Exhibit 10.3
 

PRECEDENT AGREEMENT
FOR THE FIRM TRANSPORTATION OF NATURAL GAS

This PRECEDENT AGREEMENT for the Firm Transportation of Natural Gas ("Precedent
Agreement") is made and entered into this 31st day of May, 2006, by and between
EASTERN SHORE NATURAL GAS COMPANY, a Delaware corporation (“Eastern Shore”) and
DELMARVA POWER & LIGHT COMPANY (“Shipper”), a Delaware corporation, sometimes
jointly referred to herein as the (“Parties”) or singly as a (“Party”).

WITNESSETH:

WHEREAS, Eastern Shore is a natural gas company engaged in the transportation of
natural gas in interstate commerce; and

WHEREAS, Eastern Shore proposes to develop, construct and operate new interstate
pipeline facilities (the “Project”) to transport natural gas from an
interconnection with the facilities of the Cove Point Liquefied Natural Gas
(“LNG”) Plant located near Cove Point, Maryland to points on the Delmarva
Peninsula where such facilities shall interconnect with the existing pipeline
facilities of Eastern Shore; and

WHEREAS, Shipper is a Local Distribution Company connected to the natural gas
pipeline facilities of Eastern Shore: and

WHEREAS, Eastern Shore and Shipper are Parties to existing firm transportation
service agreements, and Shipper desires firm transportation service under
Eastern Shore’s proposed Project for delivery of the quantities specified in
Exhibit A hereto from the receipt point to the delivery points specified in
Exhibit A hereto; and

WHEREAS, Eastern Shore is willing to endeavor to (1) seek the necessary
governmental and regulatory authorizations, (2) construct the necessary
facilities and (3) render the requested firm transportation service as described
in this Precedent Agreement, subject to the terms and conditions set forth in
this Precedent Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound, Eastern Shore and Shipper agree as
follows:

1.  
Subject to Eastern Shore’s ability to enter into binding Precedent Agreements
with customers for an aggregate quantity of firm transportation service which,
in Eastern Shore's sole judgment, would make the construction of additional
pipeline and/or compression facilities economical, and subject to all other
terms and conditions of this Precedent Agreement, Eastern Shore shall proceed
with due diligence to obtain such governmental and regulatory authorizations or
exemptions as Eastern Shore deems necessary to construct and operate the
pipeline and/or compression facilities necessary to render the firm
transportation service contemplated herein. Eastern Shore reserves the right to
file and prosecute any and all applications for such authorizations, any
supplements or amendments thereto, and, if necessary, any court review, in such
a manner as it deems to be in its best interest.

 

2.  
Shipper agrees to use its good faith efforts to cooperate with Eastern Shore in
obtaining all authorizations necessary for Eastern Shore to construct and
operate the requisite facilities and render the firm transportation service
contemplated herein. In addition, Shipper shall file with the Federal Energy
Regulatory Commission (“FERC”) in support of Eastern Shore’s application for the
FERC authorizations; provided, however, that nothing herein shall prevent
Shipper from protesting any regulatory filings that are inconsistent with the
terms and conditions of this Precedent Agreement. If the FERC determines that
information relating to Shipper’s markets, gas supply or upstream or downstream
transportation or storage arrangements is required from Eastern Shore, Shipper
shall provide Eastern Shore with such information in a timely manner to enable
Eastern Shore to respond within the time required by the FERC. If Shipper
identifies any such information as being commercially sensitive or confidential,
Eastern Shore shall treat such information as privileged and confidential and
shall request that the FERC treat such information as privileged and
confidential and place such information in a non-public file.

3.  
Subject to the terms and conditions of this Precedent Agreement, Shipper shall
proceed with due diligence and in a timely fashion, to obtain such governmental
and regulatory authorizations or exemptions as are necessary: (i) for Shipper to
construct and operate any facilities necessary to enable Shipper to utilize the
firm transportation service contemplated herein; and (ii) for the performance of
its obligations as contemplated herein. Shipper reserves the right to file and
prosecute any and all applications for such authorizations, any supplements or
amendments thereto, and, if necessary, any court review, in such a manner as it
deems to be in its best interest. Eastern Shore agrees to use best efforts to
cooperate with Shipper in obtaining all authorizations necessary for Shipper to
receive the firm transportation service contemplated herein. Shipper shall also,
within sixty (60) days after execution of this Precedent Agreement, if requested
by Eastern Shore, advise Eastern Shore in writing of: (a) any facilities which
Shipper must construct, or cause to be constructed, in order for Shipper to
utilize the firm transportation service contemplated in this Precedent
Agreement; and (b) any necessary governmental and/or regulatory authorizations,
approvals, certificates, and/or permits and/or exemptions associated with the
facilities identified pursuant to (a) above. Shipper agrees to notify Eastern
Shore promptly in writing when each of the required authorizations, approvals,
and/or exemptions are received, obtained, rejected, or denied. Shipper may, in
its reasonable discretion, determine whether each of the required authorizations
has been granted in a manner acceptable to Shipper.

4.  
Performance by Eastern Shore and Shipper of the duties and obligations assumed
by each Party in Paragraphs 5, 6 and 7 of this Precedent Agreement is expressly
made subject to the fulfillment of the following conditions precedent:

(a) the receipt by Eastern Shore, in form and substance acceptable to Eastern
Shore in its sole discretion, of all certificates, permits, approvals and/or
other authorizations contemplated herein from the FERC or other governmental
authorities having jurisdiction, to construct and operate the necessary pipeline
and/or compression facilities to provide the firm transportation service as
contemplated herein;

(b) the receipt by Eastern Shore, no later than one hundred twenty (120) days
following receipt of the last of the authorizations referred to in subparagraph
(a) above, of a financial commitment or commitments from financial institutions,
acceptable to Eastern Shore, to make the capital expenditures necessary to
enable Eastern Shore to construct the facilities and to provide the
transportation service contemplated herein;

(c) the receipt by Eastern Shore, no later than one hundred twenty (120) days
following receipt of the last of the authorizations referred to in subparagraph
(a) above, of the approval of its Board of Directors to make the capital
expenditures necessary to enable Eastern Shore to construct the pipeline and/or
compression facilities necessary to render the firm transportation service
contemplated herein; and

(d) the receipt by Shipper, in form and substance acceptable to Shipper in its
reasonable discretion, of all certificates, permits and other authorizations
from all governmental and regulatory authorities having competent jurisdiction
as are necessary for Shipper: (i) to construct and operate any facilities
necessary to enable Shipper to utilize the firm transportation service
contemplated herein; and (ii) to perform its obligations as contemplated herein.

The governmental and regulatory approvals required by this Precedent Agreement,
as duly granted by the FERC and/or any other governmental agencies or
authorities having jurisdiction, shall be final and non-appealable; provided,
however, that the Parties may by written agreement waive the condition that such
approvals be final and non-appealable.

5.
Within thirty (30) days after satisfaction or mutual waiver of the conditions
precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into
the necessary agreements to extend the term of each service agreement listed on
Exhibit C, which is attached hereto and incorporated herein, for the periods
specified on Exhibit C.

6.
Within thirty (30) days after satisfaction or mutual waiver of the conditions
precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into a
firm transportation service agreement under: (i) Eastern Shore’s Part 284 Firm
Transportation Service FT Rate Schedule, as such may be amended or revised from
time to time, or (ii) such other new rate schedule as the FERC may require as a
condition to the issuance of authorizations required to provide the service
contemplated herein, as such rate schedule may be amended or revised from time
to time. Such firm transportation service agreement shall specify Shipper’s
Maximum Daily Transportation Quantity (“MDTQ”) of thirty thousand (30,000)
dekatherms (“dts”) per day and a primary term of service of twenty (20) years,
as detailed on Exhibit A, which is attached hereto and incorporated herein.
Eastern Shore shall provide such firm transportation service to Shipper at
negotiated reservation and commodity rates, as set forth in Exhibit B, which is
attached hereto and incorporated herein.

7.
Upon satisfaction or mutual waiver of the conditions precedent set forth in
Paragraph 4 herein, and after execution of the firm transportation service
agreement as provided in Paragraph 6 and the contract extensions contemplated in
Paragraph 5 herein, Eastern Shore shall proceed with due diligence to construct
the authorized pipeline and/or compression facilities necessary to implement the
firm transportation service contemplated herein. If, after proceeding with due
diligence, Eastern Shore is unable to provide such firm transportation service
for Shipper by the Service Commencement Date specified in Exhibit A, Eastern
Shore shall continue to proceed with due diligence to complete arrangements for
such service, and commence the firm transportation service for Shipper at the
earliest practicable date thereafter. Subject to the provisions of Paragraph 8,
Eastern Shore shall not be liable, nor shall this Precedent Agreement or the
firm transportation service agreement be subject to cancellation if, despite its
exercise of due diligence, Eastern Shore is unable to complete the construction
of such pipeline and/or compression facilities and commence the firm
transportation services contemplated herein by the Service Commencement Date
specified in Exhibit A. Eastern Shore agrees to provide Shipper advance written
notice of its best estimate of any revisions to the in-service date.

8.
This Precedent Agreement shall terminate upon execution of the firm
transportation service agreement contemplated in Paragraph 6 above; provided,
however, that:

(a) if Eastern Shore has not filed with FERC its certificate application for
authorization to construct the Project within twenty-four (24) months after the
execution of this Precedent Agreement, either Party may, at its option,
terminate this Precedent Agreement by giving twenty (20) days prior written
notice of its intention to terminate, without recourse by the other Party; or

(b) if the condition(s) precedent in Paragraph 4 above and the agreements to
extend the contracts listed in Exhibit C have not been satisfied or waived by
written agreement of the Parties within twenty-four (24) months after the FERC
formally accepts Eastern Shore’s certificate application filing and institutes a
decisional proceeding, either Party may thereafter, at its option, terminate
this Precedent Agreement, without recourse by the other Party, and Eastern
Shore, at its option, may withdraw its certificate application , without
recourse by Shipper, in either case by giving twenty (20) days prior written
notice of its intention to terminate; or

(c) if Eastern Shore has not commenced the firm transportation service within
twenty-four (24) months of the Service Commencement Date as specified in Exhibit
A, either Party thereafter may, at its option, terminate this Precedent
Agreement and/or the firm transportation service agreement executed pursuant to
Paragraph 6 above, by giving twenty (20) days prior written notice of its
intention to terminate, without recourse by the other Party.

In the event of termination pursuant to subparagraph (c) above, (i) Eastern
Shore shall request FERC approval to abandon any certificate authorizations
previously granted to provide the service contemplated herein, which request
Shipper shall fully support, and (ii) the Parties’ obligations under this
Paragraph 8 shall survive the expiration and/or termination of this Precedent
Agreement and shall bind the Parties and any and all of their respective
successors and assigns.

9.
Pursuant to the terms of the letter agreement attached hereto as Exhibit D and
incorporated herein, Shipper agrees to support recovery by Eastern Shore of
certain Project development costs, as defined in Exhibit D, which is attached
hereto and incorporated herein. Notwithstanding any other provision of this
Precedent Agreement to the contrary, the Parties’ obligations under this
Paragraph 9 and Exhibit D shall survive the expiration and/or termination of
this Precedent Agreement and shall bind the Parties and any and all of their
respective successors and assigns.

10.
Any company, which shall succeed by purchase, merger, or consolidation of title
to properties, substantially or in their entirety, of Eastern Shore or Shipper,
as the case may be, shall be entitled to the rights and shall be subject to the
obligations of its predecessor in title under this Precedent Agreement. Any
Party may, without relieving itself of its obligations under this Precedent
Agreement, assign any of its rights hereunder to a company or companies with
which it is affiliated but otherwise no assignment of this Precedent Agreement
or any of the rights or obligations hereunder shall be made unless there first
shall have been obtained the consent thereto in writing by the other Party.

11.
Eastern Shore may terminate this Precedent Agreement if, at any time, Shipper
fails to comply with the creditworthiness requirements as set forth in Sections
11 and 19 of the General Terms & Conditions of Eastern Shore’s FERC Gas Tariff.

12.
No modification of this Precedent Agreement shall be made except by the
execution of a written amendment to this Precedent Agreement.

13.
The interpretation and performance of this Precedent Agreement shall be in
accordance with the laws of the State of Delaware, without recourse to the law
governing the conflict of laws.

14.
Except as herein otherwise provided, any notice, or correspondence provided for
in this Precedent Agreement, or any notice which either Party may desire to give
to the other, shall be in writing and deemed to have been effectively given upon
the third day following the day when same, properly addressed and postpaid, has
been placed in the United States mail.

Routine communications shall be considered as duly delivered when mailed by
registered, certified, or ordinary mail.

It is expressly understood and agreed, however, that any communications referred
to hereunder may first be delivered by electronic means and shall be delivered
as soon as practicable thereafter by registered, certified or ordinary mail to:

Eastern Shore Natural Gas Company
Ronald A. Craig
Contract & Billing Administrator
417 Bank Lane 
Dover, DE 19904
Phone: (302) 734 - 6710 extension 6753
Fax: (302) 734 - 6745
Email: rcraig@chpk.com

Delmarva Power & Light Company
W. Thomas Bacon, Jr.
Director, Gas Supply Planning P.O. Box 6066
Newark, DE 19714
Phone: (302) 451-5019
Fax: (302) 451-5264
Email: tom.bacon@conectiv.com

IN WITNESS WHEREOF, the Parties hereto have caused this Precedent Agreement to
be duly executed in several counterparts by their proper officers thereunto duly
authorized as of the day and year first above written.

EASTERN SHORE NATURAL GAS COMPANY

/s/ Elaine B. Bittner
Elaine B. Bittner
Vice President

DELMARVA POWER & LIGHT COMPANY

/s/ Charles R. Dickerson
Charles R. Dickerson
Vice President

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EXHIBIT A

FIRM TRANSPORTATION SERVICE REQUESTED BY SHIPPER

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006

Commencement
Date
Maximum Daily Transportation Quantity
Primary Receipt Point
Primary Delivery Point
Termination
Date
 
November 1, 2009*
 
30,000 dt
 
Cove Point, MD
DPA 1 - 15,975
DPA 3 - 7,885
DPA 4 - 6,140
 
October 31, 2029**

* Or upon such later date that facilities required to provide firm
transportation service are placed in service. In addition, Shipper shall have a
one-time option to defer the desired commencement date of the transportation
service to either November 1, 2010, or November 1, 2011, which option shall
expire on March 31, 2007. In the event Shipper elects to defer the commencement
date, it must deliver such notice to Eastern Shore in writing no later than
March 31, 2007. Shipper understands and acknowledges that Eastern Shore shall
make this one-time option available to each shipper participating in the
Project. Shipper agrees that if it, or any other shipper participating in the
Project, elects to defer the commencement date of its transportation service on
the Project, then Eastern Shore, at its sole discretion, may elect to defer the
service commencement date for all shippers participating in the Project to the
later of the commencement dates requested, provided that Eastern Shore notifies
Shipper of Eastern Shore’s election no later than May 31, 2007.

** The later of October 31, 2029 or twenty (20) years from the Commencement
Date.

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EXHIBIT B

NEGOTIATED RATES

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006
 
Eastern Shore Natural Gas Company and Delmarva Power & Light Company mutually
agree to the following rates for the firm transportation service contemplated
herein:
 

Negotiated Reservation Rate
 
The initial Negotiated Reservation Rate shall be $30.40 per dt applicable to the
first 20,000 dts (Block One) of Delmarva’s total MDTQ of 30,000 dts contemplated
in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern
Shore’s current estimate of the capital investment of approximately $93 million
required to complete the Project. Eastern Shore shall revise the initial
Negotiated Reservation Rate applicable to Block One pursuant to the Reservation
Rate Formula below to reflect the actual capital investment required to complete
the Project. Delmarva shall pay the Negotiated Reservation Rate, as adjusted to
reflect the actual capital investment, subject to the Maximum Negotiated
Reservation Rate limitations below. In the event the revised Negotiated
Reservation Rate is higher than the initial Negotiated Reservation Rate,
Delmarva shall pay the initial Negotiated Reservation Rate until such time as
Eastern Shore revises the Negotiated Reservation Rate, and Delmarva shall pay
the difference between the initial and Revised Negotiated Reservation Rate for
the period from the Commencement Date to the date Eastern Shore revises the
Negotiated Reservation Rate, without interest. In the event the revised
Negotiated Reservation Rate is lower than the initial Negotiated Reservation
Rate, Delmarva shall pay the initial Negotiated Reservation Rate until such time
as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore
shall refund the difference between the initial and revised Negotiated
Reservation Rate for the period from the Commencement Date to the date Eastern
Shore revises the Negotiated Reservation Rate, without interest.
 
The Negotiated Reservation Rate applicable to the remaining 10,000 dts (Block
Two) of Delmarva’s total MDTQ of 30,000 dts contemplated in Exhibit A, shall be
fixed at $7.50 per dt.
 
Reservation Rate Formula
 
Block One Negotiated Reservation Rate = $30.40 + (Cost - $93,000,000)
          2,700,000
Where,
 
Block One Negotiated Reservation Rate = the negotiated reservation rate to be
applied to the first 20,000 dts of Delmarva’s total MDTQ of 30,000 dt and
 
Cost = Actual Capital Cost of the Project.
 

 
Maximum Negotiated Reservation Rate

Unless otherwise agreed to in writing by both Parties, Shipper’s Negotiated
Reservation Rate applicable to Block One (first 20,000 dt of total 30,000 dts
MDTQ) shall not exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate
applicable to Block Two (remaining 10,000 dts of total 30,000 dts MDTQ) shall
not exceed $7.50 per dt.

Negotiated Commodity Rate

Delmarva shall pay a negotiated commodity rate of $0.00 (zero) per dt for both
Block One and Block Two quantities transported. Applicable commodity surcharges
under Eastern Shore’s FERC Gas Tariff, if any, shall be paid by Delmarva.

Fuel

Eastern Shore’s system-wide Fuel Retention Percentage (FRP), as determined and
adjusted pursuant to Section 31 of the General Terms and Conditions of Eastern
Shore’s FERC Gas Tariff, shall also be assessed.

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EXHIBIT C

SERVICE AGREEMENT EXTENSIONS

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006

Listing of Service Agreements to be Extended Pursuant to Paragraph 5 herein:

Contract No.
 
MTDQ
 
Termination Date
 
Extension Date
 
010005
   
1,139
   
March 31, 2010
   
March 31, 2015
 
010038
   
3,085
   
November 30, 2009
   
November 30, 2014
 
010040
   
1,200
   
October 31, 2010
   
October 31, 2015
 
010043
   
10,000
   
October 31, 2011
   
October 31, 2016
 
010046
   
3,000
   
October 31, 2012
   
October 31, 2017
 
010055
   
3,000
   
October 31, 2015
   
October 31, 2020
 
040001
   
776
   
October 31, 2005
   
October 31, 2010
 

 

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EXHIBIT D

PRE-CERTIFICATION COST RECOVERY

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

April 1, 2006

--------------------------------------------------------------------------------

[Eastern Shore Natural Gas Logo]

April 1, 2006

Mr. Charles R. Dickerson
Vice President, Gas Delivery
Delmarva Power & Light Company
630 Martin Luther King Jr. Blvd.
Wilmington, Delaware 19899

Re: Cove Point Project Pre-Certification Cost Recovery

Dear Mr. Dickerson:

As you know, Delmarva Power & Light Company (“Delmarva”) and Eastern Shore
Natural Gas Company (“Eastern Shore”) are negotiating a Precedent Agreement for
the Firm Transportation of Natural Gas (“Precedent Agreement”) that sets forth
the parties’ respective rights and obligations in connection with the firm
transportation service that would be provided by the Cove Point Project, all as
more fully stated therein. Delmarva requested and Eastern Shore has agreed to
modify the Precedent Agreement to allow Delmarva to begin receiving service
contemplated in the Cove Point Project no later than November 1, 2011. However,
the parties agree that Eastern Shore should continue to proceed with its project
activities, particularly those related to the Federal Energy Regulatory
Commission’s (“FERC”) pre-filing NEPA and Certificate Application process.

The purpose of this Letter Agreement is to state the parties’ agreement
regarding Delmarva’s support for Eastern Shore’s recovery of outside
professional service costs in the event that the project is terminated prior to
completion of construction. The parties’ agreement includes those costs incurred
(i) as of the date of this Letter Agreement and (ii) between the date of this
Letter Agreement and the date of the Final Certificate Order by FERC authorizing
the Cove Point Project or the date in which the project is terminated, and
includes those costs incurred for engineering, communications, governmental
relations, economics, environmental, regulatory, and legal services
(collectively, “Pre-Certification Costs”).

--------------------------------------------------------------------------------

Mr. Charles R. Dickerson
April 1, 2006
Page 2

If the parties are unable to agree upon the terms of the Precedent Agreement by
June 1, 2006, the parties agree that this Letter Agreement shall be null, void,
and of no effect. The parties agree to negotiate diligently and in good faith
toward the execution of the Precedent Agreement by that date. Furthermore, if
the Cove Point Project proceeds to completion, this Letter Agreement shall be
null and void, and of no effect.

It is the expectation of the parties that the cost recovery contemplated herein
will be part of a settlement agreement or similar document that would be subject
to FERC approval. The parties agree that Delmarva will support, in FERC
proceedings initiated by Eastern Shore following the execution of this Letter
Agreement and the Precedent Agreement, rates to be charged under firm
transportation service agreements of all shippers who have executed a Cove Point
Project Precedent Agreement with Eastern Shore that reflect a return of and
return on each shipper’s proportionate share of such Pre-Certification Costs
incurred by Eastern Shore in the event that the Cove Point Project is not
completed.

Prior to filing the settlement agreement or similar document contemplated
herein, Eastern Shore will use its best efforts to obtain support for or
non-opposition of the settlement agreement or similar document reflecting such
cost recovery from all of Eastern Shore’s firm transportation customers. Such
rates will reflect amortization of Delmarva’s proportionate share of the
Pre-Certification Costs over a period of no less than 20 years. Delmarva’s
proportionate share is computed by taking its firm transportation nomination
contained in the executed Precedent Agreement divided by the sum of the firm
transportation nominations contained in all executed Cove Point Precedent
Agreements up to a total level of Pre-Certification Costs equal to $3 million.
For Pre-Certification Costs in excess of $3 million, Delmarva’s proportionate
share is computed by dividing one (1) by the sum of all the shippers who have
executed Cove Point Precedent Agreements plus Eastern Shore 1. Unless a change
is agreed to in writing by both parties, Delmarva’s total Pre-Certification Cost
obligation shall in no event exceed $2.0 million.

 
_______________
1 For example, once total Pre-Certification Costs exceed $3,000,000, with a
total of two (2) shippers (Delmarva and Chesapeake Utilities), Delmarva’s
proportionate share would equal one (1) divided by three (3), or thirty-three
and one-third (33 1/3) percent.

--------------------------------------------------------------------------------

Mr. Charles R. Dickerson
April 1, 2006
Page 3

Cove Point Project Pre-Certification Costs will be accounted for in accordance
with the FERC's Uniform System of Accounts.

Eastern Shore shall provide to Delmarva detailed quarterly reports no later than
forty five days (45) days after the end of each quarter, on the types and
amounts of Pre-Certification Costs it incurred during the quarter and on the
types and amounts of Pre-Certification Costs it expects to expend in the
upcoming quarter in furtherance of the Cove Point Project. At Delmarva’s
request, Eastern Shore agrees to meet and discuss such quarterly reports.
Eastern Shore shall also provide to Delmarva in a timely fashion copies of final
reports and recommendations that Eastern Shore receives from its consultants and
from parties involved in the FERC pre-filing NEPA and Certificate Application
proceedings regarding Cove Point Project activities. In addition, at the
following key stepping points in the project, Delmarva and Eastern Shore shall
meet to discuss the progress of the project: (1) at the conclusion of FERC
sponsored NEPA scoping meetings, (2) immediately after Eastern Shore files its
formal certificate application with FERC and (3) upon issuance of FERC’s
Preliminary Draft Environmental Impact Statement (“EIS”).

After the Certificate Application for the Cove Point project is filed with the
FERC or at such time as the cumulative Pre-Certification Costs for such project
exceed a total of $2,000,000, Eastern Shore shall provide information to
Delmarva regarding the reason(s) for procurement(s) prior to executing any
contract or purchase order for Project development goods or services for an
amount in excess of $150,000. Delmarva shall have three (3) business days within
which to request clarification regarding such information. No such clarification
shall delay or otherwise interfere with either Party's rights and obligations
under the Precedent Agreement or interfere with activities undertaken in
accordance with the Precedent Agreement to advance the project. Notwithstanding
the above, Delmarva can request a meeting with Eastern Shore at any time during
the project to discuss the progress of the project.

By the review process set forth in this Letter Agreement, Delmarva is not
assuming any responsibility or liability with respect to the accounting
procedures used by Eastern Shore or any oversight related to the
pre-construction or construction of the Cove Point Project.

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Mr. Charles R. Dickerson
April 1, 2006
Page 4

If this letter accurately reflects Delmarva’s understanding and is acceptable,
please so indicate by signing in the space provided.

EASTERN SHORE NATURAL
GAS COMPANY

By: /s/ Elaine B. Bittner

Elaine B. Bittner
Vice-President

AGREED AND ACCEPTED:
DELMARVA POWER & LIGHT COMPANY

By: /s/ Charles R. Dickerson

Charles R. Dickerson
Vice President