Exhibit 10.2
PRECEDENT AGREEMENT
This PRECEDENT AGREEMENT (“Precedent Agreement”) is made and entered into this
_____ day of April, 2010, by and between Texas Eastern Transmission, LP, a
Delaware limited partnership (“Texas Eastern” or “Pipeline”), and Chesapeake
Utilities Corporation (“Customer”). Pipeline and Customer are sometimes referred
to herein individually as a “Party,” or collectively as the “Parties.”
W I T N E S S E T H:
WHEREAS, Pipeline owns and operates an interstate natural gas transmission
system extending from the State of Texas and offshore Louisiana through the
Appalachian area to the Eastern Seaboard in the Philadelphia, New Jersey and New
York areas;
WHEREAS, Pipeline proposes to expand its interstate natural gas transmission
system by constructing, owning and operating certain pipeline, compression and
related facilities to provide expansion transportation service from receipt
point(s) in the Appalachian production region in West Virginia, Ohio and
Pennsylvania that span both of Texas Eastern’s market zones M2 and M3, to
delivery points across Texas Eastern’s market area including, but not limited
to, Lambertville, N.J., Transco Station 195 in York County, PA, Dominion
Transmission at Chambersburg, PA and Columbia Gas Transmission near Marietta or
Eagle, Pa. (the “Project”);
WHEREAS, Customer submitted a service request pursuant to a “Non-Binding Open
Season” conducted by Pipeline from August 1, 2008 through August 29, 2008, and a
service request pursuant to a Binding Open Season from November 17, 2009 through
December 1, 2009, and Customer desires to obtain firm transportation service
from Pipeline as part of the Project for certain quantities of Customer’s
natural gas; and

 

 

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WHEREAS, subject to the terms and conditions of this Precedent Agreement,
Pipeline is willing to construct the Project and provide the firm transportation
service Customer desires;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound, Pipeline and Customer agree to the
following:
1. Subject to the terms and conditions of this Precedent Agreement, Pipeline
shall proceed with due diligence to obtain from all governmental and regulatory
authorities having competent jurisdiction over the premises, including, but not
limited to, the Federal Energy Regulatory Commission (“Commission” or “FERC”),
the authorizations and/or exemptions Pipeline determines are necessary: (i) for
Pipeline to construct, own, operate, and maintain the Project facilities
necessary to provide the firm transportation service contemplated herein; and
(ii) for Pipeline to perform its obligations as contemplated in this Precedent
Agreement. Pipeline reserves the right to file and prosecute any and all
applications for such authorizations and/or exemptions, any supplements or
amendments thereto, and, if necessary, any court review, which are consistent
with this Precedent Agreement in a manner it deems to be in its best interest.
During the term of this Precedent Agreement, Customer agrees to support and
cooperate with, and to not oppose, obstruct or otherwise interfere with in any
manner, the efforts of Pipeline to obtain all authorizations and/or exemptions
and supplements and amendments thereto necessary for Pipeline to construct, own,
operate, and maintain the Project facilities and to provide the firm
transportation service contemplated in this Precedent Agreement and to perform
its obligations as contemplated by this Precedent Agreement.

 

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2. Within thirty (30) days after execution of this Precedent Agreement, Customer
will advise Pipeline in writing of: (i) any facilities which Customer must
construct, or cause to be constructed, in order for Customer to utilize the firm
transportation service contemplated in this Precedent Agreement; and (ii) any
necessary or desirable governmental, contractual and/or regulatory
authorizations, approvals, certificates, permits and/or exemptions associated
with the facilities identified pursuant to (i) above (“Customer’s
Authorizations”).
3. Subject to the terms and conditions of this Precedent Agreement, Customer
shall proceed with due diligence to obtain Customer’s Authorizations. Customer
reserves the right to file and prosecute applications for Customer’s
Authorizations, and, if necessary, any court review, in a manner it deems to be
in its best interest; provided, however, Customer shall pursue Customer’s
Authorizations in a manner designed to implement the firm transportation service
contemplated herein in a timely manner. Pipeline agrees to use reasonable
efforts to assist Customer in obtaining Customer’s Authorizations. Customer
agrees to promptly notify Pipeline in writing when each of the required
authorizations, approvals and/or exemptions are received, obtained, rejected or
denied. Customer shall also promptly notify Pipeline in writing as to whether
any such authorizations, approvals and/or exemptions received or obtained are
acceptable to Customer.
4. (A) To effectuate the firm transportation service contemplated herein,
Customer and Pipeline agree that no later than thirty (30) days after the date
on which all of the conditions precedent set forth in Paragraph 8, except for
the condition precedent in Paragraph 8(A)(v), of this Precedent Agreement have
been satisfied or waived, they will execute two firm transportation service
agreements one in the name of Chesapeake Utilities Corporation d/b/a Chesapeake
Utilities Corporation – Delaware

 

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Division (“Delaware Service Agreement”) and one in the name of Chesapeake
Utilities Corporation d/b/a/ Chesapeake Utilities Corporation – Maryland
Division (“Maryland Service Agreement”), collectively the “Service Agreements”
under Pipeline’s Rate Schedule FT-1, which shall specify:
(1) in the case of the Delaware Service Agreement, a Maximum Daily Quantity
(“MDQ”) of 30,000 dekatherms per day (“Dth/d”) exclusive of fuel requirements,
effective on the Service Commencement Date (as determined in accordance with
Paragraph 5 of this Precedent Agreement), and in the case of the Maryland
Service Agreement, an MDQ of 10,000 Dth/d, exclusive of fuel requirements,
effective on the Service Commencement Date (as determined in accordance with
Paragraph 5 of this Precedent Agreement); and,
(2) in both Service Agreements: (i) a primary term of fifteen (15) years
commencing on the Service Commencement Date (“Primary Term”), (ii) a Primary
Point of Receipt at Clarington, Ohio, (iii) a Primary Point of Delivery at
ESNG-Honeybrook, PA, and (iv) incorporate security requirements consistent with
the provisions set forth in Paragraph 13 below. The rate that will apply to
service under the Service Agreements shall be a Natural Gas Act Section 7(c)
initial rate, plus applicable fuel retainage and all other applicable usage
charges, charges and surcharges, unless the Parties otherwise mutually agree to
a negotiated or discounted rate as further defined in Exhibits A and A-1.
(B) Pipeline and Customer have agreed to the following with regard to the
negotiated rate for service under the Service Agreements.
(1) Subject to the terms and conditions set forth herein and in the form of
negotiated rate agreements attached hereto as Exhibits A and A-1, Customer shall
pay Pipeline a negotiated rate for service under the Service Agreements during
the Primary Term thereof based upon Pipeline’s reasonable good faith estimate of
the capital costs associated with constructing the Project facilities and all
other costs associated with providing the service contemplated herein.

 

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(2) Pipeline and Customer acknowledge that the Project is expected to involve an
expansion of Pipeline’s mainline system of up to 190,000 Dth/d in its Zones M2
and M3, although the final scope of the expansion facilities is not known with
precision at this time. For this reason, the estimated capital costs associated
with construction of the Project facilities and the estimated Reservation Rate
for service under the Service Agreements are represented by blanks in the
attached Exhibits A and A-1 form of negotiated rate agreements that will be
filled in at a future time. Pipeline currently estimates that the negotiated
Reservation Rate for service under the Service Agreements will be [ * ].
(3) No later than June 30, 2010, Pipeline shall provide Customer with a good
faith estimate of the capital costs associated with construction of the Project
facilities and the related negotiated Reservation Rate. At the same time that
Pipeline provides such capital cost estimate and negotiated Reservation Rate to
Customer, Pipeline shall also tender to Customer two (2) negotiated rate
agreements, in the form set forth in Exhibits A and A-1 hererto, with the blanks
for capital costs, negotiated Reservation Rate and the formula for the
adjustment to the negotiated Reservation Rate filled in a manner consistent with
such capital cost estimate and negotiated Reservation Rate. Pipeline and
Customer shall promptly execute such negotiated rate agreements; provided,
however, Customer shall not be obligated to execute the negotiated rate
agreements, if the negotiated Reservation Rates set forth therein are higher
than the range of negotiated Reservation Rates provided in clause (2) of this
Paragraph 4(B) and such higher negotiated Reservation Rates cause the value of
the commercial transaction with respect to the natural gas to be transported
under the Service Agreements to be uneconomic to Customer, as determined by
Customer in its good faith reasonable discretion.
 

      *  
This confidential portion has been omitted and filed separately with the
Securities and Exchange Commission.

 

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(4) In the event that Customer has elected not to execute the negotiated rate
agreements in accordance with the proviso in the last sentence of clause (3) of
this Paragraph 4(B), Pipeline and Customer shall promptly meet and work in a
good faith attempt to agree upon a negotiated Reservation Rate that is
commercially acceptable to both Parties. If after a reasonable time, the Parties
are unable to agree upon a mutually acceptable negotiated Reservation Rate,
either Party shall have the right to terminate this Precedent Agreement and the
Service Agreements by providing the other Party with thirty (30) days prior
written notice of its intent to terminate such agreements. If this Precedent
Agreement and the Service Agreements are terminated in accordance with this
Paragraph 4(B), Customer shall, at the option and election of Pipeline,
reimburse Pipeline for Customer’s proportionate share (as prorated based on
total Project MDQs of 190,000 dths/d) of Pipeline’s Pre-service Costs incurred
to the date of such termination.
5. Upon satisfaction or waiver of all the conditions precedent set forth in
Paragraph 8 of this Precedent Agreement, Pipeline shall notify Customer of such
fact, and that service under the Service Agreements will commence on a date
certain, which date will be the later of: (i) November 1, 2012, or (ii) the date
that all of the conditions precedent set forth in Paragraph 8 of this Precedent
Agreement are satisfied or waived (“Service Commencement Date”). On and after
the date on which Pipeline has notified Customer that service under the Service
Agreements will commence, Pipeline shall provide firm transportation service for
Customer pursuant to the terms of the Service Agreements and Customer will pay
Pipeline for all applicable charges required by the Service Agreements.

 

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6. Pipeline will undertake the design of the Project facilities and any other
preparatory actions necessary for Pipeline to complete and file its certificate
application(s) related to the Project with the Commission. Prior to satisfaction
of the conditions precedent set forth in Paragraph 8 of this Precedent Agreement
(with the exception of 8(A)(v)), Pipeline shall have the right, but not the
obligation, to proceed with the necessary design of facilities, acquisition of
materials, supplies, properties, rights-of-way and any other necessary
preparations to implement the firm transportation service under the Service
Agreement as contemplated in this Precedent Agreement.
7. Upon satisfaction of the conditions precedent set forth in Paragraphs 8(A),
except for 8(A)(v), and 8(B)(i) of this Precedent Agreement, or waiver of the
same by Pipeline or Customer, as applicable, Pipeline shall proceed (subject to
the continuing commitments of all customers executing precedent agreements and
service agreements for service utilizing the firm transportation capacity to be
made available by the Project) with due diligence to construct the authorized
Project facilities and to implement the firm transportation service contemplated
in this Precedent Agreement on November 1, 2012. Notwithstanding Pipeline’s due
diligence, if Pipeline is unable to commence the firm transportation service for
Customer as contemplated herein on November 1, 2012, Pipeline will continue to
proceed with due diligence to complete arrangements for such firm transportation
service, and commence the firm transportation service for Customer at the
earliest practicable date thereafter. Pipeline will neither be liable nor will
this Precedent Agreement or the Service Agreements be subject to cancellation if
Pipeline is unable to complete the construction of such authorized Project
facilities and commence the firm transportation service contemplated herein by
November 1, 2012.

 

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8. Commencement of service under the Service Agreements and Pipeline’s and
Customer’s rights and obligations under the Service Agreements are expressly
made subject to satisfaction of the following conditions precedent:
(A) Pipeline’s (only Pipeline shall have the right to waive the conditions
precedent set forth in this Paragraph 8(A)):

  (i)  
receipt and acceptance by March 1, 2012, of all necessary certificates and
authorizations from the Commission to construct, own, operate and maintain the
Project facilities, all as described in Pipeline’s certificate application as it
may be amended from time to time, necessary to provide the firm transportation
service contemplated herein and in the Service Agreements;

  (ii)  
receipt of approval, within thirty (30) days after Pipeline’s acceptance of the
certificates and authorizations specified in Paragraph 8(A)(i), from its Board
of Directors, or similar governing body, to expend the capital necessary to
construct the Project facilities;

  (iii)  
receipt of all necessary governmental authorizations, approvals, and permits
required to construct the Project facilities necessary to provide the firm
transportation service contemplated herein and in the Service Agreements other
than those specified in Paragraph 8(A)(i);

 

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  (iv)  
procurement of all necessary rights-of-way, easements or permits in form and
substance acceptable to Pipeline;

  (v)  
completion of construction of the necessary Project facilities, and all other
facilities required to render firm transportation service for Customer pursuant
to the Service Agreements and Pipeline being ready and able to place such
facilities into gas service; provided however, satisfaction of this condition
precedent is not conditioned upon completion of the Interconnection Facilities,
as defined below;

  (vi)  
the receipt by Eastern Shore Natural Gas Company (“Eastern Shore”) by
December 1, 2010 to be in service by 2011, of all necessary certificates, and
authorizations from the Commission to construct and operate the interconnection
facilities, all as described in Eastern Shore’s certificate application as it
may be amended from time to time, necessary to interconnect the pipeline systems
of Pipeline and Eastern Shore in or near Honeybrook, Pennsylvania (“the
Interconnection Facilities”); and

  (vii)  
Eastern Shore, by March 1, 2011, has commenced construction of the
Interconnection Facilities.

 

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(B) Customer’s (only Customer shall have the right to waive the conditions
precedent set forth in this Paragraph 8(B)):

  (i)  
receipt and acceptance by April 1, 2010, of all Customer’s Authorizations.

  (ii)  
the receipt by Eastern Shore Natural Gas Company (“Eastern Shore”) by
December 1, 2010 to be in service by 2011 of all necessary certificates and
authorizations from the Commission to construct and operate the Interconnection
Facilities.; and

  (v)  
Eastern Shore, by March 1, 2011, has commenced construction of the
Interconnection Facilities.

(C) Unless otherwise provided for herein, the Commission authorization(s) and
approval(s) contemplated in Paragraph 1 of this Precedent Agreement must be
issued in form and substance reasonably satisfactory to both Parties hereto. For
purposes of this Precedent Agreement, such Commission authorization(s) and
approval(s) shall be deemed satisfactory if issued or granted in form and
substance as requested, or if issued in a manner acceptable to Pipeline and such
authorization(s) and approval(s), as issued, will not have a material adverse
effect on Customer. Customer shall notify Pipeline in writing not later than
fifteen (15) days after the issuance of the Commission certificate(s),
authorization(s) and approval(s), including any order issued as a preliminary
determination on non-environmental issues, contemplated in Paragraph 1 of this
Precedent Agreement if such certificate(s), authorization(s) and approval(s) are
not satisfactory to Customer. All other governmental authorizations, approvals,
permits and/or exemptions that Pipeline must obtain must be issued in form and
substance reasonably acceptable to Pipeline. All governmental approvals that
Pipeline is required by this Precedent Agreement to obtain must be duly granted
by the Commission or other governmental agency or authority having jurisdiction,
and must be final and no longer subject to rehearing or appeal; provided,
however, Pipeline may waive the requirement that such authorization(s) and
approval(s) be final and no longer subject to rehearing or appeal.

 

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9. If Customer (i) terminates this Precedent Agreement for any reason;
(ii) otherwise fails to perform, in whole or in part, its material duties and
obligations hereunder; or (iii) during the term of this Precedent Agreement,
interferes with or obstructs the receipt by Pipeline of the authorizations
and/or exemptions contemplated by and consistent with this Precedent Agreement
as requested by Pipeline and, as a result of such actions by Customer, Pipeline
does not receive the authorizations and/or exemptions in form and substance as
requested by Pipeline or does not receive such authorizations and/or exemptions
at all, then in any of the above events, Customer shall, at the option and
election of Pipeline, reimburse Pipeline within 30 days of Pipeline’s invoice
for Customer’s proportionate share (as prorated based on initial MDQs among all
customers taking actions described in this Paragraph 9) of Pre-service Costs as
hereinafter defined. The term, “Pre-service Costs” for all purposes in this
Precedent Agreement shall include, but will not be limited to, those
expenditures and/or costs incurred, accrued, allocated to, or for which Pipeline
is contractually obligated to pay associated with engineering, construction,
materials and equipment, environmental, regulatory, and/or legal activities,
allowance for funds used during construction, negative salvage, internal
overhead and administration and any other costs incurred in furtherance of
Pipeline’s efforts to develop and construct the Project and to satisfy its
obligations under this Precedent Agreement and all other precedent agreements
for service on the Project facilities including, without limitation, the federal
and state income tax liability, if any, to Pipeline associated with its receipt
of such reimbursement amount. Pipeline shall use commercially reasonable efforts
to mitigate Pre-service Costs. If Customer terminates this Precedent Agreement
and the Service Agreements in accordance with the provisions of
Paragraph 4(B)(4), and if Customer, at the option and election of Pipeline, is
assessed Customer’s proportionate share (as prorated based on total Project MDQs
of 190,000dths/d) of Pipeline’s Pre-service Costs incurred to the date of such
termination, Customer shall not be assessed any additional Pre-service Costs
pursuant to Paragraph 9.

 

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NOTWITHSTANDING THE FOREGOING, THE PARTIES HERETO AGREE THAT NEITHER PARTY SHALL
BE LIABLE TO THE OTHER PARTY FOR ANY PUNITIVE, SPECIAL, EXEMPLARY, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF
PROFITS OR BUSINESS INTERRUPTIONS) ARISING OUT OF OR IN ANY MANNER RELATED TO
THIS PRECEDENT AGREEMENT, AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF OR
THE SOLE, CONCURRENT OR CONTRIBUTORY NEGLIGENCE (WHETHER ACTIVE OR PASSIVE),
STRICT LIABILITY (INCLUDING, WITHOUT LIMITATION, STRICT STATUTORY LIABILITY AND
STRICT LIABILITY IN TORT) OR OTHER FAULT OF EITHER PARTY. THE IMMEDIATELY
PRECEDING SENTENCE SPECIFICALLY PROTECTS EACH PARTY AGAINST SUCH PUNITIVE,
EXEMPLARY, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES EVEN IF WITH RESPECT TO
THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER
FAULT OR RESPONSIBILITY OF SUCH PARTY; AND ALL RIGHTS TO RECOVER SUCH DAMAGES OR
PROFITS ARE HEREBY WAIVED AND RELEASED.

 

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10. (A) If the conditions precedent set forth in Paragraph 8 of this Precedent
Agreement, excluding the condition precedent set forth in Paragraph 8(A)(v) have
not been fully satisfied, or waived by Pipeline or Customer, as applicable, by
the earlier of the applicable dates specified therein or within one (1) year
after the date specified in Paragraph 5(i), and this Precedent Agreement has not
been terminated pursuant to Paragraphs 11 or 12 hereof, then either Pipeline or
Customer may thereafter terminate this Precedent Agreement (and the Service
Agreements, if executed) by giving ninety (90) days prior written notice of its
intention to terminate to the non-terminating Party; provided, however, if the
conditions precedent are satisfied, or waived by Pipeline or Customer, as
applicable, within such ninety (90) day notice period, then termination of such
agreements will not become effective.
(B) Notwithstanding any other provision of this Precedent Agreement, if Pipeline
has not completed construction of the Project facilities and made such
facilities available for service by November 1, 2013, and the conditions
precedent set forth in Paragraph 8(B) hereof have been satisfied, Customer and
Pipeline shall cause their senior management to meet promptly to resolve any
timing issues and if after ninety (90) days no resolution has been reached, then
Customer shall have the right to terminate this Precedent Agreement (and the
Service Agreements and the Negotiated Rate Agreements) by providing ninety
(90) days prior written notice of its intention to terminate this Precedent
Agreement to Pipeline; provided, however, if Pipeline completes construction of
the Project facilities and makes such facilities available for service during
such ninety (90)-day period, then termination of this Precedent Agreement (and
the Service Agreements and the Negotiated Rate Agreements) will not be
effective; further, in the event the delay in meeting the November 1, 2013
in-service date is due to issues arising out of or directly related to any
horizontal directional drilling activities or legal appeals or other legal or
regulatory activities that have resulted in a delay in the issuance of any
necessary permit or authorization, then in such event the November 1, 2013 date
shall be extended to November 1, 2014. If this Precedent Agreement terminates in
accordance with this Paragraph 10(B), then, notwithstanding any other provision
of this Precedent Agreement, Customer shall have no obligation to pay Pipeline
Pre-service Costs under Paragraph 9 hereof.

 

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11. In addition to the provisions of Paragraph 10 hereof, Pipeline may terminate
this Precedent Agreement at any time upon fifteen (15) days prior written notice
to Customer, if: (i) Pipeline, in its sole discretion, determines for any reason
that the Project contemplated herein is no longer economically viable, or
(ii) substantially all of the other precedent agreements, service agreements or
other contractual arrangements for the firm service to be made available by the
Project are terminated, other than by reason of commencement of service.
12. If this Precedent Agreement is not terminated pursuant to Paragraphs 10 or
11 hereof, it will terminate by its express terms on the Service Commencement
Date, and thereafter Pipeline’s and Customer’s rights and obligations related to
the transportation service contemplated herein shall be determined pursuant to
the terms and conditions of such Service Agreements and Pipeline’s FERC Gas
Tariff, as effective from time to time. Notwithstanding any termination of this
Precedent Agreement pursuant to Paragraphs 10, 11 or 12 hereof, to the extent
that a provision of this Precedent Agreement contemplates that one or both
Parties may have further rights and/or obligations hereunder following such
termination, the provision shall survive such termination as necessary to give
full effect to such rights and/or obligations.

 

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13. Customer shall satisfy the creditworthiness requirements as set forth in
this Paragraph 13 within 7 days from the effective date of this Precedent
Agreement, or from the date of any subsequent request from Pipeline. Customer
shall at all times during the effectiveness of this Precedent Agreement and the
Service Agreement meet the creditworthiness requirements set forth in the table
below:
Credit Requirements

                                  Creditworthiness
Conditions   Category A1   Category B2   Category C3   Category D4
Customer or Guarantor’s S&P or Moody’s or Fitch Rating
  BBB/Baa2/BBB or higher   BBB-/Baa3/BBB-   BB+ to BB-/Ba1 to Ba3 /BB+ to BB-  
B+/B1/B+ or lower
Other Conditions
  See “Rating” definition in 13(A)        
Letter of Credit Requirement (as fixed amount or months of reservation charges
under the Service Agreement)
On or about the effective date of the Precedent Agreement
  0   $100,000   $100,000   $100,000
When pro-rata share of Pre-service Costs exceeds $100,000
  0   Pro-rata share of Pre-service Costs, save that such amount will not be
less than $100,000 or greater than the amount required below
From and after the Service Commencement Date
  0   lesser of 3 months or remaining term of Service Agreement   lesser of 24
months or remaining term of Service Agreement   lesser of 30 months or remaining
term of Service Agreement

      1  
A Category A customer meeting all creditworthiness conditions is considered
Creditworthy (“Creditworthy”). No additional credit support is required.
  2  
Category B will apply to a customer that meets the creditworthiness requirements
of Category B but not Category A, A Category B customer that does not have a
sufficient open credit line shall (a) post a “Guaranty”, as hereinafter defined,
from a “Guarantor”, as hereinafter defined, meeting Category A creditworthiness
conditions, or (b) provide a “Letter of Credit” , as hereinafter defined, in the
amount required for Category B.

 

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      3  
A customer in Category C shall (a) post a Guaranty from a Guarantor meeting
Category A creditworthiness conditions, (b) provide a Guaranty from a Guarantor
meeting Category B creditworthiness conditions, and a Letter of Credit in the
amount required for Category B, or (c) provide a Letter of Credit in the amount
required for Category C.
  4  
A customer in Category D shall (a) post a Guaranty from a Guarantor meeting
Category A creditworthiness conditions, (b) provide a Guaranty from a Guarantor
meeting Category B creditworthiness conditions, and a Letter of Credit in the
amount required for Category B, (c) provide a Guaranty from a Guarantor meeting
Category C creditworthiness conditions, and a Letter of Credit in the amount
required for Category C, or (d) provide a Letter of Credit in the amount
required for Category D.

In the event Customer does not have the external credit rating listed in the
table above, Customer may qualify as the equivalent of a Category B if it meets
and maintains throughout the term of the service agreement all three of the
following conditions:

  1.)  
Tangible Net Worth of $100 million or greater.  

  2.)  
Fixed Charge Coverage Ratio of 150% or greater.   If any future indebtedness
covenants have or reasonably imply a Fixed Charge Coverage Ratio limit greater
than 120%, this 150%  limit will adjust upwards so as to maintain at least a 30%
gap. 

  3.)  
Funded Indebtedness of the Customer (including Current and Funded Indebtedness
of Customer’s subsidiaries) as a percent of Total Capitalization of no more than
60%.  If any future indebtedness covenants have or reasonably imply a Current
and Funded Indebtedness as a percent of Total Capitalization limit of less than
65%, this 60% limit will adjust downwards so as to maintain at least a 5% gap.

Customer meeting two out of the three conditions above qualifies as a Category C
equivalent. Customer meeting less than two out of the three conditions above
qualifies as a Category D equivalent.
Customer qualifying for credit under this equivalent rating option shall provide
financial information and reports to Pipeline including, but not limited to,
quarterly covenant compliance reports, bond, note and credit facility
agreements, and detailed financial statements.
(A) For the purposes of this Paragraph 13:
“Rating” – shall mean long-term senior unsecured debt rating from Moody’s
Investors Service, Inc. (“Moody’s”) or Standard & Poor’s Rating Services, a
division of The McGraw-Hill Companies, Inc. (“S&P), or Fitch Ratings (“Fitch”).
If the entity is rated by two rating agencies, the lower rating shall apply to
the minimum requirement of the applicable Category A, B or C. If the entity is
rated by three rating agencies, at least two ratings shall meet the minimum
requirement of the applicable Category A, B or C.

 

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“Guaranty” – shall mean that Customer’s parent company or a third party meeting
the creditworthiness conditions of Category A, B, or C (“Guarantor”):
(i) guarantees all payment obligations of Customer under this Precedent
Agreement and the Service Agreements, (ii) remains in effect until all payment
obligations under this Precedent Agreement and Service Agreements have been
satisfied in full, and (iii) shall be in a form acceptable to Pipeline, which
for purposes herein shall mean in form and content acceptable to Pipeline in its
reasonable discretion. The Guarantor must meet the creditworthiness conditions
of Category A, B or C for so long as it guarantees Customer’s payment
obligations. Pipeline may require Customer to provide, or cause to be provided,
a replacement Guaranty from a replacement Guarantor if the original Guarantor
is, at any time, no longer meeting the creditworthiness conditions of Category
A, B or C.
“Letter of Credit” – shall mean a standby irrevocable letter of credit from a
“Qualified Financial Institution” , as defined below, which shall be: (i) issued
for an annual period (ii) automatically renewed annually, until all payment
obligations under this Precedent Agreement and the Service Agreements have been
satisfied in full, (iii) in a form acceptable to Pipeline, which for purposes
herein shall mean in form and content substantially similar to Exhibit B hereto,
and (iv) be provided at no cost to Pipeline.
“Qualified Financial Institution” – shall mean a major U.S. commercial bank, or
the U.S. branch office of a foreign bank, which is not the Customer or
Customer’s Guarantor (or a subsidiary or affiliate of the Customer or Customer’s
Guarantor) and which has assets of at least $10 billion dollars and a credit
rating of at least “A” by S&P, or “A3” by Moody’s. Pipeline may require
Customer, at no cost to Pipeline, to substitute a Qualified Financial
Institution if the Letter of Credit provided is, at any time, from a financial
institution which is no longer a Qualified Financial Institution.
““Tangible Net Worth” – shall mean Stockholder Equity less Intangibles, Pension,
Other Deferred Charges, Other Regulatory Assets and Non-Current Receivables.
“Fixed Charge Coverage ratio” – shall mean Interest Expense and Lease Rental
Expense divided by Net Income before Interest Expense, Taxes, Lease Rental
Expense, and any Net Gain or Loss on Sale of Investment or Fixed Assets.
“Funded Indebtedness” – shall mean Long Term Debt, current portion of Long Term
Debt, Long Term Lease Obligation and current portion of Long Term Lease
Obligation.
“Total Capitalization” – shall mean Long Term Debt, current portion of Long Term
Debt, Long Term Lease Obligation, current portion of Long Term Lease Obligation,
plus Stockholder Equity.
For purposes of this paragraph 13, “Customer’s pro-rata share of Pre-service
Costs” will be determined by an estimated cost and commitments schedule.
(B) The requirements set forth in this Paragraph 13 shall be in addition to and
not in lieu of any requirements under Pipeline’s FERC Gas Tariff, which are
applicable to Customer with respect to service on and after the Service
Commencement Date under the Service Agreements.
(C) If at any time and from time to time during the effectiveness of this
Precedent Agreement and/or the Service Agreements. Pipeline determines that
Customer is not satisfying the requirements in this Paragraph 13, Pipeline shall
notify Customer in writing, and Customer shall satisfy, or cause to be
satisfied, such requirement(s) as soon as reasonably practicable, but in no
event later than the close of the seventh (7th) business day following receipt
of such notice from Pipeline.

 

-17-

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

 

(D) The failure of Customer to timely satisfy or maintain the requirements set
forth in this Paragraph 13 shall in no way relieve Customer of its other
obligations under this Precedent Agreement and/or the Service Agreements, nor
shall it affect Pipeline’s right to seek damages or performance under this
Precedent Agreement and/or the Service Agreements. Further, if Customer fails to
timely satisfy or maintain the requirements of this Paragraph 13, Pipeline shall
have the right, but not the obligation, to suspend performance under this
Precedent Agreement, or to terminate this Precedent Agreement, upon ten
(10) days prior written notice by Pipeline.
(E) This Paragraph 13 shall survive the termination of this Precedent Agreement
and shall remain in effect until all payment obligations under this Precedent
Agreement and the Service Agreements have been satisfied in full.
(F) In the event Customer assigns this Precedent Agreement and/or the Service
Agreements in accordance with the applicable assignment provisions(s), or in the
event Customer permanently releases all or a portion of Customer’s capacity
under the Service Agreements in accordance with Section 3.14 of the General
Terms & Conditions of Pipeline’s FERC Gas Tariff, the assignee and/or the
permanent replacement customer, as applicable, shall be required to satisfy the
requirements of this Paragraph 13 until all payment obligations under this
Precedent Agreement and the Service Agreements have been satisfied in full.
14. This Precedent Agreement may not be modified or amended unless the Parties
execute written agreements to that effect.

 

-18-

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

 

15. Any company which succeeds by purchase, merger, or consolidation of title to
the properties, substantially as an entirety, of Pipeline or Customer, will be
entitled to the rights and will be subject to the obligations of its predecessor
in title under this Precedent Agreement. Otherwise, neither Customer nor
Pipeline may assign any of its rights or obligations under this Precedent
Agreement without the prior written consent of the other Party hereto. Further
in the event of any assignment of this Precedent Agreement or the Service
Agreements by Customer or a permanent release of all or any portion of
Customer’s capacity under the Service Agreements, Customer’s assignee or
permanent replacement shipper, as the case may be, shall be required to comply
with the provisions of Paragraph 13 for the remaining term of this Precedent
Agreement and/or the Service Agreements.
16. Except as expressly provided for in this Precedent Agreement, nothing herein
expressed or implied is intended or shall be construed to confer upon or give to
any person not a Party hereto any rights, remedies or obligations under or by
reason of this Precedent Agreement.
17. Each and every provision of this Precedent Agreement shall be considered as
prepared through the joint efforts of the Parties and shall not be construed
against either Party as a result of the preparation or drafting thereof. It is
expressly agreed that no consideration shall be given or presumption made on the
basis of who drafted this Precedent Agreement or any specific provision hereof.
18. The recitals and representations appearing first above are hereby
incorporated in and made a part of this Precedent Agreement.
19. This Precedent Agreement shall be governed by, construed, interpreted, and
performed in accordance with the laws of the State of Texas, without recourse to
any laws governing the conflict of laws.

 

-19-

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

 

20. Except as herein otherwise provided, any notice, request, demand, statement,
or bill provided for in this Precedent Agreement, or any notice which either
Party desires to give to the other, must be in writing and will be considered
duly delivered when mailed by registered or certified mail, or overnight
courier, to the other Party’s post office address set forth below:

     
Pipeline:
  Texas Eastern Transmission, LP
5400 Westheimer Court
Houston, Texas 77056
Attn: Vice President, Northeast Marketing and Business Development
Phone: (713) 627-5400
Fax: (713) 989-3190
 
   
Customer:
  Chesapeake Utilities Corporation
350 South Queen Street
Dover, Delaware 19904
Attn: Jennifer Clausius
Phone: 302-736-7818
Fax: 302-734-6011

or at such other address as either Party designates by written notice. Routine
communications, including monthly statements, will be considered duly delivered
when mailed by registered mail, certified mail, ordinary mail, or overnight
courier.
21. When used in this Precedent Agreement, and unless otherwise defined herein,
capitalized terms shall have the meanings set forth in Pipeline’s FERC Gas
Tariff on file with the Commission, as amended from time to time.

 

-20-

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

 

22. Customer represents and warrants that neither the execution, delivery and
performance of this Precedent Agreement, the Service Agreements, the Negotiated
Rate Agreements by Customer nor the consummation of the transactions
contemplated by this Precedent Agreement, the Service Agreements or the
Negotiated Rate Agreements , (A) conflicts or will conflict with or constitutes
or will constitute a violation of the partnership agreement, limited liability
company agreement, certificate of formation or conversion, certificate or
articles of incorporation, bylaws or other constituent document (collectively,
the “Organizational Documents”) of Customer, (B) conflicts or will conflict with
or constitutes or will constitute a breach or violation of, or a default (or an
event that, with notice or lapse of time or both, would constitute such a
default) under any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which any Customer any of its subsidiaries
(collectively, the “Customer Entities”) is a party or by which any of them or
any of their respective properties may be bound, or (C) violates or will violate
any statute, law or regulation or any order, judgment, decree or injunction of
any court or governmental agency or body directed to any of the Customer
Entities or any of their properties in a proceeding to which any of them or
their property is a party.
IN WITNESS WHEREOF, the Parties hereto have caused this Precedent Agreement to
be duly executed by their duly authorized officers as of the day and year first
above written.

                 
Texas Eastern Transmission, LP
  Chesapeake Utilities Corporation    
by its General Partner
           
Spectra Energy Transmission Services, LLC
           
 
               
By:
      By:        
 
 
 
     
 
   
Title:
      Title:        
 
 
 
     
 
   

 

-21-

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

 

         
Texas Estern Transmission, LP
5400 Westheimer Court
Houston, TX 77056-5310

713.627.5400 main
  Mailing Address:
P.O. Box 1642
Houston, TX 77251-1642   (SPECTRA ENERGY LOGO) [c00164c0016402.gif]

EXHIBIT A
April 7, 2010
Chesapeake Utilities Corporation
350 South Queen Street
Dover, DE 19904
Attn: Jennifer Clausius

Re:  
Rate Schedule FT-1 Service Agreement between Texas Eastern and Customer dated on
or about the date hereof — Negotiated Rate Agreement

Dear Jennifer:
By this transmittal letter, Texas Eastern Transmission, LP (“Texas Eastern” or
“Pipeline”) and Chesapeake Utilities Corporation (“Customer”) are implementing a
negotiated rate applicable to service under the above-referenced Rate
Schedule FT-1 Service Agreement.
Texas Eastern and Customer hereby agree that the provisions on the attached pro
forma tariff sheet(s) reflect the terms of their agreement, including the
effectiveness of the negotiated rate. After execution of this letter by both
Texas Eastern and Customer, Texas Eastern shall file the tariff sheet(s) with
the Commission containing rate-related provisions identical to those provisions
on the attached pro forma tariff sheet(s) in accordance with Section 29.7 of the
General Terms and Conditions of the Texas Eastern tariff.
If the foregoing accurately sets forth your understanding of the matter covered
herein, please so indicate by having a duly authorized representative sign in
the space provided below and returning an original signed copy to the
undersigned.
Sincerely,
Texas Eastern Transmission, LP
By its General Partner
Spectra Energy Transmission Services, LLC
 
ACCEPTED AND AGREED TO
THIS  _____  DAY OF APRIL, 2010
CHESAPEAKE UTILITIES CORPORATION

     
 
Name:
   
Title:
   

www.spectraenergy.com

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

STATEMENT OF NEGOTIATED RATES 1/ 2/ 3/
Customer Name: Chesapeake Utilities Corporation – Delaware Division
Service Agreement: [tbd]
Term of Negotiated Rate: The term of this negotiated rate commences on the
Service Commencement Date (as such term is defined in the Service Agreement) and
continues for the “Primary Term,” (as such term is defined in the Service
Agreement).
Rate Schedule: FT-1
MDQ: 30,000 Dth/d
Reservation Rate: During the Primary Term, Customer shall pay a “Negotiated
Reservation Rate” equal to a fixed monthly Reservation Charge of [$ ]. Such
Negotiated Reservation Rate shall be stated per Dth, per month of Customer’s MDQ
under the Service Agreement and will be adjusted as set forth in footnote 3
below. Customer shall also be responsible for any ASA (defined below)
reservation surcharge applicable to Customer’s Service Agreement under Rate
Schedule FT-1.
Usage Rate: During the Primary Term, shall be as follows:
(a) with respect to service from any Primary Receipt Point to any Primary
Delivery Point, as such points are described below, and with respect to service
provided from a Receipt Point to a Delivery Point located entirely within the
“Transportation Path” (as defined in Pipeline’s FERC Gas Tariff), the Usage
Charge shall be $0.00/Dth delivered, and Customer shall also be responsible for
and pay the Applicable Shrinkage Adjustment (“ASA”) charge, the applicable ACA
charge, ASA usage surcharge, EPC adjustment and all other charges and surcharges
applicable to Customer’s Service Agreement under Rate Schedule FT-1 (provided,
with respect to the applicable ASA charge, the charge is currently estimated to
be 1.98%, but it will be the applicable incremental ASA charge in effect from
time to time under Pipeline’s FERC Gas Tariff for the Project and in particular
Customer’s Service Agreement);and while Customer may not nominate more than
Customer’s MDQ, in the event actual quantities exceed the MDQ then with respect
to service for such quantities above Customer’s MDQ, customer shall pay
Pipeline, for all gas quantities transported, a usage rate, which shall be a
negotiated rate equal to the maximum applicable Usage-2 Charge under Texas
Eastern’s Rate Schedule FT-1 for this Project multiplied by the quantity of gas,
in Dekatherms, delivered in the applicable day, and Customer shall also pay the
applicable ASA charge, ACA charge, ASA usage surcharge, EPC adjustment and all
other charges and surcharges applicable to the Service Agreement under Rate
Schedule FT-1.
(b) with respect to service provided from a Receipt Point to a Delivery Point
where one or both such points are located outside of the Transportation Path,
the usage rate shall be the maximum applicable system Usage Charge under Texas
Eastern’s Rate Schedule FT-1 multiplied by the quantity of gas, in Dekatherms,
delivered in the applicable day, and Customer shall also pay the applicable
system ASA charge, ACA charge, ASA usage surcharge, EPC adjustment and all other
system charges and surcharges applicable to the Service Agreement under Rate
Schedule FT-1.
Primary Receipt Points: Interconnection of Pipeline and Kinder Morgan REX
Clarington, Monroe County, OH (Meter #73580)
Primary Delivery Points: at a proposed new interconnect to be established with
Eastern Shore Natural Gas at Honeybrook, PA (Meter # ).
Recourse Rate(s): The Recourse Rate(s) applicable to this service is the
applicable maximum rate(s) stated on Texas Eastern’s Tariff Sheets at the
applicable time.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

1/ This agreement conforms to the applicable form of service agreement.
2/ This negotiated rate shall apply only to service under Contract No. [tbd] and
using the points designated herein, as further described herein; provided, if
Customer amends the Service Agreement to change one or more of its primary
points listed above pursuant to the provisions of Pipeline’s FERC Gas Tariff,
Pipeline shall have the option to terminate this negotiated rate by providing
Customer with written notice of Pipeline’s intent to terminate the negotiated
rate and, in such case, Pipeline’s maximum recourse rates referenced above shall
apply for the remaining term of the Service Agreement, unless and until
otherwise agreed in writing between Customer and Pipeline; provided, further
that following the term of this negotiated rate as such term is described above,
Pipeline’s maximum recourse rates referenced above shall apply for any remaining
term under the Service Agreement.
3/ Pipeline and Customer acknowledge that the Capital Costs attributable to the
Project facilities which underlie the monthly Reservation Charge described in
the Reservation Rate section above are reasonably estimated to be $[tbd
dollars]. Such estimate of Capital Costs is expected to be substantially the
same as the estimated Project capital costs reflected in the Exhibit K included
with the certificate application filed by Pipeline with the Federal Energy
Regulatory Commission (“Commission”) for the Project. The monthly Reservation
Charge shall be adjusted, pursuant to the formula set forth in this footnote 3,
solely to reflect any differences between the estimated $[tbd] and the amount of
Capital Costs attributable to the Project facilities reflected by Pipeline in an
amended Exhibit K that is filed by Pipeline with the Commission in the
certificate proceeding regarding the Project. Pipeline shall prepare such
amended Exhibit K in accordance with Section 157.14(a)(13) of Title 18 of the
Code of Federal Regulations and such amended Exhibit K shall reflect Pipeline’s
reasonable good faith estimate at the time of the total Capital Costs
attributable to the Project, and Pipeline shall file such amended Exhibit K at
least thirty (30) days, but no more than sixty (60) days, prior to the
in-service date of the Project, as such in-service date is estimated to occur by
Pipeline at the time (“Amended Exhibit K”).
Such monthly Reservation Charge shall be adjusted by an amount per Dth of MDQ
equal to $0.3042 (equivalent to $0.01 per Dth per Day) for each $[tbd] million
increment of Capital Costs as reflected in the Amended Exhibit K above or below
the estimated $[tbd] amount (to be clear, the Reservation Charge adjustment will
occur to the fourth decimal point and thus the rate may be adjusted in
increments as small as $0.0001 per Dth per Day); provided, if the Capital Costs
reflected in the Amended Exhibit K exceed 15% above the estimated Capital Costs
of $[tbd], then the amount used for the Reservation Charge adjustment shall be
deemed to be 1.15 multiplied by the estimated Capital Costs, and if the Capital
Costs reflected in the Cost Report are more than 10% below the estimated Capital
Costs of $[tbd], then the amount used for the Reservation Charge adjustment
shall be deemed to be .90 multiplied by the estimated Capital Costs.
For purposes of this Negotiated Rate Agreement, (1) the term “Project” shall
mean the Project as generally described in the recitals to the Precedent
Agreement between the Parties regarding construction of facilities necessary to
provide the service contemplated in the Service Agreement, and as more
specifically described in the certificate application, as amended, related to
such facilities on file with the Commission, and(2) the term “Capital Costs”
means the total capital costs incurred by Pipeline for the development and
construction of the Project, including, without limitation, the allowance for
funds used during construction, as such costs are reflected in the Amended
Exhibit K, including all costs incurred to the date of the Amended Exhibit K and
estimated to be incurred for final completion of the applicable project.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

4/ Texas Eastern and Customer agree that Contract No. [tbd] is a ROFR Agreement
and will remain a ROFR Agreement following the end of the Negotiated Rate Term.
5/ Texas Eastern and Customer agree that in the event any carbon emissions tax
or other greenhouse gas assessment is imposed on Texas Eastern as a surcharge,
or other form of rate recovery, during the term of this Negotiated Rate
Agreement, then Customer shall agree to modify the negotiated rate set forth
herein to include Customer’s ratable share of such amounts. Further, if Texas
Eastern is required to incur additional expense to comply with any greenhouse
gas laws, rules or regulations, then Customer shall agree to modify the
negotiated rate set forth herein to include Customer’s ratable share of such
additional expense.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

         
Texas Estern Transmission, LP
5400 Westheimer Court
Houston, TX 77056-5310

713.627.5400 main
  Mailing Address:
P.O. Box 1642
Houston, TX 77251-1642   (SPECTRA ENERGY LOGO) [c00164c0016402.gif]

EXHIBIT A-1
April 7, 2010
Chesapeake Utilities Corporation
350 South Queen Street
Dover, DE 19904
Attn: Jennifer Clausius

Re:  
Rate Schedule FT-1 Service Agreement between Texas Eastern and Customer dated on
or about the date hereof — Negotiated Rate Agreement

Dear Jennifer:
By this transmittal letter, Texas Eastern Transmission, LP (“Texas Eastern” or
“Pipeline”) and Chesapeake Utilities Corporation (“Customer”) are implementing a
negotiated rate applicable to service under the above-referenced Rate
Schedule FT-1 Service Agreement.
Texas Eastern and Customer hereby agree that the provisions on the attached pro
forma tariff sheet(s) reflect the terms of their agreement, including the
effectiveness of the negotiated rate. After execution of this letter by both
Texas Eastern and Customer, Texas Eastern shall file the tariff sheet(s) with
the Commission containing rate-related provisions identical to those provisions
on the attached pro forma tariff sheet(s) in accordance with Section 29.7 of the
General Terms and Conditions of the Texas Eastern tariff.
If the foregoing accurately sets forth your understanding of the matter covered
herein, please so indicate by having a duly authorized representative sign in
the space provided below and returning an original signed copy to the
undersigned.
Sincerely,
Texas Eastern Transmission, LP
By its General Partner
Spectra Energy Transmission Services, LLC
 
ACCEPTED AND AGREED TO
THIS  _____  DAY OF APRIL, 2010
CHESAPEAKE UTILITIES CORPORATION

     
 
Name:
   
Title:
   

www.spectraenergy.com

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

STATEMENT OF NEGOTIATED RATES 1/ 2/ 3/
Customer Name: Chesapeake Utilities Corporation — Maryland Division
Service Agreement: [tbd]
Term of Negotiated Rate: The term of this negotiated rate commences on the
Service Commencement Date (as such term is defined in the Service Agreement) and
continues for the “Primary Term,” (as such term is defined in the Service
Agreement).
Rate Schedule: FT-1
MDQ: 10,000 Dth/d
Reservation Rate: During the Primary Term, Customer shall pay a “Negotiated
Reservation Rate” equal to a fixed monthly Reservation Charge of [$ ]. Such
Negotiated Reservation Rate shall be stated per Dth, per month of Customer’s MDQ
under the Service Agreement and will be adjusted as set forth in footnote 3
below. Customer shall also be responsible for any ASA (defined below)
reservation surcharge applicable to Customer’s Service Agreement under Rate
Schedule FT-1.
Usage Rate: During the Primary Term, shall be as follows:
(a) with respect to service from any Primary Receipt Point to any Primary
Delivery Point, as such points are described below, and with respect to service
provided from a Receipt Point to a Delivery Point located entirely within the
“Transportation Path” (as defined in Pipeline’s FERC Gas Tariff), the Usage
Charge shall be $0.00/Dth delivered, and Customer shall also be responsible for
and pay the Applicable Shrinkage Adjustment (“ASA”) charge, the applicable ACA
charge, ASA usage surcharge, EPC adjustment and all other charges and surcharges
applicable to Customer’s Service Agreement under Rate Schedule FT-1 (provided,
with respect to the applicable ASA charge, the charge is currently estimated to
be 1.98%, but it will be the applicable incremental ASA charge in effect from
time to time under Pipeline’s FERC Gas Tariff for the Project and in particular
Customer’s Service Agreement);and while Customer may not nominate more than
Customer’s MDQ, in the event actual quantities exceed the MDQ then with respect
to service for such quantities above Customer’s MDQ, customer shall pay
Pipeline, for all gas quantities transported, a usage rate, which shall be a
negotiated rate equal to the maximum applicable Usage-2 Charge under Texas
Eastern’s Rate Schedule FT-1 for this Project multiplied by the quantity of gas,
in Dekatherms, delivered in the applicable day, and Customer shall also pay the
applicable ASA charge, ACA charge, ASA usage surcharge, EPC adjustment and all
other charges and surcharges applicable to the Service Agreement under Rate
Schedule FT-1.
(b) with respect to service provided from a Receipt Point to a Delivery Point
where one or both such points are located outside of the Transportation Path,
the usage rate shall be the maximum applicable system Usage Charge under Texas
Eastern’s Rate Schedule FT-1 multiplied by the quantity of gas, in Dekatherms,
delivered in the applicable day, and Customer shall also pay the applicable
system ASA charge, ACA charge, ASA usage surcharge, EPC adjustment and all other
system charges and surcharges applicable to the Service Agreement under Rate
Schedule FT-1.
Primary Receipt Points: Interconnection of Pipeline and Kinder Morgan REX
Clarington, Monroe County, OH (Meter #73580)
Primary Delivery Points: at a proposed new interconnect to be established with
Eastern Shore Natural Gas at Honeybrook, PA (Meter # ).
Recourse Rate(s): The Recourse Rate(s) applicable to this service is the
applicable maximum rate(s) stated on Texas Eastern’s Tariff Sheets at the
applicable time.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

1/ This agreement conforms to the applicable form of service agreement.
2/ This negotiated rate shall apply only to service under Contract No. [tbd] and
using the points designated herein, as further described herein; provided, if
Customer amends the Service Agreement to change one or more of its primary
points listed above pursuant to the provisions of Pipeline’s FERC Gas Tariff,
Pipeline shall have the option to terminate this negotiated rate by providing
Customer with written notice of Pipeline’s intent to terminate the negotiated
rate and, in such case, Pipeline’s maximum recourse rates referenced above shall
apply for the remaining term of the Service Agreement, unless and until
otherwise agreed in writing between Customer and Pipeline; provided, further
that following the term of this negotiated rate as such term is described above,
Pipeline’s maximum recourse rates referenced above shall apply for any remaining
term under the Service Agreement.
3/ Pipeline and Customer acknowledge that the Capital Costs attributable to the
Project facilities which underlie the monthly Reservation Charge described in
the Reservation Rate section above are reasonably estimated to be $[tbd
dollars]. Such estimate of Capital Costs is expected to be substantially the
same as the estimated Project capital costs reflected in the Exhibit K included
with the certificate application filed by Pipeline with the Federal Energy
Regulatory Commission (“Commission”) for the Project. The monthly Reservation
Charge shall be adjusted, pursuant to the formula set forth in this footnote 3,
solely to reflect any differences between the estimated $[tbd] and the amount of
Capital Costs attributable to the Project facilities reflected by Pipeline in an
amended Exhibit K that is filed by Pipeline with the Commission in the
certificate proceeding regarding the Project. Pipeline shall prepare such
amended Exhibit K in accordance with Section 157.14(a)(13) of Title 18 of the
Code of Federal Regulations and such amended Exhibit K shall reflect Pipeline’s
reasonable good faith estimate at the time of the total Capital Costs
attributable to the Project, and Pipeline shall file such amended Exhibit K at
least thirty (30) days, but no more than sixty (60) days, prior to the
in-service date of the Project, as such in-service date is estimated to occur by
Pipeline at the time (“Amended Exhibit K”).
Such monthly Reservation Charge shall be adjusted by an amount per Dth of MDQ
equal to $0.3042 (equivalent to $0.01 per Dth per Day) for each $[tbd] million
increment of Capital Costs as reflected in the Amended Exhibit K above or below
the estimated $[tbd] amount (to be clear, the Reservation Charge adjustment will
occur to the fourth decimal point and thus the rate may be adjusted in
increments as small as $0.0001 per Dth per Day); provided, if the Capital Costs
reflected in the Amended Exhibit K exceed 15% above the estimated Capital Costs
of $[tbd], then the amount used for the Reservation Charge adjustment shall be
deemed to be 1.15 multiplied by the estimated Capital Costs, and if the Capital
Costs reflected in the Cost Report are more than 10% below the estimated Capital
Costs of $[tbd], then the amount used for the Reservation Charge adjustment
shall be deemed to be .90 multiplied by the estimated Capital Costs.
For purposes of this Negotiated Rate Agreement, (1) the term “Project” shall
mean the Project as generally described in the recitals to the Precedent
Agreement between the Parties regarding construction of facilities necessary to
provide the service contemplated in the Service Agreement, and as more
specifically described in the certificate application, as amended, related to
such facilities on file with the Commission, and(2) the term “Capital Costs”
means the total capital costs incurred by Pipeline for the development and
construction of the Project, including, without limitation, the allowance for
funds used during construction, as such costs are reflected in the Amended
Exhibit K, including all costs incurred to the date of the Amended Exhibit K and
estimated to be incurred for final completion of the applicable project.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

TEXAS EASTERN TRANSMISSION, LP     FERC Gas Tariff   Pro Forma Sheet No.  _____ 
Seventh Revised Volume No. 1    

4/ Texas Eastern and Customer agree that Contract No. [tbd] is a ROFR Agreement
and will remain a ROFR Agreement following the end of the Negotiated Rate Term.
5/ Texas Eastern and Customer agree that in the event any carbon emissions tax
or other greenhouse gas assessment is imposed on Texas Eastern as a surcharge,
or other form of rate recovery, during the term of this Negotiated Rate
Agreement, then Customer shall agree to modify the negotiated rate set forth
herein to include Customer’s ratable share of such amounts. Further, if Texas
Eastern is required to incur additional expense to comply with any greenhouse
gas laws, rules or regulations, then Customer shall agree to modify the
negotiated rate set forth herein to include Customer’s ratable share of such
additional expense.

     
Issued by: D. A. McCallum, Director, Rates and Tariffs
   
Issued on:
  Effective on:

 

 

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

 

EXHIBIT B
IRREVOCABLE STANDBY LETTER OF CREDIT

     
Letter of Credit No:                     
  Date:                     , 2010
 
   
 
  Date of Expiry:                     , 201_____ 
 
   
Beneficiary:
  Account Party:
Texas Eastern Transmission, LP
  Chesapeake Utilities Corporation
5400 Westheimer Court
  350 South Queen Street
Houston, TX 77056
  Dover, DE 19904

Attn: Credit Director
[Name of Bank] (“Issuing Bank”) hereby establishes this Irrevocable and
Transferable Standby Letter of Credit No.                      in favor of Texas
Eastern Transmission, LP (“Beneficiary”) for the account of Chesapeake Utilities
Corporation (“Account Party”) for the aggregate amount of up to (dollar amount)
available to Beneficiary by presenting sight draft(s) to Issuing Bank when
accompanied by a signed and dated statement by a purported officer of
Beneficiary certifying one or more of the following, as applicable:

  1.  
“The amount drawn herein is to satisfy obligations of Account Party between
Beneficiary and Account Party. Wherefore, the undersigned Beneficiary does
hereby demand payment of $                    . Beneficiary further certifies
that supporting documents when required were presented to Account Party and that
Account Party has not satisfied its obligations.” And / or

  2.  
“This Letter of Credit will expire in less than thirty (30) days and Beneficiary
has not received an extension of said Letter of Credit or other acceptable
replacement collateral from Account Party. Wherefore, the undersigned
Beneficiary does hereby demand payment of $                    . Upon timely
receipt of an amendment extending this Letter of Credit, this drawing is to be
considered automatically rescinded.” And / or

  3.  
“Issuing Bank no longer has one of the following: an individual rating of at
least “A-” from Fitch Investor Service, Inc., or a long-term senior unsecured
debt rating of at least “A-” by Standard & Poor’s Rating Group, or a long-term
senior unsecured debt rating of at least “A3” by Moody’s Investor Services,
Inc., and Account Party has not caused a replacement Letter of Credit from an
alternate financial institution acceptable to Beneficiary to be issued to
Beneficiary. Wherefore, the undersigned Beneficiary does hereby demand payment
of $                                        .”

 

 

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

 

SPECIAL TERMS AND CONDITIONS

1.  
Partial and multiple drawings are allowed hereunder. The amount that may be
drawn by Beneficiary under this Letter of Credit shall be automatically reduced
by the amount of any payments made through Issuing Bank referencing this Letter
of Credit.

2.  
This Letter of Credit shall automatically extend without amendment for periods
of one year each from the present or any future expiry date unless Issuing Bank
notifies Beneficiary in writing at least sixty (60) days prior to such present
or future expiry date, as applicable, that Issuing Bank elects not to further
extend this Letter of Credit.

3.  
This letter of Credit is transferable without charge any number of times, but
only (a) to a party which succeeds to or is assigned and assumes in writing the
rights and obligations of the transferor under that certain Precedent Agreement
dated as of April  _____, 2010, between Texas Eastern Transmission, LP, the
initial Beneficiary, and the Account Party (the “Agreement”) in accordance with
or as permitted by the terms of the Agreement and only in connection with such
succession or assignment, (b) in the amount of the full unutilized balance
hereof and not in part, and (c) with the written approval of Account Party which
consent shall not be unreasonably withheld, conditioned or delayed.

4.  
The term “Beneficiary” includes any successor by operation of law of the named
beneficiary to this Letter of Credit, including, without limitation, any
liquidator, any rehabilitator, receiver or conservator.

5.  
Presentations for drawing may be delivered in person, by mail, by express
delivery, or by facsimile.

6.  
All Bank charges are for the account of Account Party.

7.  
Article 36 under UCP 600 is modified as follows: If the Letter of Credit expires
while the place for presentation is closed due to events described in said
Article, the expiry date of this Letter of Credit shall be automatically
extended without amendment to a date thirty (30) calendar days after the place
for presentation reopens for business.

Issuing Bank hereby agrees with Beneficiary that documents presented for drawing
in compliance with the terms of this Letter of Credit will be duly honored upon
presentation at Issuing Bank’s counters if presented on or before the expiry
date.
Unless otherwise expressly stated herein, this Letter of Credit is subject to
the Uniform Customs and Practice for Documentary Credits (“UCP”), 2007 Revision,
International Chamber of Commerce Publication No. 600. Matters not covered by
the UCP shall be governed and construed in accordance with the laws of the state
of New York.
ISSUING BANK SIGNATURE