
directives of Tennessee, such as the imposition of an
operational flow order, which Seller provides notice of to
Buyer in sufficient time for Buyer to respond accordingly.
5.4 Adjustments to Imbalance Provisions - The purpose
of Sections 5.1 through 5.3 is to establish the Parties'
responsibilities for administering the firm contracts
transferred above, for any imbalances between receipts and
deliveries or variations between confirmed nominations and
actual deliveries at the Delivery Points. These provisions
are based on (a) the tariff provisions approved in FERC
Docket No. RS92-23-000 on the date of execution of this
Agreement, including the right to balance any variation
between projected and actual daily loads through injections
and withdrawals from storage under the Firm Storage Contract
and (b) the existing load profile of Buyer. The terms of this
section shall be revised to reflect any substantial change in
Tennessee's tariff with regard to the correction of such
imbalances or variations and any associated penalties or any
change in Buyer's load profile, so as to place both Parties
in a relative position under this Agreement not substantially
different from the position the Parties had prior to the
change in Tennessee's tariff or the change in Buyer's load
profile. If the Parties are unable to agree on the
appropriate revisions, the matter shall be submitted to
arbitration in accordance with Article XIV, such decision to
be effective on the first day of the month following the
issuance of the arbitrator's decision.
ARTICLE VI
TERM OF AGREEMENT
6.1 Primary Term - This Agreement shall become
effective on the implementation date of Tennessee's
restructuring filing in Docket No. RS92-23-000 (herein
referred to as the "Effective Date") and shall continue in
full force and effect for a primary term expiring April 30,
1996, unless earlier terminated pursuant to another provision
in this Agreement.
6.2 Extension - This Agreement shall remain in full
force and effect from year to year after the primary term,
unless and until terminated by either Party upon giving one
years' prior written notice to the other Party.
6.3 Transfer of Gas in Storage - Any gas remaining in
storage under the Firm Storage Contract at the termination of
this Agreement that was injected on or before March 31 of the
year in which the Agreement terminates shall be transferred
and sold by Seller to Buyer at the arithmetic average of the
prices that were applicable during the months of November,
December, January, February and March that immediately
preceded the termination date of this Agreement in accordance
with Section 3.1.2 of this Agreement. Any gas remaining in
storage at the termination of this Agreement that was
injected under the Firm Storage Contract after March 31 of
the year in which the Agreement terminates shall be
transferred and sold by Seller to Buyer at a price mutually
agreed to by the Parties; provided that Seller will not
inject gas into storage for Buyer's account after March 31 of
such year, unless Buyer consents to such injections. Unless
Buyer and Seller otherwise mutually agree, Seller shall use
reasonable efforts to manage storage, such that any remaining
gas transferred to Buyer at the termination date of this
agreement shall be no higher than 15% of the maximum storage
quantity under the Firm Storage Contract.
ARTICLE VII
TITLE AND TAXES
7.1 Transfer of Title Possession and Control - Title to
the gas sold hereunder shall pass from Seller to Buyer upon
delivery of said gas to Buyer at the applicable Delivery
Points; provided that title to each MMBtu of the Initial
Storage Balance shall remain with Buyer until delivery to
Buyer at the Delivery Points under the Firm Transportation
Contracts. As between the Parties hereto, Seller shall be
deemed to be in control and possession of all gas delivered
hereunder other than the Initial Storage Balance and shall
indemnify and hold Buyer harmless from any damage, injury or
losses which occur prior to delivery to Buyer at the Delivery
Points; otherwise, Buyer shall be deemed to be in exclusive
control and possession thereof and shall indemnify and hold
Seller harmless from any other injury, damage or losses.
7.2 Warranty of Title - Except as set forth below,
Seller warrants title to all gas delivered hereunder by
Seller or that Seller has the right to sell the same, and
that such gas is free from liens and adverse claims of every
kind. Seller will indemnify and save Buyer harmless against
all loss, damage and expense of every character on account of
adverse claims to the gas delivered by it before delivery to
Buyer. While such gas remains in Buyer's possession and
control, Buyer warrants title to all of the Initial Storage
Balance and that such gas is free from liens and adverse
claims of every kind. Buyer will indemnify and save Seller
harmless against all loss, damage and expense of every
character on account of adverse claims to the such gas prior
to delivery to Seller.
7.3 Taxes - Buyer shall reimburse Seller for any taxes,
fees or charges, other than an income tax, which is levied by
a governmental or regulatory body on the gas sold under this
Agreement.
ARTICLE VIII
QUALITY AND PRESSURE
8.1 Quality Requirements - Seller will deliver gas at
the receipt points under the Firm Transportation Contracts
that meets the quality specifications as set forth in
Tennessee's tariff.
8.2 Pressure Requirements - The gas shall be delivered
at the Delivery Points at the pressure existing in
Tennessee's facilities. Neither Seller nor Buyer shall be
obligated to install or operate compression facilities.
ARTICLE IX
MEASUREMENT AND TESTS
9.1 Measurement Point - The natural gas sold hereunder
shall be measured at or near the Delivery Points on
Tennessee's system at pressures in existence from time to
time and shall be corrected to the unit of measurement, which
shall be one MMBtu.
9.2 Standards for Measurement and Tests - Unless
specified herein to the contrary, the standards for
measurement and tests shall be governed by those standards
set forth in Tennessee's tariff.
9.3 Operation of Measurement - Seller, as the
replacement shipper and agent under the Firm Transportation
and Storage Contracts, shall cause Tennessee to operate the
measurement facilities involved in metering and receiving gas
at the Delivery Points. Said operation shall include the
changing of all charts, calculation of volumes and the
calibration, maintenance, adjustments and the repair of such
meter facilities in accordance with Tennessee's tariff. To
the extent either Party has access rights to the Delivery
Points, including the measurement facilities, that Party will
provide similar access to the other Party, to the extent
permitted, to fulfill any rights or obligations under this
Agreement.
ARTICLE X
PROCESSING
Seller may process the gas to remove any Liquid
Hydrocarbons or Liquefiable Hydrocarbons prior to the
delivery of the gas to Buyer at the Delivery Point(s). In the
event Seller elects to process the gas, any hydrocarbons so
removed shall be Seller's sole responsibility and all costs
(including associated transportation costs) shall be paid by
Seller and Seller shall indemnify, defend and hold Buyer
harmless therefrom.
ARTICLE XI
BILLING AND PAYMENT
11.1 Billing and Payment - Seller shall render to
Buyer, at the address indicated in Section 15.5 hereof, on or
before the fifteenth (15th) day of each calendar month an
invoice for all gas purchased during the preceding month
according to the measurements, computations, and prices
provided herein. Invoices may be based initially upon
estimates, but will be corrected to actuals as soon as
possible. Buyer agrees to make payment hereunder to Seller
for its account in available funds by wire transfer or by
mail at such location as Seller may from time to time
designate in writing. Payment shall be made by Buyer within
the later of (a) the twenty-fifth (25th) of the month or (b)
ten (10) days of the date of receipt of Seller's invoice;
provided that if Tennessee's billing schedule changes in its
tariff, then Buyer will pay Seller on an earlier or later
date to coincide with the payments due to Tennessee under the
Firm Transportation and Firm Storage Contracts. If the
invoiced amount is not paid when due, then, notwithstanding
Section 15.2 of this Agreement, interest on any unpaid amount
shall accrue at the then current prime rate of interest
(Chase Manhattan, N.A.), not to exceed any applicable maximum
lawful rate together with any court costs, attorneys' fees
and all other costs of collection which Seller may incur in
enforcing the terms of this Agreement. If such default
continues thirty (30) days after written notice from Seller
to Buyer, Seller may suspend gas deliveries hereunder without
liability and without prejudice to other remedies.
Notwithstanding the above, if a good faith dispute arises
between the Parties over the amounts due under the invoice
for any matters, other than any reimbursement for the demand
or reservation charges under the Firm Transportation and
Storage Contracts, then Buyer will pay that portion of the
statement not in dispute on or before the due date and both
Parties will continue to perform their obligations under this
Agreement during such dispute; provided that (a) Buyer will
be required to provide in writing, within 15 days, the
reasons for its dispute, (b) Buyer will be required to
provide, within 30 days of a written request by Seller, a
good and sufficient surety bond guaranteeing payment to
Seller of the amount ultimately found due to the extent that
Buyer does not meet the credit standards set forth in Section
11.2 below and (c) in the event Buyer and Seller are unable
to resolve the disputed portion of the bill within 60 days,
the matter shall be submitted to arbitration under the
provisions of Article XIV.
11.2 Credit Standards - All sales hereunder during the
term of this Agreement shall be subject to appropriate review
and approval by Seller's Credit Department. Buyer agrees to
provide information as required and within reason to Seller's
Credit Department to effect a proper evaluation. Without
limiting the above, Seller may suspend deliveries under this
Agreement if Buyer (a) admits that it is unable to pay its
debts as they become due, (b) applies for or agrees to the
appointment of a receiver or trustee in liquidation of it or
its properties, (c) makes a general assignment for the
benefit of creditors, (d) files a voluntary petition in
bankruptcy or a petition seeking reorganization or an
arrangement with creditors under any bankruptcy law, (e) is a
party against whom a petition under any bankruptcy law is
filed and such party admits the material allegations in such
petition filed against it, (f) is adjudicated as bankrupt
under a bankruptcy law or (g) Buyer fails to meet the credit
standards set forth in Tennessee's tariff.
11.3 Adjustments to Payments - If any overcharge or
undercharge in any form whatsoever shall at any time be found
and the bill therefor has been paid, Seller shall refund the
amount of any overcharge received by Seller and Buyer shall
pay the amount of any undercharge, within thirty (30) days
after final determination thereof; provided, there shall be
no retroactive adjustment of any overcharge or undercharge if
the matter is not brought to the attention of the other Party
in writing within the lesser of (a) twelve (12) months
following the date deliveries under this Agreement were made
or (b) the period in which the statements and payments to
Tennessee become final.
11.4 Review of Books and Records - Buyer and Seller
shall have the right to inspect and examine, at reasonable
hours, the books, records and charts of the other (pertaining
to the sale of gas hereunder or any other charge or fee
arising hereunder) to the extent necessary to verify the
accuracy of any invoice, charge or computation made pursuant
to this Agreement.
ARTICLE XII
REGULATORY BODIES
12.1 Laws and Regulations - This Agreement shall be
subject to all valid applicable governmental laws and orders,
regulatory authorizations, directives, rules and regulations
of any governmental body or official having jurisdiction over
the Parties, their facilities, the gas or this Agreement or
any provision thereof; but nothing contained herein shall be
construed as a waiver of any right to question or contest any
such law, order, rule or regulation in any forum having
jurisdiction.
12.2 Reliance on Law - The Parties are entitled to act
in accordance with a law until such law is amended, reversed
or otherwise disposed in a final nonappealable order.
12.3 Cooperation - The Parties shall cooperate to
ensure compliance with all governmental regulation, including
obtaining and maintaining all necessary regulatory
authorizations or any reasonable exchange or provision of
information needed for filing or reporting requirements.
12.4 Changes in Law or Regulation - If any federal or
state statute or regulation or order by a court of law or
regulatory authority directly or indirectly (a) prohibits
performance under this Agreement, (b) makes such performance
illegal or impossible, (c) prevents Buyer's full recovery of
any portion of the purchase price paid to Seller hereunder to
the extent that Buyer has exercised due diligence in
supporting the full recovery of such costs and opposing the
denial of such recovery before such regulatory authority or
(d) effects a change in a substantive provision of this
Agreement which has a significant material adverse impact
upon the ability of either Party to perform its obligations
under this Agreement, then the Parties will use all
reasonable efforts to revise the Agreement so that (a)
performance under the Agreement is no longer prohibited,
illegal, impossible or is no longer impacted in a material
adverse fashion, and (b) the Agreement is revised in a manner
that preserves, to the maximum extent possible, the
respective positions of the Parties. Each Party will provide
reasonable and prompt notice to the other Party as to any
proposed law, regulations or any regulatory proceedings or
actions that could affect the rights and obligations of the
Parties. To the extent that Buyer's full recovery of any
portion of the purchase price is prevented in accordance with
the above, the price of gas established under this Agreement
will not be changed from the Commodity Price, regardless of
any disallowance by a regulatory agency, except as mutually
agreed by the Parties. If the Parties are unable to revise
the Agreement in accordance with the above, then the Party
whose performance is rendered prohibited, illegal, impossible
or is impacted in a material adverse manner shall have the
right, at its sole discretion, to suspend this Agreement upon
written notice to the other Party. Either Party may then
terminate this Agreement upon 30 days written notice to the
other Party.
ARTICLE XIII
FORCE MAJEURE
13.1 Suspension of Receipt and Delivery Obligations -
If Buyer or Seller is rendered unable, wholly or in part, by
force majeure to perform obligations under this Agreement,
other than the obligation to make payments due under this
Agreement, it is agreed that the performance of the
respective obligations of Seller and Buyer to deliver or
purchase and receive gas, so far as they are affected by
force majeure, shall be excused and suspended from the
inception of any such inability until it is corrected, but
for no longer period. Buyer or Seller, whichever is claiming
such inability, shall give notice thereof to the other as
soon as practicable after the occurrence of the force
majeure. Such notice may be given orally or in writing, but,
if given orally, it shall be promptly confirmed in writing,
giving reasonably full particulars. Such inability shall be
promptly corrected to the extent it may be corrected through
the exercise of reasonable diligence by the Party claiming
inability by reason of force majeure.
13.2 Liability During Force Majeure - Neither Buyer nor
Seller shall be liable to the other for any losses or
damages, regardless of the nature thereof and however
occurring, whether such losses or damages be direct or
indirect, immediate or remote, by reason of, caused by,
arising out of or in any way attributable to suspension of
the performance of any obligation of either Party to the
extent that such suspension occurs because a Party is
rendered unable, wholly or in part, by force majeure to
perform its obligations.
13.3 Definition of Force Majeure - The term "force
majeure" as used herein shall mean, cover and include acts of
God, epidemics, landslides, hurricanes, floods, washouts,
lightning, earthquakes, storms, perils of the sea, hurricane
or storm warnings (to the extent that such warnings cause an
evacuation of facilities and restrict service under this
Agreement), restraints of any court or governmental or
regulatory authorities, acts of civil disorder, acts of
industrial disorder, accidents to Seller's, Buyer's or any
transporter's facilities or storage or pipeline system,
freezing of Seller's or its suppliers wells, lines of pipe,
storage facilities or other equipment, necessities for making
repairs or alterations to machinery, wells, platforms, lines
of pipe, storage facilities, pumps, compressors, valves,
gauges or any other similar equipment, cratering, blowout or
failure of any well or wells to produce, inability of Seller
or Buyer to obtain or acquire, grants, servitudes, rights of
way, permits, licenses, or any other authorizations from any
parties or agencies (private or governmental) or inability to
obtain or acquire materials and supplies necessary to
construct, maintain and operate any facilities required for
the performance of any obligations under this Agreement, or
any cause, whether of the kind herein enumerated or
otherwise, that (a) restricts or prevents performance under
this Agreement, (b) is not reasonably within the control of
the party claiming suspension and (c) by the exercise of due
diligence, such party is unable to prevent or overcome;
provided, however, the settlement of any labor dispute to
prevent or end any act of industrial disorder shall be within
the sole discretion of the Party to this Agreement involved
in such labor dispute, and the above requirement that an
inability shall be corrected with reasonable diligence shall
not apply to labor disputes. The inability of Seller to
obtain and resell gas supply at a profit, and the depletion
of Seller's reserves, shall not constitute events of Force
Majeure hereunder.
13.4 Third Party Force Majeure - The term "force
majeure" shall also include (a) an event of force majeure, as
defined in Section 13.3 above, occurring with respect to the
facilities or service of Buyer's or Seller's third party
transporter's (including without limitation Tennessee)
storing or transporting the gas to the Delivery Point(s), and
(b) the failure of such transporters to receive, store,
transport or deliver the gas sold hereunder for any other
reason; provided that Seller will use reasonable efforts to
have such transporters promptly correct their failure to
receive, store, transport or deliver the gas sold hereunder
through the exercise of reasonable diligence.
13.5 Termination - If a force majeure event continues
for a period of thirty (30) consecutive days, then the Party
which did not claim such force majeure may at any time
thereafter terminate this Agreement upon ten (10) days prior
written notice to the extent the force majeure event has not
been corrected prior to the expiration of such notice period.
ARTICLE XIV
ARBITRATION
14.1 Submission of Dispute for Arbitration - Any
controversy under this Agreement shall be resolved by a board
of arbitration, consisting of three members, upon notice of
submission given by either Party, which notice shall also
name one (1) arbitrator. The Party receiving such notice,
shall, by notice to the other Party within ten (10) days
thereafter, name the second arbitrator, or failing to do so,
the Party giving notice of submission shall name the second
arbitrator. The two (2) arbitrators so appointed shall name
a third arbitrator, or, failing to do so within ten (10)
days, the third arbitrator shall be appointed by the person
who is the senior (in terms of service) actively-sitting
judge of the United States District Court for the District
where Buyer's principal place of business is located.
14.2 Qualifications of Arbitrators - The arbitrators
shall be qualified by education, experience and training in
the natural gas industry to decide upon the particular
question in dispute.
14.3 Arbitration Proceedings - The arbitrators so
appointed, after giving the Parties due notice of the date of
a hearing and reasonable opportunity to be heard, shall
promptly hear the controversy in the area where Buyer's
principal place of business is located and shall thereafter
render their decision determining said controversy no later
than ninety (90) days after such board has been appointed.
Any decision requires the support of a majority of the
arbitrators. If the board of arbitration is unable to reach
such decision, new arbitrators will be named and shall act
hereunder, at the request of either Party, in a like manner
as if none had been previously named. After the presentation
of evidence has been concluded, each party shall submit to
the arbitrators a final offer of its proposed resolution of
the dispute. The arbitrators shall approve the final offer of
one party, without modification and reject that of the other.
In considering the evidence and deciding which final offer to
approve, the arbitrators shall be guided by the criteria
described in the applicable section of this Agreement.
14.4 Arbitrator's Decision - The decision of the
arbitrators shall be rendered in writing and supported by
written reasons. The decision of the arbitrators shall be
final and binding upon the Parties and will be complied with
by the Parties. The Parties agree that the decision of the
arbitrators shall be kept confidential in accordance with
Section 15.1 of this Agreement. Each Party shall bear the
expenses of its chosen arbitrator, and the expenses of the
third arbitrator shall be borne equally by the Parties. Each
Party shall bear the compensation and expenses of its legal
counsel, witnesses and employees.
ARTICLE XV
MISCELLANEOUS
15.1 Confidentiality - Except as otherwise provided
herein, Seller and Buyer agree to maintain the
confidentiality of this Agreement and each of the terms and
conditions hereof, and Seller and Buyer agree not to divulge
same to any third party except to the extent, and only to the
extent, required by law, court order or the order or
regulation of an administrative agency having jurisdiction
over Buyer and Seller, or the subject matter of this
Agreement. If required to be disclosed, then the Party
subject to the disclosure requirement shall (a) notify the
other Party immediately and (b) cooperate to the fullest
extent in seeking whatever confidential status may be
available to protect any material so disclosed.
15.2 No Incidental Consequential or Punitive Damages
Subject to Sections 2.4.1 and 11.1, notwithstanding any other
provisions herein, the Parties hereto waive any and all
rights, claims, or causes of action arising under this
Agreement for incidental, consequential or punitive damages.
Any damages resulting from a breach of this Agreement by
either Party shall be limited to actual damages incurred by
the Party claiming damages.
15.3 Third Party Beneficiaries - Neither Buyer nor
Seller intend for the provisions of this Agreement to benefit
any third party. No third party shall have any right to
enforce the terms of this Agreement against Buyer or Seller.
15.4 Notices - Except as otherwise expressly provided
in this Agreement, every notice, request, statement and
invoice provided in this Agreement shall be in writing
directed to the Party to whom given, made or delivered at
such Party's address as follows:
Buyer: DELTA NATURAL GAS COMPANY
3617 Lexington Road
Winchester, Kentucky 40391
Attention: George S. Billings
Seller:
For Purpose of Payment: For Notice and/or Requests:
TENNESSEE GAS MARKETING COMPANY TENNESSEE GAS MARKETING CO.
P.O. Box 2511 1010 Milam
Houston, Texas 77252 P.O. Box 2511
Houston, Texas 77252
Attention: Accounting Attention: V. P. of Sales
Either Buyer or Seller may change one or more of its
addresses for receiving invoices, statements, notices and
payments by notifying the other in the manner as provided
above. All written notices, requests, statements and invoices
shall be considered transmitted at the time of delivery, if
hand delivered, or, if delivered by mail, on the second
working day after mailing; if transmitted by telephone or
other oral means or by telecopy or other form of electronic
or telegraphic communication, all such notices shall be
considered transmitted at the time of oral communication or
at the time the telecopy or other form of electronic or
telegraphic communication was sent.
15.5 Choice of Law - THE PARTIES AGREE THAT THE LAW OF
THE STATE OF BUYER'S PRINCIPAL PLACE OF BUSINESS SHALL
CONTROL CONSTRUCTION, INTERPRETATION, VALIDITY, AND/OR
ENFORCEMENT OF THIS AGREEMENT
15.6 Assignment - All provisions of this Agreement
shall extend to and be binding on the successors and assigns
of the Parties hereto insofar as applicable to the rights and
obligations succeeded to or assigned, but no succession or
assignment shall relieve the assigning or succeeded to Party
of its obligations without the written consent of the other
Party, which consent shall not be unreasonably withheld.
Nothing in this section prevents either Party from pledging
or mortgaging all or any part of such Party's property as
security. Buyer shall require any purchaser or lessee of
Buyer's distribution system to assume the obligations under
this Agreement to the extent so elected by Seller.
15.7 Interpretation - In interpretation and
construction of this Agreement, no presumption shall be made
against any Party on grounds such Party drafted the Agreement
or any provision thereof.
15.8 Headings - The Table of Contents and the headings
of any article, section or subsection of this Agreement are
for purposes of convenience only and shall not be interpreted
as having meaning or effect.
15.9 Waiver of Default - No waiver by either Party of
one or more defaults or breaches by the other in performance
of any of the terms or provisions of this Agreement shall
operate or be construed as a waiver of any future default or
breach, whether of a like or of a different character.
15.10 Entire Agreement - The terms and conditions
contained herein constitute the full and complete agreement
between the Parties and any change to be made must be
submitted in writing and agreed to by both Parties.
15.11 Severability - Except as otherwise stated herein,
any article or section declared or rendered unlawful by a
court of law or regulatory authority with jurisdiction over
the Parties or deemed unlawful because of a statutory change
will not otherwise affect the lawful obligations that arise
under this Agreement.
15.12 Enforceability - Each Party represents that it
has all necessary power and authority to enter into and
perform its obligations under this Agreement and that this
Agreement constitutes a legal, valid and binding obligation
of that Party enforceable against it in accordance with its
terms, except as such enforceability may be affected by any
bankruptcy law or the application of principles of equity.
EXHIBIT A
BUYER: DELTA NATURAL GAS COMPANY
3617 Lexington Road
Winchester, Kentucky 40391
Pursuant to the Gas Sales Agreement between Seller and Buyer,
the delivery point(s) for natural gas service are as follows:
Delivery Point Meter Number Maximum Daily Quantity
Berea 020208 5,500 Dth/d
Salt Lick 020212, 020462 1,500
and 020733
Nicholasville 020248 9,961
Jeffersonville 020430 400
17,361 Dth/d
IN WITNESS WHEREOF, this Agreement is executed in
multiple counterparts, each of which is an original as of the
date first written above.
DELTA NATURAL GAS COMPANY
By:/s/George S. Billings
Name: George S. Billings
Title: Manager - Gas Supply
BUYER
TENNESSEE GAS MARKETING COMPANY
By:/s/David J. Doctor
Name: David J. Doctor
Title: President
SELLER
GAS SALES AGREEMENT
This Agreement is made and entered into as of the 1st day of
November, 1993 by and between Delta Natural Gas Company, Inc.
("Buyer"), and Natural Gas Clearinghouse ("Seller"), both Buyer
and Seller sometimes referred to collectively as "Parties" or
singularly as "Party".
I. Definitions
1.1 "Agreement" means the provisions of this document and
those contained in Exhibits "A" "B" and "C" attached hereto, as
such may be amended from time to time.
1.2 "Btu" (British Thermal Unit) means the amount of heat
energy required to raise the temperature of one pound of water
from fifty-nine-degrees Fahrenheit (59F) to sixty degrees
Fahrenheit (60F), as determined on a dry basis.
1.3 "Columbia Gas" shall mean Columbia Gas Transmission
Corporation.
1.4 "Columbia Gulf" shall mean Columbia Gulf Transmission
Company.
1.5 "Day" shall mean that period of 24 consecutive hours
beginning and ending at 8:00 a.m. Eastern Time.
1.6 "FERC" means the Federal Energy Regulatory Commission
or any successor government authority.
1.7 "Gas" or "Natural Gas" means the effluent vapor stream
(including Liquid Hydrocarbons) in its natural state produced
from wells, including all hydrocarbon and nonhydrocarbon
constituents and including casinghead gas produced with crude
oil, and residue gas resulting from the processing of gas well
gas or casinghead vas .
1.8 "Index Price" shall mean the arithmetic average of: (i)
the price denoted in the column labeled "Index for Columbia Gulf
Transmission Co., Louisiana", as it is published in the first
issue of the Delivery Month in Inside FERC's Gas Market Report,
in the table titled "Prices of Spot Gas Delivered to Pipelines",
plus transportation from onshore points to Rayne as follows: the
effective Base Rate stated at Sheet No. 019 of Columbia Gulf's
FERC Gas Tariff for Rate Schedule ITS-2, plus the ACA charge,
plus .348t fuel and any applicable FERC-approved surcharges; (ii)
the price denoted in the column labeled "Contract Index" for
South Louisiana, Columbia-Rayne, in the table titled "Spot Gas
Prices", "Delivered to Pipelines-30-Day Supply Transactions" in
the first edition of each applicable month of Natural Gas
Intelligence; and (iii) the price denoted for Columbia Gulf
Transmission Co., Rayne, La. "Bid Week" for applicable months as
it is published in the first issue of the Delivery Month in
Natural Gas Week in the table titled "Spot Prices on Interstate
Pipeline Systems" "Delivered-to-Pipeline" ($/MMBTU").
1.9 "Mcf" shall mean one thousand (1,000) cubic feet of Gas
as determined on the measurement basis set forth in this
Agreement.
1.10 "MMBtu" means one million (1,000,000) Btu. One MMBtu
is equivalent to one Dth.
1.11 "Month" shall mean the period commencing at 8:00 a.m.
Eastern Time on the first Day of a calendar month and ending at
8:00 a.m. Eastern Time on the first Day of the immediately
following calendar month.
1.12 "Transporter" means Columbia Gulf and, where
appropriate, Columbia Gas.
II. Quantity
2.1 Subject to the other provisions of this Agreement,
Seller shall sell and deliver and Buyer shall purchase and
receive, on a firm basis, a maximum daily quantity of gas up to
12,070 MMBtu ("MDQ"). Buyer shall purchase, and Seller shall
supply, one hundred percent of Buyer's gas requirements for
system supply on Columbia Gas from Seller pursuant to this
Agreement. Buyer shall be permitted to receive, and to transport
through its facilities, Gas from other suppliers, solely to the
extent that such Gas is received and transported by Buyer for
industrial and commercial end-users behind Buyer's citygate.
Notwithstanding the foregoing, Buyer shall not utilize Gas
purchased from Seller under this Agreement to supply new
industrial load added after November 1, 1993. In the event Buyer
adds a new industrial customer(s) after November 1, 1993, Buyer
and Seller shall negotiate in good faith with respect to the
price and terms at which Seller would provide Gas to supply such
load. Buyer may also negotiate with other suppliers to supply
such new load. If Buyer and Seller do not agree on the terms and
price for supply to serve the new load, Buyer may make whatever
arrangements it deems appropriate to provide supply to such new
load.
2.2(a) No later than forty-eight hours prior to the earlier
of the first-of-the-month nomination deadline for Transporter or
such other pipeline designated by the parties, Buyer shall notify
Seller of the quantity of Gas that Buyer desires to purchase from
Seller on each Day of the coming Month (the "Daily Nominated
Quantity").
2.2(b) On or before 4:00 p.m. Eastern Time on the day prior
to Transporter's nomination deadline for the next day, Buyer may
adjust its Daily Nominated Quantity prospectively for any day
during the remainder of that month.
2.2(c) Buyer may nominate quantities in excess of the MDQ,
and Seller shall exercise its best efforts to deliver the excess
quantities, provided that the Parties agree, prior to delivery,
on the price of the excess quantity and the terms and conditions
of its delivery.
2.2(d) At the time of nomination pursuant to sections
2.2(a) and 2.2(b) of this Agreement, Buyer may direct Seller to
cause Gas sold hereunder to be delivered under Columbia Gas' Rate
Schedule ITS, in lieu of causing such Gas to be delivered under
Columbia Gas' Rate Schedule GTS. Notwithstanding the foregoing,
Seller shall have the authority to determine whether sufficient
ITS capacity exists to permit delivery of Daily Nominated
Quantities. In the event Seller reasonably determines that
sufficient ITS capacity is not available to permit delivery of
Nominated Quantities, Seller is authorized to cause Buyer's Gas
to be delivered under Columbia Gas' Rate Schedule GTS.
2.2(e) Nominations required hereunder may be provided in
writing (including by facsimile transmission) or orally. Oral
nominations shall be confirmed in writing as soon as practicable.
2.3 The rules, guidelines, and policies of the
Transporter(s) actually transporting Gas under this Agreement, as
may be changed from time to time by agreement of the parties,
shall define and set forth the manner in which the Gas purchased
and sold is transported. Buyer and Seller recognize that the
receipt and delivery on Transporter's pipeline facilities of gas
purchased and sold under this Agreement shall be subject to the
operational procedures of Transporter, as set forth in
Transporter's then effective Federal Energy Regulatory Commission
Gas Tariff. Buyer and Seller shall be obligated to use their best
efforts to avoid imposition by Transporter of penalties,
scheduling fees, cash-out costs or similar charges for imbalances
or as a result of violations of Operational Flow Orders, as
permitted by Transporter's tariff ("Imbalance Charges"). If
during any month Buyer or Seller receives an invoice from
Transporter that includes an Imbalance Charge, both parties shall
be obligated to use their best efforts to determine the validity
as well as the cause of such Imbalance Charge. If the parties
determine that the Imbalance Charge was imposed as a result of
Buyer's actions (which shall include, but shall not be limited
to, Buyer's failure to accept a daily quantity of Gas equal to
Buyer's nomination of its daily volume requirements), then Buyer
shall pay for such Imbalance Charge. If the parties determine
that the Imbalance Charge was imposed as a result of Seller's
actions (which shall include, but not be limited to, Seller's
failure to deliver a daily quantity of gas equal to Buyer's
nomination of its daily quantity requirements), then Seller shall
pay such Imbalance Charge.
2.4(a) If Seller fails to sell and deliver the quantity of
Gas nominated by Buyer pursuant to this Agreement, and such
failure is not otherwise excused under this Agreement, then
Buyer's sole remedy shall be to obtain alternate supplies of Gas
to cover the quantity of Gas not delivered by Seller (such
alternate supplies obtained by Buyer are referred to as
"Deficiency Gas") and collect from Seller an amount equal to any
additional costs Buyer incurs to obtain Deficiency Gas,
including, without limitation, (i) the difference, if positive,
between the price Buyer pays for a substitute supply and the
commodity charge applicable under section 3.2 hereof; (ii) any
reasonable incremental expenses incurred in purchasing such
substitute supplies; and (iii) penalties charged by any pipeline
that would have transported the Gas Seller fails to deliver.
Buyer shall use its best efforts to obtain Deficiency Gas at the
lowest reasonable cost available. All other remedies Buyer may
have at law and equity arising from Seller's unexcused failure to
deliver Gas nominated by Buyer are waived.
2.4(b) Buyer's obtaining of Deficiency Gas and recovery of
Buyer's costs from Seller, as specified in Paragraph 2.4(a),
shall be limited to those quantities underdelivered and to the
period of underdelivery. Buyer's recovery from Seller may be, at
Buyer's choice, either a credit against future purchases or a
cash payment in accordance with Article IV.
2.5 The delivery of Gas from Seller to Buyer shall be made
at the Delivery Point(s) into Columbia Gulf designated in Exhibit
A, as supplemented by mutual written agreement of the Parties
from time to time. Title to Gas delivered under this Agreement
shall pass to Buyer at the Delivery Point(s).
2.6 Contemporaneously with the execution of this Agreement,
Buyer will delegate to Seller full responsibility for the
administration, management and operation of Buyer's firm
transportation service agreement with Columbia Gulf and Buyer's
Rate Schedule GTS service agreement with Columbia Gas pursuant to
an Agency and Delegation Agreement acceptable to Buyer, Seller,
Columbia Gulf, and Columbia Gas. Seller shall assume full
responsibility for the nomination, scheduling and balancing of
Gas transported and stored under Buyer's transportation and GTS
agreements with Columbia Gulf and Columbia Gas. Seller's
responsibility under the Agency and Delegation Agreement shall
commence upon delivery of Gas to the Delivery Point(s) on
Columbia Gulf, apply to the injection and withdrawal of Gas from
Columbia Gas' storage facilities, and continue until Gas is
delivered to Buyer's citygate delivery points designated in
Exhibit A. Seller will indemnify and hold Buyer harmless from all
costs, expenses and liability, including any liability under the
Minimum Fixed Cost Contribution set forth in Columbia Gas' Rate
Schedule GTS, arising from: (i) Seller's failure to follow
Buyer's instructions under the Agency and Delegation Agreement;
or (ii) Seller's unauthorized violation of any term or condition
contained in Buyer's transportation or Rate Schedule GTS
agreements with Columbia Gulf or Columbia Gas. Notwithstanding
the foregoing sentence, Buyer will indemnify and hold Seller
harmless from any costs, expenses and liability, including,
without limitation, Imbalance Charges as defined in Section 2.3,
and Minimum Fixed Cost Contribution under Columbia Gas' Rate
Schedule GTS, resulting from any act or omission of Seller
undertaken in accordance with Buyer's nominations, other
instruction(s) or any other information supplied to Seller under
this Agreement or the Agency and Delegation Agreement.
2.7 Subject to Seller's acceptance of Buyer's
creditworthiness, which will not be unreasonably withheld, Seller
shall finance the Storage Inventory Transfer from Columbia Gas to
Buyer pursuant to Section 43 of the General Terms and Conditions
of Columbia Gas' FERC Gas Tariff in accordance with the terms set
forth in Exhibit C to this Agreement.
III. Price
3.1 Buyer shall pay Seller each Month a commodity charge
for each MMBtu nominated by Buyer and caused to be delivered by
Seller at Buyer's citygate, calculated as follows:
3.2(a) For the period commencing November 1, 1993 and
ending October 31, 1994, the monthly commodity charge for each
MMBtu of Gas nominated by Buyer and delivered by Seller under
this Agreement shall equal the sum of (A) the Index Price, as
defined in section 1.8 hereof, and (B) $0.05 per MMBtu.
3.2(b) For the period November 1, 1994 through April 30,
1996, and for any extension of the Initial Term as defined in
Article VII of this Agreement, the monthly commodity charge for
each MMBTU of Gas nominated by Buyer and delivered by Seller
under this Agreement shall equal the sum of (A) the Index Price,
as defined in section 1.8 hereof, and (B) $0.01 per MMBtu.
3.3 Subject to Seller's obligation to indemnify and hold
Buyer harmless under Section 2.6 of this Agreement, Buyer shall
be responsible for and shall pay all charges, costs and expenses
incurred in transportation and storage of the Gas from the
Delivery Point(s) to Buyer's citygate receipt points, including
any Minimum Fixed Cost Contribution liability under Columbia Gas'
Rate Schedule GTS. Buyer shall receive bills directly from
Columbia Gas and Columbia Gulf and shall pay such bills directly.
Seller shall be responsible for any charges incurred in
connection with its utilization of Buyer's Rate Schedule GTS
rights on Columbia Gas for purposes other than providing Gas
supply to Buyer, and for any commodity charges incurred in
connection with its use of Buyer's Rate Schedule FTS rights on
Columbia Gulf for purposes other than providing Gas supply to
Buyer. In the event Buyer identifies such charges from Columbia
Gas and Columbia Gulf that do not relate to Seller providing Gas
supply to Buyer, Buyer shall submit a statement to Seller for
reimbursement, in accordance with the provisions of section 4.5
of this Agreement.
3.4 If any publication used to calculate the Index Price is
no longer available, or is not available for a given month, or if
the Parties shall agree that the published Index Price no longer
reflects the spot market for Gas at the delivery location, the
Parties will agree on a substitute publication or index. The
substitute publication or index shall be recognized in the
industry as a measure of prices paid each month for short term
sales of Gas in the market region containing the Delivery
Point(s). Until a substitute publication or index can be agreed
on, the Index Price shall be computed on the remaining
publication(s) or index.
3.5 In the event that Buyer is not permitted by the
applicable state or local regulatory body having jurisdiction to
recover from its customers any portion of the purchase price paid
to Seller under this Agreement, Buyer shall promptly notify
Seller of such disallowance. Within 15 days of such notice, the
Parties shall meet and attempt, in good faith, to agree on a
mutually acceptable course of action. If no resolution is reached
within 30 days of Buyer's notice, Buyer shall have the right, in
its sole discretion, to terminate the contract by notifying
Seller in writing. Such termination shall take effect on the
first day of the Month following Buyer's written notice of
termination.
IV. Payment
4.1 On or before the tenth (10th) Day of each Month, Seller
shall render to Buyer a statement setting forth the charges for
the total MMBtu of Gas nominated and delivered to Buyer at the
Delivery Point(s) during the immediately preceding Month.
Invoices shall be sent to Buyer at:
Attn.: Steve Billings
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, KY 40391
Phone: (606) 744-6171 ext. 158
Fax: (606) 744-3623
Buyer shall pay the amounts invoiced on or before the twentieth
(20th) day of the Month. If presentation of a statement by Seller
is delayed after the tenth (lOth) day of the Month, then the time
for payment shall be extended a corresponding period of time,
unless Buyer is responsible for such delay. Payments shall be
made to Seller by check or by wire transfer. Payment by check
shall reach Seller by the 20th day of the Month. Payment by wire
transfer shall be made direct to:
NationsBank-Dallas, Texas
ABA #111000025
Account #2261523836
Account Title: Natural Gas Clearinghouse
Payment by check shall be made to:
NationsBank
Credit Natural Gas Clearinghouse
P.O. Box 840795
Dallas, TX 75284-0795
4.2 If Buyer presents to Seller reasonable evidence
supporting Buyer's good faith belief that the amount of the
invoice is incorrect, Buyer shall pay the undisputed amount. If
Seller can demonstrate, to Buyer's reasonable satisfaction, that
Buyer's position is incorrect, Buyer shall immediately pay any
remaining amount owed. Late payments and all amounts withheld by
Buyer and subsequently acknowledged or determined to be owing
shall bear interest running from the original due date until paid
at the lower of the Prime Rate of interest established by the
Chase Manhattan Bank plus two percent (2W) or the maximum
applicable non-usurious rate.
4.3 If either Party discovers an error in the amount billed
in any statement or payment rendered under this Agreement, such
error shall be adjusted within thirty (30) days of the discovery
of the error, together with interest at the rate provided for in
Section 4.2. No adjustments shall be made for any error not
claimed within twenty-four (24) months of the date of the
original statement. A Party's rights under this paragraph shall
survive termination of this Agreement.
4.4 The Parties shall each preserve all test data, meter
records, charts and other similar records within their custody or
control pertaining to Gas sold and delivered under this Agreement
for a period of at least three (3) years following their
creation. Upon at least twenty-four (24) hours advance notice,
each Party shall have the right during normal business hours to
examine the books and records of the other Party to the extent
necessary to verify the accuracy of any statement, charge,
computation, or demand made under or pursuant to this Agreement.
A Party's rights under this paragraph shall survive termination
of this Agreement.
4.5 In the event Buyer elects to be reimbursed by cash
payment for obtaining Deficiency Gas pursuant to section 2.4 of
this Agreement, or seeks reimbursement in accordance with section
3.3 of this Agreement, Buyer shall render Seller a statement by
the 10th day of the Month following the Month in which Buyer
obtained the Deficiency Gas. Seller shall pay the amount invoiced
by the 20th day of the Month. Payment shall be by wire transfer
or check at Buyer's option. If presentation of a statement by
Buyer is delayed beyond the 10th day of the Month, then the time
for payment shall be extended a corresponding period of time,
unless Seller is responsible for such delay. Any disputes
regarding the amounts invoiced by Buyer shall be resolved
pursuant to the procedures set forth in section 4.2 hereof.
Billing errors shall be governed by section 4.3 hereof.
V. Creditworthiness of Buyer
5.1 Prior to commencement of deliveries, or during the term
of this Agreement if Buyer has failed to make timely payment of
undisputed amounts on more than one occasion, Seller may require
Buyer to supply Seller with credit information including, but not
limited to, bank references, financial statements and names of
persons with whom Seller may make reasonable inquiry into Buyer's
creditworthiness and obtain adequate assurance of Buyer's
solvency and ability to perform.
VI. Responsibility
6.1 Except as provided in the Agency and Delegation
Agreement described in Section 2.6 of this Agreement, all
charges, expenses, fees, taxes, damages, injuries, and other
costs incurred in or attributable to the handling or
transportation of the Gas delivered in accordance with this
Agreement prior to delivery to Buyer at the Delivery Point(s)
shall be the responsibility of Seller, as between the Parties,
and Seller shall indemnify, defend, and hold Buyer harmless from
all such costs.
6.2 Except as provided in the Agency and Delegation
Agreement described in Section 2.6 of this Agreement, all
charges, expenses, fees, taxes (including sales, or transfer
taxes and any other taxes levied on or in connection with the
transactions under this Agreement by the state, or other
government subdivision, in which the Gas is consumed or otherwise
used), damages, injuries, and other costs incurred in or
attributable to the purchase and transfer, transportation, and
handling of the Gas from and after delivery to the Delivery
Point(s) shall be the responsibility of Buyer, as between the
Parties, and Buyer shall indemnify, defend, and hold harmless
Seller from all such costs. In the event Seller is required by
law to collect any such taxes, and Buyer claims an exemption from
the taxes, Buyer shall, upon Seller's request, furnish Seller
with a copy of Buyer's exemption certificate.
6.3 Except as provided in Article XIII herein, Buyer
warrants that it has all necessary regulatory approvals and
authorizations for the purchase of Gas by Buyer hereunder.
VII. Term
7.1 This Agreement shall become effective upon the date of
execution by both Parties ("Effective Date") and shall continue
for a term extending through April 30, 1996 ("Initial Term").
Following the Initial Term, this Agreement shall continue in
effect on a year-to-year basis unless either Party gives written
notice to the other of its intention not to extend the Agreement,
provided, however, such written notice must be given at least six
(6) months prior to the expiration of the Initial Term or any
subsequent one year extension.
7.2 If, upon termination of this Agreement, either pursuant
to this Article VII or to the election of Buyer under Section 3.5
hereof, there remains in Buyer's storage account under Rate
Schedule GTS, Gas which Seller has caused to be injected but
which has not been delivered to Buyer's citygate, Buyer shall pay
Seller for such Gas a price per MMBtu equal to the greater of:
(i) Seller's actual cost for the volumes of Gas that have not
been delivered, plus 15 cents; or (ii) the Index Price for the
Month in which the contract termination takes effect.
VIII. Quality and Measurement
8.1 Buyer agrees to purchase nominated quantities of Gas
delivered by Seller to the Delivery Point(s) meeting the quality
and pressure specifications set forth in Transporter's Gas Tariff
on file with the FERC. If Gas delivered by Seller to the Delivery
Point(s) is rejected by Transporter for failure to meet its
quality specifications, Buyer shall be relieved of the obligation
to receive and pay for such Gas, including any applicable
reservation charges. To the extent that Transporter accepts Gas
tendered by Seller for Buyer's account at the Delivery Point(s),
Seller shall be deemed to have complied with the quality
specifications set forth herein.
8.2 Buyer and Seller agree that the volume and heating
value of Gas sold and delivered hereunder will be measured at or
near the Delivery Point(s) by Transporter, using equipment owned
or controlled by, and measuring procedures employed by
Transporter. The measurements made by Transporter shall be
accepted by Buyer and Seller, provided, however, the measuring
equipment and procedures used conform to Transporter's filed
tariffs and to generally recognized industry standards.
8.3 All Gas sold and delivered hereunder shall be measured
as provided for in the General Terms and Conditions of
Transporter's FERC Gas Tariff on file with the FERC.
IX. Processing
9.1 Subject to the quality specifications of Article VIII,
Seller may process the Gas to remove any Liquid Hydrocarbons or
Liquefiable Hydrocarbons prior to and after the delivery of the
Gas to Buyer at the Delivery Point(s). In the event Seller elects
to process the Gas, any hydrocarbons so removed shall be Seller's
sole responsibility and all costs (including additional
transportation costs attributable to such processing) shall be
paid by the Seller. The volumes delivered to Buyer shall be net
of any "plant volume reduction" as that phrase, or its
equivalent, is defined in pertinent gas processing agreements.
X. Force Majeure
10.1 If either Party is rendered unable, wholly or in part,
by force majeure to perform its obligations under this Agreement,
other than the obligation to make payments then or thereafter
due, it is mutually agreed that performance of the respective
obligations of the Parties, so far as they are affected by such
force majeure, shall be suspended without liability from the
inception of any such inability until it is corrected but for no
longer period. In order to suspend by reason of force majeure,
the Party claiming such inability shall promptly notify the other
party of the claimed inability to perform, the circumstances
giving rise to the claim, and the expected duration of the
inability to perform. The Party claiming force majeure shall
promptly correct the inability to perform to the extent it may be
corrected through the exercise of reasonable diligence. No Party
shall, however, be required against its will to adjust or settle
any labor disputes.
10.2 The term "force majeure" means an event that (i) was
not within the control of the party claiming its occurrence; and
(ii) could not have been prevented or avoided by such Party
through the exercise of due diligence. Events of force majeure
include, without limitation by enumeration, acts of God,
earthquakes, epidemics, fires, floods, hurricanes, landslides,
lightning, storms, washouts, freezing of wells or lines of pipe
used to supply the Gas under this Agreement and other similar
severe natural calamities, acts of public enemy, wars, blockades,
insurrections, riots, civil disturbances and arrests, strikes,
lockouts or other industrial disturbances, explosions, breakage,
accidents to equipment, facilities or lines of pipe used to
enable Seller to deliver or Buyer to receive Gas under this
Agreement, the refusal or inability of Transporter to transport
Gas under an existing transportation agreement, imposition by a
regulatory agency, court or other governmental authority having
jurisdiction of binding laws, conditions, limitations, orders,
rules or regulations that prevent or prohibit either Party from
performing, provided such governmental action has been resisted
in good faith by all reasonable legal means, or any other cause
of a similar type.
The following are not events of force majeure: (i) the
inability of Seller to obtain term Gas (i.e. Gas obtained on a
basis other than interruptible arrangements of 30 days or less)
and resell such Gas to Buyer at a profit; and (ii) the ability of
Seller to sell its Gas supply to another market at a more
advantageous price; or (iii) depletion of Seller's reserves.
XI. Notice
11.1 Any notice, request, demand or statement which either
Party may desire to give to the other, shall be in writing and
may be mailed by registered or certified mail, return receipt
requested, to the post office address of the Parties shown below,
or by facsimile transmission followed by written confirmation by
regular mail, unless otherwise provided in this Agreement:
SELLER: Notices
Natural Gas Clearinghouse
Attn: Vincent T. McConnell
13430 Northwest Freeway, #1200
Houston, Texas 77040
Phone (713) 744-1715
Telecopy (713) 744-6180
Billing Inquiries
Natural Gas Clearinghouse
Attn: Vincent T. McConnell
13430 Northwest Freeway, #1200
Houston, Texas 77040
Phone (713) 744-1715
Telecopy (713) 744-6180
BUYER: Notices and Billing Inquiries
Attn.: Brian Ramsey
Steve Billings
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, KY 40391
Phone: (606) 744-6171 ext. 158
Fax: (606) 744-3623
Notice shall be deemed received five business days following
mailing if by registered or certified mail or upon sender's
receipt of transmission confirmation if by facsimile
transmission.
11.2 Either of the Parties may from time to time designate
a different address. Routine communications may be delivered by
registered, certified or ordinary mail, or by telephone or
telecopy if the Parties agree.
XII. Seller's Warranties and Gas Supply Obligations
12.1 Seller warrants title to all Gas sold by it to Buyer
and that such Gas is free from all liens and adverse claims.
Seller agrees to indemnify Buyer from, and with respect to, all
suits, actions, debts, accounts, damages, costs, losses and
expenses (including only reasonable attorneys' fees) arising from
or out of any adverse claims of any and all persons related to
such Gas or taxes or charges thereon prior to the time the Gas is
delivered at the Delivery Point(s). Buyer agrees to indemnify
Seller from and with respect to, all suits, actions, debts,
accounts. damages, costs, losses and expenses (including only
reasonable attorneys' fees) arising from or out of any adverse
claims of any and all persons related to such Gas or taxes or
charges thereon at the time the Gas is delivered at the Delivery
Point(s) or thereafter.
XIII. Governmental Authorizations
13.1 This Agreement shall be subject to all valid and
applicable laws of the United States and to the applicable valid
rules, regulations or orders of any regulatory agency or
governmental authority having jurisdiction, and the Parties shall
be entitled to regard all applicable laws, rules and regulations
(federal, state or local) as valid and may act in accordance
therewith until such time as the same may be declared invalid by
final judgment of a court of competent jurisdiction and such
judgment is not subject to appeal.
13.2 Upon execution of this Agreement, each of the Parties
agrees to seek such government certificates, permits, licenses
and authorizations which, in its sole discretion, it deems
necessary to perform its obligations under this Agreement.
13.3 Upon execution of this Agreement, and from time to
time through out its term, each of the Parties shall make all
filings required by any regulatory bodies having jurisdiction
over the activities covered by this Agreement and upon request of
the other Party shall promptly provide copies of such to the
other Party.
13.4 Neither Party will knowingly enter into agreements or
undertake any activities or filings that would interfere with or
frustrate the other Party's efforts to obtain the necessary
regulatory approvals to fulfill its obligations under this
Agreement.
XIV. Assignments
14.1 Either Party may, without relieving itself of any
obligations under this Agreement, assign any of its rights under
this Agreement to any corporation, partnership, joint venture, or
other entity with which it is affiliated. Either Party, may also
assign or pledge this Agreement under the provisions of any
mortgage, deed of trust, indenture or similar instrument. But
neither Party shall otherwise assign this Agreement or any of its
rights, duties or obligations unless it shall have first obtained
the consent in writing of the other Party, which consent shall
not be unreasonably withheld. This Agreement shall be binding
upon, and inure to the benefit of, the respective successors and
assigns of the Parties.
XV. Confidentiality
15.1 The terms of this Agreement, including but not limited
to, the price paid for Gas, the quantities of Gas purchased, and
all other material terms of this Agreement shall be kept
confidential by the Parties except to the extent that any
information must be disclosed for the purpose of effectuating
transportation of the Gas, obtaining regulatory approval(s),
complying with a directive of any applicable regulatory body
having jurisdiction, or as required by law.
XVI. Miscellaneous
16.1 No waiver by either Party of any one or more defaults
by the other in the performance of any provisions of this
Agreement shall operate or be constructed as a waiver of any
other default or defaults, whether of a like or of a different
character.
16.2 THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
16.3 This Agreement constitutes the entire agreement between
the Parties pertaining to the subject matter hereof, supersedes
all prior agreements and understandings, whether oral or written,
which the Parties may have had in connection herewith and may not
be modified except by written authorized representatives of the
Parties.
16.4 Except as otherwise stated herein, any article or
provision declared or rendered unlawful by a court of law or
regulatory agency with jurisdiction over the Parties or deemed
unlawful because of a statutory change shall not otherwise affect
the lawful obligations that arise under this Agreement.
16.5 Neither Party shall be liable to the other for any
consequential, incidental, punitive, or exemplary damages as a
result of any act or omission under this Agreement or relating in
any fashion to this Agreement.
17.1 All disputes arising under this Agreement shall be
resolved through arbitration. All such arbitration shall be
conducted pursuant to the procedures set forth in Exhibit B
hereto.
IN WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year written below.
SELLER: BUYER:
ACCEPTED and AGREED to this ACCEPTED and AGREED to this
28th day of October,1993 21st day of October, 1993
NATURAL GAS CLEARINGHOUSE DELTA NATURAL GAS COMPANY,INC.
By:/s/Joel S. Staib By:/s/Alan L. Heath
Alan L. Heath
Title:Sr. Vice President Title: Vice President -
Operations & Engineering
EXHIBIT B
ARBITRATION PROCEDURE
1. Arbitration under the Agreement shall be governed by the
Federal Arbitration Act, 9 U.S.C. 1, et seq., and will not
be governed by the arbitration acts, statutes or rules of any
other jurisdiction.
2. Either party may request arbitration by submitting a written
notice to the other. The notice shall name the noticing
party's arbitrator and shall contain a statement of the issue
presented for arbitration. Within fifteen (15) days of receipt
of a notice of arbitration, the other party shall name its
arbitrator by written notice and may designate any additional
issues for arbitration. The two named arbitrators shall select
the third arbitrator within fifteen (15) days after the date
on which the second arbitrator was named. Should the two
arbitrators fail to agree on the selection of the third
arbitrator, either party shall be entitled to request the
Senior Judge of the United States District Court of the
District of Houston to select the third arbitrator. All
arbitrators shall be qualified by education or experience
within the natural gas industry to decide the issues presented
for arbitration and shall be licensed attorneys. No
arbitrator shall be: a current or former director, officer or
employee of either party, or its affiliates; an attorney (or
member of a law firm) who has rendered legal services to
either party, or its affiliates, within the preceding three
years; or an owner of any of the common stock of either party,
its affiliates or direct competitors.
3. The three arbitrators shall commence the arbitration hearing
within twenty-five (25) days following the appointment of the
third arbitrator. The proceeding shall be held at a mutually
acceptable site. If the parties are unable to agree on a
site, the arbitrators shall select a site other than the State
of Texas or the State of [Kentucky/Ohio]. Each party shall
have an opportunity to present its evidence at the hearing.
The arbitrators may call for the submission of pre-hearing
statements of position and legal authority, but no posthearing
briefs shall be submitted. After the presentation of the
evidence has concluded, each party shall submit to the
arbitration panel a final offer of its proposed resolution of
the dispute. A majority of the arbitrators shall approve the
final offer of one party without modification, and reject the
offer of the other party. The arbitration panel shall not
have the authority to award punitive or exemplary damages. The
arbitrators' decision must be rendered within thirty (30) days
following the conclusion of the hearing or submission of
evidence, but no later than 90 days after appointment of the
third arbitrator.
4. The decision of the arbitrators or a majority of them, shall
be in writing and shall be final and binding upon the parties
as to the issue submitted. Each party shall bear the expense
and cost of its arbitrator and one-half of the expense and
cost of the third arbitrator.
5. The arbitrators shall have the authority to establish rules
and procedures governing the arbitration hearing, except that
there shall be no pre-hearing discovery unless the parties
mutually agree that discovery will be permitted. Either party
shall be entitled to insist that no discovery shall be had, or
that discovery be limited to one or more of the devices
authorized by the Federal Rules of Civil Procedure.
EXHIBIT C
STORAGE INVENTORY TRANSFER FINANCING
1. Seller shall pay Columbia Gas the amount billed to Buyer by
Columbia Gas pursuant to Section 43 of the General Terms and
Conditions of Columbia Gas' FERC Gas Tariff for the "Conversion
Transfer" of storage inventory, as defined in that section.
2. Buyer shall reimburse Seller for the amount paid under
paragraph 1, plus carrying charges calculated at 5% annual
interest, over a 12 month period, commencing the first month
after Seller makes the payment under paragraph 1.
3. Seller shall bill Buyer for amounts due under this Exhibit C
in 12 equal monthly payments, beginning in the first month after
the payment in paragraph 1 is made. Such amounts shall be
separately stated on Seller's invoice. The provisions of Article
IV of the Agreement shall govern billing and payment under this
Exhibit C.
LIMITED AGENCY AGREEMENT
THIS AGREEMENT is made and entered into as of November 1,
1993 by and between Delta Natural Gas Company. Inc. , as "Buyer",
and Natural Gas Clearinghouse, a Colorado partnership, as
"Seller", both Buyer and Seller sometimes referred to
collectively as "Parties" or singularly as "Party".
WITNESSETH:
WHEREAS, Buyer and Seller have on this date entered into a
Gas Sales Agreement ("Gas Contract"), pursuant to which Buyer
will purchase a firm supply of Natural Gas from Seller; and
WHEREAS, Seller is obligated to perform certain services for
Buyer under the Gas Contract relating to the transportation of
Natural Gas from receipt points in the area of supply to delivery
points at Buyer's citygate; and
WHEREAS, Buyer has arranged for firm transportation of the
supply of Gas it will purchase from Seller under the Gas Contract
on Columbia Gulf Transmission Co. pursuant to the terms of
Assignment Agreement Nos. 37823, 37824, and 37826 ("Assignment
Agreements") and transportation and storage of such Gas pursuant
to the terms of Rate Schedule GTS Service Agreements ("GTS
Agreements") Nos. 37813, 37814, and 37815 with Columbia Gas
Transmission Corp. (the Columbia companies are referred to
collectively as "Columbia"); and
WHEREAS, Buyer and Seller have determined that it will
facilitate operations under the Gas Contract and under the
Assignment and GTS Agreements if Buyer delegates to Seller
certain authority under the Assignment and GTS Agreements.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants contained in this Agreement, the Parties agree
as follows:
ARTICLE I
LIMITED DELEGATION OF AUTHORITY
Buyer hereby delegates to Seller and appoints Seller as its
exclusive agent for the purposes set forth in this Agreement, and
Seller hereby agrees to such appointment. Buyer and Seller agree
as follows:
1. Seller shall have the authority to:
(a) Make and change all nominations for daily deliveries
to and from Receipt Points and Delivery Points under Buyer's
Assignment and GTS Agreements with Columbia.
(b) Submit requests to Columbia for any changes in Receipt
and Delivery Points under Buyer's Assignment and GTS
Agreements, provided, however, that Seller must obtain
Buyer's prior consent to alter the Primary Receipt and
Delivery Points.
(c) Release any excess firm pipeline or storage capacity
that Buyer may have on the Columbia system, to the extent
that Buyer is permitted to release such capacity under the
applicable rules and regulations of the Federal Energy
Regulatory Commission and Columbia's FERC Tariff.
(d) Aggregate imbalances accrued by Buyer and the other
parties listed in Exhibit A to this Agreement to minimize
overall imbalances and cashout exposure, to trade imbalances
with other shippers on the Columbia system, and in the last
instance, to cash out such imbalances with Columbia.
(e) Manage Buyer's storage rights and gas in storage and
to cycle and trade such gas.
2. Seller is hereby authorized and directed by Buyer (i) to
provide Columbia with information as necessary for Seller to make
or change daily deliveries to Columbia and to change Receipt
Points at which deliveries are to be made, and (ii) to receive
from Columbia and forward to Buyer any notice of curtailment,
operational flow orders, or other emergencies that would
otherwise be sent by Columbia to Buyer. If Buyer receives any
such notices or operational flow orders, Buyer shall promptly
forward such information to Seller via facsimile transmission and
notify Buyer by telephone of the receipt of such notice.
3. Seller shall perform any other duties incident to, or
necessary for, assuring the reliable delivery of natural gas
supplies under the Gas Contract.
4. This Agreement is not intended to create, and shall not
be construed to create, any relationship of partnership, joint
venture or association for profit between the Parties. Persons
dealing with either of the Parties are entitled to rely
conclusively on the power and authority of Seller as set forth in
this Agreement. Neither of the Parties shall have any fiduciary
obligations or duties to the other by virtue of this Agreement or
the Gas Contract.
5. This Agreement shall commence on November 1, 1993, and
terminate upon the termination of the Gas Contract.
BUYER: SELLER:
DELTA NATURAL GAS COMPANY, INC. NATURAL GAS CLEARINGHOUSE
By:/s/Alan L. Heath By:/s/Vincent T. McConnell
Name: Alan L. Heath Name: Vincent T. McConnell
Title: Vice President - Title: V.P.
Operations & Engineering
AMENDMENT TO OFFICER AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day
of September, 1994 by and between DELTA NATURAL GAS COMPANY,
INC. ("Delta") and GLENN R. JENNINGS ("Officer");
W I T N E S S E T H:
THAT, WHEREAS, Delta and Officer have entered an Officer
Agreement as of June 1, 1992; and
WHEREAS, Delta and Officer have agreed to an amendment
to the Officer Agreement and desire to reduce that amendment
to writing.
NOW, THEREFORE, in consideration of the valuable
services of Officer, the parties hereto do hereby agree that
paragraph 2(f)(i) of the Officer Agreement dated June 1, 1992
between Delta and Officer shall be amended so that after such
amendment it shall read as follows:
So long as Officer shall remain an employee
of Delta in any capacity, Delta shall forgive
$2,000.00 of the outstanding principal amount of
the Loan for each month of service completed by
Officer after September 1, 1994. With the express
approval of Delta's Board of Directors, Delta may
forgive additional amounts of the Loan at any
time.
Except as hereinabove amended, the Officer Agreement
dated June 1, 1992 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first above
written.
DELTA NATURAL GAS COMPANY, INC.
By/s/H.D. Peet
Chairman of the Board
/s/Glenn R. Jennings
GLENN R. JENNINGS
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