<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1997
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12374
---------
[ALUMAX INC. LOGO]
(Exact name of registrant as specified in its charter)
Delaware 13-2762395
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3424 Peachtree Road, N.E., Suite 2100, Atlanta, Georgia 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 846-4600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock of registrant
-----------------------------------------------------
outstanding at July 31, 1997: 55,061,257
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<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
ALUMAX INC.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------------
1997 1996 1997 1996
------- ------- --------- ---------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES .......................................... $ 730.9 $ 851.4 $ 1,432.7 $ 1,654.0
------- ------- --------- ---------
Cost and expenses:
Cost of goods sold ............................ 559.9 681.3 1,105.5 1,312.0
Selling and general ........................... 62.4 69.8 123.3 133.6
Depreciation and amortization ................. 37.6 35.9 74.7 68.9
------- ------- --------- ---------
659.9 787.0 1,303.5 1,514.5
------- ------- --------- ---------
EARNINGS FROM OPERATIONS ........................... 71.0 64.4 129.2 139.5
Gain on sales of assets ............................ -- 92.8 -- 171.2
Other income (expense), net ........................ 2.7 .8 2.4 14.9
Interest expense, net .............................. (13.9) (16.9) (27.3) (34.1)
------- ------- --------- ---------
EARNINGS BEFORE INCOME TAXES ....................... 59.8 141.1 104.3 291.5
Income tax provision ............................... (24.0) (58.0) (41.8) (113.0)
------- ------- --------- ---------
NET EARNINGS ....................................... 35.8 83.1 62.5 178.5
Preferred dividends ................................ -- (2.4) -- (4.7)
------- ------- --------- ---------
EARNINGS APPLICABLE TO COMMON SHARES ............... $ 35.8 $ 80.7 $ 62.5 $ 173.8
======= ======= ========= =========
Primary earnings per common share .................. $ 0.64 $ 1.77 $ 1.12 $ 3.81
======= ======= ========= =========
Fully diluted earnings per common share ............ $ 0.64 $ 1.50 $ 1.12 $ 3.23
======= ======= ========= =========
Weighted average primary shares outstanding ........ 55.9 45.7 55.9 45.6
======= ======= ========= =========
Weighted average fully diluted shares outstanding .. 56.0 55.3 55.9 55.2
======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 3
ALUMAX INC.
CONDENSED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(Millions of Dollars,
Except per Share Amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents .................................................... $ 27.0 $ 34.6
Accounts receivable, less allowance for doubtful accounts
(1997-$17.5; 1996-$16.6) ............................................. 444.8 439.1
Inventories ............................................................. 543.3 519.9
Other current assets .................................................... 93.6 92.2
-------- --------
Total current assets ................................................. 1,108.7 1,085.8
-------- --------
Noncurrent Assets:
Property, plant and equipment at cost, less accumulated
depreciation and amortization (1997-$1,079.8; 1996-$1,036.8) ......... 2,023.1 2,027.4
Other assets ............................................................ 188.3 185.5
-------- --------
Total noncurrent assets .............................................. 2,211.4 2,212.9
-------- --------
TOTAL ASSETS ................................................................. $3,320.1 $3,298.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................................ $ 122.0 $ 162.6
Accrued liabilities ..................................................... 234.0 224.2
Current maturities of long-term debt .................................... 42.6 38.4
-------- --------
Total current liabilities ............................................ 398.6 425.2
-------- --------
Noncurrent Liabilities:
Long-term debt .......................................................... 649.1 672.0
Other noncurrent liabilities ............................................ 565.8 560.7
-------- --------
Total noncurrent liabilities ......................................... 1,214.9 1,232.7
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock of $.01 par value .......................................... .6 .5
Paid-in capital ......................................................... 929.6 920.2
Retained earnings ....................................................... 786.8 724.3
Cumulative foreign currency translation adjustment ...................... (10.4) (4.2)
-------- --------
Total stockholders' equity ........................................... 1,706.6 1,640.8
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $3,320.1 $3,298.7
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
ALUMAX INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1997 1996
------ ------
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................................. $ 62.5 $178.5
Reconciliation of net earnings to net cash provided by
operating activities:
Depreciation and amortization ............................. 74.7 68.9
Provision for doubtful accounts ........................... 1.3 3.5
Gain on sales of assets ................................... (2.3) (171.2)
Deferred income taxes ..................................... 14.5 (0.3)
Other noncash items ....................................... 9.5 4.6
Changes in working capital, net of effects
of acquisition/disposition ............................. (62.6) 37.6
Net change in other noncurrent assets and liabilities ..... (19.4) 3.4
------ ------
Net cash provided by operating activities .............. 78.2 125.0
------ ------
INVESTING ACTIVITIES:
Dispositions, net of cash sold ............................... 3.2 110.4
Acquisition, net of cash acquired ............................ -- (436.5)
Capital expenditures ......................................... (70.3) (109.1)
------ ------
Net cash used in investing activities ..................... (67.1) (435.2)
------ ------
FINANCING ACTIVITIES:
Repayments of long-term and short-term debt .................. (18.7) (241.8)
Proceeds from long-term and short-term debt .................. -- 375.0
Dividends paid on preferred stock ............................ -- (4.7)
------ ------
Net cash provided by (used in) financing activities .... (18.7) 128.5
------ ------
Net decrease in cash and equivalents .............................. (7.6) (181.7)
Cash and equivalents at beginning of year ......................... 34.6 205.9
------ ------
Cash and equivalents at end of period ............................. $ 27.0 $ 24.2
====== ======
Supplemental Cash Flow Information:
Income tax payments .......................................... $ 26.9 $ 23.0
Interest paid, net of amounts capitalized .................... $ 31.2 $ 37.6
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1. PRESENTATION
These unaudited interim condensed financial statements of Alumax Inc. ("Alumax"
or the "Company") should be read in conjunction with the audited financial
statements for the year ended December 31, 1996. In Management's opinion, all
adjustments necessary for a fair presentation are reflected in the interim
periods presented. Certain reclassifications have been made to the prior year's
financial statements to conform with the 1997 presentation.
NOTE 2. FINANCIAL INSTRUMENTS ACCOUNTING POLICY
The Company may, from time to time, utilize certain financial instruments in
connection with risk management. The fair value of financial instruments is
determined by reference to market value quotes, where available, and other
valuation techniques, as appropriate. Amounts to be paid or received on interest
rate swaps and caps are included in interest expense on an accrual basis, as
they effectively limit the interest rate exposure of the Company's debt
commitments.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where conditions exist, the Company may utilize forward foreign
currency contracts. Amounts paid or received on settlement of forward foreign
currency contracts are deferred and included in the measurement of the related
foreign denominated transactions.
The Company's results of operations and financial condition depend to a large
degree on primary aluminum prices. In order to reduce this exposure, the Company
may enter into future, forward and option contracts. Amounts paid or received on
settlement of future, forward and option contracts, including any cost to
purchase the contracts, are deferred and recognized as a component of the
related transaction and included in costs and expenses, except for amounts paid
or received on settlement of aluminum contracts by the primary reduction
facilities, which are included in net sales.
All of the Company's financial instruments have been designated as hedges and
are closely monitored to ensure that correlation between changes in the fair
value of financial instruments and changes in the fair value associated with the
underlying hedged items exists to such a degree that they substantially offset.
In the event a high degree of correlation is not maintained, or anticipated
transactions do not occur, deferred gains or losses on the affected financial
instruments are recognized in earnings immediately. At June 30, 1997 all of the
Company's financial instruments qualified for deferral accounting treatment.
NOTE 3. STRATEGIC TRANSACTIONS
On January 26, 1996, the Company sold a 23 percent undivided interest in its Mt.
Holly primary aluminum reduction facility for $89.3. The Company recorded a gain
of $78.4 ($48.6 after tax) in connection with this transaction. This transaction
reduced the Company's ownership in the Mt. Holly facility to 50.33 percent.
On January 31, 1996, the Company purchased all of the common shares of privately
held Cressona Aluminum Company ("Cressona") for a cash cost, including expenses,
of $436.5, net of $3.1 of cash acquired. In conjunction with the acquisition,
liabilities of $87.4 were acquired. Cressona is a leading manufacturer of
extruded aluminum products.
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<PAGE> 6
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The acquisition was accounted for as a purchase and the results of operations of
Cressona have been included in the consolidated financial statements since
January 31, 1996. The acquisition was financed with cash on hand and $375 of
borrowings obtained under available credit facilities. All of these borrowings
were repaid in 1996.
In June 1996, the Company sold its investment in mining interests for $160 in
cash. Of this amount, proceeds of $20 were received in June 1996. The remaining
proceeds were received on July 1, 1996. The Company recorded an after-tax gain
of $55.1, net of a $37.7 tax provision, in the second quarter of 1996.
On September 25, 1996, the Company sold certain Fabricated Products businesses
in Western Europe and in the United States for $246.6 in cash, net of cash sold
of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax
provision, in the third quarter of 1996 in connection with the sale.
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings and primary earnings per common share for the three and six
months ended June 30, 1996, as if the acquisition of Cressona and the sale of
the Fabricated Products businesses each occurred on January 1, 1996. The pro
forma adjustments for the three and six months ended June 30, 1996, include the
addition of Cressona's operating results for the month of January 1996. Since
the acquisition occurred on January 31, 1996, the Company's actual results
include Cressona from February 1, 1996 through June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net sales................................... $724.1 $1,447.9
Net earnings................................ $ 79.3 $ 174.4
Primary earnings per common share........... $ 1.68 $ 3.72
</TABLE>
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to be
indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 nor are they intended to be a
projection of future results.
NOTE 4. INVENTORIES
Components of inventories at June 30, 1997 and December 31, 1996 are:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw materials .............. $279.2 $323.7
Work in process............. 152.1 87.3
Finished products........... 112.0 108.9
------ ------
Total.................... $543.3 $519.9
====== ======
</TABLE>
Approximately 79 percent and 78 percent of inventory at June 30, 1997 and
December 31, 1996 has been determined on the LIFO cost basis. The excess of
replacement cost over the LIFO basis of such inventory is approximately $88.9
and $74.0 at June 30, 1997 and December 31, 1996, respectively.
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<PAGE> 7
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. DEBT
On May 30, 1997, the Company amended its existing $400 revolving credit
facility, increasing the total amount available under the facility to $500 and
extending the term of the facility to May 2002. The terms and convenants that
govern the facility were not substantially changed with the amendment. At June
30, 1997, the entire amount of the facility was available to the Company.
NOTE 6. INCOME TAX PROVISION
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
----- ----- ----- ------
<S> <C> <C> <C> <C>
Federal ............ $20.0 $28.7 $34.5 $ 75.4
Foreign ............ 1.5 24.6 3.0 27.6
State .............. 2.5 4.7 4.3 10.0
----- ----- ----- ------
Total ............ $24.0 $58.0 $41.8 $113.0
===== ===== ===== ======
</TABLE>
The effective tax rates for these periods differ from statutory rates due to
provisions for state and foreign taxes. In addition, the three and six months
ended June 30, 1996 include a provision for prior years and the six months ended
June 30, 1996 includes $6.2 of foreign tax credits which substantially offset
the federal tax related to the first quarter 1996 dividend from investments in
mining operations.
NOTE 7. OTHER INCOME
The six months ended June 30, 1996, includes $18.6 of dividend income received
from investments in mining operations. These investments were sold during the
second quarter of 1996.
NOTE 8. EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128" or the
"Statement"). This Statement simplifies the standards for computing earnings per
share currently required by APB Opinion No. 15 ("Opinion 15") and replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted-average number of common shares
outstanding during the period. This statement also requires presentation of
diluted earnings per share. Diluted earnings per share reflects the potential
dilution that could occur if options or warrants were exercised or convertible
securities were converted into common stock. Diluted earnings per share is
computed similarly to fully-diluted earnings per share under Opinion 15. The
following pro forma schedule illustrates the earnings per share the Company
would have reported under the provisions of FAS 128 for the three and six months
ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Pro forma basic earnings per share...................... $0.65 $1.80 $1.14 $3.88
Pro forma diluted earnings per share.................... 0.64 1.50 1.12 3.23
Weighted average shares outstanding..................... 55.0 44.9 55.0 44.9
Weighted average diluted shares outstanding............. 55.9 55.3 55.9 55.2
</TABLE>
As required by the Statement, the Company will adopt FAS 128 in the fourth
quarter of 1997.
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<PAGE> 8
ALUMAX INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain of
its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest on
the deficiency through June 30, 1997, would be approximately $299. In response
to the IRS' notice of deficiency, the Company filed a petition in the United
States Tax Court (the "Court") seeking a redetermination in respect of the
purported deficiency. The parties have waived their rights to a trial and the
matter has been submitted to the Court for decision based upon the pleadings,
stipulations, memoranda and other documents submitted, or to be submitted, to
the Court by the parties. A decision by the Court is expected in late 1997.
Payment by the Company of the deficiency with interest thereon would provide
certain tax benefits to the Company that would offset in part, in the year of
payment and within the carry-forward period, the cost of paying the deficiency
and interest. The Company believes that it has adequate reserves so that any
unprovided for net deficiency would not have a material adverse effect on the
Company's financial condition.
The Company and its affiliates have been named as defendants in lawsuits in
various matters relating to both current and former operations. In addition, the
Company and certain of its subsidiaries have been named as defendants in
lawsuits or as potentially responsible parties in state and federal
administrative and judicial proceedings seeking contribution for costs
associated with the investigation, analysis, correction and remediation of
environmental conditions at various hazardous waste disposal sites. The Company
continues to monitor these actions and proceedings and to vigorously defend both
its own interests as well as the interests of its affiliates. The Company's
ultimate liability in connection with present and future environmental claims
will depend on many factors, including its volumetric share of the waste at a
given site, the remedial action required, the total cost of remediation, and the
financial viability and participation of the other entities which also sent
waste to the site. Once it becomes probable that the Company will incur costs in
connection with remediation of a site and such costs can be reasonably
estimated, the Company establishes or adjusts its reserve for its projected
share of these costs. Based upon current law and information known to the
Company concerning the size of the sites known to it, anticipated costs of
remediation, their years of operation and the number of other potentially
responsible parties, Management believes that it has adequate reserves for the
Company's probable share of the estimated aggregate liability for the costs of
remedial actions and related costs and expenses. In addition, the Company
establishes reserves for remedial measures required from time to time at its own
facilities. The Company's environmental reserves totalled $29.3 and $29.6 at
June 30, 1997 and December 31, 1996, respectively. Management believes that the
reasonably probable outcomes of these matters will not materially exceed
established reserves. Although the Company believes it has coverage for some
environmental claims under certain insurance policies, insurance recoveries are
not considered in estimating the Company's share of remediation costs at a site
unless an insurance carrier has agreed to pay a portion of such costs. Insurance
recoveries were not considered in establishing reserves for any of these sites
absent an agreement between the carriers and the Company.
For information regarding additional commitments and contingencies, see Note 9
to the Financial Statements in the Company's 1996 Annual Report on Form 10-K.
-8-
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited; millions of dollars, except per share and per
tonne and per pound amounts)
INTRODUCTION
Net earnings totalled $35.8, and $62.5, or $0.64 and $1.12 per common shares for
the three and six months ended June 30, 1997, respectively, compared with net
earnings of $83.1 and $178.5, or $1.77, and $3.81 per common share, in the three
and six months ended June 30, 1996. The 1996 results included a second quarter
after-tax gain of $55.1 on the sale of mining interests and a first quarter
after-tax gain of $48.6 on the sale of a 23 percent interest in the Mt. Holly
primary aluminum reduction facility. After-tax dividend income of $18.3 received
from investments in mining operations was also included in the first quarter
1996 results.
RESULTS OF OPERATIONS
Earnings from operations for the three and six months ended June 30, 1997
totalled $71.0 and $129.2, respectively, compared with operating earnings of
$64.4 and $139.5 for the comparable 1996 periods.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1997 1996 1997 1996
------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES
Primary aluminum products ............... $ 133.7 $ 164.4 $ 260.5 $ 361.6
Semi-fabricated products(1) ............. 463.6 438.8 913.3 818.9
Fabricated products(1) .................. 133.6 248.2 258.9 473.5
------- --------- --------- ---------
$ 730.9 $ 851.4 $ 1,432.7 $ 1,654.0
======= ========= ========= =========
EARNINGS FROM OPERATIONS
Aluminum processing ..................... $ 83.4 $ 75.3 $ 153.4 $ 160.0
Corporate ............................... (12.4) (10.9) (24.2) (20.5)
------- --------- --------- ---------
$ 71.0 $ 64.4 $ 129.2 $ 139.5
======= ========= ========= =========
PRODUCTION AND SHIPMENTS (THOUSANDS OF TONNES)
Sources of metal
Primary aluminum production ............. 178.9 169.8 352.7 343.2
Aluminum purchases ...................... 95.5 121.3 190.9 229.6
------- --------- --------- ---------
274.4 291.1 543.6 572.8
======= ========= ========= =========
Metal shipments
Aluminum processing (including tolling)
Primary aluminum products ............... 74.6 95.2 142.6 207.3
Semi-fabricated products(1) ............. 158.6 151.8 316.3 281.5
Fabricated products(1)(2) ............... 27.4 36.3 53.2 68.8
------- --------- --------- ---------
260.6 283.3 512.1 557.6
======= ========= ========= =========
DERIVED PRICES (DOLLARS/LB.)(3)
Primary aluminum products ............... $ 0.81 $ 0.78 $ 0.83 $ 0.79
Semi-fabricated products(1) ............. $ 1.33 $ 1.31 $ 1.31 $ 1.32
Fabricated products(1)(2) ............... $ 2.22 $ 3.10 $ 2.21 $ 3.12
</TABLE>
(1) Net sales and shipments for the Company's Magnolia operation have been
reclassified from fabricated products to semi-fabricated products.
Magnolia manufactures shower and tub enclosures, stadium seating, and
other extruded products.
(2) Included in Fabricated products' metal shipments for the three and six
months ended June 30, 1997, are billet shipments of 10.4 and 20.6
thousand tonnes, respectively, compared with 8.2 and 14.8 thousand
tonnes in the same 1996 periods.
(3) Derived prices are calculated as net sales divided by pounds shipped
(one tonne equals 2,204.6 pounds).
-9-
<PAGE> 10
NET SALES AND SHIPMENTS
The Company generated quarterly sales of $730.9 on aluminum shipments of 260,600
tonnes in the second quarter of 1997 compared with sales of $851.4 on aluminum
shipments of 283,300 tonnes in the second quarter of 1996. For the first six
months of 1997, the Company generated sales of $1,432.7 on aluminum shipments of
512,100 tonnes, compared with sales of $1,654.0 on aluminum shipments of 557,600
tonnes in the first six months of 1996. Decreases in net sales were principally
a result of decreased shipments.
The London Metals Exchange (the "LME") cash price averaged $1,590 per tonne in
the first six months of 1997 compared with $1,575 per tonne in the first six
months of 1996. The Company's net sales are sensitive to changes in the world
pricing of primary aluminum. This price sensitivity impacts substantially all of
the Company's products to varying degrees, with less impact on the more
specialized and value-added products.
Primary products' net sales for the three and six months ended June 30, 1997,
decreased 19 percent and 28 percent, respectively. Substantially all of the
decreases were due to declines in external shipments, resulting from higher
internal consumption. Internal consumption of primary products grew by 34
percent in the first half of 1997 compared with the first half of 1996. The
increase in internal consumption was driven by the integration of the Company's
expanded extrusion operations. The January 31, 1996 acquisition of Cressona more
than doubled the capacity of the Company's extrusion operations. Primary's total
production in the first half of 1997 was consistent with production in 1996.
Semi-fabricated products' net sales for the three and six months ended June 30,
1997, increased 6 percent and 12 percent, respectively, on increased shipments.
The increase in shipments was related primarily to the January 1996 acquisition
of Cressona and continued growth in the Company's extrusions operations in the
transportation and service center businesses.
Fabricated Products' net sales for the three and six months ended June 30, 1997,
decreased 46 percent and 45 percent, respectively, principally due to the sale
of certain fabricated products operations in Western Europe and in the United
States ("Fab Products"). Increased sales in the Company's European secondary
aluminum operation were more than offset by the effects of the September 1996
sale of Fab Products, which had sales of $127.8 and $239.2 in the three and six
months ended June 30, 1996.
COSTS AND EXPENSES
The Company's costs and expenses were $659.9 and $1,303.5 for the three and six
months ended June 30, 1997, respectively, compared with costs and expenses of
$787.0 and $1,514.5 for the three and six months ended June 30, 1996,
respectively. The decreases were largely attributable to lower volumes resulting
from the sale of Fab Products and decreases in external purchases of aluminum.
Cost of goods sold decreased 18 percent and 16 percent in the three and six
months ended June 30, 1997, respectively. The decreases were the result of the
sale of Fab Products and lower external aluminum purchases from the integration
of the downstream operations partially offset by higher shipments from the
extrusion, mill, and European secondary aluminum businesses.
In July 1997, the Company announced a consolidation and action plan related to
its semi-solid forging manufacturing operations. The anticipated cost of this
consolidation is not expected to materially affect the Company's results of
operations or financial position.
Selling and general expenses decreased 11 percent and eight percent in the three
and six months ended June 30, 1997, respectively, due primarily to the sale of
Fab Products offset partially by the growth in the Company's extrusion business
and increased international development activity. Depreciation and amortization
increased five percent and eight percent in the three and six month periods
ended June 30, 1997, respectively. These increases were commensurate with the
Company's level of capital spending.
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<PAGE> 11
OTHER ITEMS AFFECTING NET EARNINGS
Other Income (Expense), Net
Other income (expense), net for the three and six months ended June 30, 1997,
was $2.7 and $2.4, respectively, compared with $0.8 and $14.9 for the same
periods in 1996. The six months ended June 30, 1996 included $18.6 of dividend
income received from investments in mining operations. This investment was sold
during the second quarter of 1996.
Interest Expense, Net
Gross interest expense was $14.8 and $29.7 for the three and six months ended
June 30, 1997, respectively, a decrease of $19.7 and $40.4 from the comparable
periods in 1996. These decreases were a result of lower average borrowings.
Interest income was $1.2 for the six months ended June 30, 1997, compared with
$2.4 for the same period in 1996. Capitalized interest was $1.2 for the six
months ended June 30, 1997, compared with $3.9 for the same period in 1996.
Income Taxes
The income tax provision for the three and six months ended June 30, 1997, was
$24.0 and $41.8 respectively, compared with $58.0 and $113.0 for the same 1996
periods. The effective tax rates for these periods differ from statutory rates
because of provisions for state and foreign taxes. In addition, the six months
ended June 30, 1996 include a provision for prior years and $6.2 of foreign tax
credits which substantially offset the federal tax related to the first quarter
1996 dividend from investments in mining operations.
STRATEGIC TRANSACTIONS
On January 26, 1996, the Company sold a 23 percent undivided interest in its Mt.
Holly primary aluminum reduction facility for $89.3. The Company recorded a gain
of $78.4 ($48.6 after tax) in connection with this transaction. This transaction
reduced the Company's ownership in the Mt. Holly facility to 50.33 percent.
On January 31, 1996, the Company purchased all of the common shares of privately
held Cressona for a cash cost, including expenses, of $436.5, net of $3.1 of
cash acquired. In conjunction with the acquisition, liabilities of $87.4 were
acquired. Cressona is a leading manufacturer of extruded aluminum products.
The acquisition was accounted for as a purchase and the results of operations of
Cressona have been included in the consolidated financial statements since
January 31, 1996. The acquisition was financed with cash on hand and $375 of
borrowings obtained under available credit facilities. All of these borrowings
were repaid in 1996.
In June 1996, the Company sold its investment in mining interests for $160 in
cash. Of this amount, proceeds of $20 were received in June 1996. The remaining
proceeds were received on July 1, 1996. The Company recorded an after-tax gain
of $55.1, net of a $37.7 tax provision, in the second quarter of 1996.
On September 25, 1996, the Company sold Fab Products for $246.6 in cash, net of
cash sold of $5.4. The Company recorded an after-tax gain of $36.7, net of a
$35.0 tax provision, in the third quarter of 1996 in connection with the sale.
-11-
<PAGE> 12
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated net
sales, net earnings, and primary earnings per common share for the three and six
months ended June 30, 1996, as if the acquisition of Cressona and the sale of
the Fabricated Products businesses each occurred on January 1, 1996. The pro
forma adjustments for the three and six months ended June 30, 1996 include the
addition of Cressona's operating results for the month of January 1996. Since
the acquisition occurred on January 31, 1996, the Company's actual results
include Cressona from February 1, 1996 through June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net sales................................... $724.1 $1,447.9
Net earnings................................ $ 79.3 $ 174.4
Primary earnings per common share........... $ 1.68 $ 3.72
</TABLE>
The pro forma results are based upon certain assumptions and estimates, which
the Company believes are reasonable. The pro forma results do not purport to be
indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 nor are they intended to be a
projection of future results.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Operations provided $78.2 and $125.0 of cash during the first six months of 1997
and 1996, respectively. Decreased cash flows were directly related to increases
in working capital during the 1997 period. The increase in working capital was
primarily a result of increased inventory levels for planned maintenance and
upgrades of equipment at the company's mill operations. Additionally, cash
provided by operations included the 1996 receipt of dividends from mining
interests of $18.6.
Investing Activities
Cash used by investing activities was $67.1 for the six months ended June 30,
1997, compared with $435.2 of cash used in the first six months of 1996, which
included the acquisition of Cressona for $436.5 (net of cash acquired) and
proceeds of $110.4 from the sale of non-strategic assets. Capital expenditures
were $70.3 during the first six months of 1997 compared with $109.1 in the first
six months of 1996.
In September 1996, the Company, through its subsidiary, Alumax Mill Products,
Inc., exercised its option to purchase its leased Texarkana rolling mill
facility in November 1997 for approximately $97 in cash. Additionally, during
1996, the Company entered into a joint venture with Yunnan Aluminum Processing
Factory in Kunming, China, for the annual production of 8,000 to 10,000 tonnes
of light gauge aluminum foil for China's packaging market. Alumax will invest
$38 of cash in the joint venture to develop a continuous cast foil operation. As
of June 30, 1997, the Company had invested $21 of cash in the joint venture. The
Company intends to invest the remainder of the total obligation during the third
quarter of 1997. Management expects to finance these commitments from working
capital provided from operations and financing from the Company's revolving
credit facilities. Total capital spending in 1997, including the above mentioned
projects, is expected to be approximately $300.
-12-
<PAGE> 13
Financing Activities
Cash used in financing activities was $18.7 in the first six months of 1997
compared with cash provided of $128.5 in the first six months of 1996. At June
30, 1997, the Company's total debt to capital ratio was 28.8 percent, down from
30.2 percent at December 31, 1996 and 39.4 percent at June 30, 1996. This
improvement was attributable to debt repayments of $18.7 and a year-to-date
increase in stockholders' equity of $65.8 from December 31, 1996. In the first
half of 1996, the Company borrowed $375 under available credit facilities to
finance the acquisition of Cressona. All of these borrowings were subsequently
repaid during 1996. Debt repayments of $241.8 in the first six months of 1996
included the early retirements of $39.3 of Cressona debt acquired and a $90.7
promissory note due in May 1996. (See Note 6 to the Financial Statements in the
Company's 1996 Annual Report on Form 10-K).
On May 30, 1997, the Company amended its existing $400 revolving credit
facility, increasing the total amount available under the facility to $500 and
extending the term of the facility to May 2002. The terms and convenants that
govern the facility were not substantially changed with the amendment. At June
30, 1997, the entire amount of the facility was available to the Company.
Additionally, $4.7 in dividends were paid to holders of Alumax $4.00 Series A
Convertible Preferred Stock in the first six months of 1996. In December 1996,
the outstanding shares of Preferred Stock were converted into approximately 9.6
million shares of Alumax Common Stock.
Income Taxes
The Internal Revenue Service (the "IRS") has asserted that Alumax and certain of
its subsidiaries were improperly included in the 1984, 1985 and 1986
consolidated income tax returns of AMAX Inc. and on that basis has asserted a
federal income tax deficiency against Alumax of approximately $129. Interest on
the deficiency through June 30, 1997, would be approximately $299. In response
to the IRS' notice of deficiency, the Company filed a petition in the United
States Tax Court (the "Court") seeking a redetermination in respect of the
purported deficiency. The parties have waived their rights to a trial and the
matter has been submitted to the Court for decision based upon the pleadings,
stipulations, memoranda and other documents submitted, or to be submitted, to
the Court by the parties. A decision by the Court is expected in late 1997.
Payment by the Company of the deficiency with interest thereon would provide
certain tax benefits to the Company that would offset in part, in the year of
payment and within the carry-forward period, the cost of paying the deficiency
and interest. The Company believes that it has adequate reserves so that any
unprovided for net deficiency would not have a material adverse effect on the
Company's financial condition.
Risk Management
The Company utilizes certain financial instruments in connection with its risk
management. The risk of loss related to counterparty nonperformance under
financial instrument agreements at June 30, 1997 is not significant.
The Company enters into forward fixed price arrangements that are required by
certain customers and suppliers. The Company may utilize futures contracts which
effectively convert forward fixed price arrangements to market prices in order
to meet overall strategic objectives. Such contracts covered approximately
151,400 tonnes at June 30, 1997, and include varying maturity dates through
1999. Gains or losses with respect to these positions are reflected in earnings
concurrent with consummation of the underlying fixed price transaction. Periodic
value fluctuations of the futures contracts approximately offset the value
fluctuations of the underlying fixed price transactions.
-13-
<PAGE> 14
The Company also may, from time to time, establish a floor selling price for
varying quantities of future production, while preserving the opportunity to
participate in upward price movements. This may be accomplished by entering into
forward sales of primary aluminum and purchases of call options, which together
provide the same price protection as purchasing put options, or by purchasing
put options alone, in a manner which correlates with the Company's production
and sales of primary aluminum. This strategy may be modified from time to time.
At June 30, 1997, the Company's commitments with respect to these financial
instruments covered 210,550 tonnes of future production. The book value and
market value of these financial instruments were $11.9 and $6.2, respectively,
at June 30, 1997.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where these conditions exist, the Company may utilize forward foreign
currency contracts. At June 30, 1997, the Company had outstanding $72.2 in
forward foreign currency contracts which mature at various dates through July
1998. The gains or losses related to these contracts are deferred and included
in the measurement of the related foreign currency denominated transactions. If
these contracts had been terminated at June 30, 1997, the Company would have
paid approximately $1.8.
The Company's debt instruments and related interest rate hedges are susceptible
to market fluctuations based on changes in the cost of borrowing. At June 30,
1997, the fair value of total debt approximated book value. The Lauralco credit
facility, which has a variable interest rate, required the Company to establish
facilities to effectively limit the interest rate exposure of the commitment. To
meet this requirement, the Company has obtained interest rate swaps with a
notional amount of $400 through October 26, 2000 and interest rate caps having a
notional amount of $150 through October 26, 1998. The Company would have paid
approximately $31.0 to terminate these agreements at June 30, 1997.
The Company also purchases natural gas for its operations and enters into
forward contracts to eliminate the volatility in prices. At June 30, 1997, none
of these contracts was material.
For further information regarding the Company's risk management, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 15 to the Financial Statements in the Company's 1996 Annual
Report on Form 10-K.
Environmental Matters
The Company has been named as a defendant or identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws by governmental agencies and
private parties at 39 pending waste disposal sites which, in most instances,
were owned and operated by third parties. Management periodically evaluates such
matters and records or adjusts liability reserves for remediation and other
costs and potential damages when expenditures are considered probable and can be
reasonably estimated.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric share
of the waste at a given site, the remedial action required, the total cost of
remediation and the financial viability and participation of the other entities
which also sent waste to the site. Based upon current law and information known
to the Company concerning the size of the sites known to it, anticipated costs
of remediation, their years of operation, and the number of other potentially
responsible parties, Management believes that it has adequate reserves for the
Company's probable share of the estimated aggregate liability for the costs of
remedial actions and related costs and expenses and that such liability and
related costs and expenses should not have a material adverse effect on the
financial condition or results of operations of the Company. In addition, the
Company establishes reserves for remedial measures required from time to time at
its own facilities. Any expenditures for remediation programs it may be required
to undertake, either individually or in the aggregate, are not expected to have
a material adverse effect on the financial condition or results of
-14-
<PAGE> 15
operations of the Company. The Company's environmental reserves totaled $29.3 at
June 30, 1997 and $29.6 at December 31, 1996.
Management does not anticipate that commitments, operating expenses or capital
expenditures for environmental compliance through and including the next fiscal
year will have a material adverse effect on the Company's financial condition or
results of operations. Based on historical trends toward stricter environmental
standards, however, it appears likely that the Company will incur additional
expenditures to remain in compliance with federal and state environmental laws.
-15-
<PAGE> 16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 29, 1997, at which
security holders: (a) re-elected three directors, each for a term of three
years; (b) ratified the selection of Coopers & Lybrand L.L.P. as auditors for
the 1997 fiscal year; (c) approved an amendment to the Alumax Inc. Non-Employee
Directors' Stock Compensation Plan (as Amended on October 3, 1996) to increase
the number of shares of the Company's Common Stock awarded annually to each
participant from 850 shares to 1,250 shares; and (d) approved an amendment to
the Alumax Inc. 1993 Long Term Incentive Plan (as Amended and Restated and as
Further Amended on October 3, 1996) to increase the number of shares of the
Company's Common Stock authorized for issuance thereunder by 1,250,000 shares.
Results of the voting in connection with each of the above matters were as
follows:
Voting on Directors
<TABLE>
<CAPTION>
For Withheld Total
--- -------- -----
<S> <C> <C> <C>
J. Dennis Bonney 46,485,830 759,853 47,245,683
Harold Brown 46,476,870 768,813 47,245,683
Pierre DesMarais II 46,488,984 756,699 47,245,683
</TABLE>
Ratification of independent Auditors
<TABLE>
<S> <C>
In Favor - 47,050,608
Against - 81,758
Abstain - 113,317
----------
Total - 47,245,683
</TABLE>
Approval of Amendment to the Non-Employee Directors' Stock Compensation Plan
<TABLE>
<S> <C>
In Favor - 45,311,789
Against - 1,743,561
Abstain - 190,333
----------
Total - 47,245,683
</TABLE>
Approval of Amendment to the Long Term Incentive Plan
<TABLE>
<S> <C>
In Favor - 41,248,454
Against - 5,842,614
Abstain - 154,615
----------
Total - 47,245,683
</TABLE>
-16-
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
4.01 First Amendment to Credit Agreement, dated as of May 30, 1997,
among Alumax Inc. and the Banks signatory thereto.
10.01 Agreement, dated as of July 1, 1997, by and between Alumax of
South Carolina, Inc. and South Carolina Public Service
Authority.
10.02 Electric Service Agreement, dated November 11, 1994, between
Eastalco Aluminum Company and The Potomac Edison Company.
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on From 8-K were filed by Alumax Inc. during the quarter ended June
30, 1997.
-17-
<PAGE> 18
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.
ALUMAX INC.
By /s/ Helen M. Feeney
-------------------------------
Helen M. Feeney
Vice President and
Corporate Secretary
By /s/ Kevin J. Krakora
-------------------------------
Kevin J. Krakora
Vice President and Controller
Date: August 8, 1997
-18-
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
4.01 First Amendment to Credit Agreement, dated as of May 30, 1997,
among Alumax Inc. and the Banks signatory thereto.
10.01 Agreement, dated as of July 1, 1997, by and between Alumax of
South Carolina, Inc. and South Carolina Public Service
Authority.
10.02 Electric Service Agreement, dated November 11, 1994, between
Eastalco Aluminum Company and The Potomac Edison Company.
11.01 Calculation of Earnings per Common Share.
27.01 Financial Data Schedule.
-19-
<PAGE> 1
EXHIBIT 4.01
ALUMAX INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
To each of the Financial
Institutions Signatory Hereto
Gentlemen:
We refer to the Credit Agreement dated as of May 19, 1995 among Alumax
Inc., the Banks party thereto, Royal Bank of Canada, as Agent and Canadian
Imperial Bank of Commerce, as Administrative Agent (the "Credit Agreement").
Capitalized terms used herein without definition have the meanings ascribed to
them in the Credit Agreement. The Company executes and delivers this First
Amendment to Credit Agreement to you for the purpose of amending the Credit
Agreement as hereinafter set forth.
Section 1. Adjustments of the Commitments of the Continuing Banks.
On the Effective Date (as hereinafter defined), the Commitment of each
Bank which is remaining a party to the Credit Agreement (individually
"Continuing Bank" and collectively the "Continuing Banks") shall be adjusted so
as to be in the amount set forth opposite the signature of such Continuing Bank
hereto.
Section 2. Adjustments in Pricing.
(a) Facility Fee. Commencing on the Effective Date, the facility fee
provided for in Section 3.1 of the Credit Agreement shall be computed at
the rate of 0.10% per annum and the percentage "0.125%" appearing therein
shall be replaced with "0.10%".
(b) Applicable Eurodollar Margins. Commencing on the Effective Date,
the definition of "Applicable Eurodollar Margin" in Section 2.2 of the
Credit Agreement shall be amended to read in its entirety as follows:
"Applicable Eurodollar Margin" means for each (a) Committed
Eurodollar Loan: (i) 0.150% per annum for any day Level I Status
exists, (ii) 0.175% per annum for any day Level II Status exists,
(iii) 0.225% per annum for any day Level III Status exists, (iv)
0.325% per annum for any day Level IV Status exists, and (v) 0.525%
per annum for any day Levy V Status exists and (b) for each
Eurodollar Bid Loan the rate per annum agreed to pursuant to Section
1.7 hereof.
<PAGE> 2
(c) Letter of Credit Usage Fees. Commencing on the Effective Date,
the table of Letter of Credit usage fees in Section 3.4(b) of the Credit
Agreement shall be amended to read as follows:
<TABLE>
<CAPTION>
FINANCIAL PERFORMANCE
LETTERS LETTERS
LEVEL OF CREDIT OF CREDIT
<S> <C> <C>
For each day Level I Status exists 0.150% 0.100%
For each day Level II Status exists 0.175% 0.125%
For each day Level III Status exists 0.225% 0.175%
For each day Level IV Status exists 0.325% 0.275%
For each day Level V Status exists 0.525% 0.475%
</TABLE>
Section 3. Change in Bank parties to the Credit Agreement.
Upon satisfaction of the conditions precedent to the effectiveness of this
First Amendment to Credit Agreement as set forth in Section 5.1 hereof, the
principal of and interest on all Loans made to the Company under the Credit
Agreement by PNC Bank, National Association, ("PNC") shall be paid in full, PNC
shall be paid any accrued facility or letter of credit fees due it under the
Credit Agreement and PNC shall no longer be a "Bank" party to the Credit
Agreement and, accordingly, shall no longer have any commitment or obligation to
extend credit to the Company pursuant to the Credit Agreement.
Section 4. Extension of the Termination Date.
On the Effective Date the definition of the term "Termination Date"
appearing in Section 8.1 of the Credit Agreement shall be amended by striking
the date "May 19, 2000" currently appearing therein and substituting the date
"May 30, 2002" therefor.
Section 5. Conditions Precedent.
5.1. Conditions to Effectiveness of Amendments. This First Amendment
to Credit Agreement shall become effective on May 30, 1997 (the "Elective
Date"), provided that the following conditions have then been satisfied (subject
to the last paragraph of this Section 5.1):
(a) Counterparts. The Agent shall have received counterparts hereof
which, taken together, bear the signatures of the Company, and the Banks;
(b) Notes. The Agent shall have received, properly executed and
completed, a Committed Note for each Continuing Bank whose Commitment is
adjusted hereby in the amount of its Commitment as modified hereby, each
and all of such notes to constitute "Notes" for all purposes of the Credit
Agreement and the new Committed Notes issued in favor of the Continuing
Banks to be issued in substitution
-2-
<PAGE> 3
and replacement for the Committed Notes heretofore issued to them pursuant
to the Credit Agreement;
(c) Legal Opinions. The Agent shall have received, with a copy for
each Bank, opinions from Sullivan & Cromwell and from the Senior Vice
President and General Counsel of the Company dated the Effective Date,
substantially in the forms of Exhibits A and B hereto;
(d) Resolutions. The Agent shall have received, with a copy for each
Bank, a copy of Resolutions of the Board of Directors of the Company (or
the Executive Committee thereof) authorizing the execution and delivery of
this First Amendment to Credit Agreement and the performance of the Credit
Agreement as amended hereby and the consummation of the transactions
contemplated hereby, certified by the Secretary or an Assistant Secretary
of the Company as of the Effective Date; and such certificate shall state
that the Resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(e) Incumbency Certificate. The Agent shall have received, with a
copy for each Bank, a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Effective Date, as to the incumbency
and signatures of the officers thereof executing this First Amendment to
Credit Agreement and the Notes contemplated hereby and any certificate or
other documents to be delivered by it pursuant hereto, together with
evidence of the incumbency and signature of such Secretary or Assistant
Secretary;
(f) Closing Certificate. The Agent shall have received, with a copy
for each Bank, a signed closing certificate dated as of the Effective Date
in the form annexed hereto as Exhibit C (it being acknowledged that such
certificate shall constitute a certificate furnished by the Company
pursuant to the Credit Agreement for purposes of Section 7.1(c) thereof).
The foregoing to the contrary notwithstanding, if all of the foregoing
conditions other than that specified in paragraph (c) have been satisfied as of
the Effective Date and the condition specified in paragraph (c) is satisfied
within three Business Days after the Effective Date, this First Amendment to
Credit Agreement shall nonetheless become effective and such effectiveness shall
relate back to the Effective Date all as though the condition specified in
paragraph (c) had been satisfied on that date.
5.2. Return of Committed Notes. Promptly upon this First Amendment
to Credit Agreement becoming effective, the Continuing Banks whose Commitments
are adjusted hereby shall return to the Agent the Committed Notes now held by
them marked "cancelled" or "superseded" and PNC shall return its Notes to the
Agent marked "cancelled", and the Agent shall thereupon return such Notes to
the Company, provided that if any of such Notes are lost the Bank to which such
Notes were issued shall instead indemnify the Company from any liability, loss
or cost arising as a result of such loss.
-3-
<PAGE> 4
5.3. Adjustments. If there are Committed Loans outstanding upon this
First Amendment to Credit Agreement becoming effective then on the first day on
which such Committed Loans can be repaid without requiring the Company to make a
payment to the Banks under Section 2.5 of the Credit Agreement, there shall be
such non-ratable borrowings and repayments of the Committed Loans as shall be
necessary so that after giving effect thereto the percentage of the Commitment
of each Bank in use through Committed Loans is identical.
Section 6. Miscellaneous.
Except as specifically amended hereby all of the terms, conditions and
provisions of the Credit Agreement shall remain unchanged and in full force and
effect. No reference to this First Amendment to Credit Agreement need be made in
any Loan Document or in any other instrument or document at any time referring
to the Credit Agreement, a reference to the Credit Agreement in any of such to
be deemed to be a reference to the Credit Agreement as amended hereby. This
First Amendment to Credit Agreement shall be construed in accordance with and
governed by the law of the State of New York and may be executed in counterparts
and by separate parties hereto on separate counterparts, each to constitute an
original but all one in the same instrument. The Company hereby notifies the
Banks pursuant to Section 10.7 of the Credit Agreement that effective June 9,
1997 its address for notices shall be as follows:
3424 Peachtree Road, N.E.
Suite 2100
Atlanta, Georgia 30326
Attention: Thomas L. Gleason, Treasurer
Telecopy: 404-846-4654
Telephone: 404-846-4541
Dated as of the 30th day of May, 1997
ALUMAX INC.
By /s/ Lawrence R. Frost
--------------------------------------
Its Executive Vice President and Chief
Financial Officer
Accepted and agreed as of the date last above written.
-4-
<PAGE> 5
Commitment: ROYAL BANK OF CANADA
$60,000,000 By /s/ J. (John) M. Crawford
-------------------------
Its Senior Manager
------------------------
-5-
<PAGE> 6
Commitment: CIBC Inc.
$55,000,000 By /s/ E. Lindsay Gordon
-------------------------
Its Director
------------------------
-6-
<PAGE> 7
Commitment: BANK OF AMERICA ILLINOIS
$42,500,000 By /s/ Michelle W. Kacergis
-------------------------
Its Managing Director
------------------------
-7-
<PAGE> 8
Commitment: THE CHASE MANHATTAN BANK
$42,500,000 By /s/ James H. Ramage
-------------------------
Its Vice President
------------------------
-8-
<PAGE> 9
Commitment: THE FIRST NATIONAL BANK OF CHICAGO
$42,500,000 By /s/ Brett Neubert
-------------------------
Its Authorized Agent
------------------------
-9-
<PAGE> 10
Commitment: UNION BANK OF SWITZERLAND
$42,500,000 By /s/ Dieter Hoeppli
-------------------------
Its Vice President
------------------------
By /s/ Samuel Azzizo
-------------------------
Its Vice President
-----------------------
-10-
<PAGE> 11
Commitment: BANK OF MONTREAL
$32,500,000 By /s/ Joanna S. Bellocq
-------------------------
Its Director
------------------------
-11-
<PAGE> 12
Commitment: CREDIT LYONNAISE NEW YORK BRANCH
$32,500,000 By /s/ Robert Ivosevich
-------------------------
Its Senior Vice President
------------------------
CREDIT LYONNAISE CAYMAN ISLAND BRANCH
By /s/ Robert Ivoservich
------------------------
Its Senior Vice President
------------------------
-12-
<PAGE> 13
Commitment: BANQUE NATIONALE DE PARIS
$25,000,000 By /s/ Eva Millas Russo
-------------------------
Its Vice President
------------------------
By /s/ Sally Haswell
--------------------------
Its Vice President
------------------------
-13-
<PAGE> 14
Commitment: COMMERZBANK, AG, ATLANTA AGENCY
$25,000,000 By /s/ Andreas K. Bremer
-------------------------
Its SVP & Manager
------------------------
By /s/ Mary B. Smith
-------------------------
Its AVP
-----------------------
-14-
<PAGE> 15
Commitment: DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
$25,000,000 By /s/ Thomas J. Nadramia
-------------------------
Its Vice President
------------------------
By /s/ Christopher Sarisky
-------------------------
Its Asst. Treas.
-----------------------
-15-
<PAGE> 16
Commitment: THE FUJI BANK, LIMITED
$25,000,000 By /s/ Toshihiro Mitsui
-----------------------------
Its Vice President & Manager
----------------------------
-16-
<PAGE> 17
Commitment: MELLON BANK, N.A.
$25,000,000 By /s/ Dwayne R. Finney
---------------------------
Its Assistant Vice President
--------------------------
-17-
<PAGE> 18
Commitment: THE SAKURA BANK, LIMITED
$25,000,000 By /s/ Hiroyasu Imanishi
-------------------------
Its V.P. & Senior Manager
------------------------
-18-
<PAGE> 19
Commitment: PNC BANK, NATIONAL ASSOCIATION
$0 By /s/ Dale Stein
-------------------------
Its Vice President
------------------------
-19-
<PAGE> 20
CONFORMED COPY
EXHIBIT A
OPINION OF SULLIVAN & CROMWELL -
, 1997
------
To the Financial Institutions party
to the First Amendment to
Credit Agreement referred
to below,
Dear Sirs:
In connection with the First Amendment to Credit Agreement, dated as of
May 30, 1997 (the "First Amendment"), among Alumax Inc., a Delaware corporation
(the "Company"), and the financial institutions signatory thereto (the
"Banks"), we, as counsel for the Company, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, it is our opinion that:
(1) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware.
(2) The First Amendment and the Notes delivered by the Company to the
Banks on the date hereof each has been duly authorized, executed and
delivered by the Company, and the Credit Agreement (as defined in the
First Amendment) as amended by the First Amendment (the "Amended Credit
Agreement") and such Notes each constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
<PAGE> 21
(3) There are no regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Company under the Federal
laws of the United States, the laws of the State of New York or the
General Corporation Law of the State of Delaware for the execution and
delivery of the First Amendment or the Notes delivered by the Company to
the Banks on the date hereof or for the performance by the Company of its
obligations under the Amended Credit Agreement and such Notes.
The foregoing opinion is limited to the Federal laws of the United
States, the laws of the State of New York and the General Corporation Law of
the State of Delaware, and we are expressing no opinion as to the effect of the
laws of any other jurisdiction.
With your approval, we have relied as to certain matters on information
obtained from public officials, officers of the Company and other sources
believed by us to be responsible, and we have assumed that the First Amendment
and the Credit Agreement have been duly authorized, executed and delivered by
all parties thereto other than the Company and that the signatures on all
documents examined by us are genuine, assumptions which we have not
independently verified.
The foregoing opinion is rendered as of the date hereof, and we make no
undertaking and expressly disclaim any duty to supplement such opinion if,
after the date hereof, facts and circumstances come to our attention or changes
in the law occur which could affect such opinion.
This opinion is furnished by us as counsel for the Company in
connection with the execution and delivery by the Company of the First
Amendment and is solely for the benefit of the addressees named above and any
Bank that may from time to time become a party to the Amended Credit Agreement.
Very truly yours,
SULLIVAN & CROMWELL
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<PAGE> 22
CONFORMED COPY
EXHIBIT B
OPINION OF R.P. WOLF, ESQ.
(Alumax Letterhead)
,1997
-----
To the Financial Institutions
party to the First Amendment
to Credit Agreement referred
to below
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Alumax Inc., a
Delaware corporation (the "Company"), and in such capacity have overseen and
participated in the provision of legal advice and assistance to the Company in
connection with the negotiation of, and the closing of the transactions
contemplated by, the First Amendment to Credit Agreement (the "First
Amendment"), dated as of May 30, 1997, among the Company and the Banks signatory
thereto. Terms used herein and not defined shall have their respective defined
meanings as set forth in the First Amendment or the Credit Agreement (as
defined in the First Amendment).
In rendering the opinions expressed below, I have examined originals,
conformed copies, or copies otherwise identified to my satisfaction of such
corporate records, agreements, and instruments of the Company, such
certificates of public officials and of officers, employees, and agents of the
Company and such other agreements and documents as I have deemed necessary for
the purpose of expressing the opinions herein. Though I have examined such
matters of law as I deemed necessary for the purpose of expressing the opinions
herein, please note that with respect to the opinion expressed in Paragraph 2
below and the incorporation of the term "applicable" therein, my opinion is
limited to a review of only those laws and regulations that, based upon my
review of the Credit Agreement as amended by the First Amendment (the "Amended
Credit Agreement"), I have considered to be applicable to the transactions
contemplated thereby. Also, for purposes of the opinion expressed in Paragraph
1 below as to the due qualification to transact business as a foreign
corporation in certain jurisdictions, I have relied solely upon a review of a
certificate of the Secretary of State (or other similar official) of each such
jurisdiction.
For purposes of my opinion expressed in Paragraph 2 hereof, I have not
made any independent review or investigation of any agreements or instruments
to which the Company
<PAGE> 23
is bound, except I have reviewed or caused to be reviewed those agreements and
instruments listed on Schedule I hereto (hereinafter referred to as "Material
Agreements"), and such opinion is based upon the audited consolidated financial
statements of the Company as at and for the year ended December 31, 1996,
without giving effect to any borrowing under the Credit Agreement subsequent to
such date. Schedule I sets forth all agreements and instruments entered into by
the Company or any Restricted Subsidiary and deemed by the Company to be
"material contracts" of the Company under item 601(b)(10)(i) and (ii) of
Regulation S-K ("Regulation S-K") promulgated by the Securities and Exchange
Commission (the "Commission") or otherwise entered into by the Company or any
Restricted Subsidiary and filed by the Company with the Commission as an
exhibit under Item 601(b)(4) of Regulation S-K. Furthermore, for purposes of
my opinion expressed in Paragraph 3 hereof, I have not examined plaintiff or
defendant indexes in any federal, state or other court or any other tribunal.
During the course of all such examinations, I have assumed (i) the
genuineness of all signatures other than those of the Company on the First
Amendment and the Notes delivered by the Company on the date hereof, (ii) the
authenticity of all documents submitted to me as originals, (iii) the
conformity to the original documents of all documents submitted to me as
certified, conformed, facsimile, or photographic copies, and (iv) that
certificates and telephonic and telecopy confirmations given by public
officials have been properly given and are accurate. I have further assumed,
except where this opinion expressly addresses such matters as to the Company,
(i) the power and authority of all parties to enter into the transactions
contemplated by the Amended Credit Agreement and (ii) the due authorization and
valid execution and delivery by such parties of the agreements and instruments
necessary in connection with such transactions.
Based upon and subject to the foregoing and subject to the
qualifications set forth herein, I am of the opinion that:
1. The Company has the necessary corporate power to execute and
deliver the First Amendment and the Notes issued pursuant thereto, to
perform the Amended Credit Agreement and such Notes, and to borrow and
request the issuance of Letters of Credit under the Amended Credit
Agreement. Each of the Restricted Subsidiaries of the Company having a net
worth in excess of $2,000,000 as at March 31, 1997 except for Alumax
Recycling B.V., but including Alumax Engineered Metal Processes, Inc.,
Alumax Warehouse Corporation and Eastalco Aluminum Company (such
Restricted Subsidiaries are listed on Schedule II hereto and are
hereinafter referred to as the "Material Subsidiaries") is an entity duly
incorporated or organized, as applicable, validly existing and in good
standing under the laws of the respective jurisdiction indicated opposite
its name in Schedule II hereto, to the extent such concepts are applicable
and recognized in such jurisdictions. The Company is duly qualified to
transact business in the States of California and Georgia and, to my
knowledge, the Company is duly qualified to transact business in such
other jurisdictions, and the Material Subsidiaries of the Company are duly
qualified to transact business in all such jurisdictions, where the
failure to qualify would have a Material Adverse Effect.
-2-
<PAGE> 24
2. The execution and delivery by the Company of the First Amendment
and the Notes issued pursuant thereto, the performance by the Company of
the Amended Credit Agreement and such Notes, and the borrowing and the
requests for the issuance of Letters of Credit by the Company under the
Amended Credit Agreement (i) do not and will not, to my knowledge, violate
(a) any provision of applicable law or regulation or (b) any order or
decree known to me by which the Company, any of its Restricted
Subsidiaries or any of their respective Properties may be bound, which in
either case (a) or (b) would result in a Material Adverse Effect; (ii)
do not and will not violate any provision of the charter or by-laws of the
Company or any of its Restricted Subsidiaries; and (iii) do not and will
not result in the breach of, or constitute a default or require any
consent under, or result in the creation of any Lien upon any of the
Properties, revenues, or assets of the Company or any of its Restricted
Subsidiaries under any Material Agreement.
3. Except as to the matters disclosed in Section 4.10 of the Credit
Agreement as modified in the manner set forth in the Closing Certificate
delivered by the Company in connection with the First Amendment or
reflected in the Company's filings with the Commission on Form 10-K for
the year ended December 31, 1996 or its Form 10-Q for the quarter ended
March 31, 1997, there are no legal or arbitral proceedings, and no
proceedings by or before any governmental or regulatory authority or
agency, pending or threatened against or affecting the Company, any of its
Restricted Subsidiaries, or any of their respective Properties known to me
the outcome of which I have reasonable cause to believe could be expected
to have a Material Adverse Effect.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. Opinions
rendered herein are as of the date hereof, and I make no undertaking and
expressly disclaim any duty to supplement such opinions if, after the date
hereof, facts and circumstances come to my attention or changes in the law
occur which could affect such opinions.
In rendering the foregoing opinions, I am expressing no opinion as to
matters of law other than the General Corporation Law of the State of Delaware
and the federal laws of the United States of America. I am admitted to practice
law only in the Commonwealth of Virginia and before certain federal courts. I
am not licensed to practice law in the State of Georgia, the State of Delaware,
or the State of New York.
This opinion is rendered solely for the benefit of the Banks, the
Administrative Agent, the Agent, their prospective or actual successors and
assigns, and their legal advisors and accountants and only with respect to the
transactions described herein. No further distribution or use of this opinion
is authorized and this opinion may not be quoted in full or in part or
otherwise referred to in any financial statements, nor may it be filed with or
furnished to any governmental agency (other than those examining the Banks, the
Agents, or
-3 -
<PAGE> 25
their successors and assigns) or other party without the prior written consent
of the undersigned.
Very truly yours,
R.P. Wolf
Enclosures: Schedule I
Schedule II
-4-
<PAGE> 26
CONFORMED COPY
EXHIBIT C
CLOSING CERTIFICATE
To the Financial Institutions Party
to the First Amendment to
Credit Agreement Referred
to Below,
Gentlemen:
We refer to the First Amendment to Credit Agreement dated as of May 30,
1997 among the undersigned, and the financial institutions signatory thereto
(the "First Amendment"). Capitalized terms used below without definition have
the meanings ascribed to them in the First Amendment or the Credit Agreement as
appropriate. The Company executes and delivers this certificate to you in
connection with and as one of the inducements for the First Amendment becoming
effective.
The Company hereby certifies that each of the representations and
warranties of the Company set forth in Section 4 of the Credit Agreement is
true and correct as of the date hereof all as though made as of such date
except that (i) the representations made in the second and third sentences of
Sections 4.1 shall be deemed to refer to the form of Schedule II attached
hereto and made a part hereof, (ii) the representations made in Section 4.2
shall be deemed to refer to the form of Schedule I attached hereto and made a
part hereof, (iii) the representations contained in Sections 4.3 and 4.10 are
amended to insert the date "December 31, 1996" for the date "December 31, 1994"
wherever such latter date appears in such Sections, (iv) there is excluded from
the representations contained in Section 4.5 any proceedings reflected in the
Company's filings with the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1996 or its Form 10-Q for the quarter ended March
31, 1997, (v) all references in Section 4 to the "Loan Documents" shall, in the
case of the Credit Agreement as a Loan Document, be deemed to refer to the
Credit Agreement as amended by the First Amendment and, in the case of the
Notes as Loan Documents, be deemed to refer to the Notes to be held by the
Banks on and after the Effective Date of the First Amendment, (vi) all
references to the "date hereof" in Section 4 shall be deemed to be references
to the date of this Certificate and (vii) all references therein to the
sections referred to in the foregoing clauses (i) through (vi) shall be deemed
to refer to such sections after giving effect to the modifications set forth in
such clauses above
<PAGE> 27
Dated as of the 30th day of May, 1997
ALUMAX INC.
By
----------------------------
Its Treasurer
-2-
<PAGE> 1
EXHIBIT 10.01
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
This Agreement made and entered in this 1st day of July 1997, by and
between the South Carolina Public Service Authority, hereinafter referred to as
"the Authority," and Alumax of South Carolina Inc., hereinafter referred to as
the "Customer."
WITNESSETH:
That in consideration of the mutual covenants and agreements herein
contained, the Authority and the Customer covenant and agree with each other as
follows:
1. The Authority shall sell and deliver to the Customer, and the
Customer shall purchase and receive from the Authority, the Customer's
full requirements for electric service at the Delivery Point(s)
specified in the respective Delivery Point Specification Sheets
attached to this Service Agreement. Each such Delivery Point
Specification Sheet shall, upon its execution, be a part of this
Service Agreement, and shall include the service specifications for the
provision of service at the corresponding Delivery Point.
2. A change in the service specifications at a Delivery Point shall
require a new Delivery Point Specification Sheet to be executed to
replace the previous Delivery Point Specification Sheet for that
Delivery Point.
3. This Service Agreement adopts and incorporates by reference all of
the provisions of the Authority's Large Light and Power Rate Schedule
L-96 and all riders thereto (collectively, "Schedule L"), and its
associated General Terms and Conditions, as such Schedule L and General
Terms and Conditions may be changed from time to time.
4. The Customer shall pay the Authority monthly for electric service
rendered hereunder pursuant to the applicable Rate Schedule and in
accordance with the billing and payment provisions of Schedule L and
the General Terms and Conditions.
5. This Service Agreement may not be assigned by either party without
the prior written consent of the other party, provided, however, such
consent shall not be unreasonably withheld.
6. If any provision of the Delivery Point Specification Sheet of this
Service Agreement is inconsistent with any provision of any applicable
rate schedule or associated riders, the provisions of the Delivery
Point Specification Sheet shall prevail.
7. Subject to the provisions hereinbefore contained, this contract
shall be binding upon and inure to the benefit of the successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the Authority and the Customer have caused this
Service Agreement for the Large Power Electric Service to be executed in
duplicate in their names by their respective duly authorized officials, as of
the day and year first above written.
ATTEST: SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
BY: /s/ Deborah M. Shipley BY: /s/ P.G. Edwards
--------------------------------- ------------------------------------
ATTEST: Alumax of South Carolina. Inc. (CUSTOMER)
----------------------------------------
BY: /s/ Virgie L. Horne BY: /s/ Paul G. Campbell, Jr.
--------------------------------- -------------------------------------
<PAGE> 2
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
DELIVERY POINT SPECIFICATION SHEET
1. Electric Service Supplied to: ALUMAX OF SOUTH CAROLINA, INC. (the "Customer")
2. Delivery Point Information:
(a) Name: Alumax of South Carolina, Inc., Mt. Holly Plant
(b) Description: Point on Customer's property at which Customer's conductors
connect with the secondary bushings of the Authority's 230
kV transformers.
(c) Location: Goose Creek, South Carolina
3. Original Effective Date of Delivery Point: September 23, 1977
4. Effective Date of this Specification Sheet: July 1, 1997
5. Initial Contract Demand(s):
(a) Firm Power Contract Demand: 158,000 kW
(b) Supplemental Power Contract Demand: 142,000 kW
(c) Interruptible Power Contract Demand: 40,000 kW
(d) Off-Peak Power Contract Demand: 0 kW
(e) Economy Power Contract Demand: 0 kW
(f) Standby Power Contract Demand: 0 kW
6. Electric Service Supplied: 34.500 volts (nominal) 3 Phase
7. Metering Data:
(a) Metered Voltage: 34.5 kV
(b) Location: Low Voltage side of Authority's 230 kV Transformers
(c) Compensation: None
8. Provisions for Special Facilities or Conditions:
(a) Agreed Term
Notwithstanding any provision of the Service Agreement or Schedule L to
the contrary, neither party shall terminate the Service Agreement during the
Agreed Term, which shall be the period extending from the Effective Date of
this Delivery Point Specification Sheet through December 31, 2005.
(b) Applicable Rate Schedules
(1) Notwithstanding any provision of the Service Agreement or Schedule
L to the contrary, the rates, terms and conditions applicable to the Customer
during the Agreed Term shall be those set forth in the Authority's Large
Light and Power Rate Schedule L-96 and its associated General Terms and
Conditions, as adopted by the Authority on January 22, 1996, supplemented by
Rider L-96-I thereto, the Authority's Fuel Adjustment Clause, FAG-96, and the
Authority's Demand Sales Adjustment Clause, DSC-96, all as adopted by the
Authority on January 22, 1996, and Rider L-97-SP, as adopted by the Authority
on June 30, 1997, such that no changes to such Rate Schedule L-96, its
associated General Terms and Conditions, Rider L-96-I, Rider L-97-SP, FAG-96,
or DSC-96 shall be effective as to service to the Customer hereunder during
the Agreed Term.
<PAGE> 3
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
DELIVERY POINT SPECIFICATION SHEET
8. Provisions for Special Facilities or Conditions: (cont'd)
(2) If this Agreement is not terminated at the end of the Agreed Term
in the manner specified in Section 12 of Attachment A of Schedule L, such
that the Authority continues to serve the Customer hereunder beyond the
Agreed Term, the rates, terms and conditions applicable to the Customer
hereunder after the Agreed Term shall be the Authority's then-applicable
Schedule L and its associated General Terms and Conditions and applicable
riders thereto.
(3) Subject to Section 4(A)(2) of Schedule L and Section 9 of
Attachment A to Schedule L, the Customer's Firm Billing Demand for each
Billing Month of the Agreed Term shall be 100% of the Customer's then current
Firm Contract Demand, notwithstanding the provisions of Section 4(A)(1) of
Schedule L to the contrary.
(c) Changes in Contract Demands
(1) The Customer's Firm Power Contract Demand and Interruptible Power
Contract Demand shall be subject to change by either party as specified in
Schedule L and Rider L-96-I; provided, however, that, except as specifically
set forth below, no such change shall be effective prior to the end of the
Agreed Term:
(a) Notwithstanding any provision of Rider L-96-I to the
contrary, upon six (6) months' prior written notice to the
Authority, the Customer shall have the right to increase its
Interruptible Power Contract Demand to not more than 60,000
kW.
(b) Notwithstanding any provision of Rider L-96-I and Rider
L-97-SP to the contrary, on and after January 1, 2000, the
Customer shall have the right to convert any portion of its
then-current Interruptible Power Contract Demand to
Supplemental Power Contract Demand upon twelve (12) months'
prior written notice to the Authority.
(2) The Customer's Supplemental Power Contract Demand shall be subject
to change by either party as specified in Rider L-97-SP; provided, however,
that no such change shall be effective prior to January 1, 2000.
(d) Curtailments and Reductions of Supplemental Power
Notwithstanding any provision of Rider L-97-SP to the contrary, the
parties hereto agree that:
(1) Each curtailment or reduction in the Customer's Supplemental Power
Contract Demand by the Authority or the Customer pursuant to Section 4
of Rider L-97-SP shall be in an amount of either 100% or 50% of the
Customer's then current Supplemental Power Contract (prior to giving effect
to any prior such curtailment or reduction).
(2) During the Agreed Term and prior to the date on which Retail Access
(as hereinafter defined) becomes available to the Customer, the
Authority shall not give any notice of curtailment pursuant to Section 4 of
Schedule L-97-SP unless the Authority determines, in its sole judgement
reasonably exercised, that the curtailment will reduce or eliminate a need
for new generating capacity that would, but for the curtailment, be needed
by the Authority in order for the Authority to have available generating
capacity (including reserves) sufficient to provide adequate service to the
Authority's firm retail and wholesale loads (including firm off-system sales
existing as of the Effective Date), including such a need for new generating
capacity caused by a lack of transmission capacity on an adjacent electric
transmission system or at an interface with such a system.
-2-
<PAGE> 4
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
DELIVERY POINT SPECIFICATION SHEET
8. Provisions for Special Facilities or Conditions: (cont'd)
(3) In the event that the Authority provides notice of a curtailment
pursuant to Section 4 of Schedule L-97-SP, the price or prices to be quoted
by the Authority pursuant to Section 4(B)(1) of Rider L-97-SP for the first
twelve (12) months of the curtailment shall be the Authority's best
reasonable estimate of the highest price that the Authority could reasonably
expect to obtain by selling the entire quantity of curtailed power to another
customer or customers, excluding the costs of transmission beyond the
Authority's own transmission system and also excluding distribution costs.
Such price or prices shall be based on sales that in the aggregate represent
a block of power with the reasonably expected load factor of the curtailed
power.
(4) Notwithstanding any provision of Schedule L or Rider L-96-EP
thereto to the contrary, in the event that the Authority provides notice of a
curtailment pursuant to Section 4 of Schedule L-97-SP the Customer shall, by
having given sixty (60) days' prior written notice to the Authority, be
permitted to purchase Economy Power from the Authority under Rider L-96-EP,
or any successor thereto which shall be effective at the time, to replace
some or all of the power and energy that the Customer would have purchased as
Supplemental Power under Rider L-97SP but for such curtailment by the
Authority. Each such notice by the Customer shall set forth (i) the maximum
amount of such Economy Power, in kW, the Customer desires to purchase from
the Authority during the period of curtailment, which such maximum amount
shall be deemed to be the Customer's Economy Power Contract Demand under
Rider L-96-EP, or applicable successor thereto, during the period of the
curtailment. In such event, the Customer's purchase and use of Economy Power,
and the availability thereof, shall be fully subject to the provisions of
such Rider L-96-EP, or applicable successor thereto.
Any increase in Economy Power Contract Demands hereunder shall be
only for the months in the Customer's request and notwithstanding any
provision of Schedule L or the Rider L-96-EP, or the applicable successor
thereto, to the contrary, the Customer's Economy Power Contract Demand for
all other months shall not be increased as a result of such notice and such
notice shall not cause the Customer to pay any increased reservation charge
or any other increased billing charge for any months other than the months in
the Customer's notice that would not have been payable absent such notice.
(5) Notwithstanding any provision of Schedule L to the contrary, during
the Agreed Term and prior to the date on which Retail Access (as hereinafter
defined) becomes available to the Customer, in the event that the Authority
provides notice of a curtailment pursuant to Section 4 of Schedule L-97-SP,
the Customer may, by giving sixty (60) days' prior written notice to the
Authority, reduce its Firm Power Contract Demand for the period of such
curtailment by an amount equal to 15,000 kW for each 50% increment of
curtailment called for by the Authority. In such event, the options available
to the Customer for replacement of Supplemental Power hereunder and under
Rider L-97-SP shall also be available to the Customer for replacement of the
amount of Firm Power that the Customer otherwise would have purchased from
the Authority as Firm Power under Schedule L but for such reduction.
(6) If and to the extent that Retail Access (as defined herein) is
available to the Customer, the Customer shall be permitted to obtain electric
power and energy from one or more alternative sources to replace some or all
of the power that the Customer otherwise would have purchased from the
Authority as Supplemental Power under Rider L-97-SP but for curtailment by
the Authority or reduction by the Customer pursuant to Section 4 of Rider
L-97-SP; provided, however, that nothing herein shall relieve the Customer of
any obligation(s) it may have to purchase and pay the Authority for
transmission services (including related ancillary services) and any
applicable stand-by services pursuant to then-effective rate schedules of the
Authority for such services. In such event, it shall be the responsibility of
the Customer to apply for and obtain all necessary transmission services
(including related ancillary services) and any applicable stand-by services
from the Authority in accordance with the rates, terms and conditions of
then-effective rate schedules of the Authority for such services. Nothing
herein shall be deemed to convey to the Customer any right to obtain such
services that the Customer would not otherwise have in the absence of the
Customer's Service Agreement.
-3-
<PAGE> 5
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
DELIVERY POINT SPECIFICATION SHEET
8. Provisions for Special Facilities or Conditions: (cont'd)
(e) Credit for Prior Service
Upon the Effective Date hereof, the costs of the Customer's purchases
of Curtailable Supplemental Power from the Authority under Rider L-94-SP
during the period beginning January 1, 1997, up to but not including such
Effective Date shall be recalculated using the rates set forth in the Rider
L-97-SP, and the Customer shall be provided a credit for the difference
resulting from such recalculation, in equal monthly installments over the
nine (9) months following such Effective Date.
(f) Other Terms
(1) Electrically Isolated Loads: Nothing herein is intended to prevent
the Customer from serving any load or loads at its premises from other
sources or suppliers, to the extent permitted by law, provided that (i) such
load or loads are electrically separate from the load or loads served by the
Authority, and (ii) any switching of loads from the Delivery Point to any
other source or supplier shall not relieve the Customer of any of the billing
provisions of Schedule L (including all applicable riders thereto) unless and
until the Customer's contract demands are reduced as permitted hereunder and
by the provisions of Schedule L (including all applicable riders thereto).
(2) Transmission Planning: Notwithstanding any provision hereof or
Schedule L to the contrary, the Authority shall use its reasonable best
efforts, consistent with good utility practice, to plan and construct such
transmission facilities as may be reasonably necessary to serve the
Customer's electric power and energy requirements at the Delivery Point, up
to the then-current levels of the Customer's contract demands under Schedule
L and various riders thereto from the Authority's own generation facilities
and points of interconnection with other electric transmission systems where
the Authority plans to take deliveries of purchased power.
(3) Retail Access: As used herein, "Retail Access" shall mean the right
of the Customer to purchase power from a supplier other than the Authority
and have the Authority deliver such power to the Delivery Point using the
Authority's transmission and/or distribution facilities, such right being
established after the adoption of Rider L-97-SP by (i) legislation by the
State of South Carolina or the United States, or by (ii) a policy voluntarily
adopted by the Authority to allow such Retail Access to all of its Large
Light and Power customers. Notwithstanding the foregoing, for purposes
hereof, Retail Access shall be deemed to be unavailable prior to January 1,
2000. The adoption of Rider L-97-SP by the Authority shall not be deemed to
be a voluntary grant of Retail Access by the Authority.
(4) Stranded Costs: The parties hereto recognize and agree that the
issue of electric industry deregulation and particularly "stranded costs" (as
that term is defined and recognized generally in the industry) may eventually
be addressed and resolved by the Congress of the United States, the South
Carolina General Assembly or other legislative or regulatory body, and that
such resolution may take any number of forms and include varying rights and
obligations which the parties, as of the Effective Date, cannot reasonably
determine. Therefore, the parties expressly state that nothing herein is
intended by the parties as a waiver of any right, remedy or argument that a
party may have with respect to any electric industry deregulation issue,
including stranded costs.
(5) Guaranty: Alumax, Inc., the Customer's parent corporation, shall
execute a written guaranty which absolutely and unconditionally guarantees
the full and timely discharge of all obligations of the Customer under this
Service Agreement. The execution of such guaranty is a condition precedent to
the Authority supplying service to the Customer hereunder.
(6) Prior Agreements: As of its Effective Date, this Service Agreement
shall replace and supersede all pre-existing agreements between the Authority
and the Customer.
-4-
<PAGE> 6
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE
DELIVERY POINT SPECIFICATION SHEET
8. Provisions for Special Facilities or Conditions: (cont'd)
IN WITNESS WHEREOF, the Authority and the Customer have each caused this
Delivery Point Specification Sheet, which is to be incorporated into the Service
Agreement for Large Power Electric Service, dated July 1, 1997, to be executed
in their names by their respective duly authorized officials on this 1st day of
July, 1997
ATTEST: SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
BY: Deborah M. Shipley BY: P.G. Edwards
------------------------------- -------------------------------------
ATTEST: Alumax of South Carolina. Inc. (CUSTOMER)
----------------------------------------
BY: Virgie L. Horne BY: Paul G. Campbell Jr.
------------------------------- -------------------------------------
-5-
<PAGE> 7
L-96
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
LARGE LIGHT AND POWER
SCHEDULE L-96
Section 1. Availability:
(A) Service hereunder is available at Delivery Points on or near the
transmission facilities of the Authority at which the Customer has a potential
demand for electric service of at least 1,000 kW; provided, however, that
service hereunder shall not be available for service to large, highly
fluctuating or otherwise unusual loads without the agreement of the Authority.
(B) Subject to the terms of this Rate Schedule and the General Terms
and Conditions of Large Power Electric Service (hereinafter, "General Terms and
Conditions") attached hereto as Attachment A and made a part hereof, service
hereunder is available, at individual Delivery Points each satisfying the
requirements of the foregoing paragraph, to (i) industrial, commercial, and
governmental Customers of the Authority, and (ii) municipal and cooperative
wholesale Customers of the Authority for service, at each such Delivery Point,
to an industrial, commercial, or governmental customer of such wholesale
customer.
(C) Except as may be otherwise provided in the Standby Service Rider
L-96-SB, this Rate Schedule is not available for breakdown, standby,
supplementary, or auxiliary service, and service hereunder shall not be used in
parallel with other sources of electric power. Except with respect to service to
municipal and cooperative Customers of the Authority, as provided in the
foregoing paragraph, service hereunder shall not be sold for resale or exchange
or shared with others.
(D) Prior to the provision of service hereunder at one or more Delivery
Points, the Customer shall be required to enter into an Agreement for Large
Power Electric Service (hereinafter, "Service Agreement") of the form prescribed
in the General Terms and Conditions which may be modified by the Authority from
time to time.
Section 2. Character of Service:
(A) Electric power and energy delivered hereunder shall be unregulated,
three-phase alternating current, at a frequency of approximately 60 Hertz, at
one of the Authority's standard nominal voltages of 480 volts or higher.
Separate supplies for the same Customer at different locations and/or at
different voltages shall be considered separate Delivery Points. Multiple
Delivery Points shall be separately metered and billed. Only one transformation
will be provided hereunder from the available transmission voltage.
(B) "Firm Power," as used herein, shall refer to electric power and
energy purchased by the Customer hereunder, other than electric power and energy
purchased by the Customer pursuant to an applicable rider or riders hereto.
Section 3. Monthly Rates and Charges:
(A) Monthly Customer Charge:
A monthly charge for each Delivery Point of..............$1,200.00.
(B) Charges for Standard Firm Power Service:
The monthly charges for Firm Power hereunder shall include the
following charges:
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<PAGE> 8
L-96
<TABLE>
<S> <C> <C>
(1) Monthly Demand Charge:
(a) Base Demand Charge:
For the first 300 kW or less of Finn Billing Demand........................ $3,228.00.
All Additional kW of Firm Billing Demand @................................. $ 10.76.
(b) Transformation Discount:
Whenever the Customer takes delivery at available transmission voltage
(69 kV or greater) and provides the necessary transformation from the
available transmission voltage, the foregoing Base Monthly Demand Charge
shall be reduced by $0.50/kW.
(c) Excess Demand Charge:
For each kW of the Customer's Measured Demand that is classified as
Excess Demand, a charge, in addition to the Base Demand Charge, of
$6.00/kW.
(d) Excess Reactive Demand Charge:
Each kVAr of Excess Reactive Demand @....................................... $ 0.44/kVar.
(e) Demand Sales Adjustment:
For each kW of Firm Billing Demand, a credit or charge, if any,
determined from time to time pursuant to the Authority's Demand Sales
Adjustment Clause DSC-96, or its currency applicable successor clause, if
any.
(2) Energy Charge:
(a) Base Energy Charge:
All kWh @.................................................................. $ 0.0219/kWh.
(b) Fuel Adjustment Charge:
For each kWh, the charge per kWh determined for the month pursuant to
the Authority's Fuel Adjustment Clause FAC-96, or its currently
applicable successor clause, if any, with "F(b)/S(b)" and "K" of the
formula in said clause being equal to $0.0169/kWh and .085,
respectively.
</TABLE>
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<PAGE> 9
L-96
(C) Charges Under Applicable Riders:
The monthly charges hereunder shall include the charges for
services provided the Customer under any and all applicable riders hereto.
(D) Monthly Facilities Charges:
In the event service to the Customer requires the Authority to
provide facilities in addition to, or different from, facilities normally
provided by the Authority, and the Authority provides such facilities, the
Customer also shall pay the Authority a Monthly Facilities Charge, in addition
to all other charges hereunder. Such Monthly Facilities Charge shall be equal
to 1.4% of the original installed cost of such facilities.
(E) Minimum Monthly Bill:
The minimum monthly bill shall consist of the sum of (i) the
Monthly Customer Charge, (ii) the Monthly Facilities Charge, if any, (iii) the
Monthly Demand Charge for Firm Power Service, and (iv) the minimum monthly
charges, if any, determined pursuant to any applicable rider or riders under
which the Customer also receives service from the Authority.
(F) Taxes and Other Assessments:
Amounts for "payments in lieu of taxes", as prescribed by the Code
of Laws of South Carolina ss.58-31-80, ss.58-31-90, and ss.58-31-100, as
amended, have been included in the establishment of the foregoing monthly rates
and charges. The total monthly billing amount hereunder also shall be subject to
all other taxes, payments in lieu of taxes, franchise fees, assessments, and
surcharges imposed by any governmental authority. In addition, South Carolina
Sales Tax, if any, will be added to each bill unless the Customer has furnished
the Authority evidence of specific exemption secured by the Customer from the
South Carolina Tax Commission or its successor.
Section 4. Determination of Demands:
(A) Firm Billing Demand:
(1) The Firm Billing Demand for each Billing Month shall be the
greater of (i) that portion of the Customer's Measured Demand for such Billing
Month not served under any applicable rider or riders hereto pursuant to which
the Customer also receives service, (ii) eighty percent (80%) of the Firm
Contract Demand for such Billing Month, or (iii) if the Customer receives Firm
Power only, then the Customer's Firm Billing Demand shall not be less than 1,000
kW.
(2) In the event that, during any Billing Month, the provision of
service by the Authority hereunder is interrupted for a period of four (4) or
more consecutive hours as a result of an occurrence of one of the circumstances
set forth in Section 9(A) of the General Terms and Conditions, the Finn Billing
Demand for such Billing Month will be reduced by the proportion which the number
of hours of such interruption bears to the total number of hours in the Billing
Month.
(B) Measured Demand:
Subject to the applicable provisions, if any, of any rider or
riders hereto pursuant to which the Customer also receives service, the Measured
Demand for each Billing Month shall be the maximum 30-minute integrated kW
demand of the customer during such Billing Month; provided, however, that if the
Customer's load is unbalanced between phases by more than ten percent (10%), the
Authority, at its sole option, may (i) require the Customer, at the Customer's
expense, to make the changes necessary to correct such condition, and/or (ii)
assume that the load on each phase is equal to the greatest load on any phase.
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<PAGE> 10
L-96
(C) Firm Contract Demand:
(1) Except as otherwise provided herein, the Firm Contract Demand
applicable to each Delivery Point during each Billing Month shall be the maximum
amount of Firm Power, in kilowatts, that the Customer shall have requested and
the Authority shall have agreed to supply during such Billing Month, as
evidenced in the Delivery Point Specification Sheet for the Delivery Point that
is attached to, and made a part of, the Service Agreement between the Customer
and the Authority. During the first twelve (12) months of service to a new
Delivery Point, the Authority, at its sole option, may agree to adjust the
Customer's Firm Contract Demand on a month-to-month basis and/or to forego the
application of the Section 4 (D) hereinbelow, in order to allow the Customer
and the Authority an adequate build-up or phase-in of operations; provided,
however, that the Authority reserves the right to condition such agreement on
such additional terms and conditions as the Authority deems appropriate for the
circumstances.
(2) Except as otherwise provided herein or in the General Terms and
Conditions, the Customer may reduce its Firm Contract Demand for a Delivery
Point, for any twelve month period and subsequent twelve month period(s), to
not less than 300 kW by providing prior written notice of such reduction to the
Authority at least one year prior to the beginning of the first period to which
the notice applies; provided, however, that (i) no such reduction shall become
effective before the fifth anniversary of service to the Delivery Point, and
provided further that (ii) the greatest amounts of such reductions shall be as
follows:
(a) For the first twelve month period to which such notice
applies, the maximum reduction shall be the greater of
5,000 kW or 25% of the Firm Contract Demand for such year.
(b) For the second succeeding twelve month period, the maximum
reduction shall be the greater of 10,000 KW or 50% of the
Firm Contract Demand for such year.
(c) For the third succeeding twelve month period, the maximum
reduction shall be the greater of 15,000 kW or 75% of the
Firm Contract Demand for such year.
(d) For the fourth and subsequent twelve month period(s), the
maximum reduction shall be 100% of the respective Firm
Contract Demand(s) for such years.
Notices of such reductions in the Customer's Firm Contract Demand
shall be irrevocable once given.
(3) The Customer's Firm Contract Demand, once established or
reduced, may be increased only (i) pursuant to the terms of this Rate Schedule
or applicable rider(s) hereto under which the Customer also receives service, or
(ii) by mutual agreement between the Authority and the Customer evidenced by the
execution of a new, revised Delivery Point Specification Sheet for the Delivery
Point to which the increase is to apply. The Authority shall be under no
obligation to agree to any such increase but shall give good faith consideration
to each such request. In such an event, the Authority may require additional,
special terms and conditions applicable to service to the Customer to be
included in the aforementioned new Delivery Point Specification Sheet.
(4) Notwithstanding any other provisions hereof, in no event shall
the Customer's Firm Contract Demand be less than the amount, if any, by which
the sum of the Customer's then current contract demands under all applicable
riders hereto is less than 1,000 kW.
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<PAGE> 11
L-96
(D) Excess Demand:
(1) The Customer's Excess Demand for each Billing Month shall be
that portion of the Customer's Measured Demand for such Billing Month, if any,
that exceeds the sum of (i) the Customer's then current Firm Contract Demand
hereunder and, where applicable, (ii) the Customers' Billing Demand(s), if any,
under any applicable rider or riders to which the Customer also receives service
from the Authority.
(2) Notwithstanding the foregoing or any other provision of this
Rate Schedule or the General Terms and Conditions to the contrary, in the event
that (i) the Customer's rate of use of electricity at a Delivery Point exceeds
the sum of (a) the Customer's then current Firm Contract Demand hereunder and,
where applicable, (b) the Customer's then current Contract Demand(s), if any,
under applicable riders hereto, and (ii) the Customer fails to comply promptly
with a request by the Authority to reduce such rate of use so as not to exceed
such aggregate Contract Demand, the Customer's Firm Contract Demand(s) for such
Delivery Point for the current and subsequent Billing Months, shall at the
Authority's sole option, be increased, from what it otherwise would have been,
by the amount of such excess. In addition, in such event, the Customer shall be
liable for any damage to the Authority's facilities caused by such excess.
(3) Notwithstanding the foregoing or any other provision of this
Rate Schedule or the General Terms and Conditions, the Authority shall be under
no obligation whatsoever to supply demands in excess of the Customer's aggregate
Contract Demand(s), and nothing herein shall be construed as restricting the
right of the Authority to take such steps as the Authority may deem necessary,
including without limitation complete interruption of service to the Customer,
to limit the Customer's demand so as not to exceed the Customer's aggregate
Contract Demands.
(E) Excess Reactive Demand:
The Customer's Excess Reactive Demand for each Billing Month shall
be the amount, if any, by which the Customer's maximum 30 minute integrated
reactive demand, in kilovars (kVAR), during such Billing Month exceeds 48.5% of
the Customer's Measured Demand, in kilowatts (kW), for such Billing Month.
Section 5. Additional Terms and Conditions:
Service under this Rate Schedule, including service under all
applicable riders hereto, is subject to the then currently efective General
Terms and Conditions and the Service Agreement between the Customer and the
Authority.
Adopted January 22, 1996
---------------------------------------------------
Effective for service rendered on and after April 1, 1996.
Supersedes:
Schedule L-95, Effective April 1, 1995
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<PAGE> 12
Rate Schedule L-96
Attachment A
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
General Terms and Conditions
of
Large Power Electric Service
SECTION 1. CONTRACT FOR SERVICE
(A) As a condition precedent to the Authority supplying electric
service under the Authority's Large Light and Power Rate Schedule L-96 and/or
any and all riders thereto (collectively, "Schedule L"), to which these General
Terms and Conditions are attached and made a part of, the Customer shall execute
a Service Agreement in the form hereinafter provided as Exhibit I hereto. When
executed by the Customer and the Authority, such Service Agreement, together
with Schedule L, these General Terms and Conditions, and applicable notices of
Contract Demands accepted by the Authority, shall constitute the entire
contract for service between the Authority and the Customer.
(B) In the event of any conflict between these General Terms and
Conditions and the provisions of the Service Agreement or Schedule L, the
provisions of the Service Agreement or Schedule L shall govern.
(C) Nothing contained in any and all parts of Schedule L, the Service
Agreement, and these General Terms and Conditions, shall be construed as
affecting in any way the right of the Authority to make changes to any and all
parts of such documents as provided by law.
(D) A separate Delivery Point Specification Sheet, in the form
hereinafter provided as Exhibit II hereto, shall be prepared and executed by the
Authority and the Customer for each Delivery Point at which the Customer is to
receive service. Each such Delivery Point Specification Sheet, shall be deemed
to be attached to, and made a part of, the Service Agreement between the
Customer and the Authority.
(E) As used herein, "Delivery Point" refers to the point or points at
which the electrical conductors (including bus bars) of the Authority are
connected to the electrical conductors of the Customer or, in the case of
service hereunder to a municipal or cooperative wholesale Customer of the
Authority, to the conductors of that Customer or a retail customer of wholesale
Customer. The Authority shall normally provide one three-phase service at a
single voltage at each Delivery Point. Separate supplies for the same Customer
at different locations and/or at different voltages shall be considered separate
Delivery Points. Multiple Delivery Points shall be separately metered and
billed.
SECTION 2. CONDITIONS OF SERVICE
(A) The Authority's agreement to provide electric service on the date
specified for electric service to each Delivery Point, subject to proper
written notice as set forth in the applicable Rate Schedule, is contingent upon
the Authority's ability to acquire, at a sufficient time prior to the date for
commencement of such service, the necessary State and Federal approvals and the
necessary rights of way and equipment for providing such electric service.
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<PAGE> 13
Rate Schedule L-96
Attachment A
(B) With respect to facilities installed by the Authority to provide
electric service to the Customer, the Authority reserves the right to use any
available capacity of such facilities not needed for such service to supply
other customers of the Authority.
SECTION 3. ELECTRIC SERVICE PROVIDED
(A) The Authority will provide electric service to Customer in the
form of unregulated, three-phase alternating current at a frequency of
approximately 60 Hertz.
(B) The Authority will provide electric service pursuant to the
provisions of Schedule L at the nominal voltage desired by Customer provided
such voltage is generally available in the area in which the electric service
is desired. For Delivery Points existing on the date these General Terms and
Conditions become effective, the nominal voltage supplied shall be the
Authority's present nominal delivery voltage at such Delivery Points.
(C) The Authority will provide electric service for each Delivery
Point at the nominal voltage specified in the Exhibit II to the Service
Agreement for the Delivery Point, unless the Authority notifies the Customer in
writing that the voltage will be changed to a specified higher or lower voltage
in accordance with usual utility practices. In such cases, the Customer at the
Customer's own expense will design, engineer, install, construct or modify,
operate, and maintain facilities to such higher or lower voltage.
SECTION 4. MONTHLY BILLING AND PAYMENT
(A) The Authority shall render to the Customer, after the end of each
Billing Month, a bill setting forth the charges, as specified in Schedule L,
for such Billing Month. "Billing Month" refers to a period between successive
meter readings, which shall normally be once per month.
(B) All bills shall be on a net basis, and each such bill shall be
due and payable in good funds at the office of the Authority in Moncks Corner,
South Carolina, or at such other place as the Authority may designate, within
ten (10) days after the date on which the bill is mailed or otherwise rendered.
If payment is not received within twenty-five (25) days after the date the bill
is mailed or otherwise rendered, the amount of the bill shall be increased on
the next bill rendered and on subsequent bills rendered each month thereafter
until paid by the larger of one hundred dollars ($100.00), or two percent (2%)
of the amount then outstanding including late payment charges. If payment is
not made within thirty (30) days are the bill is mailed or otherwise rendered,
the Authority may discontinue service until all past due bills are paid in
full. Discontinuance of the service shall not relieve the Customer of any
liability for the agreed Minimum Monthly Bill(s) for the period(s) of time
service is so discontinued.
SECTION 5. METERING AND MEASUREMENT
(A) Power and energy shall be metered by the Authority at, or as if
at, each Delivery Point.
(B) Not less frequently than once each year, the Authority shall make
periodic tests and inspections of meters installed by it. At the request of the
Customer, the Authority shall make additional tests or inspections. Readings of
metering instruments found to be in error by more than two percent (2%) either
fast or slow will be corrected and credits or debits made to the Customer's
account accordingly. Such correction shall apply for a period of not more than
thirty (30) days prior to the date of test unless a longer period of inaccuracy
can be definitely determined. The Customer shall pay all costs resulting from
additional tests requested by the Customer if tests show meters to be accurate
within two percent (2%).
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<PAGE> 14
Rate Schedule L-96
Attachment A
SECTION 6. USE OF SERVICE
(A) Power shall be used in such manner as will not cause
objectionable voltage fluctuations or other electrical disturbances on the
Authority's system. If such fluctuations and disturbances become objectionable,
the Authority may require the Customer, at the Customer's own expense, to
install appropriate corrective equipment.
(B) The Service Agreement shall not be assigned by the Customer
without approval in writing by the Authority. Service hereunder is exclusively
for use by the Customer, and is not to be resold or shared with others. In
consideration of the terms of the Service Agreement and these General Terms and
Conditions, and in recognition of the fact that the supplying of power and
energy from more than one source to the Customer's Facilities may adversely
affect safety and the Authority's operations, the Customer agrees not to accept
electrical service for said plant operations from any source other than the
Authority during the terms of the Service Agreement.
SECTION 7. NEW DELIVERY POINTS
(A) To establish a new Delivery Point, the Customer must execute with
the Authority a new Delivery Point Specification Sheet for the new Delivery
Point prior to the date upon which the new Delivery Point is to be placed in
service. Such new Delivery Point Specification Sheet shall be attached to, and
made a part of, the Service Agreement and shall include any special provisions
required for the establishment of the new Delivery Point. The execution of such
Delivery Point Specification Sheet shall be a condition precedent to the
Authority's supplying electric service to the Delivery Point.
(B) The Authority shall not be obligated to establish any new
Delivery Point if it is reasonably determined by the Authority that, consistent
with Prudent Utility Practice, the new Delivery Point is not necessary or
appropriate for the delivery of power to serve load on the Customer's system.
(C) The Authority shall not be obligated to establish any new
Delivery Point if after exercising due diligence the Authority cannot obtain
all necessary State and Federal approvals, rights-of-way, and equipment. The
Customer shall support all State and Federal filings that the Authority deems
necessary (i) for supplying capacity and energy to the new Delivery Point, (ii)
for the construction and permitting of the new Delivery Point, and (iii) such
other facilities as the Authority deems necessary for the new Delivery Point.
(D) The Customer or potential Customer requesting the establishment
of a new Delivery Point shall submit a detailed written request to the
Authority specifying the requirements of such Delivery Point.
(E) Except as otherwise provided herein, the Customer is responsible
for the installation, operation and maintenance of all necessary poles, lines,
substations, transformers, switches, protective equipment, and other equipment
(except the Authority's metering equipment) necessary for the establishment of
a new Delivery Point, and for all facility rearrangements on the Customer's
side of such Delivery Point that are required for the establishment thereof.
(F) Substantial and/or material modifications to an existing Delivery
Point shall be deemed to constitute the termination of such Delivery Point and
the establishment of a new Delivery Point.
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<PAGE> 15
Rate Schedule L-96
Attachment A
SECTION 8. DELIVERY POINTS AND OTHER FACILITIES
(A) The service specifications for each Delivery Point shall be as
prescribed in the corresponding Delivery Point Specification Sheet.
(B) For each Delivery Point, the Customer shall provide, free of cost
to the Authority, a suitable site on the premises for the installation by the
Authority of equipment for rendering service hereunder. The Customer shall also
provide for the safekeeping of this equipment and shall not permit anyone other
than authorized employees and agents of the Customer and employees and agents
of the Authority to have access thereto.
(C) The Customer hereby grants to the Authority for the entire term
of this contract, free of cost, the right to construct, operate and maintain on
property owned, leased or controlled by the Customer, a poles, conductors,
appurtenances and equipment whatsoever reasonably necessary or desirable for
supplying service hereunder to each Delivery Point. The Authority shall also
have a rights of access to said property reasonably necessary or desirable for
the aforesaid purposes and the right to remove all or any portion of the
Authority's property at any time during the term of this contract or within a
reasonable time thereafter. All property, structures and facilities erected by
the Authority on property of the Customer are recognized and agreed by the
parties to be removable trade fixtures, which shall be and remain personal
property of the Authority whether affixed to the realty or not.
(D) Employees of the Authority shall be allowed access to the service
installation site at all reasonable hours for the purpose of reading the
metering instruments, inspecting the property of the Authority, removing such
property, and for other purposes incident to the supplying of service to the
Customer.
(E) All electrical facilities used or constructed by the Customer
must conform to accepted modern practice and to applicable state and local
requirements and must conform to the requirements of the National Electrical
Safety Code and National Electrical Code.
(F) All facilities on the Customer's side of each Delivery Point
shall be considered the system of the Customer, shall be paid for by the
Customer, and shall be installed, operated, and maintained by the Customer at
the Customer's expense; provided, that (i) the Authority's metering equipment,
if any, located on the Customer's side of a Delivery Point will be owned,
installed, operated, and maintained by the Authority; and (ii) the Authority
shall have the right, at the Authority's option, to install and/or maintain such
other facilities on Customer's side of a Delivery Point as the Authority may
elect in the interests of system reliability.
(G) The Customer shall not utilize, or allow to be utilized, any
equipment, appliance, or device that tends to unreasonably adversely affect the
system of the Authority. The Customer shall maintain a reasonable electrical
balance between the phases at each Delivery Point.
(H) The Customer shall install and maintain suitable protective
devices on the Customer's system in order to afford reasonably adequate
protection to the facilities of the Authority against adverse conditions or
disturbances originating on Customer's system. Such protective devices shall be
in accordance with the applicable industry standards relating to such equipment
and with such other requirements as the Authority may reasonably deem
necessary.
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<PAGE> 16
Rate Schedule L-96
Attachment A
(I) The Authority shall install, own, operate, and maintain all lines
and equipment located on the Authority's side of each Delivery Point, as well
as the meter and metering equipment and, if applicable, any backup meter and
metering equipment that may, at the Authority's option, be located on
Customer's side of each Delivery Point. In such cases, Customer shall provide a
location, acceptable to the Authority, for the installation of such metering
equipment.
(J) In the event that the Customer requests the Authority to supply
electricity in a manner requiring facilities in addition to or different from
those normally provided by the Authority, the Authority will provide such
facilities on the Authority's side of the Delivery Point, if practical to do
so, provided the following conditions are met and a new Delivery Point
Specification Sheet for such Delivery Point is executed to reflect these
conditions:
1) The Customer requesting the facilities shall
submit a detailed written request to the
Authority specifying the type and kind of
facilities;
2) The facilities are of a kind and type used by, or
acceptable to, the Authority and are, installed
in a place and in a manner acceptable to the
Authority; and
3) The Customer agrees, in the Delivery Point
Specification Sheet for the subject Delivery
Point, to pay to the Authority the cost of the
facilities prior to their installation or, at the
Authority's sole option, appropriate Monthly
Facilities Charges in lieu thereof, in addition
to the other charges recoverable under Schedule
L.
(K) In the event that the Customer's contract demand(s) under
Schedule L (including any applicable riders thereto) is (are) reduced, nothing
herein shall be construed as restricting the right of the Authority to change or
reduce accordingly the capacity of the Authority's facilities serving the
Customer.
(L) The Delivery Point Specification Sheet for each Delivery Point
shall set forth appropriate provisions concerning the installation and
maintenance of the Delivery Point and shall provide for adequate compensation
to the Authority on termination of the Delivery Point by the Customer.
SECTION 9. INTERRUPTION OF SERVICE
(A) The Authority win make reasonable provisions to ensure
satisfactory and continuous service but does not guarantee a continuous supply
of electrical energy and shall not be liable for damage occasioned by
interruptions of service or failure to commence delivery caused by an act of
God, or the public enemy, or for any cause reasonably beyond the Authority's
control, including, but not limited to, the failure or breakdown of generating
or transmitting facilities, floods, fire, strikes or action or order of any
agency having jurisdiction over the premises, or for interruptions that the
Authority deems necessary for the inspection of, repair to, or changes to the
Authority's facilities.
(B) Nothing herein shall be construed as restricting in any way the
Authority's right to interrupt service to the Customer as the Authority may
deem necessary or appropriate to facilitate inspection of, repair to, or
changes to the Authority's facilities consistent with Prudent Utility Practice;
provided, however, that the Authority shall use its reasonable best efforts,
when practicable, to provide the Customer with advance notice of such
interruptions and to coordinate with the Customer the times of such
interruptions. In any event, failure of the Authority and the Customer to agree
upon the time of such an interruption shall not restrict the Authority from
proceeding therewith as the Authority deems necessary.
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<PAGE> 17
Rate Schedule L-96
Attachment A
(C) The Customer shall provide written notification the Authority
immediately of any defects, trouble or accident which may in any way affect the
delivery of power by the Authority to the Customer.
(D) Notwithstanding any provisions of Schedule L to the contrary, the
Customer shall not be liable for any charges under this Schedule for any period
during which he is unable to accept electric service due to strikes, fire,
floods, or act of God or the public enemy.
(E) Both the Customer and the Authority shall use all due diligence
in removing any causes which prevent the delivery or use of electrical power
and energy hereunder.
(F) Any claims against the Authority resulting from an interruption
of service shall be governed by the terms, conditions and limitations of the
South Carolina Tort Claims Act, and any recovery in such claim shall not
include indirect or consequential damages.
SECTION 10. INDEMNITY
All electrical power and energy provided for hereunder shall be the
property of the Customer upon passing the Delivery Point(s) and the Customer
shall have sole responsibility for the use, misuse or presence of said power
and energy on the Customer's side of the Delivery Point(s). The Customer will
indemnify and hold the Authority harmless from all claims, loss or expense
arising from, or in any way connected with, the presence, use or misuse of
electrical power and energy on the Customer's side of the Delivery Point(s).
SECTION 11. DETERMINATION OF CONTRACT DEMANDS
The maximum amount, or amounts, of electric power and energy that the
Authority agrees to sell, and that the Customer agrees to purchase at each
Delivery Point (the Customer's "Contract Demand(s)") initially shall be set
forth in the Delivery Point Specification Sheet for such Delivery Point. The
initial establishment of, and subsequent changes to, such Contract Demand(s)
shall be made only pursuant to the applicable provisions of Schedule L;
provided, however, that the Authority reserves the right to require, for any
Customer or potential Customer having a load of greater than 100,000 kW, notice
requirements for changes in that Customer's Contract Demands(s) longer than
those set forth in Schedule L.
SECTION 12. TERM OF CONTRACT
(A) The Service Agreement, terminating on its effective date all
prior agreements between the parties, shall become effective on the date
specified therein, and shall remain in effect for an initial term of five (5)
years, and thereafter for additional terms of two (2) years such, unless
terminated by written notice of such intention from either party to the other
at least one (1) year prior to the expiration date of the initial term or
subsequent term; provided, however, that in no event shall the Service
Agreement expire prior to (i) the expiration of the initial term as outlined
above, or (ii) the reduction of the Customer's Contract Demand(s) to zero in
the manner or manners specified in Schedule L. Nothing herein contained shall
in any way bar the right of the Authority to collect any sums due it at the
termination of the prior agreements.
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<PAGE> 18
Rate Schedule L-96
Attachment A
If the Customer discontinues operations prior to the expiration of
the initial term of the Service Agreement, or any subsequent term, or defaults
under this Service Agreement in any respect and the Authority terminates the
Service Agreement as a result of such default, the Customer agrees to pay to
the Authority, on demand, a sum equal to the cumulative total of the Minimum
Monthly Bills, as determined under Schedule L, for the remainder of the term of
the Service Agreement, or any subsequent term.
(B) "Contract Year shall" be a twelve-month period beginning on the
earlier of (i) the anniversary of the date service is initiated or (ii) the
anniversary of the effective date of the Service Agreement.
(C) Schedule L and these General Terms and Conditions may be amended
or revised by the Authority from time to time, in whole or in part, to reflect
changed conditions, and when so amended or revised shall become effective as to
all customers receiving service hereunder.
SECTION 13. WAIVER
Any failure at any time by the Authority or the Customer to enforce a
provision of Schedule L, these General Terms and Conditions, or the Service
Agreement, shall not constitute a waiver by such party of said provision.
SECTION 14. OTHER CONTRACTS
(A) Notwithstanding any other provision of Schedule L or these
General Terms and Conditions to the contrary, an existing contract between the
Authority and a Customer for the provision of service to such Customer pursuant
to the Authority's Large Light and Power Rate Schedule that is in effect on the
effective date of these General Terms and Conditions shall continue in full
force and effect until its expiration. Such existing contract shall be deemed
to constitute the Service Agreement between the Customer and the Authority
hereunder until its expiration. ln the event any provision of these General
Terms and Conditions or Schedule L conflicts with a provision of such existing
contract, the provision of the contract shall prevail.
(B) Upon the expiration of an existing contract between a Customer
and the Authority, as described in the foregoing paragraph, continued service
to such Customer shall be wholly subject to Schedule L and these Terms and
Conditions.
(C) The establishment of a new Delivery Point, or the substantial
modification of an existing Delivery Point, for a Customer having an existing
contract, as described in the foregoing two paragraphs, shall require the
termination of such existing contract and the execution of a new Service
Agreement of the form specified in Exhibit I hereto.
(D) The terms and conditions of service to a Customer at a Delivery
Point or Delivery Points under any rate schedule(s) or contract(s) other than
Schedule L shall be unaffected by the terms of Schedule L and these General
Terms and Conditions and shall be governed solely by the terms of such other
rate schedule(s) or contract(s). The terms and conditions and service to each
Delivery Point pursuant to Schedule L shall be governed solely by the
provisions of Schedule L and these General Terms and Conditions and shall be
unaffected by service, if any, to a Delivery Point or Delivery Points under any
other rate schedule(s) or contract(s) between the Customer and the Authority.
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<PAGE> 19
Rate Schedule L-96
Attachment A
(E) Acceptance of service under Schedule L without the benefit of an
executed Service Agreement or another formal, written contract between the
Customer and the Authority will bind the Customer to all terms and conditions
of Schedule L and these General Terms and Conditions the same as if a formal
written contract had been executed. In such event, all obligations hereunder
shall begin on the date of such acceptance of service and shall continue for an
initial term of five (5) years and thereafter for additional terms of two (2)
years each, unless and until terminated at the end of such initial term or any
additional term by no less than one (1) year's advance written notice of
termination from either party to the other.
Adopted January 22, 1996
-----------------------------------------
Effective for service rendered on and after
April 1, 1996.
Supersedes:
Schedule L-95, Attachment A, Effective April 1, 1995
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<PAGE> 20
L-97-SP
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
LARGE LIGHT AND POWER
CURTAILABLE SUPPLEMENTAL POWER
RIDER L-97-SP
------------------------------
SECTION 1. AVAILABILITY:
Service hereunder, "Supplemental Power Service," shall be available
to those customers meeting the availability requirements of the Authority's
Large Light and Power Rate Schedule ("Schedule L"), to which this Rider is
attached and made a part of; provided, however, that in order to receive
service hereunder, each such customer (hereinafter, the "Customer") shall have
(i) requirements for service hereunder of at least 10,000 kW, and (ii) a Firm
Power Contract Demand that is at least 30,000 kW and at least twenty-five
percent (25%) of the sum of all of that Customer's contract demands under
Schedule L. In addition, service hereunder shall be available only upon prior
written agreement between the Authority and the Customer. The total amount of
additional Supplemental Power available to all customers of the Authority
changes from time to time; the Authority will, prior to January 1 of each year,
determine such total additional amount to be available during that year and
allocate such amount to individual customers on a first-come, first-served
basis.
SECTION 2. CHARACTER OF SERVICE:
(A) Supplemental Power Service hereunder shall be electric power and
energy of the same general characteristics as described in the Authority's
Large Power and Light Rate Schedule which (i) are in excess of the Customer's
Firm Contract Demand and (ii) are curtailable by the Authority and the Customer
in accordance with the provisions of this Rider L-97-SP.
(B) Subject to the provisions of Section 4 hereof, the Authority
shall undertake to serve the Customers Supplemental Power requirements, up to
the then-current level of the Customer's Supplemental Power Contract Demand,
with the same level of reliability it provides to its other non-interruptible
customers. In no event, however, shall the Authority have any obligation
whatsoever to supply power and energy in an amount exceeding the sum of the
Customer's then-current Firm Contract Demand pursuant to the Authority's Large
Light and Power Rate Schedule, the Customer's contract demands under other
applicable riders thereto, if any, and the Customers' Supplemental Power
Contract Demand. If, at any time, the Customer allows its total load to exceed
the sum of such contract demands, the Authority shall have the right, at the
Authority's sole discretion, to either (a) serve such excess and, pursuant to
Section 5 hereof, charge the Customer for such service under the Authority's
then-applicable Large Light and Power Rate Schedule, or (b) take whatever steps
as may be reasonably necessary, including discontinuing all service to the
Customer, to effect a reduction in service to the Customer to a level not
exceeding such sum of the Customer's contract demands.
SECTION 3. MONTHLY BILLING RATES:
The charges for service hereunder shall consist of the following:
(A) Demand Charge:
The monthly Demand Charge for Supplemental Power Service shall be
calculated by multiplying the Customer's then-current Supplemental Power Billing
Demand by the then-applicable Monthly Supplemental Power Demand Rate, to wit:
(1) Prior to January 1, 2000:
$5.60 per kilowatt of the Customer's Supplemental Power Billing
Demand
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<PAGE> 21
L-97-SP
(2) For the period beginning January 1, 2000 and extending
until the Authority modifies such rate:
$3.00 per kilowatt of the Customer's Supplemental Power
Billing Demand
(B) Energy Charge:
The monthly Energy Charge for Supplemental Power Service shall be
calculated by multiplying the total amount of kilowatt-hours of Supplemental
Power delivered to the Customer during the current Billing Month by the Monthly
Supplemental Power Energy Rate for such mouth. The Monthly Supplemental Power
Energy Rate for a month shall be the sum of (i) the Authority's Average Monthly
Fossil Fuel Cost Rate, as hereinafter defined, and (ii) a Non-Fuel Energy Rate
of 0.228 cents/kWh.
The Authority's Average Monthly Fossil Fuel Cost Rate for each month
shall be determined by the following formula:
F = 100 * (Fm/Gm) * (l(l-K)) * (l/(l-L))
where:
F = Average Monthly Fossil Fuel Cost Rate in cents per kilowatt-hour,
rounded to the nearest one-thousandth of a cent.
Fm = the Authority's total dollar fossil fuel cost for the current
month, which shall be equal to the sum of:
(a) the cost of fossil fuel burned or used in the Authority's own
plants and the Authority's share of fossil fuel burned or used
in jointly owned or leased plants as such costs are recorded in
Accounts 501, 509, and 547; plus
(b) the net energy cost of energy purchases, exclusive of capacity
or demand charges (irrespective of the designation assigned to
such transaction), when such energy is purchased on an economic
dispatch basis. Included therein may be such costs as the
charges or economy energy purchases and the charges as a result
of scheduled outages, all such kinds of energy being purchased
by the Authority to substitute for its own higher cost energy;
plus
(c) the actual identifiable fossil fuel costs associated with energy
purchased for reasons other than identified in (b) above; less
(d) the cost of fossil fuel recovered through inter-system sales
including, without limitation, the fuel cost related to economy
energy sales and other energy sold on an economic dispatch
basis.
Gm = the Authority's fossil net generation, in kilowatt-hours, for
the current month, which shall be equated to the sum of:
(a) the net generation of the Authority's own fossil-fueled plants
and the Authority's shares of jointly owned or leased
fossil-fueled plants; plus
(b) interchange in; plus
(c) the fossil-generated energy purchased by the Authority other
than interchange; less
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<PAGE> 22
L-97-SP
(d) the net fossil-fueled generation associated with enter-system
sales refereed to Fm(d) above.
K = the Authority's allowance for capital improvements, which, for
purposes of this Rider, shall be eight and one-half percent
(8.5%), expressed as a decimal fraction.
L = the Authority's allowance for transmission and distribution
system losses applicable to service to the Customer, expressed
as a decimal fraction.
(C) Other Costs:
The Customer shall also pay the Authority monthly for such other
costs as the Customer is responsible in accordance with the provisions of
Section 4 hereof.
SECTION 4. SUPPLEMENTAL POWER CONTRACT DEMAND:
(A) General
The Customer's Supplemental Power Contact Demand shall be the
maximum amount of Supplemental Power, in kilowatts, which the Customer has
requested and the Authority has agreed to supply. The Customer's Supplemental
Power Contract Demand initially shall be specified in the Customer's Service
Agreement and, thereafter, may be changed from time to time in accordance with
the provisions of this Section 4.
(B) Curtailment by Authority
(1) The Authority shall, upon not less than six months' prior
written notice to the Customer, have the right to interrupt or call for
curtailment of either all or a portion of the Customer's use of Supplemental
Power Service, either permanently or for a period of not less than twelve (12)
months in duration. Any such notice of curtailment by the Authority hereunder
shall set forth the amount and time period of the curtailment and shall also
set forth a price or prices at which the Authority would be willing to continue
serving the Customer hereunder in lieu of the noticed curtailment.
(2) In the event that the Authority shall have given such a
notice of curtailment to the Customer:
(a) The Customer's Supplemental Power Contract Demand
shall, during the period of the noticed curtailment, be
deemed to be reduced to the level set forth in
Authority's notice, which may be zero.
(b) The Authority may extend the period of a
curtailment in increments of at least one month, in
each case by giving the Customer at least six
months' prior written notice; provided, however, that
such extensions in the aggregate shall not extend the
originally noticed period of curtailment by more than
six months.
(c) Notwithstanding any provision of Schedule L to the
contrary, the Customer shall have the right, within the
time periods specified in this subparagraph, to request
that the Customer's Firm Power Contract Demand under
Schedule L be increased, during the period of
curtailment, by an amount up to the amount of
curtailment called for by the Authority hereunder, in
order that some or all of the power and energy that the
Customer would have purchased hereunder as Supplemental
Power but for the curtailment instead be purchased from
the Authority as Firm Power under Schedule L. The time
by which such a request must be given shall be sixty
(60) days from receipt by the Customer of the
Authority's notice; provided, however, that in no event
shall such request be required to be given more than
twenty-two (22) calendar months' prior to the beginning
of the noticed curtailment period.
-3 -
<PAGE> 23
Any increase in Firm Power Contract Demands hereunder shall be
only for the months in the Customer's request and
notwithstanding any provision of Schedule L to the contrary, the
Customer's Firm Power Contract Demand for all other months shall
not be increased as a result of such notice and such notice
shall not cause the Customer to pay any increased demand charge
or any other increased billing charge for any months other than
the months in the Customer's notice that would not have been
payable absent such notice.
(d) By providing prior written notice to the Authority within sixty
(60) days of receiving the Authority's notice of curtailment,
the Customer may elect to purchase replacement power from the
Authority to replace some or all of the Supplemental Power that
the Customer otherwise would have purchased from the Authority
hereunder but for the noticed curtailment elect to continue
purchasing Supplemental Power and pay for such replacement power
at the aforementioned alternative price or prices set forth in
the Authority's notice during the period of the curtailment.
Each such notice by the Customer shall set forth (i) the maximum
amount of such replacement power, in kW the Customer desires to
purchase from the Authority during the period of curtailment,and
(ii) the Customer's agreement to pay for such replacement power
at the aforementioned alternative price or prices set forth in
the Authority's notice of the curtailment.
(e) By providing prior written notice to the Authority within sixty
(60) days of receiving the Authority's notice of curtailment,
the Customer my elect to have the Authority purchase for the
Customer's account replacement power from another source
selected by the Customer and deliver such replacement power to
the Customer over the Authority's transmission system, provided
that (i) sufficient transmission capacity is available and (ii)
the terms and conditions of such purchase are not unreasonable
to the Authority. Each such notice by the Customer shall set
forth (i) the maximum amount of such replacement power, in kW,
the Customer to purchase during the period of curtailment, and
(ii) the Customer's agreement to pay the Authority for (a) all
costs of purchasing such replacement power, and (b) any
applicable charges for associated transmission services
(including ancillary services) and any applicable stand-by
services pursuant to then-effective rate schedules of the
Authority for such services.
(f) The Customer may replace some or all of the Supplemental Power
that the Customer otherwise would have purchased from the
Authority hereunder but for the noticed curtailment with
generation located on the Customer's side of the Delivery Point;
provided, however, that such generation shall not be operated
electrically in parallel with the Authority's system except in
accordance with the applicable provisions of Schedule L.
(g) Notwithstanding the foregoing, in no event shall the Authority
be required to deliver to the Customer at any time an amount of
replacement power hereunder that exceeds amount of the reduction
in the Customer's Supplemental Power Contract Demand.
(C) Curtailment and Increase by Customer
(1) Upon not less than six months' prior written notice to the
Authority, the Customer shall be able to reduce or increase its Supplemental
Power Contract Demand by any amount, either permanently or for a period of not
less than twelve (12) months in duration; provided, however, that no such
increase in the Customer's Supplemental Power Contract Demand shall become
effective without the Authority's approval, which approval shall not be
unreasonably withheld.
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<PAGE> 24
(2) In the event that the Customer shall have given a notice
for such a reduction:
(a) The Customer's Supplemental Power Contract Demand
shall, during the period of the noticed reduction, be
deemed to be reduced to the level set forth in
Customer's notice, which may be zero.
(b) The Customer may extend the noticed period of
reduction in Supplemental Contract Demand in
increments of at least one month, in each case by
giving the Authority at least six months' prior
written notice; provided, however, that such
extensions in the aggregate shall not extend the
originally noticed period of reduction by more than
six months.
(c) The Customer may replace the power that the Customer
otherwise would have purchased from the Authority
hereunder but for the noticed reduction by the
Customer in the Customer's Supplemental Power Contract
Demand through generation located on the Customer's
side of the Delivery Point; provided, however, that
such generation shall not be operated electrically in
parallel with the Authority's system except in
accordance with the applicable provisions of Schedule
L.
SECTION 5. SUPPLEMENTAL POWER BILLING DEMAND:
(A) The Customer's Supplemental Power Billing Demand hereunder shall
be equal to the Customer's Supplemental Power Contract Demand.
(B) In the event the Customer's Measured Demand exceeds the sum of
the Customer's Firm Contract Demand pursuant to the Large Light and Power Rate
Schedule, the Customer's contract demands under other applicable riders
thereto, if any, and the Customer's Supplemental Power Billing Demand
hereunder, such excess shall be treated as "Excess Demand" in accordance with
Section 14 (Additional Loads) of the Large Light and Power Rate Schedule.
SECTION 6. OTHER TERMS AND CONDITIONS:
(A) This Rider L-97-SP may be amended or revised by the Authority
from time to time, in whole or in part, to reflect changed conditions, and when
so amended or revised shall become effective as to all customers receiving
service hereunder.
(B) Except as otherwise provided in this Rider, service hereunder
shall be subject to all terms and conditions of the then-applicable Large Light
and Power Rate Schedule.
Adopted June 30, 1997
-----------------------------------
Effective for bills rendered on and after
July 1, 1997.
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<PAGE> 25
EXHIBIT 10.01
L-96-1
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
LARGE LIGHT AND POWER
INTERRUPTIBLE SERVICE
RIDER L-96-l
Section 1. Availability:
(A) Service hereunder, "Interruptible Power", is available to
Customers meeting the availability requirements of the Authority's Large Light
and Power Rate Schedule L-96 or its successor (hereinafter, "Schedule L"), to
which this Rider L-96-l is attached and made a part of. In addition, service
hereunder shall be available only to specified Delivery Points upon a prior
written agreement between the Authority and the Customer with respect to each
such Delivery Point, in the form of an appropriate Delivery Point Specification
Sheet attached to the Service Agreement between the Customer and the Authority.
(B) In order to receive service under this Rider L-96-l, the sum of
the Customer's Contract Demands under this Rider L-96-l plus the Customer's
Firm Contract Demand must equal or exceed 1,000 kW.
(C) The total amount of Interruptible Power available to all customers
changes from time to time and the availability of such power hereunder is
strictly subject to the provisions of this Rider L-96-l, including, without
limitation, Section 4(B)(4) hereinbelow.
Section 2. Character of Service:
(A) Interruptible Power hereunder shall be electrical power and energy
of the same general characteristics as described in Schedule L that (i) is in
excess of Firm Power purchased by the Customer under Schedule L and Supplemental
Power, if any, purchased by the Customer under Rider L-94-SP, and (ii) is
interruptible or curtailable by the Authority in accordance with the following
terms of this Rider.
(B) The Authority shall have the right, at any time or times and for
any reason or reasons, to interrupt or call for curtailment of all or part of
the Interruptible Power, provided that the total aggregate duration of such
interruptions or curtailments shall not exceed 400 hours, nor occur in more
than 60 days, in any calendar year and, provided further, that the number of
such interruptions or curtailments shall not exceed two (2) in any calendar day
nor aggregate more than twelve (12) hours in any calendar day or forty-eight
(48) hours in any calendar week (Monday through Sunday). The Authority shall
from time to time establish operational guidelines which state the
conditions/circumstances under which calls for curtailment may be made. Such
operational guidelines shall be published, and available for review, at the
Authority's offices.
(C) When the Authority wishes to interrupt or curtail the Customer's
Interruptible Power as provided herein, the Authority shall give notice thereof
to the Customer by telephone or by such other means as the Authority may from
time to time designate. Each such notice shall specify a demand level, which
may be zero, to which the Customer's use of Interruptible Power is to be
limited and the time period (hereinafter, a "Curtailment Period") to which such
limitation is to apply. After receiving such a notice, the Customer shall,
except as otherwise provided herein, limit the Customer's use of Interruptible
Power during the Curtailment Period to which the notice applies, to the level
specified by the Authority. Each such notice shall be deemed received by the
Customer if the Authority shall have issued or attempted to issue that notice.
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<PAGE> 26
L-96-1
(D) The Authority will give as much advance notice as practicable of
probable curtailments and, whenever possible, a notice of at least two and
one-half (2 1/2) hours. The final scheduling of curtailments by the Authority
will be postponed as long as practicable in order to minimize their occurrence
and duration. Each notice issued by the Authority may be withdrawn or modified
prior to the beginning of the potential Curtailment Period to which it applies.
Such withdrawal or modifications shall be issued to the Customer by the same
means as the original notices. Notices, if and to the extent so modified, shall
be deemed to establish final Curtailment Periods and demand limitations.
Notices withdrawn prior to the beginning of their respective Curtailment
Period shall be without any further force or effect. The Authority shall
confirm final notices of curtailment by subsequent letter to the Customer as
soon as reasonably practicable after the end of the respective Curtailment
Periods.
(E) After a notice of curtailment shall have been issued by the
Authority, the Customer shall have the right to exceed the demand limitation
set forth in the notice if, and only if, (i) the Customer makes a request to do
so prior to the beginning of the Curtailment Period to which the notice applies
and the Authority, in its sole judgement, determines that it can supply the
requested excess, and (ii) the Customer agrees to pay for such excess at the
price(s) quoted by the Authority in response to such request. The Authority
shall designate in writing from time to time a representative to whom such
requests should be directed, and the Customer shall designate in writing from
time to time a representative of the Customer who is authorized to make such
requests and issue such agreements. Requests that are granted and the
corresponding agreements to pay the quoted prices shall be confirmed in writing
by the Authority as soon as is reasonably practicable after the corresponding
Curtailment Periods have ended. Electrical power and energy purchased by the
Customer pursuant to this paragraph shall be classified as "Secondary Power."
(F) All power and energy used by the Customer during a Curtailment
Period in excess of the demand limitation set forth in the Authority's notice
for such Curtailment Period that is not classified as Secondary Power shall
be classified as Excess Power; provided, however, that the Authority shall be
under no obligation whatsoever to furnish such Excess Power.
Section 3. Monthly Rates and Charges:
For all Interruptible Power provided hereunder, the monthly charge
shall consist of the following charges:
(A) Interruptible Power:
For all services provided hereunder other than Secondary Power and
Excess Power:
(1) Monthly Demand Charge:
(a) All kW of Interruptible Billing Demand @....$6.89/kW.
(b) For each kW of Interruptible Billing Demand, a
charge or credit, if any, determined from time to
time pursuant to the Authority's Demand Sales
Adjustment Clause DSC-96, or its currently
applicable successor clause, if any.
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<PAGE> 27
L-96-1
(2) Monthly Energy Charge:
(a) Base Energy Charge:
All kWh @................................$0.0219/kWh.
(b) Fuel Adjustment Charge:
For each kWh the charge or credit per kWh determined
for the month pursuant to the Authority's Fuel
Adjustment Clause FAC-96, or its successor clause,
with "F(b)/S(b)" and "K" of the formula in said
clause being equal to $0.0169/kWh and .085,
respectively.
(B) Secondary Power:
The price for Secondary Power used by the Customer in each
Curtailment Period shall be the price quoted by the
Authority for such power and energy as hereinabove described.
Each such quotation shall be based on the Authority's
reasonable best estimate of its incremental costs of
supplying such Secondary Power, plus a margin of 15%. Such
costs may include both demand-related costs and
energy-related costs.
(C) Excess Power:
The price for Excess Power used by the Customer in each
Curtailment Period shall be 200% of the Authority's
reasonable best estimate of its incremental cost (including
opportunity costs) of supplying such Excess Power. Such
incremental costs may include both demand-related and
energy-related costs.
In addition, whenever the Customer shall have used Excess
Power during a Curtailment Period, the provisions of Section
4(C) below shall apply.
Section 4. Determination of Demands:
(A) Interruptible Billing Demand
The Customer's Interruptible Billing Demand for each Billing
Month shall be the amount, if any, by which the Customer's Measured Demand for
such month, determined pursuant to Section 4(B) of Schedule L, exceeds the sum
of (i) the Customer's then-current Firm Contract Demand, under Schedule L, (ii)
the Customer's then-current Supplemental Power Contract Demand, if any, under
Rider L-94-SP, and (iii) the Customer's Off-Peak Power Billing Demand, if any,
under Rider L-96-OP; provided, however, that in no event shall such
Interruptible Billing Demand be (i) less than 80% of the Customer's then
current Interruptible Contract Demand, nor (ii) greater than the Customer's
Interruptible Contract Demand.
(B) Interruptible Contract Demand
(1) Except as otherwise provided herein, the Customer's
Interruptible Contract Demand shall be the maximum amount of Interruptible
Power, in kilowatts, that the Customer has requested and the Authority has
agreed to supply, as evidenced in the Delivery Point Specification Sheet for
which the Delivery Point that is attached to, and a part of, the Service
Agreement between the Customer and the Authority.
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<PAGE> 28
L-96-l
(2) The Customer may reduce its Interruptible Contract Demand
for a Delivery Point, for any twelve month period and subsequent twelve month
periods, by providing prior written notice of such reduction to the Authority
at least one year prior to the beginning of the first period to which the
notice applies; provided, however, that (i) no such reduction shall become
effective before the fifth anniversary of the Service Agreement between the
Customer and the Authority, and provided further that (ii) the greatest amounts
of such reductions shall be as follows:
(a) For the first twelve month period to which such notice
applies, the maximum reduction shall be the greater of
5,000 kW or 25% of the Interruptible Contract Demand for
such year.
(b) For the second succeeding twelve month period, the maximum
reduction shall be the greater of 10,000 kW or 50% of the
Interruptible Contract Demand for such year.
(c) For the third succeeding twelve month period, the maximum
reduction shall be the greater of 15,000 kW or 75% of the
Interruptible Contract Demand for such year.
(d) For the fourth and subsequent twelve month periods,the
maximum reduction shall be 100% of the respective
Interruptible Contract Demand(s) for such years.
Notices of such reductions in the Customer's Interruptible
Contract Demand shall be irrevocable once given.
(3) The Customer's Interruptible Contract Demand, once
established or reduced, may be increased only by mutual agreement between the
Authority and the Customer evidenced by the execution of a new, revised
Delivery Point Specification Sheet for the Delivery Point to which the increase
is to apply. The Authority shall be under no obligation to agree to any such
increase but shall give good faith consideration to each such request. In such
an event, the Authority may require additional special terms and conditions
applicable to service to the Customer be included in the aforementioned new
Delivery Point Specification Sheet.
(4) The total amount of Interruptible Power available for
sale to all customers changes from time to time. In initially determining the
amount of Interruptible Power, if any, to provide a Customer and/or in
determining the amount, if any, by which a Customer's Interruptible Contract
Demand may be increased, the Authority shall take into account the total
amount of such Interruptible Power it reasonably expects to be available and
its prior commitments for sales of such power. If, and to the extent that, the
Authority thus determines it can make additional Interruptible Power available
to new Customers and to existing Customers, the Authority shall do so on a
first-come, first-served basis.
(C) Excess Demands
(1) In the event the Customer's use of service during any
Curtailment Period exceeds the demand level established by the Authority for
such Curtailment Period, the Customer's Interruptible Contract Demand shall
be reduced, and the Customer's Firm Contract Demand shall be increased, by the
greatest 30-minute integrated demand of such excess. In such event, such
reduction and such increase each shall apply for the current Billing Month and
the subsequent eleven (11) Billing Months.
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<PAGE> 29
L-96-I
(2) Notwithstanding the foregoing or any other
provision of this Rider L-96-I, Schedule L, or the General Terms and
Conditions attached thereto, the Authority shall be under no obligation
whatsoever to supply demands in excess of the demand level established by the
Authority during a Curtailment Period, and nothing herein shall be
construed as restricting the right of the Authority to take such steps as the
Authority may deem necessary, including without limitation complete
interruption of service to the Customer, to limit the Customer's demand so as
not to exceed such demand level.
Section 5. Other Terms and Conditions:
Service under this Rider L-96-I, is subject to the terms of
the currently effective Schedule L, the currently effective General Terms and
Conditions attached thereto, and the Service Agreement between the Customer and
the Authority.
Adopted January 22, 1996
--------------------------------------------------
Effective for service rendered on and after April 1, 1996.
Supersedes:
Schedule L-95-I, Effective April 1, 1995
-5-
<PAGE> 30
FAC-96
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
FUEL ADJUSTMENT CLAUSE
FAC-96
Applicability:
This Fuel Adjustment Clause is applicable to and becomes a
part of each of the Authority's published rate schedules that so specify.
Adjustment of Bills:
Each monthly bill, computed under the appropriate rate
schedule, will be increased or decreased by an amount equal to the result of
multiplying the measured or used kWh by the factor F, determined as follows:
F = ( F(m)/S(m) - F(b)/S(b) ) x ( 1 / 1-K )
Where:
1. F = Adjustment factor in dollars per kWh rounded to the
nearest one-thousandth of a cent.
2. F(m) = Total fuel cost for the three preceding months,
consisting of the costs of:
a. fossil and nuclear fuel consumed in the Authority's
own plants and the Authority's share of fossil and
nuclear fuel consumed in jointly owned or leased
plants, plus
b. the actual identifiable fossil and nuclear fuel
costs associated with energy purchased for reasons
other than identified in (c) below, plus
c. the net energy cost of energy purchases, exclusive
of capacity or demand charges (irrespective of the
designation assigned to such transaction), when such
energy is purchased on an economic dispatch basis.
Included therein may be such costs as the charges
for economy energy purchases and the charges as a
result of scheduled outage, all such kinds of energy
being purchased by the Authority to substitute for
its own higher cost energy; and less
d. the cost of fossil and nuclear fuel recovered
through inter-system sales and non-firm intra-system
sales (Economy Power, Secondary Power, Curtailable
Supplemental Power), including the fuel costs
recovered through economy energy sales and other
energy sold on an economic dispatch basis.
3. S(m)= kWh sales which shall be equated for the three
preceding months to the sum of (i) generation, (ii)
purchases, (iii) interchange in, less (iv) energy
associated with pumped storage operations, less (v)
sales referred to in F(m) (d) above, less (vi)
average annual power supply transmission losses in
decimal form times the net sum of (i), (ii), (iii),
(iv), and (v) in this definition of S(m).
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<PAGE> 31
FAC-96
4. F(b)/S(b) = $0.0169
Where:
a. F(b) = Total estimated fuel cost in the
base period.
b. S(b) = Total estimated kWh sales for the base
period.
5. K = Allowance for capital improvements and distribution
losses, as set forth in each rate schedule to which
this Clause applies.
Adopted January 22, 1996
---------------------------------------------------
Effective for service rendered on and after April 1, 1996.
Supersedes:
Schedule FAC-94, Effective April 1, 1994
-2-
<PAGE> 32
DSC-96
SOUTH CAROLINA PUBLIC SERVICE AUTHORITY
(SANTEE COOPER)
DEMAND SALES ADJUSTMENT CLAUSE
(DSC-96)
Section 1. Purpose:
The purpose of this Clause is to credit the Authority's firm-
requirements customers with appropriate shares of the demand-related or
capacity-related revenues, if any, obtained by the Authority through Non-Class
Sales, to the extent that such sales may not be reflected in the currently
effective rates for such firm-requirements customers. As used herein,
"Non-Class Sales" consist of (i) off-system, inter-utility sales, and (ii)
non-firm, non-requirements, on-system sales (such as sales of Interruptible
Power, Off-Peak Power, Standby Power, and Supplemental Curtailable Power
pursuant to the Authority's Large Light & Power Rate Schedule and the currently
effective riders thereto).
Section 2. Applicability:
The Demand Sales Adjustment Clause is applicable, to and
becomes a part of, all of the Authority's published rate schedules that so
specify.
Section 3. Adjustment of Bills:
Each customer's current monthly bill, as computed under the
appropriate rate schedule, will be decreased (or, when applicable, increased)
by an amount equal to the result of multiplying (i) the appropriate rate "D"
(as defined below), times (ii) either (a) in the case of each Large Light &
Power ("Industrial") customer, that customer's current Firm Billing Demand,
or (b) in the case of each Municipal Light & Power ("Municipal") customer,
that customer's current Billing Demand, or (c) in the case of each other type
of customer ("Distribution Service" customers), the total billed kWh of energy
for the period to which the bill applies.
The rate D shall, for each respective customer class, be
determined as follows:
D = (R(m) - R(b)) / B(m)
Where:
D = The adjustment rate factor, in dollars per kW for
Industrial and Municipal customers and in dollars
per kWh for Distribution Service customers, in each
case, rounded to the nearest one-thousandth of a
cent.
R(m) = The total revenues from Non-Class Sales for the
preceding month allocated to the customer class
(Industrial, Municipal, or Distribution Service),
based on the projected average twelve-month class
coincident peak demand contributions for the current
calendar year, as set forth in the Authority's then
most recently adopted load forecast.
R(b) = The allocated revenues from Non-Class Sales,
reflected in the currently effective rate(s) for the
customer, which shall, for purposes of this Clause,
be the following amounts:
(1) For Industrial customers: $306,200
per month beginning April 1, 1996.
-1-
<PAGE> 33
DSC-96
(2) For Municipal customers: $26,000
per month beginning April 1, 1996.
(3) For Distribution Service
customers: $470,100 per month
beginning April 1, 1996.
B(m) = The projected total billing units for the customer
class to which the adjustment rate factor, D, is to
apply, for the current month, in kW for Industrial
and Municipal customer classes and in kWh for
Distribution Service customer classes.
Adopted January 22, 1996
---------------------------------------------------
Effective for service rendered on and after April 1, 1996.
Supersedes:
Schedule DSC-94, Effective April 1, 1994
-2-
<PAGE> 1
EXHIBIT 10.02
ELECTRIC SERVICE AGREEMENT
BETWEEN
EASTALCO ALUMINUM COMPANY
AND
THE POTOMAC EDISON COMPANY
---------------------------------
DATED NOVEMBER 11, 1994
<PAGE> 2
ELECTRIC SERVICE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS ......................................................... 1
2. TERM OF AGREEMENT..................................................... 1
3. SALE AND PRICE OF SYSTEM CAPACITY..................................... 2
3.1. SALE OF SYSTEM CAPACITY ......................................... 2
3.2. PRICE OF SYSTEM CAPACITY ........................................ 2
3.2.1. CAPACITY CHARGE .......................................... 2
3.2.2. BILLING CAPACITY ......................................... 2
3.3. REACTIVE KILOVOLT-AMPERE CHARGE ................................. 3
3.4. UNDERMODULATION CHARGE .......................................... 4
3.4.1. DETERMINATION OF UNDERMODULATION CHARGE .................. 4
3.4.2. DETERMINATION OF LOAD MODULATION ......................... 4
3.4.3. BILLING OF UNDERMODULATION CHARGE ........................ 4
4. SALE AND PRICE OF ENERGY ............................................. 4
4.1. SALE OF CONTRACT ENERGY ......................................... 4
4.2. SYSTEM ENERGY ................................................... 4
4.2.1. DEFINITION OF SYSTEM ENERGY .............................. 4
4.2.2. PRICE OF SYSTEM ENERGY ................................... 5
4.2.3. OTHER ENERGY RATE COMPONENTS ............................. 5
4.3. PRICE OF OFF-SYSTEM ENERGY ...................................... 6
4.4. PROFIT SHARING SURCHARGE ........................................ 6
4.4.1. PROFIT SHARING RATE ...................................... 6
4.4.2. MAXIMUM PROFIT SHARING RATE .............................. 6
4.4.3. LOWER TRIGGER PRICE ...................................... 6
4.4.4. UPPER TRIGGER PRICE ...................................... 7
5. MINIMUM LOAD CHARGE .................................................. 7
6. SALE OF IDLE CAPACITY ................................................ 8
7. LOAD REDUCTION PERIOD ................................................ 8
7.1. DEFINITION OF LOAD REDUCTION PERIOD ............................. 8
7.2. NOTICE OF REDUCE LOAD ........................................... 9
7.3 OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD ......... 9
8. POTENTIAL PEAK HOURS ................................................. 9
8.1. DEFINITION OF POTENTIAL PEAK HOURS .............................. 9
8.2. NOTICE OF POTENTIAL PEAK HOURS .................................. 10
8.3. LOAD MODULATION ................................................. 10
9. EMERGENCIES .......................................................... 10
9.1. GENERAL EMERGENCIES .................................................. 10
9.1.1. EMERGENCY OPERATIONS .......................................... 10
9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY ................ 11
9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES .............. 11
9.1.4. RESTORATION TO NORMAL OPERATIONS .............................. 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
9.2. FIRM LOAD EMERGENCY ........................................... 11
9.2.1. DEFINITION OF FIRM LOAD EMERGENCY ...................... 11
9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY ..................... 12
9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES .... 12
9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM
ENERGY ................................................. 12
10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES .. 12
10.1. OBLIGATION OF POTOMAC ......................................... 12
10.2. PRICING ....................................................... 13
10.3. INSUFFICIENT POWER ............................................ 13
11. BILLING ............................................................. 13
11.1. INVOICES AND PAYMENT .......................................... 13
11.2. LETTER OF CREDIT .............................................. 14
11.2.1. TERMS OF LETTER OF CREDIT ............................. 14
11.2.2. PAYMENT OF BILLS ...................................... 14
11.3. LATE PAYMENT CHARGES .......................................... 14
11.3.1. LATE PAYMENTS ......................................... 14
12. FORCE MAJEURE ....................................................... 15
12.1. DEFINITION OF FORCE MAJEURE EVENT ............................. 15
12.2. EXCUSE FROM PERFORMANCE ....................................... 15
12.3. NOTICE OF FORCE MAJEURE ....................................... 15
12.4. ELIMINATION OF FORCE MAJEURE .................................. 15
12.5. EXEMPTION DURING FORCE MAJEURE ................................ 15
12.5.1. GENERAL EXEMPTION ..................................... 15
12.5.2. EXEMPTION FOR COAL STRIKE ............................. 16
12.6. ALTERNATIVE POWER DURING FORCE MAJEURE ........................ 16
13. PROVISIONS RELATING TO SERVICE ...................................... 17
13.1. METERING ...................................................... 17
13.1.1. METERING EQUIPMENT .................................... 17
13.1.2. TESTING OF METERS ..................................... 17
13.1.3. INACCURATE METERING ................................... 17
13.2. FACILITIES AND EQUIPMENT ...................................... 18
13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL .................. 18
13.3.1. OWNERSHIP OF FACILITIES ............................... 18
13.3.2. RIGHT OF REMOVAL ...................................... 18
13.4. RIGHTS OF WAY ................................................. 18
13.5. ENTRY OF PREMISES ............................................. 18
13.6. ELECTRICAL REQUIREMENTS ....................................... 19
13.6.1. ELECTRICAL DISTURBANCES ............................... 19
13.6.2. POWER FACTOR .......................................... 19
13.7. RESALE OF POWER ............................................... 19
14. MISCELLANEOUS ....................................................... 19
14.1. JURISDICTION OF REGULATORY AUTHORITIES ........................ 19
14.2. INDEMNIFICATION ............................................... 19
14.2.1. LIABILITY OF THE PARTIES .............................. 19
14.2.2. INDEMNIFICATION BY EASTALCO ........................... 19
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
14.2.3. INDEMNIFICATION BY POTOMAC ........................... 20
14.2.4. ATTORNEY'S FEES ...................................... 20
14.2.5. CONSEQUENTIAL DAMAGES ................................ 20
14.3. TERMINATION .................................................. 20
14.3.1. TERMINATION BY EASTALCO .............................. 20
14.3.2. TERMINATION BY POTOMAC ............................... 21
14.4. ASSIGNMENT ................................................... 21
14.5. AMENDMENT .................................................... 21
14.6. ENTIRE AGREEMENT ............................................. 21
14.7. INTERPRETATION ............................................... 22
14.8. GOVERNING LAW ................................................ 22
14.9. NOTICES ...................................................... 22
14.10. SEVERABILITY ................................................. 22
14.11. CONSTRUCTION ................................................. 23
14.12. WAIVER ....................................................... 23
14.13. THIRD PARTY BENEFICIARIES .................................... 23
14.14. COOPERATION OF THE PARTIES ................................... 23
14.15. APPLICATION FOR CHANGE IN RATES .............................. 23
15. DEFINITIONS ......................................................... 23
15.1. "Actual Cost" ................................................ 24
15.2. "Additional Capacity" ........................................ 24
15.3. "Additional Capacity Charge" ................................. 24
15.4. "Allegheny" .................................................. 24
15.5. "Allegheny System" ........................................... 24
15.6. "Alumax" ..................................................... 24
15.7. "Aluminum Price" ............................................. 24
15.8. "Annual Aluminum Price" ...................................... 24
15.9. "Bank" ....................................................... 24
15.10. "Base Energy" ................................................ 24
15.11. "Base Energy Charge" ......................................... 24
15.12. "Bath County Surcharge" ...................................... 24
15.13. "Billing Capacity ............................................ 25
15.14. "Billing Period" ............................................. 25
15.15. "CAA" and "CAAA" ............................................. 25
15.16. "Capacity Charge" ............................................ 25
15.17. "Capacity Revenues" .......................................... 25
15.18. "Contract Energy" ............................................ 25
15.19. "Effective Cost of Power" .................................... 25
15.20. "Effective Date" ............................................. 25
15.21. "Escalated" .................................................. 25
15.22. "Failure of Service" ......................................... 26
15.23. "Firm Load Emergency" ........................................ 26
15.24. "Force Majeure Event" ........................................ 26
15.25. "General Emergency" .......................................... 26
15.26. "Incremental Energy" ......................................... 26
15.27. "Incremental Energy Charge" .................................. 26
15.28. "Load Modulation" ............................................ 26
15.29. "Load Reduction Period" ...................................... 26
15.30. "Lower Trigger Price" ........................................ 26
15.31. "Material Modification" ...................................... 26
15.32. "Maximum Demand" ............................................. 27
15.33. "Maximum Instantaneous Demand" ............................... 27
15.34. "Maximum Profit Sharing Rate" ................................ 27
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
15.35. "Meters" ..................................................... 27
15.36. "Minimum Load" ............................................... 27
15.37. "Minimum Load Charge" ........................................ 27
15.38. "Monthly Peak" ............................................... 27
15.39. "Off-System Capacity" ........................................ 27
15.40. "Off-System Energy" .......................................... 27
15.41. "Off-System Power" ........................................... 27
15.42. "Operating Flexibility" ...................................... 27
15.43. "Payment Month" .............................................. 28
15.44. "Point of Delivery" .......................................... 28
15.45. "Potential Peak Hours" ....................................... 28
15.46. "Price Deflator Index" ....................................... 28
15.47. "Profit Sharing Rate" ........................................ 29
15.48. "Profit Sharing Surcharge" ................................... 29
15.49. "Reactive Kilovolt-Ampere Capacity" .......................... 29
15.50. "Reactive Kilovolt-Ampere Charge" ............................ 29
15.51. "Recovery Period" ............................................ 29
15.52. "Sabotage" ................................................... 29
15.53. "Schedule PP Customers" ...................................... 29
15.54. "Spring/Fall Months" ......................................... 29
15.55. "Strikes" .................................................... 29
15.56. "Summer Months" .............................................. 29
15.57. "System Capacity" ............................................ 29
15.58. "System Demand" .............................................. 30
15.59. "System Energy" .............................................. 30
15.60. "Undermodulation Charge" ..................................... 30
15.61. "Upper Trigger Price" ........................................ 30
15.62. "Winter Months" .............................................. 30
SIGNATURE PAGE ........................................................... 30
</TABLE>
SCHEDULE A
EFFECTIVE COST OF POWER CALCULATION
SCHEDULE B
BASE RATE REVENUE CALCULATION
SCHEDULE C
SURVEY OF CURRENT BUSINESS
SCHEDULE D (with Exhibit A)
STIPULATION REGARDING THE ESTABLISHMENT OF RATES UNDER THE POWER CONTRACT
BETWEEN POTOMAC EDISON AND EASTALCO
<PAGE> 6
ELECTRIC SERVICE AGREEMENT
This AGREEMENT made this 11th day of November, 1994, between EASTALCO
ALUMINUM COMPANY, a Delaware corporation and a wholly-owned subsidiary of Alumax
Inc. ("Eastalco") and THE POTOMAC EDISON COMPANY, a Maryland and Virginia
corporation and a wholly-owned subsidiary of Allegheny Power System, Inc.
("Potomac").
RECITALS
1. Potomac is a public utility engaged in the production, transmission,
distribution and sale of electric power and energy in Maryland.
2. Eastalco operates an aluminum reduction facility near Buckeystown Station,
Frederick County, Maryland.
3. Eastalco has purchased electric power and energy for such facility from
Potomac since March 1, 1970 under the terms of electric service agreements, the
most recent of which is dated February 25, 1993, (the "Existing Agreement"). The
Existing Agreement is subject to termination on March 1, 1995 upon 24 months
prior written notice.
4. Potomac desires to continue selling power and energy to Eastalco, and
Eastalco desires to continue purchasing power and energy from Potomac under the
terms of this Agreement after March 1, 1995.
1. DEFINITIONS.
In addition to the terms defined above, the terms capitalized below, which
are not defined below, shall have the meaning set forth in Paragraph 15.
2. TERM OF AGREEMENT.
This Agreement shall become effective upon approval by the Maryland Public
Service Commission. The initial term of this Agreement shall be for a period of
seven years commencing on the Effective Date of April 1, 1993. This Agreement
shall be renewed automatically for a first subsequent term of eighteen months
which would expire September 30, 2001, unless either party gives written notice
of cancellation prior to April 1, 1998. Thereafter, this Agreement shall be
renewed automatically for additional subsequent terms of one year each, unless
either party gives written notice of cancellation at least thirty months prior
to the expiration of any subsequent term.
1
<PAGE> 7
3. SALE AND PRICE OF SYSTEM CAPACITY.
3.1. SALE OF SYSTEM CAPACITY.
Potomac shall make available to Eastalco the following number of
kilowatts of System Capacity:
3.1.1. 210,000 kilowatts during Load Reduction Periods of the Summer
Months and Winter Months,
3.1.2. 310,000 kilowatts during Monthly Peak hours of the
Spring/Fall Months,
3.1.3. 350,000 kilowatts during all other hours.
3.2. PRICE OF SYSTEM CAPACITY.
3.2.1. CAPACITY CHARGE.
3.2.1.1. The Capacity Charge effective July 1, 1993 shall be
$10.24 per kilowatt per month. The Capacity Charge consists of a base rate. Any
change in the base rate or any additional charges or surcharges determined by
the Maryland Public Service Commission to be applicable to Eastalco after
December 31, 1987 and not included in Sub-Paragraph 4.2.3. hereof shall be
reflected by Potomac in this Capacity Charge, and shall be subject to the
provisions of Sub-Paragraph 14.3.1. The Capacity Charge shall be applied to all
kilowatts of System Demand.
3.2.l.2. An Additional Capacity Charge of $2.00 per kilowatt
shall be added to the Capacity Charge and this sum shall be applied to
Additional Capacity in excess of System Demand. Additional Capacity shall mean
all Billing Capacity kilowatts determined to be in excess of System Demand as
the result of the application of Sub-Paragraphs 3.2.2.1.2 through 3.2.2.1.5. or
Sub-Paragraphs 3.2.2.2.2. through 3.2.2.2.6. below, except that no Additional
Capacity Charge shall be payable for kilowatts in excess of System Demand if
that Additional Capacity results from the application of Sub-Paragraphs
3.2.2.1.5. or 3.2.2.2.6. when triggered by Sub-Paragraphs 3.2.2.1.1. or
3.2.2.2.1. Also the Additional Capacity Charge shall not apply in any Billing
Period during which no electrolysis occurs and no molten metal is produced in
Eastalco's potlines.
3.2.2. BILLING CAPACITY.
Billing Capacity shall be equal to the result of the
following:
2
<PAGE> 8
3.2.2.1. For the Summer Months and Winter Months, Billing Capacity
shall be the greatest of:
3.2.2.1.1. The System Demand; or,
3.2.2.1.2. .45 times (the sum of System Energy and Off-System
Energy divided by the number of hours in the Billing Period); or,
3.2.2.1.3. .30 times the Maximum Instantaneous Demand; or,
3.2.2.1.4. 130,000 kilowatts; or,
3.2.2.1.5. The highest result established by the application
of Sub-Paragraphs 3.2.2.1.1. through 3.2.2.1.4. above during (i) the three
preceding Summer Months if the computation of Billing Capacity is being made for
a Summer-Month; or, (ii) the three preceding Winter Months if the computation of
Billing Capacity is being made for a Winter Month.
3.2.2.2. For the Spring/Fall Months, Billing Capacity shall be the
greatest of:
3.2.2.2.1. The System Demand; or,
3.2.2.2.2. .80 times (the sum of System Energy and Off-System
Energy divided by the number of hours in the Billing Period); or,
3.2.2.2.3. .40 times the Maximum Instantaneous Demand; or,
3.2.2.2.4. (System Energy plus Off-System Energy divided by
the number of hours in the Billing Period) less 40,000 kilowatts; or,
3.2.2.2.5. 200,000 kilowatts; or,
3.2.2.2.6. The highest result established by the application
of Sub-Paragraphs 3.2.2.2.1. through 3.2.2.2.5. above during the three preceding
Spring/Fall Months.
3.3. REACTIVE KILOVOLT-AMPERE CHARGE.
The Reactive Kilovolt-Ampere Charge shall be the price payable for
reactive kilovolt-amperes and shall be equal to the result of the following
formula:
$0.15 x (Reactive Kilovolt-Ampere Capacity -
25% of Billing Capacity)
3
<PAGE> 9
3.4. UNDERMODULATION CHARGE.
3.4.1. DETERMINATION OF UNDERMODULATION CHARGE.
If Eastalco fails to modulate its load under Sub-Paragraph
8.3 by at least an average of 65,000 kilowatts at the time of Potomac's Monthly
Peak during the Spring/Fall Months, it shall pay an Undermodulation Charge of
$5.00 per kilowatt for each kilowatt by which the total number of kilowatts of
such modulation by Eastalco in the Spring/Fall Months of each calendar year is
less than the product of 65,000 times the number of Spring/Fall Months in the
calendar year for which the calculation is made. The Undermodulation Charge
shall not apply to the Summer Months and Winter Months.
3.4.2. DETERMINATION OF LOAD MODULATION.
The amount of Load Modulation for a Spring/Fall Month shall
be equal to the difference between: (i) the sum of Eastalco's System Demand and
any Off-System Capacity purchased during the hour of the System Demand for such
month; and (ii) the sum of System Energy and Off-System Energy for such month
divided by the number of hours in the Billing Period; provided, however, that
for purposes of this Sub-Paragraph 3.4, (a) if System Demand during a
Spring/Fall Month is 200,000 kilowatts or less, the amount of Load Modulation
shall not be less than 65,000 kilowatts; and, (b) the amount of Load Modulation
in any Spring/Fall Month shall not be less than 40,000 kilowatts.
3.4.3. BILLING OF UNDERMODULATION CHARGE.
The billing of the Undermodulation Charge shall be determined
annually and shall be billed on the December Billing Period invoice for each
calendar year during the term hereof, or on the final invoice upon termination
of this Agreement.
4. SALE AND PRICE OF ENERGY.
4.1. SALE OF CONTRACT ENERGY.
The Eastalco facility requires an average of 310,000 kilowatt-hours
per hour in order to operate at full production. Potomac shall make available
System Energy and, in accordance with Sub-Paragraph 10.1, shall use its best
efforts to make available sufficient Off-System Energy so that the combined
availability of System Energy plus Off-System Energy averages 310,000
kilowatt-hours per hour, which shall be the Contract Energy.
4.2. SYSTEM ENERGY.
4.2.1. DEFINITION OF SYSTEM ENERGY.
For purposes of this Agreement, System Energy shall mean the
kilowatt-hours recorded during the Billing Period
4
<PAGE> 10
on the Meters as delivered to Eastalco, less any Off-System Energy purchased
during the Billing Period. System Energy shall be comprised of Base Energy and
Incremental Energy defined as follows:
4.2.1.1. Base Energy shall be the lesser of:
4.2.1.1.1. The System Energy; or,
4.2.1.1.2. The product of the Billing Capacity and the
number of hours in the Billing Period.
4.2.1.2. Incremental Energy shall be the amount of System Energy
in excess of the Base Energy, if any.
4.2.2. PRICE OF SYSTEM ENERGY.
The price payable for System Energy shall be the sum of:
4.2.2.1. The Base Energy multiplied by the Base Energy Charge
which shall mean the rate payable pursuant to Potomac's fuel rate (or any cost
recovery method which may take its place) then in effect as approved by the
Maryland Public Service Commission, and adjusted for applicable siting charges;
plus,
4.2.2.2. The Incremental Energy multiplied by the Incremental
Energy Charge which shall mean the greater of: (i) the hourly incremental Actual
Cost of energy to Potomac, before sales to non-affiliated utilities, incurred
during the hours of Incremental Energy use during the Billing Period, plus l
mill per kilowatt-hour, adjusted for Maryland gross receipts tax and applicable
siting charges, or, (ii) the Base Energy Charge; plus,
4.2.3. OTHER ENERGY RATE COMPONENTS.
If the Maryland Public Service Commission adopts a rate charge or
adjustment which did not exist on December 31, 1987 that is to be collected on a
per kilowatt-hour basis from Potomac's customers, such charge may be applied to
the Base Energy and the Incremental Energy subject to such limits on its
applicability as are adopted by such Commission, except that such charges which
are directly related to the cost of fuel for Potomac may be applied to the Base
Energy only. Examples for purposes of illustration only are the Maryland Energy
Facility Siting Tax, which could be applied to both the Base and Incremental
Energy, and the Deferred Fuel Accounting Surcharge, which could be applied only
to the Base Energy.
5
<PAGE> 11
4.3. PRICE OF OFF-SYSTEM ENERGY.
The price payable for Off-System Energy shall be as set forth in
Sub-Paragraph 10.2.
4.4. PROFIT SHARING SURCHARGE.
The Profit Sharing Surcharge shall be the product of the Profit
Sharing Rate and the System Energy.
4.4.1. PROFIT SHARING RATE.
The Profit Sharing Rate shall be equal to the following:
4.4.1.1. If the Aluminum Price is less than or equal to the Lower
Trigger Price, the Profit Sharing Rate shall be zero.
4.4.1.2. If the Aluminum Price is greater than the Lower Trigger
Price and less than the Upper Trigger Price, the Profit Sharing Rate shall be
the product of the Maximum Profit Sharing Rate, calculated to five decimal
places, and the ratio R, where
R equals (Aluminum Price - Lower Tricker Price
---------------------------------------
(Upper Trigger Price - Lower Trigger Price)
4.4.1.3. If the Aluminum Price is equal to or greater than the
Upper Trigger Price, the Profit Sharing Rate shall be the Maximum Profit Sharing
Rate.
4.4.2. The Maximum Profit Sharing Rate initially shall be $0.004
per kilowatt-hour until March 1, 2000. After February 29, 2000 the Maximum
Profit Sharing Rate shall be reviewed in a good faith negotiation. The
adjustment in the Maximum Profit Sharing Rate would reflect the change in price
levels for the types of production plant related to compliance with Phase II of
the CAAA and the relative amount of investment in production plant for
compliance with Phase II as compared to Phase I of the CAAA. The relative amount
of investment would be computed as the ratio of the investment in production
plant for compliance with Phase II of the CAAA to the investment in production
plant for compliance with Phase I of the CAAA, with both investments adjusted to
dollars of the same year using appropriate inflation indices. As an example, if
the change in price levels was twenty percent (20%) and the investment for
compliance with Phase II was one half the investment for compliance with Phase
I, after adjustment for inflation, then the Maximum Profit Sharing Rate would
increase by approximately ten percent (10%).
4.4.3. The Lower Trigger Price initially shall be seventy cents (70.0
(cent)) per pound of aluminum. On March 1, 1995 and each March 1 thereafter, the
Lower Trigger Price shall be re-
6
<PAGE> 12
established to the nearest tenth of a cent as the result of the following
formula:
Lower Trigger Price = 70.0(cent) x 1/2 x (Price Ratio +
Escalation Ratio)
where
4.4.3.1. The Price Ratio is the ratio:
Annual Aluminum Price for the most recent calendar year)
--------------------------------------------------------
(Annual Aluminum Price for calendar year 1993)
4.4.3.2. The Escalation Ratio is the ratio:
(Price Deflator Index for the fourth quarter of the most
recent calendar Year)
--------------------------------------------------------
(Price Deflator Index for the fourth quarter of 1993)
4.4.4. The Upper Trigger Price initially shall be one hundred twenty
cents (120.0(cent)) per pound of aluminum. On March 1, 1995 and each March 1
thereafter, the Upper Trigger Price shall be re-established to the nearest tenth
of a cent as the result of the following formula:
Upper Trigger Price = 120.0(cent) x 1/2 x (Price Ratio +
Escalation Ratio)
5. MINIMUM LOAD CHARGE.
In addition to the amounts payable under Paragraphs 3 and 4, if the sum of
the System Energy and Off-System Energy used in a Billing Period is less than
the Minimum Load, Eastalco shall pay a Minimum Load Charge for System Power,
which shall be equal to
5.1. the lesser of:
5.1.1. 21,900,000 kilowatt-hours, or,
5.1.2. the difference between:
5.1.2.1. the Minimum Load, less,
5.1.2.2. the sum of the System Energy and Off-System Energy
purchased by Eastalco,
5.2. multiplied by the quotient of (i) the sum of the amount payable for
Base Energy in accordance with Sub-Paragraph 4.2.2.1. and the amount payable for
Incremental Energy in accordance with Sub-Paragraph 4.2.2.2. divided by (ii) the
number of kilowatt-hours of System Energy.
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5.3. Paragraph 5 shall not apply in any Billing Period during which no
electrolysis occurs and no molten metal is produced in Eastalco's potlines.
6. SALE OF IDLE CAPACITY.
When Eastalco's Maximum Demand is expected to be below 240,000 kilowatts,
Eastalco may give notice to Potomac that for a specified period, Eastalco will
not use all or a portion of the System Capacity below 240,000 kilowatts. The
period specified shall be at least one week and the amount of System Capacity
specified shall be at least 10,000 kilowatts. Potomac will use its best efforts
to sell such System Capacity for the period specified in the notice; provided,
that such sale would not interfere with potential sales of capacity by Potomac
or Allegheny that could have been made if Eastalco was using suchSystem
Capacity. Eastalco will receive a credit not to exceed $500,000 per calendar
month for the proceeds of any sale by Potomac equal to the lesser of:
6.1. 90% of the Capacity Revenues from such sale; or,
6.2. In the Winter Months and Summer Months, an amount equal to the sum of:
(i) 130,000 kilowatts less the Maximum Demand (if that difference is greater
than zero) times the Capacity Charge, and (ii) the Minimum Load Charge; or,
6.3. In the Spring/Fall Months, an amount equal to the sum of: (i) 200,000
kilowatts less the Maximum Demand (if that difference is greater than zero)
times the Capacity Charge, and (ii) the Minimum Load Charge.
7. LOAD REDUCTION PERIOD.
7.1. DEFINITION OF LOAD REDUCTION PERIOD.
Potomac may designate as a Load Reduction Period between one and
eighteen hours during any day of the Summer Months or Winter Months that Potomac
reasonably believes will be the day that Potomac's monthly maximum demand will
occur; provided that the total number of Load Reduction Period hours shall not
exceed (i) 850 hours during the twelve month period commencing October 1, 1990
and ending September 30, 1991 or any 12 month period thereafter, during the term
of this Agreement, which commences on October 1 of a calendar year and ends on
September 30 of the succeeding calendar year, or (ii) upon notice of the
termination of this Agreement, the sum of 170 hours times the number of Winter
Months and 85 hours times the number of Summer Months from the September 30
immediately preceding termination to the date of termination.
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7.2. NOTICE TO REDUCE LOAD.
Preliminary notice of a Load Reduction Period shall be given by Potomac to
Eastalco no later than 4:00 P.M. of the day preceding the Load Reduction Period.
A confirmation of the occurrence of a Load Reduction Period will be given no
later than 6:00 A.M. of the day of a Load Reduction Period occurring during the
Winter Months and 8:00 A.M. of the day of a Load Reduction Period occurring in
the Summer Months. Notwithstanding the foregoing, and subject to the limitations
set forth in SubParagraph 7.1., Potomac may extend an existing Load Reduction
Period or designate a new Load Reduction Period after 6:00 A.M. in the Winter
Months or after 8:00 A.M. in the Summer Months upon as much notice to Eastalco
as is reasonably practicable. The parties may agree mutually in writing to a
change in the time by which a confirmation of the occurrence of a Load Reduction
Period must be given.
7.3. OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD.
Potomac will use its best efforts to limit the duration and frequency of
any Load Reduction Period hours while not unreasonably increasing the risk that
Potomac's monthly maximum demand will occur outside a Load Reduction Period. If
subsequent to the designation of a Load Reduction Period: (i) Potomac's load
does not materialize for the Load Reduction Period day so that Potomac no longer
reasonably believes that one or more hours of the Load Reduction Period will be
the hour(s) in which Potomac's monthly maximum demand will occur; and, (ii)
there are no abnormal operating conditions on Potomac's system which require
retention of such hours in the Load Reduction Period, Potomac shall remove as
many hours as possible from the Load Reduction Period and give Eastalco prompt
notice thereof; provided, however, that Eastalco may elect to retain such hours
in the Load Reduction Period if it already has incurred any costs for such hours
in connection with Off-System Power that would not be avoided or refunded if
such hours are not retained in the Load Reduction Period.
8. POTENTIAL PEAK HOURS.
8.1. DEFINITION OF POTENTIAL PEAK HOURS.
Potomac may designate as Potential Peak Hours either one or two
periods of between one and eight consecutive hours during any day of the term
hereof that Potomac reasonably believes will be the day that Potomac's monthly
maximum demand
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will occur; provided that (i) the total number of Potential Peak Hours shall not
exceed 8 in any calendar day, (ii) no Potential Peak Hours may be designated on
Sunday, and (iii) during the Summer Months and Winter Months, Potential Peak
Hours shall be designated only within Load Reduction Periods.
8.2. NOTICE OF POTENTIAL PEAK HOURS.
Preliminary notice of Potential Peak Hours shall be given by Potomac
no later than 4:00 P.M. of the day preceding the Potential Peak Hours. Notice of
Potential Peak Hours and a confirmation of the occurrence of the Potential Peak
Hours shall be given no later than 6:00 A.M. of the day the Potential Peak Hours
are to occur in the Winter Months and no later than 8:00 A.M. of the day the
Potential Peak Hours are to occur during all other months. Notwithstanding the
foregoing, and subject to the limitations set forth in Sub-Paragraph 8.1.,
Potomac may extend existing Potential Peak Hours or designate new Potential Peak
Hours after 6:00 A.M. in the Winter Months or after 8:00 A.M. in the Summer
Months upon as much notice to Eastalco as is reasonably practicable. The parties
may agree mutually in writing to a change in the time by which a confirmation of
the occurrence of Potential Peak Hours must be given.
8.3. LOAD MODULATION.
Eastalco will use its best efforts to modulate its load during all
Potential Peak Hours. Load Modulation shall mean a temporary reduction in
Eastalco's plant load in order to assist Potomac in reducing the magnitude of
Potomac's monthly maximum demand. Eastalco agrees to modulate through changes
not exceeding 50 megawatts every ten minutes, unless requested by Potomac to
modulate in larger blocks. Such best efforts obligation shall not obligate
Eastalco, in its opinion, to jeopardize the stability of its plant operations.
Eastalco shall be permitted to make up the energy consumption foregone during
such reduction as soon as practical, subject to the terms of this Agreement and
the ability of Eastalco's facility to make up such energy consumption.
9. EMERGENCIES
9.1. GENERAL EMERGENCIES.
9.1.1. EMERGENCY OPERATIONS
Electric service provided under this Agreement is subject to
interruption at any time in compliance with the provisions of the Potomac Edison
EHV Emergency Voltage Control Program or The Potomac Edison Company/Allegheny
Power System Emergency Operation Plan as in effect and as amended from time to
time, copies of which have been supplied to Eastalco.
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9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY.
With Eastalco's prior consent, Potomac may interrupt up to
400,000 kilowatt-hours of Off-System Power, System Demand and System Energy if
any emergency occurs which Potomac believes is a threat to the overall integrity
of its operating system.
9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES.
Potomac will use its best efforts to limit the duration and
frequency of any emergency described in this Sub-Paragraph 9.1. and to give
Eastalco as much advance notice as possible of the occurrence of any such
emergency. In the event of an emergency under this Sub-Paragraph 9.1., Potomac
will use its best efforts to interrupt service only to Eastalco's potlines and
continue uninterrupted service to Eastalco's auxiliary equipment. If possible,
Potomac shall give Eastalco the opportunity to reduce its load prior to any such
interruption.
9.1.4. RESTORATION TO NORMAL OPERATIONS.
In the event of any emergency under this Sub-Paragraph 9.1.,
a Recovery Period shall be established for the lesser of (i) 48 hours, or (ii)
48 hours multiplied by the ratio of (a) the number of kilowatt-hours by which
Eastalco's load since the 7:00 AM immediately preceding the beginning of the
emergency is less than the product of its average load for the preceding week
multiplied by the number of hours from the 7:00 AM immediately preceding the
beginning of the emergency to the cessation of the emergency, to (b) 800,000
kilowatt-hours. In order to provide Eastalco an opportunity to attempt to
restore the stability of its operations after an emergency, Potomac shall not
declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it
declare another emergency under Sub-Paragraph 9.1.2. or 9.2; however, Potomac
may declare Load Reduction Periods that include hours in a Recovery Period.
Potomac and Eastalco shall cooperate to the extent possible to restore normal
operations, and as part of such cooperation, Eastalco shall inform Potomac of
the amounts and timing of its proposed increases in load during the Recovery
Period, and Potomac shall use its best efforts to supply Eastalco with the
service requested. Potomac may also request that Eastalco reduce load during a
Recovery Period and Eastalco will comply with such request if, in Eastalco's
opinion, the stability of its plant operations will not be jeopardized.
9.2. FIRM LOAD EMERGENCY.
9.2.1. DEFINITION OF FIRM LOAD EMERGENCY.
Potomac shall have the right to require Eastalco to reduce
purchases of System Capacity and System Energy hereunder for a Firm Load
Emergency which shall mean a mechanical
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breakdown, failure or operating condition in the Allegheny System generation or
transmission system that makes it necessary for Eastalco to reduce purchases of
System Capacity and System Energy in order for Potomac to meet its obligations
to its firm power Customers.
9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY.
Potomac may designate a Firm Load Emergency at any time
during the term of this Agreement that Eastalco is not purchasing Off-System
Power.
9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES.
Potomac will use its best efforts to limit the duration and
frequency of any Firm Load Emergencies. If subsequent to the designation of a
Firm Load Emergency, Potomac's operating conditions change so that continuance
of the Firm Load Emergency no longer is reasonably required, Potomac shall give
Eastalco prompt notice of ability to resume purchasing System Capacity and
System Energy; provided, however, that Eastalco may elect to continue purchasing
Off-System Capacity and Off-System Energy if, for this occurrence, it already
has incurred any costs in connection with such purchases not yet delivered,
which would not be avoided or refunded if Eastalco elects to resume purchasing
System Capacity and System Energy.
9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM
ENERGY.
Notice of a Firm Load Emergency shall be given by Potomac no
later than 30 minutes prior to the commencement of the Firm Load Emergency.
10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES.
Eastalco shall use its best efforts to reduce its load to a level of
not more than 200,000 kilowatt-hours per hour and maintain its load at such
level for the duration of any Load Reduction Period or Firm Load Emergency. Such
best efforts obligation shall not obligate Eastalco, in its opinion, to
jeopardize the stability of its plant operations.
10.1. OBLIGATION OF POTOMAC.
During a Load Reduction Period or a Firm Load Emergency, Potomac
shall purchase and deliver to Eastalco Off-System Power in accordance with the
following provisions, if requested to do so by Eastalco and if Off-System Power
is available, and can be delivered, from other sources not then committed to
serve Potomac's load or pass-through obligations. Potomac agrees to use its best
efforts to furnish Eastalco the amount of Off-System Power requested by Eastalco
to replace up to 100,000 kilowatt-hours per hour of the difference between
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Eastalco's average load of the previous week and 200,000 kilowatt-hours per
hour.
10.2. PRICING.
Potomac agrees to furnish Eastalco with the least cost
Off-System Power available. The price payable by Eastalco for Off-System Power
during Load Reduction Periods shall be the Actual Cost to Potomac plus 2 mills
per kilowatt-hour. The price payable by Eastalco for Off-System Power during a
Firm Load Emergency shall be Potomac's Actual Cost. The price in either event
shall include gross receipts tax, if applicable. Potomac shall furnish Eastalco
with an estimate of such price at the same time it gives notice of a Load
Reduction Period under Sub-Paragraph 7.2 or a Firm Load Emergency under
Sub-Paragraph 9.2.4.
10.3. INSUFFICIENT POWER.
If the amount of Off-System Power delivered to Eastalco during a
Firm Load Emergency in accordance with SubParagraph 9.2. is less than the amount
requested by Eastalco under Sub-Paragraph 10.1., and Eastalco reduced its load
at least to the level requested by Potomac, then a Recovery Period shall be
established for the lesser of (i) 20 hours, or (ii) 20 hours times the quotient
of the difference between the kilowatt-hours of Off-System Power requested by
Eastalco and the kilowatt-hours of Off-System Power delivered to Eastalco,
divided by 200,000 kilowatt-hours. In order to provide Eastalco an opportunity
to attempt to restore the stability of its operations after an emergency,
Potomac shall not declare any hour in a Recovery Period to be a Potential Peak
Hour nor shall it declare another emergency under Sub-Paragraph 9.1.2. or 9.2;
however, Potomac may declare Load Reduction Periods that include hours in a
Recovery Period. Potomac and Eastalco shall cooperate to the extent possible to
restore normal operations, and as part of such cooperation, Eastalco shall
inform Potomac of the amounts and timing of its proposed increases in load
during the Recovery Period, and Potomac shall use its best efforts to supply
Eastalco with the service requested. Potomac may also request that Eastalco
reduce load during a Recovery Period and Eastalco will comply with such request
if, in Eastalco's opinion, the stability of its plant operations will not be
jeopardized.
11. BILLING.
11.1. INVOICES AND PAYMENT.
During the first week of the calendar month succeeding a Billing
Period, Potomac shall provide Eastalco with a bill supported by calculations for
all amounts payable during such Billing Period. Such bill will be due and
payable in accordance with the provisions of this Paragraph 11, on or before the
last business day of the month immediately succeeding the Billing
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Period which shall be the Payment Month. In order not to delay Eastalco's normal
billing, the Incremental Energy Charge will be billed based on estimated
incremental costs. Such estimate will be corrected to reflect actual incremental
costs in the following month's bill. Eastalco will establish and maintain for
the benefit of Potomac during the term of this Agreement at its expense an
irrevocable, stand-by letter of credit as more particularly described below.
During the term hereof, the parties may agree mutually upon an alternative to
the letter of credit described below that would guarantee payment of Eastalco's
bills to Potomac.
11.2. LETTER OF CREDIT.
Eastalco shall maintain at its expense an irrevocable
stand-by letter of credit in favor of Potomac in the amount of $10,000,000 in
order to guarantee payment of amounts due hereunder ("Letter of Credit") at the
Bank, which shall mean a bank that (i) is selected by Eastalco and approved by
Potomac, which approval shall not be withheld unreasonably; and, (ii) is rated
by rating agencies Moodys and Standard & Poors not less than Single A, if a
domestic bank, and not less than Double A if a foreign bank.
11.2.1. TERMS OF LETTER OF CREDIT.
The Letter of Credit shall be payable on presentation and
remain in effect for the term of this Agreement. Eastalco agrees that the Letter
of Credit shall not be encumbered further or made subject to any other lien,
security interest or like instrument.
11.2.2. PAYMENT OF BILLS.
On or before the payment due date described in Sub-Paragraph
11.1, Eastalco shall pay Potomac the amount due and payable. If Eastalco fails
to pay such amount, Potomac shall be entitled to draw on the Letter of Credit.
11.3. LATE PAYMENT CHARGES.
11.3.1. LATE PAYMENTS.
Payments required to be made under Sub-Paragraph 11.1, which
are not received by Potomac on or before the last business day of the month
immediately succeeding the Billing Period shall be subject to the penalty set
forth in the Rules and Regulations of the Potomac Edison Company applicable to
industrial customers filed with and approved by the Maryland Public Service
Commission, currently in effect and as amended from time to time.
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12. FORCE MAJEURE.
12.1. DEFINITION OF FORCE MAJEURE EVENT.
For purposes of this Agreement a Force Majeure Event shall mean
any or all of the following events or occurrences and the effects thereof which
are beyond the reasonable control of the party claiming the occurrence: Acts of
God or the public enemy, flood, earthquake, storm, hurricane, tornado,
lightning, fire, epidemic, war, embargoes, riot, civil disturbances, Strikes,
Sabotage, orders or temporary or permanent injunctions of any duly constituted
court of general jurisdiction or any administrative agency or officer provided
by law; acts of government or any subdivision thereof; Failure of Service, or
any other cause beyond the reasonable control of the party claiming the
occurrence, whether or not similar to the causes or occurrences enumerated
above.
12.2. EXCUSE FROM PEFORMANCE.
If a Force Majeure Event prevents or interrupts either party from
performing any obligation under this Agreement, both parties shall be excused
from performing hereunder to the extent that the Force Majeure Event prevents
such performance and for the period required to restore the affected party's
operations to their condition prior to the occurrence of the Force Majeure
Event.
12.3. NOTICE OF FORCE MAJEURE.
The party affected by a Force Majeure Event shall give prompt
written notice thereof to the other party of the probable extent to which the
affected party will be unable to perform or will be delayed in performing its
obligations hereunder.
12.4. ELIMINATION OF FORCE MAJEURE.
The affected party shall exercise due diligence to eliminate or
remedy the cause and the effects of the Force Majeure Event and to return to
normal operations as quickly as is reasonably possible and shall give the other
party prompt notice when that has been accomplished.
12.5. EXEMPTION DURING FORCE MAJEURE.
12.5.1. GENERAL EXEMPTION.
Each month during the period of the Force Majeure Event
including the period required to restore the affected party's operations to
their condition prior to the occurrence of the Force Majeure Event, Eastalco
shall pay only for power and energy actually furnished and used by it at the
rates set forth herein, and the provisions of this Agreement or of any power
schedule made a part of this Agreement relating to any minimum payment for power
or energy, including without limitation the minimum Billing Capacity and the
minimum load Charge, shall not apply. During the Billing Period that the
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Force Majeure Event occurs and the Billing Period in which Eastalco returns to
normal operations, the minimum Billing Capacity and the Minimum Load Charge
shall not apply for those days of the Billing Period in which the Force Majeure
Event was in effect and the Capacity Charge shall be reduced by the ratio of the
number of days of the Billing Period in which the Force Majeure Event was in
effect to the total number of days of the Billing Period.
12.5.2. EXEMPTION FOR COAL STRIKE.
Notwithstanding the provisions of Sub-Paragraph 12.5.1.,
the payment exemption during a Force Majeure Event shall not be applicable to
any curtailment or interruption in service to Eastalco caused by a coal strike
that prevents Potomac from serving Eastalco's load, when such curtailment or
interruption in service by Potomac occurs pursuant to orders issued by the
Maryland Public Service Commission or other governmental authority that result
in a request for curtailment or interruption of other large industrial customers
or Schedule PP customers of Potomac as well in accordance with the Fuel Shortage
Section of The Potomac Edison Company/Allegheny Power System Emergency Operation
Plan. For purposes of this Agreement, other large industrial customers or
Schedule PP customers of Potomac shall not be considered curtailed or
interrupted if (i) service to such customers is not requested to be curtailed or
interrupted pursuant to such order; or, (ii) any of such other customers
receives a payment exemption from any of its minimum payment obligations for
power or energy during such curtailment or interruption. If service to such
other large industrial customers or Schedule PP customers is restored, but
service to Eastalco either is not restored or, Eastalco is then unable to
operate or receive service as a result of such curtailment or interruption, such
occurrence shall be considered to be a Force Majeure Event to which the billing
exemption set forth in Sub-Paragraph 12.5.1. shall apply during the period
required for Eastalco to restore its facility to full operation, such period
not to exceed eight (8) weeks. During such period Eastalco shall pay the lesser
of: (i) the amount payable under Sub-Paragraph 12.5.1. for power and energy
actually furnished and used by Eastalco plus a Capacity Charge for 30,000
kilowatts of System Demand, or (ii) the amount payable pursuant to Sub-
Paragraphs 3.2., 3.3., 4.2., and 4.3.
12.6. ALTERNATIVE POWER DURING FORCE MAJEURE.
If a Force Majeure Event prevents Potomac from delivering
power and energy hereunder or significantly increases the price of Potomac's
power and Eastalco is capable of receiving power and energy hereunder, Potomac
shall use its best efforts to obtain from third parties and deliver any power
required by Eastalco up to the System Capacity and System Energy then in effect.
The price of such power and energy to Eastalco shall be
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determined in accordance with the provisions of this Agreement or Potomac's
Actual Cost, whichever is greater.
13. PROVISIONS RELATING To SERVICE.
13.1. METERING.
13.1.1. METERING EQUIPMENT.
Deliveries of System Capacity, System Energy and Off-System Power
to Eastalco's substation shall be metered by Potomac at the Point of Delivery.
Meters shall mean metering equipment suitable for billing with a system accuracy
of plus or minus eight tenths of one percent (+ or - 0.8%) which shall be
installed and owned by Potomac and shall be used in determining the quantities
for billing. Eastalco has installed its own metering equipment, at its own cost.
13.1.2. TESTING OF METERS.
Potomac at its own expense shall test its Meters at least once
every year and if requested to do so by Eastalco shall make additional tests or
inspections of such Meters, the expense of which shall be paid by Eastalco,
unless such additional tests or inspections show the Meters to be inaccurate by
more than one half of one percent (0.5%), in which case Potomac shall pay for
such test. Eastalco shall have the right to witness each testing of Potomac's
Meters. Meters found to be defective or inaccurate shall be adjusted, repaired
or replaced by Potomac.
13.1.3. INACCURATE METERING.
If the Meters of Potomac fail to register or if the measurement
made by such Meters during the test varies by more than one half of one percent
(0.5%) from the measurement made by the standard meter used in such testing,
calculated adjustments shall be made correcting the measurements made by the
inaccurate Meters for the actual period during which such inaccurate
measurements were made if such period can be determined, or if not, for the
period immediately preceding the test of the Meters which is equal to one-half
(1/2) the time from date of the immediately preceding test and validation of
accuracy of the Meters or for a period of thirty (30) days, whichever is less.
Should Potomac's Meters fail to register for any period, demand and energy usage
during such period shall be determined by Potomac and Eastalco utilizing
Eastalco's meter readings, adjusted by the normal difference in meter readings
between Eastalco's meters and Potomac's Meters. Should the meters of both
Potomac and Eastalco fail during any period, power and energy usage during such
period shall be determined by computing the number of kilowatts and
kilowatt-hours which are necessary to produce the tons of aluminum actually
produced during such period
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or by any more accurate measure of demand and energy usage acceptable to both
parties.
13.2. FACILITIES AND EQUIPMENT.
The following equipment has been supplied and installed by Potomac,
is owned by Potomac and will be operated and maintained by Potomac:
13.2.1. Two two hundred thirty kilovolt transmission circuits and
related switch gear connecting Potomac's Doubs Substation with Eastalco's
Substation;
13.2.2. Metering, relaying, control and communication equipment
necessary for the operation and protection of Potomac's equipment and billing
under this Agreement.
13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL.
13.3.1. OWNERSHIP OF FACILITIES.
Any and all equipment installed by either party on the
premises of the other party shall be and remain the property of the party owning
and installing such equipment regardless of the manner of attachment to the real
property of the other party.
13.3.2. RIGHT OF REMOVAL.
Upon termination of this Agreement, the owner of the
equipment shall have the right to enter the premises of the other party and,
within a reasonable time and in a reasonable manner, shall remove such equipment
and all concrete and appurtenances relating thereto, and with all due diligence
at the owner's sole cost and expense, repair any damage to the other party's
property and fill all holes caused by such removal.
13.4. RIGHTS OF WAY.
Eastalco agrees to convey to Potomac for the term of this
Agreement and without charge, all easements and other rights of way reasonably
necessary for the operation, maintenance, replacement and removal of facilities
upon, across or within Eastalco's property for the purpose of providing service
under this Agreement, provided, however, that upon the termination of this
Agreement any such easements and rights of way shall revert automatically to
Eastalco.
13.5. ENTRY OF PREMISES.
Potomac shall have the right to enter Eastalco's premises
to read, maintain and test Potomac's Meters, poles, conductors, appurtenances,
and other equipment located thereon provided that the business of Eastalco shall
not be interfered with unreasonably and provided further that such right of
entry shall be restricted to (i) normal office hours, except in the case of an
emergency; (ii) those areas of Eastalco's facility
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where Potomac's equipment is located; and (iii) those employees, agents,
borrowed crews or contractors of Potomac who are necessary and authorized to
perform such work or inspection; provided, however, that no contractor of
Potomac may enter Eastalco's premises without the prior written consent of
Eastalco, which consent shall not be unreasonably withheld.
13.6. ELECTRICAL REQUIREMENTS.
13.6.1. ELECTRICAL DISTURBANCES.
Eastalco shall not deliberately operate any apparatus or
deliberately use System Capacity, System Energy or Off-System Power in any
manner that would be detrimental to Potomac's service to Eastalco or other
customers.
13.6.2. POWER FACTOR.
Eastalco shall not operate its facility with a leading power
factor without Potomac's prior written consent.
13.7. RESALE OF POWER.
System Capacity, System Energy and Off-System Power shall not be
resold hereunder, except as otherwise provided by Paragraph 6.
14. MISCELLANEOUS.
14.1. JURISDICTION OF REGULATORY AUTHORITIES..
This Agreement shall be subject to the approval of the Maryland
Public Service Commission. Service hereunder is subject to the Rules and
Regulations Covering the Supply of Electric Service, and the Rules and
Regulations for Meter and Service Installations that have been filed by Potomac
with the Maryland Public Service Commission, or any other regulatory authority
having jurisdiction over the subject matter hereof.
14.2. INDEMNIFICATION.
14.2.1. LIABILITY OF THE PARTIES.
The electric energy supplied under this Agreement is
supplied on the following express conditions: (i) after it passes the Point of
Delivery, it becomes the property of Eastalco, (ii) prior to the time it passes
the Point of Delivery, it is the property of Potomac, (iii) neither party, its
servants or employees, shall be liable, except in the case of negligence, for
loss, injury, or damage to any person or property whatsoever, resulting directly
or indirectly from the use, misuse, or presence of such electric energy, on the
other party's side of the Point of Delivery.
14.2.2. INDEMNIFICATION BY EASTALCO.
Eastalco shall indemnify and save harmless Potomac
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from all claims, liability and expense arising out of any bodily injury, death,
or damage to property other than any caused by the negligence of Potomac, its
servants or employees, occurring in or about property or facilities owned or
controlled by Eastalco and situated on Eastalco's side of the Point of Delivery,
except that Potomac shall be responsible for all claims of its own employees,
agents and servants under any Worker's Compensation statute or similar law.
14.2.3. INDEMNIFICATION BY POTOMAC.
Potomac shall indemnify and save harmless Eastalco from all
claims, liability and expense arising out of any bodily injury, death, or damage
to property other than any caused by the negligence of Eastalco, its servants or
employees, occurring in or about property or facilities owned or controlled by
Potomac and situated on Potomac's side of the Point of Delivery, except that
Eastalco shall be responsible for all claims of its own employees, agents and
servants under any Worker's Compensation statute or similar law.
14.2.4. ATTORNEY'S FEES.
Without limiting the generality of the foregoing, the indemnifying
party agrees, at the other party's request, to defend any such claim, demand or
the like brought against the other party based on any such failure, injury,
death, loss, destruction or damage, and to pay all costs and expenses including
attorney's fees, in connection with such defense provided that the other party
gives the indemnifying party prompt notice of the nature of such claim or demand
and provides such assistance, at the indemnifying party's costs, in connection
therewith as the indemnifying party reasonably may request. The obligations
hereunder shall survive the termination of this Agreement.
14.2.5. CONSEQUENTIAL DAMAGES.
Nothing in this Sub-Paragraph 14.2. or elsewhere in this Agreement
shall make any party liable for consequential damages or loss of profits.
14.3. TERMINATION.
14.3.1. TERMINATION BY EASTALCO.
This Agreement may be terminated in whole or in part by Eastalco
upon nine months prior written notice, given in accordance with Sub-Paragraph
14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the
Maryland Public Service Commission or any other governmental or regulatory
agency having jurisdiction makes a Material Modification to this Agreement. If
Eastalco expects to terminate this Agreement, it shall give notice thereof
within 28 days of the date of issuance of any decision that would result in a
Material Modification of this Agreement. Eastalco then shall give either a final
notice
20
<PAGE> 26
of termination or notice that it does not intend to terminate this Agreement
within 60 days of the date of issuance of any such decision. Upon any such
termination, Eastalco shall have no further liability or obligation whatsoever
to Potomac by reason of or resulting from such termination, except to pay
Potomac for amounts then due hereunder for System Capacity, System Energy and
Off-System Power previously furnished by Potomac hereunder.
14.3.2. TERMINATION BY POTOMAC.
This Agreement may be terminated in whole or in part by Potomac
upon nine months prior written notice, given in accordance with Sub-Paragraph
14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the
Maryland Public Service Commission, Environmental Protection Agency, duly
constituted court, legislature, or any other governmental or regulatory agency
having jurisdiction issues an order or takes any other action which requires
Potomac to incur any material, additional capital or operating costs or
otherwise materially affects Potomac's ability to provide service under the
terms and conditions set forth herein. If Potomac expects to terminate this
Agreement, it shall give notice thereof within 30 days of the date of issuance
of any such order. Potomac then shall give either a final notice of termination
or notice that it does not intend to terminate this Agreement within 60 days of
the date of issuance of any such order. This Agreement may not be terminated by
Potomac under this Sub-Paragraph due to an increase in Potomac's costs
associated with the growth of the Allegheny System loads or other normal
operating circumstances.
14.4. ASSIGNMENT.
Neither party may assign this Agreement or any right or obligation
hereunder without the prior written consent of the other party, provided,
however, that without such consent, Eastalco may assign this Agreement to Alumax
or a joint venture organized for the purpose of operating the Eastalco facility
in which Alumax or Eastalco has an interest of 50% or more. In the event of any
assignment, the assigning party first shall provide to the other party a written
agreement whereby the assignee accepts such assignment and undertakes to be
bound by the terms of this Agreement.
14.5. AMENDMENT.
This Agreement shall not be amended except by a writing duly
executed by Eastalco and Potomac, subject to the approval of any regulatory
agencies having jurisdiction.
14.6. ENTIRE AGREEMENT.
For the purposes herein, the term, "Agreement" shall include this
Agreement and the schedules and other documents to be attached hereto, each of
which shall be incorporated herein for all purposes by this reference. This
Agreement contains all of the terms and conditions agreed upon by the parties
relating to the subject matter of this Agreement and supersedes all prior
21
<PAGE> 27
and contemporaneous agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting the subject matter
hereof.
14.7. INTERPRETATION.
In the event of a conflict or inconsistency between the terms of
this Agreement and the Schedules attached hereto, the terms of this Agreement
shall govern.
14.8. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance
with the laws of the State of Maryland.
14.9. NOTICES.
All notices, requests, demands and other communications made in
connection with this Agreement shall be in writing and shall be deemed to have
been duly given on the date of delivery, if delivered to the person identified
below, or three days after mailing if mailed by certified or registered mail,
postage prepaid, return receipt requested, or if sent by receipted private mail
carrier, addressed as follows:
IF TO EASTALCO: Eastalco Aluminum Company
5601 Manor Woods Road
Frederick, Maryland 21701
Attention: Sr. Vice-President, Works
Manager
WITH A COPY TO: Alumax Inc.
400 South El Camino Real
San Mateo, California 94402
Attention: President, Primary
Division
IF TO POTOMAC: The Potomac Edison Company
Downsville Pike
Hagerstown, Maryland 21740
Attention: President
WITH A COPY TO: Allegheny Power System
Cabin Hill
Greensburg, Pennsylvania 15601
Attention: Director, Rates
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this PARAGRAPH.
14.10. SEVERABILITY.
If any provision of this Agreement is held to be unenforceable
for any reason, it shall be adjusted rather than voided, if possible, in order
to achieve the intent of the parties to this Agreement to the full extent
possible. In any
22
<PAGE> 28
event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
14.11. CONSTRUCTION .
No provision of this Agreement shall be construed against any
party on the ground that the party or its counsel drafted the provision. The
headings and captions contained herein are for the convenience of the parties
and shall not be deemed to govern the substantive rights and duties of the
parties hereto. When the terms of this Agreement provide for an action to be
made or the existence of a condition to be established based upon the judgment
or determination of either party, such judgment shall be exercised in good
faith, without discrimination, and in accordance with prudent utility practice,
when applicable, and shall not be arbitrary or capricious.
14.12. WAIVER.
No party shall be deemed to have waived any right, power or
privilege under this Agreement or any portion hereof unless such waiver shall
have been duly executed in writing and acknowledged by the party to be charged
with such waiver. The failure of any party hereto to enforce at any time any of
the provisions of this Agreement in no way shall be construed to be waiver of
any such provision, nor in any way to affect the validity of this Agreement or
any part hereof, or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
14.13. THIRD PARTY BENEFICIARIES.
Nothing in this Agreement shall confer any rights upon any person
or entity, which is not a party to this Agreement.
14.14. COOPERATION OF THE PARTIES.
Each party hereto shall use its best good faith efforts to
fulfill all of the conditions set forth in this Agreement over which it has
control or influence. Each party covenants and agrees to cooperate in good faith
to carry out the intent and purposes of this Agreement.
14.15. APPLICATION FOR CHANGE IN RATES.
Subject to the parties' obligations under this Agreement, either
Potomac or Eastalco may apply unilaterally at any time to any regulatory agency
having jurisdiction for a change in the rates to be charged hereunder.
15. DEFINITIONS.
The following terms, whenever capitalized and used herein shall have
the following meanings:
23
<PAGE> 29
15.1. "Actual Cost" shall mean the cost to Potomac of any capacity or
energy produced or purchased by it for the use of Eastalco, and shall include
line losses and any other costs incurred by Potomac to deliver such capacity or
energy to Eastalco.
15.2. "Additional Capacity" shall have the meaning set forth in Sub-
Paragraph 3.2.1.2.
15.3. "Additional Capacity Charge" shall have the meaning set forth in
Sub-Paragraph 3.2.1.2.
15.4. "Allegheny" shall mean Allegheny Power System, Inc., a Maryland
corporation and the parent corporation of Potomac.
15.5. "Allegheny System" shall mean the service territory of Allegheny
including the customer loads and the distribution, transmission and generating
facilities owned, operated or contracted for the purpose of serving electric
loads in such territory. The service territory of the Allegheny System is
comprised of the service territories of Allegheny's wholly-owned subsidiaries
Potomac, the Monongahela Power Company and the West Penn Power Company.
15.6. "Alumax" shall mean Alumax Inc., a Delaware corporation and the
parent corporation of Eastalco.
15.7. "Aluminum Price" shall mean the average monthly Midwest Market
Price for Aluminum in cents per pound, expressed to the nearest tenth of a cent,
during the preceding month, as published by Metals Week.
15.8. "Annual Aluminum Price" shall mean the average annual Midwest
Market Price for Aluminum in cents per pound, expressed to the nearest tenth of
a cent, during the calendar year as published by Metals Week, but not less than
sixty cents (60.0(cents)) per pound.
15.9. "Bank" shall have the meaning set forth in Sub-Paragraph 11.2.
15.10. "Base Energy" shall have the meaning set forth in Sub-Paragraph
4.2.1.
15.11. "Base Energy Charge" shall have the meaning set forth in Sub-
Paragraph 4.2.2.1.
15.12. "Bath County Surcharge " shall mean the surcharge in effect and
approved by the Maryland Public Service Commission for Allegheny's pumped
storage facility located in Bath County, Virginia.
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<PAGE> 30
15.13. "Billing Capacity" shall have the meaning set forth in Sub-
Paragraph 3.2.2.
15.14. "Billing Period" shall mean a calendar month.
15.15. "CAA" and "CAAA" shall mean the Clean Air Act, 42 U.S.C. Section
7401 et seq., and the Clean Air Act Amendment, respectively. The Clean Air Act
Amendment is P. L. 101-549, the amendment to Title IV of the CAA enacted
November 15, 1990. Phase I and Phase II shall have the meanings set forth in the
CAAA.
15.16. "Capacity Charge" shall have the meaning set forth in Sub-
Paragraph 3.2.1.
15.17. "Capacity Revenues" shall mean (i) the amount received from the
purchaser of idle capacity, less the cost of producing the energy delivered,
including unreimbursed losses, or (ii) the amount identified by the parties to
the sale of idle capacity as the price of capacity, if such identified amount
reasonably represents a computation similar to (i) above, or (iii) the increase
in the amount received by Potomac in excess of its costs from any non-affiliated
transaction when such increase is due to Eastalco's idle System Capacity.
15.18. "Contract Energy" shall have the meaning set forth in Sub-
Paragraph 4.1.
15.19. "Effective Cost of Power" shall mean the quotient of (i) the sum
of all charges by Potomac that Eastalco reasonably would have incurred for one
year of operation at an average plant load of 305,000 kilowatts, including the
Capacity Charge, Base Energy Charge, Incremental Energy Charge, Bath County
Surcharge, and Reactive Kilovolt-Ampere Charge, divided by (ii) 305,000 times
the number of hours in the year less 34 million kilowatt-hours. The
calculation of Effective Cost of Power shall be made in accordance with the
formula set forth in Schedule A attached hereto. If any new charges, other than
deferred charges or deferred surcharges, are made applicable to Eastalco by
the Maryland Public Service Commission, the charges shall be included in the
calculation.
15.20. "Effective Date" shall have the meaning set forth in Paragraph 2.
15.21. "Escalated" shall mean multiplying the number to be escalated by
the quotient derived by dividing (i) the Price Deflator Index for the most
immediately available month at the time the decision of the Maryland Public
Service Commission referred to in Sub-Paragraph 14.3.1. is made, by (ii) the
quarterly Price Deflator Index for the fourth quarter of 1987.
25
<PAGE> 31
15.22. "Failure of Service" shall mean breakdowns, destruction or
failure of any kind of equipment or facilities of Potomac necessary for
performance hereunder arising from any cause whatsoever, including
transportation delays, reductions, shortages, curtailment or cessation of
supplies, materials, equipment, facilities, labor, transportation or other
factors of production or delays of suppliers.
15.23. "Firm Load Emergency" shall have the meaning set forth in Sub-
Paragraph 9.2.1.
15.24. "Force Majeure Event" shall have the meaning set forth in Sub-
Paragraph 12.1.
15.25. "General Emergency" shall have the meaning set forth in Sub-
Paragraph 9.1.
15.26. "Incremental Energy" shall have the meaning set forth in Sub-
Paragraph 4.2.1.
15.27. "Incremental Energy Charge" shall have the meaning set forth in
Sub-Paragraph 4.2.2.
15.28. "Load Modulation" shall have the meaning set forth in Sub-
Paragraph 8.3 .
15.29. "Load Reduction Period" shall have the meaning set forth in Sub-
Paragraph 7.1.
15.30. "Lower Trigger Price" shall have the meaning set forth in Sub-
Paragraph 4.4.3.
15.31. "Material Modification" shall mean any change to this Agreement
which (i) causes the Effective Cost of Power to Eastalco to be higher than the
Effective Cost of Power that would have occurred if the rate adjustment were
made in accordance with the Stipulation attached hereto as Schedule D; or (ii)
decreases Eastalco's Operating Flexibility from the amount provided under this
Agreement; or (iii) changes in any substantive manner the Force Majeure
provision set forth in Paragraph 12; or (iv) makes any other material change to
this Agreement, which increases Eastalco's business risks, including, without
limitation, Eastalco's costs.
26
<PAGE> 32
15.32. "Maximum Demand" shall mean the maximum integrated kilowatt
demand over a clock hour recorded on the Meters during a specified period.
15.33. "Maximum Instantaneous Demand" shall mean the maximum
instantaneous kilowatt demand during any clock hour recorded on the Meters
during the Billing Period.
15.34. "Maximum Profit Sharing Rate" shall have the meaning set forth in
Sub-Paragraph 4.4.2.
15.35. "Meters" shall mean the metering equipment more particularly
described in Paragraph 13.
15.36. "Minimum Load" shall mean 240,000 kilowatts times the number of
hours in the Billing Period.
15.37. "Minimum Load Charge" shall have the meaning set forth in
Paragraph 5.
15.38. "Monthly Peak" shall mean the highest integrated clock hour
kilowatt demand on Potomac's system during a Potential Peak Hour of a Billing
Period.
15.39. "Off-System Capacity" shall mean three-phase, three-wire, 230,000
volts (nominal), 60 cycle alternating current electric service furnished by
Potomac under Paragraph 10.
15.40. "Off-System Energy" shall mean the kilowatt-hours associated with
Off-System Capacity.
15.41. "Off-System Power" shall mean the least cost power available to
Potomac after the regular loads of the Allegheny Power System have been
supplied. The regular loads of the Allegheny Power System are the firm and
interruptible loads including suspense account and previously existing OVEC
supplemental power transactions on any of Allegheny's operating companies'
systems.
15.42. "Operating Flexibility" shall mean Eastalco's ability to reduce
its level of operation or modify its operation without incurring charges or
increases in charges for capacity, energy or reactive power except as set forth
in Paragraphs 4 or 5 or Sub-Paragraph 3.2.2. Without limiting the generality of
the foregoing, the following are examples of changes in this Agreement that
would reduce Operating Flexibility:
27
<PAGE> 33
15.42.1. Any change to Sub-Paragraph 3.2.2. which increases the Billing
Capacity that would be computed using any of the alternative computations set
forth therein, without regard to whether the specific computation has
established Billing Capacity for any Billing Period during the term of this
Agreement, or is anticipated to establish Billing Capacity for any future
Billing Period;
15.42.2. Any change to Paragraph 5 that would increase the amount that
Eastalco would pay at any level of energy consumption as a result of the
application of Paragraph 5;
15.42.3. Any change to the months included in the Summer Months, Winter
Months or Spring/Fall Months;
15.42.4. Any change to Paragraph 7 or 8 that results in the reduction of
Eastalco's ability to modulate load while maintaining its desired level of
operation;
15.42.5. Any change to Paragraph 6 that results in reducing the recovery
that Eastalco otherwise reasonably could expect to receive under Paragraph 6.
15.43. "Payment Month" shall have the meaning set forth in Sub-Paragraph
11.1.
15.44. "Point of Delivery" shall mean the point at the Eastalco facility
at which Potomac's conductors connect with Eastalco's 230 kilovolt ring bus.
15.45. "Potential Peak Hours" shall have the meaning set forth in Sub-
Paragraph 8.1.
15.46. "Price Deflator Index" shall mean a figure derived from the
Implicit Price Deflator of the Gross National Product (1982 = 100), which is set
forth in the Survey of Current Business, as published and seasonally adjusted by
the Bureau of Economic Analysis of the Department of Commerce. A copy of such
index for the base period of the fourth quarter of 1987 is attached hereto as
Schedule C. From time to time the Bureau of Economic Analysis revises the
Implicit Price Deflator. The revised Implicit Price Deflator as published for
the fourth quarter of 1987 and the current month shall be used to derive the
Price Deflator Index. If the revised Implicit Price Deflator is not published
for the fourth quarter of 1987, then Potomac and Eastalco shall mutually agree
on the appropriate value for the fourth quarter of 1987.
28
<PAGE> 34
15.47. "Profit Sharing Rate" shall have the meaning set forth in Sub-
Paragraph 4.4.1.
15.48. "Profit Sharing Surcharge" shall have the meaning set forth in
Sub-Paragraph 4.4.
15.49. "Reactive Kilovolt-Ampere Capacity" shall mean the greatest
reactive kilovolt-ampere demand integrated over a clock hour during the Billing
Period.
15.50. "Reactive Kilovolt-Ampere Charge" shall have the meaning set
forth in Sub-Paragraph 3.3.
15.51. "Recovery Period" shall mean a period commencing at the
cessation of an emergency under Sub-Paragraph 9.1 or 9.2, extending not less
than the number of hours established under the applicable formula set forth in
Sub-Paragraph 9.1.4. or 10.3. and ending at the end of a clock hour.
15.52. "Sabotage" shall mean any act of sabotage except any
intentional damage occurring during a strike at Eastalco's facility (i) to
Eastalco's facility, or (ii) to Potomac's transmission line between Doubs
Substation and Eastalco's facility.
15.53. "Schedule PP Customers" shall mean the customers of Potomac
purchasing power and energy pursuant to Potomac's Schedule PP, as approved by
the Maryland Public Service Commission, or any succeeding schedule that
supersedes and replaces such schedule.
15.54. "Spring/Fall Months" initially shall mean the months of March,
April, May, June, October and November. Beginning January 1, 1994 "Spring/Fall
Months" shall mean the months of April, May, June, September, October and
November.
15.55. "Strikes" shall mean strikes, picketing, lockouts or other
labor disputes or disturbances, including threats of imminent strikes or work
stoppages that reasonably require Potomac to restrict or terminate its
operations or interrupt electric service to Eastalco.
15.56. "Summer Months" initially shall mean the months of July, August
and September. Beginning January l, 1994 "Summer Months" shall mean the months
of July and August.
15.57. "System Capacity" shall mean three-phase, three-wire, 230,000
volts (nominal), 60 cycle alternating current electric service furnished by
Potomac in accordance with Sub-Paragraph 3.1., not including any Off-System
Power.
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<PAGE> 35
15.58. "System Demand" shall mean the integrated kilowatt demand
recorded on the Meters during the Monthly Peak, less any Off-System Capacity
purchased during such hour.
15.59. "System Energy" shall have the meaning set forth in Sub-
Paragraph 4.2.1.
15.60. "Undermodulation Charge" shall have the meaning set forth in
Sub-Paragraph 3.4 hereof.
15.61. "Upper Trigger Price" shall have the meaning set forth in Sub-
Paragraph 4.4.4.
15.62. "Winter Months" initially shall mean the months of January,
February and December. Beginning January 1, 1994 "Winter Months" shall mean the
months of January, February, March and December.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first set forth above.
WITNESS: THE POTOMAC EDISON COMPANY
/s/ T. J. Kloc /s/ James D. Latimer
- ---------------------- ------------------------------------
T. J. Kloc, Comproller By: James D. Latimer, Vice President
WITNESS: EASTALCO ALUMINUM COMPANY
/s/ Oatha D. Marken /s/ Alan J. Scheib
- ---------------------- ------------------------------------
Oatha D. Marken By: Alan J. Scheib,
MIS Area Manager Vice President and Controller
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<PAGE> 36
SCHEDULE A
EFFECTIVE COST OF POWER CALCULATION
The Effective Cost of Power as referred to in Subparagraph 15.16 for one year
at an average plant load of 305,000 kilowatts equals Annual Cost divided by
Annual Kilowatt-hours, where:
<TABLE>
<S> <C>
A) Annual Cost is calculated as the sum of
Winter/Summer Demand Charges of (6 Mos.) (165,000 kW)(Capacity Charge),
Spring/Fall Demand Charges of (6 Mos.) (265,000 kW)(Capacity Charge),
Winter/Summer Bath County Charges of (165,000 kW)(4,374 Hrs.)(Bath Surcharge),
Spring/Fall Bath County Charges of (265,000 kW)(4,392 Hrs.)(Bath Surcharge),
Winter/Summer Base Energy Charges of (165,000 kW)(4,374 Hrs.)(Base Energy Charge)
Spring/Fall Base Energy Charges of (265,000 kW)(4,392 Hrs.)(Base Energy Charge)
Winter/Summer Incremental Energy Charges of [(305,000 kW-165,000 kW)(4,374 Hrs.
34,000,000 kWh][Average Increments
Energy Charge (1)),
Spring/Fall Incremental Energy Charges of (305,000 kW-265,000 kW)(4,392 Hrs.)
(Average Incremental Energy Charge) (1)
Winter/Summer Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25)
(165,000 kW)] (Reactive Kilovolt-Ampere Charge), and
Spring/Fall Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25)(265,000
(Reactive Kilovolt-Ampere Charge); and
B) Annual Kilowatt-hours is calculated as
(305,000 kW)(8,766 Hrs.) - 34,000,000 kWh = 2,639,630,000 kWh
</TABLE>
(1) For the latest twelve months, the quotient derived by dividing the
sum of the charges billed for Incremental Energy (adjusted if necessary for a 1
mill per kilowatt-hour adder) by the sum of the kilowatt-hours of Incremental
Energy.
<PAGE> 37
SCHEDULE A
----------
PAGE 2
<TABLE>
<CAPTION>
COMPUTATION OF EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987
--------------------------------------------------------------
<S> <C>
DEMAND CHARGE $ 7,000 /KW-MONTH
BATH COUNTY SURCHARGE 2.72 MILLS/KWH
BASE ENERGY CHARGE 12.44 MILLS/KWH
INCREMENTAL ENERGY CHARGE 15.017 MILLS/KWH
KVAR CHARGE $ 0.10 /KVAR-NORTH
KVAR BILLING OVER 25.001 OF BILLING DEMAND
PROJECTED OFF-SYSTEM ENERGY 34,000,000 KWH per YEAR
AVERAGE ENERGY LOAD 305,000 KW
PROJECTED KVAR DEMAND 183,000 (0.60 times AVERAGE ENERGY LOAD)
<CAPTION>
BILLING NUMBER TOTAL TOTAL ANNUAL
UNITS OF RATE CHARGE CHARGE
<S> <C> <C> <C> <C> <C> <C>
DEMAND CHARGE REVENUE KW MONTHS $/KW $ $
WINTER/SUMMER 165,000 6 7,000 6,930,000
SPRING/FALL 265,000 6 7,000 11,130,000
TOTAL 18,060,000
BATH COUNTY SURCHARGE REVENUE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 165,000 4,374 721,710,000 0.00272 1,963,051
SPRING/FALL 265,000 4,392 1,163,380,000 0.00272 3,165,754
TOTAL 5,123,905
BASE ENERGY CHARGE REVENUE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 165,000 4,374 721,710,000 0.01244 8,978,072
SPRING/FALL 265,000 4,392 1,163,880,000 0.01244 14,478,667
TOTAL 23,456,740
INCREMENTAL ENERGY CHARGE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 140,000 4,374 612,360,000
(34,000,000)
378,360,000 0.015017 8,685,232
SPRING/FALL 40,000 4,392 175,680,000 0.015017 2,638,187
TOTAL 11,323,419
KVAR BILLING
KVAR REVENUE DEMAND KVAR MONTHS $/KVAR
WINTER/SUMMER 183,000 -141,750 6 0.100 85,050
SPRING/FALL 183,000 116,750 6 0.100 70,050
TOTAL 155,100
-----------
TOTAL REVENUE EXCLUDING OFF-SYSTEM $38,124,063
===========
AVERAGE KW HOURS KWH
TOTAL KWH 305,000 8,766 2,673,630,000
LESS OFF-SYSTEM ENERGY (34,000,000)
-------------
TOTAL KWH EXCLUDING OFF-SYSTEM 2,639,630,000 KWH
=============
EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987
TOTAL REVENUE EXCLUDING OFF-SYSTEM
================================== EQUALS
TOTAL KWH EXCLUDING OFF-SYSTEM $0.02202 /KWH OR
22.02 MILLS/KWH
========
</TABLE>
<PAGE> 38
SCHEDULE B
BASE RATE REVENUE CALCULATION
For the purpose of determining whether a material modification to this
agreement has occurred as described in Subparagraph 15.27:
1) Base rate revenue shall be calculated utilizing the billing determinants of
the year used for rate design by the Commission's order.
2) Eastalco's base rate revenue shall equal Eastalco's total annualized
revenue, including Incremental Energy revenue but excluding any amounts paid
for Off-System Power, Bath Surcharge, and any Fuel-Related Surcharge, less
the product of the System Energy multiplied by the Maryland Fuel Rate
effective for Eastalco immediately preceding the Commission's order.
3) The base rate revenue of Schedule PP Customers shall equal that rate
schedule's total annualized revenue excluding any revenue due to the
Maryland Fuel Rate, the Bath Surchage, or any Fuel-Related Surcharge.
<PAGE> 39
SCHEDULE C
SURVEY OF CURRENT BUSINESS
TABLE 7.4 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT
[TABLE OMITTED]
TABLE 7.5 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY MAJOR TYPE
OF PRODUCT
[TABLE OMITTED]
TABLE 7.6 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY SECTOR
[TABLE OMITTED]
TABLE 7.7 - IMPLICIT PRICE DEFLATORS FOR THE RELATION OF GROSS NATIONAL
PRODUCT, NET NATIONAL PRODUCT AND NATIONAL INCOME
[TABLE OMITTED]
TABLE 7.8 - IMPLICIT PRICE DEFLATORS FOR COMMAND-BASIS GROSS NATIONAL PRODUCT
[TABLE OMITTED]
TABLE 7.9 - FIXED WEIGHTED PRICE INDEXES FOR PERSONAL CONSUMPTION EXPENDITURES
BY MAJOR TYPE OF PRODUCT 1982 WEIGHTS
[TABLE OMITTED]
TABLE 7.14 - FIXED WEIGHTED PRICE INDEXES FOR EXPORTS AND IMPORTS OF GOODS AND
SERVICES, 1982 WEIGHTS
[TABLE OMITTED]
<PAGE> 40
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Sixteenth Revision of
Original Page No. 5
Canceling
Fifteenth Revision of
Original Page No. 5
================================================================================
FUEL RATE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
RATE FOR THE COST OF FUEL
Effective with all bills rendered on and after February 4. 1994 there
shall be a fuel rate of 1.363 cents per kilowatthour which shall be billed under
all Rate Schedules and contracts served at voltages of less than 230.000 volts
at 1.390 cents per kilowatthour and under contracts served at 230.000 volts at
1.287 cents per kilowatthour. This currently effective rate will be applied each
month until changed as prescribed by procedures approved by the Public Service
Commission of Maryland. All bills rendered shall include an amount equal to the
Fuel Rate times the kilowatthours used in the billing period. The resulting
charge is in addition to any minimum charge set out in the Rate Schedule and is
added to the Customer's bill after any revenue surcharge and before any tax
surcharge is levied against the Customer's total bill.
CALCULATION OF CHANGES IN THE COST OF FUEL
The fuel rate per kilowatthour taken to the nearest 0.001 cent. shall
be calculated each month on Maryland P. S. C. Form 1 in accordance with
Commission Orders No. 63304 and 63456 in Case No. 7241 and Orders No. 65827 and
65849 in Case No. 7604. The rate so calculated shall be modified to recognize
taxes by application of the following formula.
1
-----
A - Fc x 1 - T
A = Fuel rate in cents per kilowatthour.
Fc = The amount designated as "Fuel Cost Per Kwh Sold" on Maryland
P.S.C. Form 1 for the period ending with the second preceding
month.
T = The Gross Receipts Tax rate in effect during the billing month
expressed as a decimal.
The fuel rate calculated in this manner shall be adjusted by
the following factor "L" to determine the amount to be billed
to Customers.
L = Adjustment factor for transmission line delivery efficiency.
For service at 230.000 volts L - 0.944
For service at lower voltages L - 1.020
For bimonthly bills the A factor shall be the average of the factor for
the month in which the bill is rendered and the factor for the preceding month.
================================================================================
ISSUED BY ALAN J. NOIA. PRESIDENT
Issued February 1, 1994 Effective with February cycle
bills rendered on and after
February 4, 1994 subject to refund
Issued under Order No. 70989 of the Public Service Commission
in Case No. 8523J
<PAGE> 41
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Fourth Revision of
Original Page No. 5A
Canceling
Third Revision of
Original Page No. 5A
================================================================================
DEFERRED FUEL COST SURCHARGE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
DEFERRED FUEL COST SURCHARGE
Effective for all bills rendered on and after January 6, 1994 there
shall be a deterred fuel cost surcharge of 0.062 cents per kilowatthour which
shall be billed under all Rate Schedules and special contracts served at
voltages of less than 230.000 volts at 0.063 cents per kilowatthour and under
special contracts served at 230.000 volts at 0.059 cents per kilowatthour. This
deterred fuel cost surcharge will be applied each month until terminated at the
earliest of (1) the first day of the first January billing cycle in January
1996. (2) the first date of the first billing cycle after collection of a total
of $9.232.675. or (3) the first day of the first billing cycle following the
actual underrecovery balance in the deferred fuel account falling below $0. This
charge is in addition to any minimum charge set out in the Rate Schedule and is
added to the Customer's bill before any tax surcharge is levied against the
Customer's total bill.
CALCULATION OF DEFERRED FUEL COST SURCHARGE
A = DFC 1
-------------- -------
S x 1 - T
A = Deferred fuel cost surcharge in cent per kilowatthour.
DFC = $9,232,675 of dollars of deferred fuel costs.
S = 15,211,936 kilowatthours of jurisdictional sales for the period.
T = The Gross Receipts Tax rate in effect during the billing month
expressed as a decimal. (.02).
The Deferred Fuel Cost Surcharge calculated in this manner shall be
adjusted by the following factor "L" to determine the amount to be billed to
Customers.
L = Adjustment factor for transmission line delivery efficiency.
For service at 230,000 volts L = 0.944
For service at lower voltages L = 1.020
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued January 5, 1994 Effective with bills rendered
on and after January 6, 1994
Issued in accordance with PSC letter dated 1/4/94 in Case No. 8523I
<PAGE> 42
THE POTOMAC EDISON COMPANY Electric P.S.C. Md. No. 53
Fourth Revision of
Original Page No. 50
Canceling
Third Revision of
Original Page No. 50
================================================================================
CLEAN AIR ACT RECOVERY SURCHARGE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
Rate to Recover Costs Associated with the Compliance with the Clean
Air Act Amendments of 1990
Effective with bills rendered on and after November 11. 1994 there will
be a surcharge at 0.00% to be billed under all rate schedules and special
contracts to recover the Commission approved costs incurred by the Company in
compliance with the Clean Air Act Amendments of 1990. This surcharge will be
applied each month until changed by the Public Service Commission of Maryland.
All bills rendered shall include as a separate line item an amount equal to the
Clean Air Act Recovery Surcharge (CAARS) rate times total revenue exclusive of
taxes. The resulting charge is in addition to any minimum charge set out in the
rate schedule or special contract and is added to the Customer's bill before any
tax surcharge is levied against the Customer's total bill. Amounts billed
hereunder shall be subject to late pay charges.
================================================================================
ISSUED BY JAMES D. LATIMER, EXECUTIVE VICE PRESIDENT
Issued November 1, 1994 To become effective on
all bills rendered on
and after November 11, 1994
Issued under Order No. 71465 in Case No. 8652
<PAGE> 43
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Third Revision of
Original Page No. 5E
Canceling
Second Revision of
Original Page No. 5E
================================================================================
ENERGY CONSERVATION SURCHARGE
APPLIES TO DESIGNATED RATE SCHEDULES
Effective with bills rendered on and after July 7, 1994, there shall be
a surcharge as set forth below to recover the cost associated with
Company-sponsored programs which promote conservation and efficient use of
energy and such other programs as recommended by The Collaborative and approved
by the Commission. The Energy Conservation Surcharge (ECS) is applied to
designated Rate Schedules to recover eligible costs applicable to that Rate
Schedule. These charges will be applied each month until changed by the
Commission. Applicable bills rendered shall include an amount equal to either
the ECS Residential rate times the number of kilowatthours used in the billing
period, or the ECS Commercial and Industrial revenue percentage rate times the
total revenue exclusive of taxes, whichever is specified. The resulting charge
is in addition to any minimum charge set out in the Rate Schedule and is added
to the Customer's energy charge or bill before any tax surcharge is levied
against the Customer's total bill. Amounts billed hereunder shall be subject to
late pay charges.
CALCULATION OF SURCHARGE
The Surcharge is calculated for the 12-month period beginning January
1. For the Residential class, the Surcharge is $0.00029 per kilowatthour and is
calculated by dividing the eligible costs expected to be allocated to that
Customer class for the period by the kilowatthour sales expected for that
schedule over the same period. For the Commercial and Industrial class, the
Surcharge is 3.48% of total revenue exclusive of taxes and is calculated by
dividing the eligible costs expected to be allocated to that Customer class for
the period by the total expected annual revenue from that Customer class. The
calculation includes an adjustment for gross receipts tax. Eligible costs will
be based on program descriptions filed with the Commission by November 1 of the
previous year, which will be consistent with the Long Range Plan filed
previously during the same year. An estimated Surcharge will be filed with the
Commission on February 1. The formal ECS will be filed March 1 to become
effective April 1 for the next twelve months. Upon determination that an ECS, if
left unchanged, would result in a material over/undercolection, the Company may
file a proposed interim revision of the ECS for Commission approval.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
<PAGE> 44
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Second Revision of
Original Page No. 5E-1
Canceling
First Revision of
Original Page No. 5E-1
================================================================================
For ECS calculation and application purposes, the costs and revenues
for each of the rate schedules will be combined into Rate Schedule Groupings as
follows:
ENERGY CONSERVATION SURCHARGE EFFECTIVE JULY 7, 1994
<TABLE>
<CAPTION>
RATE SCHEDULE RATE PER KWH PERCENT OF REVENUE
------------- ------------ ------------------
<S> <C> <C>
Residential
R $0.00029 N/A
Commercial and Industrial
C N/A 3.48%
G N/A 3.48%
C-A N/A 3.48%
CSH N/A 3.482
PH N/A 3.48%
PP N/A 3.48%
Eastalco N/A N/A
Lighting
OL N/A N/A
AL N/A N/A
MSL N/A N/A
SL N/A N/A
Frederick/Hagerstown N/A N/A
</TABLE>
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
<PAGE> 45
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Second Revision of
Original Page No. 5E-2
Canceling
First Revision of
Original Page No. 5E-2
================================================================================
ELIGIBLE COSTS
Costs eligible for recovery through the ECS are approved by the Commission
and include:
Program Costs -- Program Costs are the estimated costs for
research, development, implementation and operation of
experimental and pilot programs and of programs approved by
the Commission to be incurred by the Company during the 12
month period commencing each January 1, net of program amounts
presently included in base rates. Program costs include, but
are not limited to Company labor, rebates, payments to third
parties for program implementation direct marketing costs
incurred by the Company, market research costs, experimental
and pilot program development, consultant fees, applicable
software licenses, program measurement and monitoring
hardware, and all other administrative activities associated
with program development and implementation such as
advertising, program management, research and development
activities, experimental and pilot program development, and
monitoring and evaluation. All program costs for Residential
Class programs will be deferred and amortized (straight line)
over five years. All program costs associated with Commercial
and Industrial Class programs will be deferred and amortized
(straight line) over seven years. Beginning in 1995 the ECS
for residential programs will be calculated on a basis which
amortizes program costs over seven years. Unamortized balances
will accrue interest monthly at the rate of return (adjusted
for taxes) allowed in the Company's last Maryland rate
proceeding.
Lost Revenues -- Lost revenues are base rate revenues,
including surcharges that do not have a true-up provision, not
billed because of lost sales from approved conservation
programs. They are determined prospectively for the 12 month
period commencing each January 1. The estimates of lost
revenue are prepared on a program basis by Rate Schedule. Lost
revenues are calculated as decremental demand and energy per
participant or measure installed times appropriate base rate
demand and energy charges, net of gross receipts tax. The
estimates are based on "best available" demand and energy
savings data and the latest available measurement and
evaluation information. Lost revenues are calculated monthly
and deferred with interest until recovered in revenue, unless
the earnings test is not satisfied. Reconciliation of lost
revenues is based upon actual program participation or number
of measures installed. There is no retroactive adjustment for
changes in the per unit demand and energy savings estimates.
Lost revenues accrue between base rate cases except when the
earnings test is not satisfied.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 23, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
<PAGE> 46
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
First Revision of
Original Page No. 5E-3
Canceling
Original Page No. 5E-3
================================================================================
ELIGIBLE COSTS (Continued)
Performance-Based Shared Savings Incentive -- The Company can
earn an incentive if it attains specified goals. Goals are
established as a part of each program approved by the
Commission. Achievement will be based on the aggregate energy
saved by all active, approved programs. The energy saved per
measure or participant will not be adjusted retroactively. The
number of measures, units, or participants will be the actual
number attained. The amount of the incentive will be based on
a share of the net savings from each program as calculated
using the Total Resource Cost Test (TRC) filed by the Company
and approved by the Commission. The aggregate goals and the
Company's shared savings amounts are:
<TABLE>
<CAPTION>
% Goal Achieved % TRC
--------------- -----
<S> <C>
Less than 80% 0%
80% - 99% 6%
100% - 119% 7.5%
120% & Over 10%
</TABLE>
The highest percent incentive determined above applies
uniformly to the aggregate total of all net savings of all of
the programs used in establishing the goal. The incentive will
be grossed-up for all relevant taxes. Recovery of any
incentive awarded through the ECS will be based on the actual
amount earned in the previous year.
Reconciliation Factor -- The reconciliation factor corrects
for over/undercollection of program costs, lost revenues,
interest, and incentives. The differences between the
prospective estimates of program costs, lost revenues,
incentives, and interest included in the current year ECS and
the actual costs determined at the end of the year are
included in the ECS reconciliation factor. The reconciliation
factor is debited or credited against the costs eligible for
recovery through the ECS during the next year. Interest is
included in the reconciliation factor on the
over/undercollection at the rate of return, adjusted for
taxes, allowed in the Company's last Maryland rate proceeding.
Interest shall apply to the over/undercollection as recorded
in the deferred accounts and will be compounded semi-annually.
The factor is adjusted for gross receipts taxes.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued April 7, 1994 To become effective on
all service rendered on
or after May 5, 1994
Approved at Public Service Commission's Administrative Meeting of April 6, 1994
<PAGE> 47
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
First Revision of
Original Page No. 5E-4
Canceling
Original Page No. 5E-4
================================================================================
COST ALLOCATION
Eligible costs will be allocated to the Rate Schedules participating in
specific programs as follows:
Program Costs:
(a) Direct program costs will be assigned to specified
approved programs.
(b) Common costs will be allocated to each approved
program in proportion to assigned program costs.
(c) If a single program involved more than one Rate
Schedule Grouping, the total assigned program costs
will be allocated to the Rate Schedules participating
in the programs by ratio of the number of
participants or measures in the individual schedules.
Cost Based Shared Savings Incentive -- Earned incentive costs
are allocated to the Rate Schedules and Rate Schedule
Groupings participating in proportion to the allocation of
total assigned program costs for the year in which the
incentive was earned.
Lost Revenues and Reconciliation Factor -- Any such eligible
costs or credits are directly assigned to the schedule of
origin.
EARNINGS TEST
The ECS is subject to an earnings test. The test is performed by the
Company on the first day of the month using the Company's most recent quarterly
financial results on file with the Commission. The earnings test is passed when
the Company's actual rate of return, on a Commission-adjusted basis, including
adjustments for the ECS costs, is equal to or below the rate of return allowed
in the Company's last Maryland rate proceeding. The earnings test is failed when
the actual rate of return exceeds the return allowed in the Company's last
Maryland rate proceeding.
During periods in which the Company fails the earnings test (1) the
Commission approved ECS, as revised each April 1, will continue unadjusted, and
(2) incentives previously earned and approved by the Commission, as well as
program costs, will be unaffected by the earnings test, and (3) no further lost
revenues will be deferred. The portion of the ECS related to lost revenues
recovery will be applied to reduce the balance of the deferred costs during such
periods. Deferred costs earn interest compounded semi-annually at the rate of
return (adjusted for taxes) allowed in the Company's last Maryland rate
proceeding.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
<PAGE> 48
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Original Page No. 5F
================================================================================
COGENERATION PURPA PROJECT SURCHARGE
Effective with service rendered on and after January 5, 1994 through
January 4, 1996, there shall be a surcharge per KWH at rates set forth below to
recover costs associated with COGENERATION PURPA PROJECTS approved by the
Maryland Public Service Commission. These rates will be applied each month until
changed by the Commission. Applicable bills rendered shall include an amount
equal to the surcharge rate times the number of kilowatthours used in the
billing period. The resulting charge is in addition to any minimum charge set
out in the Rate Schedule and is added to the Customer's energy charge before any
tax surcharge is levied against the Customer's total bill. Amounts billed
hereunder shall be subject to late pay charges.
COGENERATION PURPA SURCHARGE
---------------------------------------------
<TABLE>
<CAPTION>
Schedule Rate Per KWH
-------- ------------
<S> <C>
R $0.00026
C 0.00023
G 0.00023
C-A 0.00031
CSH 0.00031
PH 0.00021
PP 0.00018
Eastalco 0.00009
OL 0.00003
AL 0.00003
MSL 0.00003
SL 0.00003
Fred/Hag 0.00003
</TABLE>
Rates for service under each of the Company's Rate Schedules are subject to this
surcharge.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued December 28, 1993 To become effective on all service
rendered on or after January 5, 1994
through January 4, 1996
Approved at Public Service Commission's Administrative Meeting of
December 22, 1993
<PAGE> 49
STIPULATION REGARDING THE ESTABLISHMENT OF
RATES UNDER THE POWER CONTRACT BETWEEN POTOMAC
EDISON AND EASTALCO
PARTIES
The parties to this stipulation are:
The Potomac Edison Company
Eastalco Aluminum Company
Maryland People's Counsel
Staff of the Maryland Public Service Commission
Westvaco Corporation
TERM OF THIS STIPULATION
This stipulation shall be effective upon the approval by the Public Service
Commission of Maryland of the new power contract between The Potomac Edison
Company and Eastalco, which is attached hereto. This stipulation shall remain
effective until the earlier of (i) the date that the contract terminates or
(ii) the effective date of a further amendment to that contract that is
inconsistent with this stipulation.
COST OF SERVICE ALLOCATION
As part of any application for a change in base rates, Potomac Edison shall
prepare and present a 6 CP - Defined Months cost of service allocation study
which allocates costs between Eastalco and all other customer classes based on
the six coincident peaks of each customer class in the months defined as Winter
Months and Summer Months in the power contract between Potomac Edison and
Eastalco. Such cost allocation study shall be substantially the same as the
cost allocation study included as Part 2 of Exhibit FDS-2 in the Direct
Testimony and Exhibits of Francis D. Stillman, Potomac Edison Exhibit No. 5 in
Case Number 8469, except that the 12 CP cost allocator labelled D1, Demand at
Generation Level (ACP), shall be replaced by the 6 CP - Defined Months
allocator.
In particular, all cost of service allocations related to production and
transmission plant will use the 6 CP - Defined Months allocator. This includes
the investment in CAA related capital plant for compliance with Phase I and
Phase II OF THE CAAA.
1
<PAGE> 50
STIPULATION (Continued) - June 15, 1993
RATES TO EASTALCO
Subject only to the Rate Shock Provision, the base rates to Eastalco shall be
established to produce an indexed rate of return of not less than 0.995 nor
more than 1.005 based on the 6 CP-Defined Months cost of service allocation
normalized as discussed below.
RATE SHOCK PROVISION
In order to avoid rate shock to any customer class, in each base rate
proceeding the base rates to Eastalco shall be established to produce an
indexed rate of return as close as possible to 1.0 based on the 6 CP - Defined
Month allocation subject to the following:
If Potomac Edison receives a base rate increase, the percentage
increase in base rates to Eastalco shall not be less than twenty-five
percent (25%) nor more than one hundred seventy-five percent (175%) of
the percentage increase in jurisdictional base revenues.
If Potomac Edison receives a base rate decrease, the percentage
decrease in base rates to Eastalco shall not be less than twenty-five
percent (25%) nor more than one hundred seventy-five percent (175%) of
the percentage decrease in jurisdictional base revenues.
NORMALIZATION PROVISION
Potomac Edison shall make a normalization adjustment to remove any Profit
Sharing Surcharge revenue from the 6 CP - Defined Month cost of service study.
If Potomac Edison believes that reductions in Eastalco System Demands were less
than normal during the test year, or that there were increases in revenues from
Eastalco that were caused by Eastalco's failure to reduce System Demand to a
normal level, then Potomac shall use its best efforts to make adjustments to
normalize the 6 CP - Defined Month cost of service study. A normalization
adjustment for the winter/summer time period may only occur if Eastalco's
System Demand is greater than 10 MW from the average of the winter/summer
months of the cost of service study year and the previous year. A normalization
adjustment to eliminate ratchet revenues for the spring/fall time period may
only occur if Eastalco's System Demand is greater than the billing capacity
2
<PAGE> 51
STIPULATION (Continued) - June 15, 1993
calculated according to the Eastalco Contract, Subparagraph 3.2.2.2.4. The
adjustment could reduce Eastalco's revenues to the level which would have
occurred if the billing capacity calculated in Subparagraph 3.2.2.2.4 had been
used in the monthly bill calculation.
Such normalization adjustments may include but are not limited to: (i) revenue
from the operation of the ratchet provisions in the Eastalco Contract
(Subparagraphs 3.2.2.1.5 and 3.2.2.2.6) may be removed from the 6 CP - Defined
Month allocation study; (ii) billing demands shall be recomputed as if normal
reductions in Eastalco's System Demands had occurred in the study period and
revenue reduced accordingly; and (iii) the 6 CP allocation factor shall be
determined based on normal reductions in Eastalco's System Demands.
RATES TO OTHER CUSTOMERS
Except as set forth below under "allocation of profit sharing revenues" the
allocation of the remaining revenues, costs and rate base to customer classes
other than Eastalco and the design of rates to recover such costs from all
customer classes other than Eastalco shall not be affected by this stipulation.
The cost allocation will be a two-step process. The 6 CP-Defined Month cost
of service study used to establish rates to Eastalco will be the first step.
The second step will be a cost of service study for all other customers. All
costs, revenues and rate base related to Eastalco as determined in the 6 CP-
Defined Months cost of service study, will be removed from the second cost of
service study.
NO PRECEDENTS
This stipulation represents a compromise among the parties in recognition of
Eastalco's separate class status, its unique contract, manner of usage of
electrical energy, and usage of electricity as a production process raw
material. Agreement to the terms of this stipulation does not mean that any
party supports the application of rate allocations and principles in this
stipulation outside of the specific context of this stipulation. No party shall
cite this agreement in any tribunal for any purpose outside of this
stipulation. This stipulation is not evidence of acceptance or rejection of any
rate allocation or rate design principle by any party. Moreover, the parties
agree that this agreement shall be of no precendential value and is in no way
3
<PAGE> 52
STIPULATION (Continued) - June 15, 1993
intended to influence Commission decisions regarding proper cost allocation or
rate design except as specifically agreed herein.
ALLOCATION OF PROFIT SHARING REVENUES
Under conditions set forth in the new Subparagraph 4.4 of the Eastalco power
contract, Eastalco will pay a profit sharing surcharge to Potomac Edison. The
revenue from the profit sharing surcharge shall be distributed by Potomac
Edison to all its Maryland jurisdiction customer classes other than Eastalco.
The timing of distributions and the allocation of profit sharing revenues among
customer classes other than Eastalco shall be done in accordance with Exhibit
A, "Procedures for Refund of Eastalco 'Profit Sharing' Revenues to Potomac
Edison's Other Maryland Jurisdictional customers," which is attached hereto and
made a part of this stipulation.
ADJUSTMENT OF PROFIT SEARING
The formulas set forth in the Electric Service Agreement between Eastalco and
Potomac Edison for the Lower Trigger Price and the Upper Trigger Price have
been developed based on the best information and projections of inflation and
aluminum prices currently available. The intent of these formulas is that
during periods of strong aluminum markets there should be some revenues from
the Profit Sharing Surcharge. Potomac and Eastalco shall review these formulas
prior to June 1, 1996, and each three years thereafter, to determine whether
they are working as intended and report to the Commission their determination.
If, after review of the report, any party determines that the formulas are
operating in such a manner that the amount of revenue from the Profit Sharing
Surcharge is higher than intended or lower than intended, taking into account
the conditions of the aluminum market, the parties agree to negotiate in good
faith modifications to the formulas or this stipulation. The intent of such
negotiations would be to reestablish the benefits to all parties intended to be
achieved by this stipulation.
OTHER MATTERS
The parties acknowledge that Eastalco's load and its load modulation activities
have a significant effect on Maryland demand and generation resources required.
4
<PAGE> 53
STIPULATION (Continued) - June 15, 1993
They further acknowledge that notifications required from Eastalco to the
Company as regards contract extension or termination are an important factor in
effective least cost planning for its Maryland customers.
The parties also acknowledge that Eastalco's load for planning purposes is
about 140 MW of Potomac Edison's total estimated demand in the year 2000 and
that Eastalco's presence or absence beyond the initial contract term thus
creates a significant planning uncertainty.
The parties will not challenge the prudence of any plant that, at the time
construction began, was prudent to build, even though, after construction
started, or was completed, the plant served to provide excess capacity due
solely to the absence of Eastalco as a 140 MW customer. This does not limit the
rights of any party to challenge whether the plant construction was
accomplished in a prudent manner or whether the Company proceeded with the
start or continuation of construction at a time when the Company had actual
knowledge that Eastalco would no longer continue as a 140 MW customer and
actual knowledge that such additional plant was not needed for service to other
customers. This agreement also does not restrict or diminish the parties'
rights to raise any issues regarding whether any portion of the Company's rates
are "just and reasonable."
5
<PAGE> 54
STIPULATION (Continued) - June 15, 1993
REQUEST FOR APPROVAL
The parties jointly request that the Commission approve the amendment to the
contract between Potomac Edison and Eastalco and this stipulation.
<TABLE>
<S> <C>
The Potomac Edison Company Eastalco Aluminum Company
By /s/ Thomas J. By /s/ Alan J. Scheil
------------------------------- ------------------------------
Comptroller Vice-president and Controller
Date 6/15/93 Date June 16, 1993
----------------------------- -----------------------------
Maryland Office of People's Staff, Public Service Commission
Counsel of Maryland
By /s/ By /s/ Allen N. Freifield
------------------------------- ------------------------------
Date 2/ /93 Date 6/21/93
----------------------------- ---------------------------
</TABLE>
Westvaco Corporation joins in this stipulation excepting only to the "Other
Matters " section.
Westvaco Corporation
By /s/
---------------------
Date 6-17-93
-------------------
6
<PAGE> 55
EXHIBIT A
PROCEDURES FOR REFUND OF EASTALCO "PROFIT
SHARING" REVENUES TO POTOMAC EDISON'S OTHER
MARYLAND JURISDICTIONAL CUSTOMERS
1) Potomac Edison will track the profit sharing revenues received from
Eastalco on a monthly basis and accumulate them in a deferred account.
2) The balance in the deferred account will earn interest, compounded
semi-annually, at the rate of return allowed in the Company's last
Maryland base rate proceeding.
3) Once each year, Potomac Edison will examine the account for refund to
Maryland jurisdictional customers other than Eastalco.
A) The deferred account will be examined each November to include any
profit sharing revenues resulting from Eastalco's billings through
October. The Rate Adjustment Credit for the following year will
commence with customer bills for the first billing cycle in
January.
B) If the balance in the deferred account equals or exceeds
$1,000,000, a credit will be determined for the next calendar
year. This credit, in cents/kWh or $/kWh, will be applied to
customer bills for the ensuing 12-month calendar period as a Rate
Adjustment Credit (RAC).
C) If the balance is less than $1,000,000, no credit will be
calculated. The balance will carry over into the following year
and continue to earn interest as described above until the next
review. If, however, the balance is less than $1,000,000 and an
existing "RAC" is in effect, the existing "RAC" will continue
until the month prior to when the account would reach a zero
balance.
D) The balance to be returned to other customers will be allocated
among the rate schedules in accordance with the demand allocation
method approved in Potomac Edison's last Maryland base rate case.
Once the amounts have been allocated by cost of service study rate
schedule groupings, the "RAC" will be calculated by dividing the
schedule's allocated dollars by its projected kWh for the next
calendar year.
4) Potomac Edison will track the credits made to customer bills and reduce
the balance in the deferred account on a monthly basis by the amount of
those credits throughout the refund year.
5) Any over or under refund will be reflected in the deferred account balance
for the following annual review.
7
<PAGE> 1
EXHIBIT 11.01
ALUMAX INC.
CALCULATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------- ----------------
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Primary earnings per common share
1. Net earnings ...................................... $ 35.8 $ 83.1 $ 62.5 $ 178.5
2. Deduct - Series A Convertible
Preferred dividends ......................... -- (2.4) -- (4.7)
------ ------ ------ -------
3. Earnings applicable to common shares .............. $ 35.8 $ 80.7 $ 62.5 $ 173.8
====== ====== ====== =======
4. Average primary shares outstanding ................ 55.9 45.7 55.9 45.6
====== ====== ====== =======
5. Primary earnings per common share
(line 3 divided by line 4) .................. $ 0.64 $ 1.77 $ 1.12 $ 3.81
====== ====== ====== =======
Fully diluted earnings per common share
6. Earnings applicable to common shares .............. $ 35.8 $ 80.7 $ 62.5 $ 173.8
7. Add - Series A Convertible Preferred dividends .... -- 2.4 -- 4.7
------ ------ ------ -------
8. Earnings applicable to common shares .............. $ 35.8 $ 83.1 $ 62.5 $ 178.5
====== ====== ====== =======
9. Average fully diluted shares outstanding .......... 56.0 55.3 55.9 55.2
====== ====== ====== =======
10. Fully diluted earnings per common share
(line 8 divided by line 9) .................. $ 0.64 $ 1.50 $ 1.12 $ 3.23
====== ====== ====== =======
</TABLE>
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q OF ALUMAX INC FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 462
<ALLOWANCES> 18
<INVENTORY> 543
<CURRENT-ASSETS> 1,109
<PP&E> 3,103
<DEPRECIATION> 1,080
<TOTAL-ASSETS> 3,320
<CURRENT-LIABILITIES> 399
<BONDS> 650
0
0
<COMMON> 1
<OTHER-SE> 1,706
<TOTAL-LIABILITY-AND-EQUITY> 3,320
<SALES> 1,433
<TOTAL-REVENUES> 1,433
<CGS> 1,106
<TOTAL-COSTS> 1,304
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 104
<INCOME-TAX> 42
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
