Exhibit 10.2

 

“Pages where confidential treatment has been requested are marked ‘Confidential
Treatment Requested.’ The redacted material has been separately filed with the
Commission, and the appropriate section has been marked at the appropriate place
with [REDACTED] and in the margin with a star (*).”

 

MEMORANDUM OF UNDERSTANDING

 

This Memorandum of Understanding, dated as of January 17, 2005 (the “MOU”),
between Virginia Electric and Power Company, a Virginia corporation (“VEPCO”),
and Mettiki Coal, LLC, a Delaware limited liability company (“Mettiki”).

 

Recitals

 

Mettiki and VEPCO are parties to a Coal Supply Agreement, dated January 15, 1996
(the “Coal Supply Agreement”), pursuant to which Mettiki has agreed to sell to
VEPCO, and VEPCO has agreed to purchase, coal from Mettiki’s mine located in
Garrett County, Maryland (the “Mettiki Mine”) for use in VEPCO’s Mt. Storm Power
Station, which is located in Grant County, West Virginia (the “Station”). The
Coal Supply Agreement has a term beginning January 15, 1996 and continuing
through December 31, 2006.

 

Mettiki and VEPCO from time to time enter into spot sale and purchase agreements
for the delivery of Mettiki coal to the VEPCO Station that is in addition to the
parties purchase and sales obligations under the Coal Supply Agreement (“Spot
Agreement(s)”). Furthermore, Mettiki and VEPCO are currently in negotiations to
enter into a letter of intent (“LOI”) outlining the key terms and conditions of
a successor coal supply agreement pursuant to which Mettiki, or one or more of
its affiliates, (collectively “Mettiki”) is proposing to sell to VEPCO coal from
existing and/or new mining operations to be developed in Western Maryland and/or
West Virginia with a proposed term beginning on January 1, 2007 (the “Successor
Agreement”).

 

Mount Storm Coal Supply, LLC (“Mount Storm Supply”) and its affiliate, PC West
Virginia Synthetic Fuel #2, LLC (“Pace”), have entered into various transactions
with VEPCO whereby Pace shall produce synthetic fuel that qualifies for Section
29 tax credits that is derived from coal (“Synfuel”) at Pace’s synthetic fuel
facility (the “Synfuel Facility”), which Synfuel Facility shall be operated and
maintained by PACE adjacent to or near VEPCO’s Station.

 

VEPCO and Mettiki desire to agree upon certain terms and conditions to enable
Mount Storm Supply to purchase coal produced by Mettiki, which in turn shall be
sold by Mount Storm Supply to Pace to produce Synfuel at Pace’s Synfuel Facility
which shall then be purchased by VEPCO under synfuel supply agreements (“Synfuel
Supply Agreement(s)”) between Pace and VEPCO. The Synfuel purchased by VEPCO
from Pace under the Synfuel Supply Agreements which is produced from coal
supplied by Mettiki shall be in lieu of all or a part of the coal that is
required to be purchased by VEPCO from Mettiki under the respective Coal Supply
Agreement, Spot Agreement and/or the Successor Agreement.

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Confidential Treatment Requested

 

    

In consideration of the above Recitals which are incorporated herein, and the
covenants and premises herein

set forth, VEPCO and Mettiki hereby agree, intending to be legally bound, as
follows:

 

 

 

 

 

 

 

*

  

1. Upon the execution of this MOU by Mettiki and VEPCO, Mettiki shall enter into
short-term coal supply

agreements with Mount Storm Supply containing mutually acceptable terms and
conditions for the sale and

purchase of Mettiki coal to Mount Storm Supply that will correspond with the
delivery obligations arising

under the Coal Supply Agreement and/or any Spot Agreements between Mettiki and
VEPCO (collectively

the “Interim Feedstock Agreement(s)”). The purchase price for the coal sold to
Mount Storm Supply under

the Interim Feedstock Agreements shall be equal to the price for each ton of
coal payable from time to time

under the corresponding Coal Supply Agreement or Spot Agreements between Mettiki
and VEPCO plus

$[REDACTED] per ton. The delivery of coal under the Interim Feedstock Agreements
shall commence on

or before January 17, 2005, and the term of the Interim Feedstock Agreements
shall continue until the first

day of the calendar month following the date that Mettiki and VEPCO execute the
LOI.

 

 

 

 

 

 

*

  

2. Upon the execution of the LOI by Mettiki and VEPCO, Mettiki shall enter into
a coal supply agreement

with Mount Storm Supply containing mutually acceptable terms and conditions for
the sale and purchase of

Mettiki coal to Mount Storm Supply that will correspond with the delivery
obligations arising under the

Coal Supply Agreement and any Spot Agreements between Mettiki and VEPCO (the
“Long Term Feedstock

Agreement”). The purchase price for the coal sold to Mount Storm Supply under
the Long Term Feedstock

Agreement shall be equal to the price for each ton of coal payable from time to
time under the corresponding

Coal Supply Agreement and/or Spot Agreements between Mettiki and VEPCO plus
$[REDACTED] per ton.

The delivery of coal under the Long Term Feedstock Agreement shall commence on
the first day of the calendar

month following the date that Mettiki and VEPCO execute the LOI and the term of
the Long Term Feedstock

Agreement shall continue until December 31, 2006.

 

 

 

*

  

3. If after the date Mettiki and VEPCO have executed the LOI, Mettiki and VEPCO
reach an impasse

and are unable to conclude negotiations of the Successor Agreement, the purchase
price for the coal sold to

Mount Storm Supply under the Long Term Feedstock Agreement shall revert back to
the price for each ton

of coal payable from time to time under the corresponding Coal Supply Agreement
and/or Spot Agreements

between Mettiki and VEPCO plus $[REDACTED] per ton for all tons sold under the
Long Term Feedstock

Agreement effective as of the effective date of the Long Term Feedstock
Agreement. In such event, VEPCO

shall pay Mettiki the retroactive adjustment within 30 days from receipt of
Mettiki’s invoice for such

retroactive adjustment. Mettiki shall give notice to Mount Storm Supply of the
termination of such

negotiations or discussions as soon as reasonably practicable following the
occurrence thereof. Notwithstanding

the forgoing provisions of this Paragraph 3, in no event shall VEPCO have any
obligation to pay any retroactive

adjustment to Mettiki if failure to conclude negotiations of the Successor
Agreement is caused by Mettiki’s failure

to obtain and maintain is operating permits as a prerequisite to supply coal
under the Successor Agreement.

    

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[REDACTED] denotes confidential information with respect to which a separate
confidential treatment request

has been filed with the Securities and Exchange Commission.

 

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Confidential Treatment Requested

 

*   

4. Upon the execution of the Successor Agreement by Mettiki and VEPCO, Mettiki
and Mount Storm Supply

shall amend the Long Term Feedstock Agreement to extend the term of the Long
Term Feedstock Agreement

through December 31, 2007, and shall amend any other provision of such agreement
so that it corresponds with

the delivery obligations arising under the Successor Agreement between Mettiki
and VEPCO. The amendment

shall also provide that the purchase price for the coal sold to Mount Storm
Supply under the Long Term Feedstock

Agreement shall be equal to the price for each ton of coal payable from time to
time under the Successor Agreement

between Mettiki and VEPCO plus $[REDACTED] per ton.

    

5. Pursuant to the terms of the agreements entered into between Mount Storm
Supply and VEPCO, VEPCO

shall act as Mount Storm Supply’s consultant in regards providing analytical,
reporting and administrative

services relating to any coal purchased by Mount Storm Supply under any Interim
Feedstock Agreement or

Long Term Feedstock Agreement. As such, all analytical, reporting and
administrative services provided to

Mount Storm Supply by VEPCO shall be in accordance with the terms and conditions
of the corresponding

Coal Supply Agreement, Spot Agreement and/or Successor Agreement between Mettiki
and VEPCO unless

Mettiki and Mount Storm Supply expressly agree to other analytical, reporting
and administrative provisions

pursuant to any Interim Feedstock Agreement or Long Term Feedstock Agreement.
Unless otherwise agreed

to by Mettiki and Mount Storm Supply in any Interim Feedstock Agreement or the
Long Term Feedstock Agreement,

Mount Storm Supply shall have no greater rights of suspension of shipments than
as defined in the corresponding

Coal Supply Agreement, Spot Agreement and/or Successor Agreement between Mettiki
and VEPCO.

*

 

 

  

6. Any coal purchased by Mount Storm Supply under any Interim Feedstock
Agreement or the Long Term

Feedstock Agreement shall automatically reduce the quantity of coal required to
be purchased by VEPCO and/or

supplied by Mettiki pursuant to the corresponding Coal Supply Agreement, Spot
Agreement and/or Successor

Agreement between Mettiki and VEPCO. A force majeure event occurring under any
Interim Feedstock Agreement

or the Long Term Feedstock Agreement between Mount Storm Supply and Mettiki
shall be deemed to be a force

majeure event under the corresponding Coal Supply Agreement, Spot Agreement
and/or Successor Agreement

between Mettiki and VEPCO. Mettiki and VEPCO shall enter into amendments to the
Coal Supply Agreement,

the Spot Agreements and the Successor Agreement to reflect this reduction in
VEPCO’s purchase obligations.

When made available by Mettiki, Mount Storm Supply shall purchase coal for use
as feedstock for the Synfuel

Facility under any Interim Feedstock Agreements or the Long Term Feedstock
Agreement prior to purchasing

coal provided by other suppliers (i.e. on a daily basis the total amount of
Synfuel produced by the Synfuel Facility

will first be applied against the volume of coal delivered by Mettiki on such
day, with any excess volume being

attributed to tonnage supplied by other suppliers, if any). Additionally, the
amendments to the Coal Supply

Agreement and the Spot Agreements shall provide that Mettiki shall refund to
VEPCO the purchase price premiums

of $[REDACTED] or $[REDACTED] per ton, as applicable, paid by Mount Storm Supply
under the Interim Feedstock

Agreement and the Long Term Feedstock Agreement for each ton of coal sold to
Mount Storm Supply that is not

produced into Synfuel.

    

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[REDACTED] denotes confidential information with respect to which a separate
confidential treatment request

has been filed with the Securities and Exchange Commission.

 

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Confidential Treatment Requested

 

 

 

*

  

7. During the term of any Synfuel Supply Agreement between Pace and VEPCO,
Mettiki shall allow

VEPCO or Mount Storm Supply to deliver coal to Mettiki’s truck unloading
facility (“Facility”) at the Station

which is produced from sources other than the Mettiki Mine (“Third Party
Sources”). Mount Storm Supply or

VEPCO, as applicable, shall pay Mettiki $[REDACTED] per ton for each ton of coal
delivered into the Facility

at the Station from Third Party Sources that is delivered during Mettiki’s
scheduled operating hours of the

Facility. Unless otherwise agreed by the parties in writing, any coal delivered
to the Facility from Third Party

Sources will be ratably delivered during Mettiki’s normal scheduled operating
hours of the Facility. If requested

by VEPCO, Mettiki shall exert reasonable efforts to extend the normal scheduled
operating hours of the Facility

to accommodate the delivery of coal from Third Party Sources and in such event
VEPCO shall reimburse Mettiki

for all costs incurred by Mettiki in operating the Facility during such period
of time. Mettiki shall have the right to

suspend or reject deliveries of coal from Third Party Sources if they are not in
compliance with the legal load

limits as then currently enforced in the State of West Virginia including any
permitted variances and tolerances,

and/or if the equipment is not compatible with design and safe operation of the
Facility as existing or modified

to accommodate the delivery of such coal from Third Party Sources. Mount Storm
Supply or VEPCO, as applicable,

will provide to Mettiki a daily tabulation of the certified weights for each
truck load of coal delivered to the Facility

from Third Party Sources. In the event VEPCO requests modifications to the
Facility to accommodate deliveries of

coal from Third Party Sources, including but not limited to modifications to
allow delivery of triaxle and tractor/trailer

combinations, Mettiki shall exert all reasonable efforts to comply with VEPCO’s
request and any such modifications

to the Facility shall be at VEPCO’s sole cost and expense and VEPCO will
reimburse Mettiki for such costs upon

completion of the modifications.

    

8. This MOU shall be governed by the laws of the Commonwealth of Virginia,
without giving effect to principles

of conflicts of laws, and shall be binding upon the parties hereto and their
respective successors and permitted assigns,

except that no party shall assign any of their rights or delegate any of their
obligations hereunder except with the prior

written consent of the other party hereto. The parties hereto agree that this
MOU is a legally, binding agreement, and

not an agreement to agree, and shall be enforceable against the parties hereto
in accordance with its terms.

    

9. From the execution of this MOU, Mettiki and VEPCO agree to negotiate in good
faith to finalize, execute and

deliver the amendments to the Coal Supply Agreement and the Spot Agreements, the
LOI and the Successor Agreement.

From the execution of this MOU, Mettiki agrees to negotiate with Mount Storm
Supply in good faith to finalize, execute

and deliver the Interim Feedstock Agreements, the Long Term Feedstock Agreement
and the amendment to the Long

Term Feedstock Agreement.

    

10. This MOU shall terminate on December 31, 2007.

    

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[REDACTED] denotes confidential information with respect to which a separate
confidential treatment request has been filed with the Securities and Exchange
Commission.

 

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11. This MOU may not be amended, supplemented or otherwise modified, and no
provision of this MOU may be waived, except by a written instrument signed by
each of the parties hereto.

 

12. This MOU constitutes the parties’ entire agreement with respect to the
subject matter hereof, and supersedes any and all prior agreements or
understandings between the parties with respect to the matters referred to
herein. Except as provided in this MOU, the parties acknowledge and agree that,
notwithstanding any other term or provision contained in this MOU, neither VEPCO
or Mettiki will have any greater, reduced, additional or changed obligation,
liability or duty to the other than as specified in the Premises Lease,
Equipment Lease, Operating Agreement or the Agreement as a result of Seller
entering into any Interim Feedstock Agreement or Long Term Feedstock Agreement
with Mount Storm Supply.

 

IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of
Understanding to be executed in duplicate originals as of the date first written
above.

 

Mettiki Coal, LLC

By:  

/s/ Gary J. Rathburn

Name:

 

Gary J. Rathburn

Title:

 

Senior Vice President Marketing

 

Virginia Electric and Power Company By:  

/s/ David A. Heacock

Name:

 

David A. Heacock

Title:

 

Vice President – Fossil & Hydro

 

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