<PAGE>
 
                                                                   EXHIBIT 10.22
                                                                   -------------
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

This Agreement ("Agreement") is made and entered into this 1/st/ day of January,
1998, by and between Algonquin Gas Transmission Company, a Delaware Corporation
(herein called "Algonquin"), and Boston Gas Company (herein called "Customer"
whether one or more persons).

WHEREAS, pursuant to a settlement agreement approved on July 8, 1994, by the
Federal Energy Regulatory Commission in Docket Nos. RP93-14-000, et al.,
Algonquin and Customer entered into two Service Agreements (No. 93002 and No.
9W001) both dated September 1, 1994, for service under Rate Schedule AFT-1; and

WHEREAS, to enhance the ability of both parties to administer, among other
things, nominations and capacity releases, Algonquin and Customer desire to
combine the two aforementioned service agreements into a single service
agreement under Rate Schedule AFT-1;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties do agree as follows:

                                   ARTICLE I
                              SCOPE OF AGREEMENT
                                        
1.1  Subject to the terms, conditions and limitations hereof and of Algonquin's
     Rate Schedule AFT-1, Algonquin agrees to receive from or for the account of
     Customer for transportation on a firm basis quantities of natural gas
     tendered by Customer on any day at the Point(s) of Receipt; provided,
     however, Customer shall not tender without the prior consent of Algonquin,
     at any Point of Receipt on any day a quantity of natural gas in excess of
     the applicable Maximum Daily Receipt Obligation for such Point of Receipt
     plus the applicable Fuel Reimbursement Quantity; and provided further that
     Customer shall not tender at
<PAGE>
 

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

                                   ARTICLE I
                              SCOPE OF AGREEMENT
                                  (Continued)

     all Point(s) of Receipt on any day or in any year a cumulative quantity of
     natural gas, without the prior consent of Algonquin, in excess of the
     following quantities of natural gas plus the applicable Fuel Reimbursement
     Quantities:

                 Maximum Daily Transportation Ouantity (MMBtu)
                 --------------------------------------------

                         Nov 16 - Apr 15        145,293*  
                         Apr 16 - May 31        125,411   
                         Jun 1  - Sep 30         85,646    
                         Oct 1  - Nov 15        125,411    

     *MDTQ to be utilized in applying monthly Reservation Charge

          Maximum Annual Transportation Quantity                43,925,867 MMBtu

1.2  Algonquin agrees to transport and deliver to or for the account of Customer
     at the Point(s) of Delivery and Customer agrees to accept or cause
     acceptance of delivery of the quantity received by Algonquin on any day,
     less the Fuel Reimbursement Quantities; provided, however, Algonquin shall
     not be obligated to deliver at any Point of Delivery on any day a quantity
     of natural gas in excess of the applicable Maximum Daily Delivery
     Obligation.
<PAGE>
 
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

                                  ARTICLE II
                               TERM OF AGREEMENT
                                        
2.1  This Agreement shall become effective as of the date set forth hereinabove
     and shall continue in effect for a term ending on and including October 31,
     1996 ("Primary Term") and shall remain in force from year to year
     thereafter unless terminated by either party by written notice one year or
     more prior to the end of the Primary Term or any successive term
     thereafter. Algonquin's right to cancel this Agreement upon the expiration
     of the Primary Term hereof or any succeeding term shall be subject to
     Customer's rights pursuant to Sections 8 and 9 of the General Terms and
     Conditions.

2.2  This Agreement may be terminated at any time by Algonquin in the event
     Customer fails to pay part or all of the amount of any bill for service
     hereunder and such failure continues for thirty days after payment is due;
     provided Algonquin gives ten days prior written notice to Customer of such
     termination and provided further such termination shall not be effective
     if, prior to the date of termination, Customer either pays such outstanding
     bill or furnishes a good and sufficient surety bond guaranteeing payment to
     Algonquin of such outstanding bill; provided that Algonquin shall not be
     entitled to terminate service pending the resolution of a disputed bill if
     Customer complies with the billing dispute procedure currently on file in
     Algonquin's tariff.

                                  ARTICLE III
                                 RATE SCHEDULE
                                        
3.1  Customer shall pay Algonquin for all services rendered hereunder and for
     the availability of such service under Algonquin's Rate Schedule AFT-1 as
     filed with the Federal Energy Regulatory Commission and as the same may be
     hereafter revised or changed. The rate to be charged Customer for
     transportation hereunder shall not be more than the maximum rate under Rate
     Schedule AFT-1, nor less than the minimum rate under Rate Schedule AFT-1.
<PAGE>
 
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

                                  ARTICLE III
                                 RATE SCHEDULE
                                  (Continued)

3.2  This Agreement and all terms and provisions contained or incorporated
     herein are subject to the provisions of Algonquin's applicable rate
     schedules and of Algonquin's General Terms and Conditions on file with the
     Federal Energy Regulatory Commission, or other duly constituted authorities
     having jurisdiction, and as the same may be legally amended or superseded,
     which rate schedules and General Terms and Conditions are by this reference
     made a part hereof.

3.3  Customer agrees that Algonquin shall have the unilateral right to file with
     the appropriate regulatory authority and make changes effective in (a) the
     rates and charges applicable to service pursuant to Algonquin's Rate
     Schedule AFT-1, (b) Algonquin's Rate Schedule AFT-1, pursuant to which
     service hereunder is rendered or (c) any provision of the General Terms and
     Conditions applicable to Rate Schedule AFT-1. Algonquin agrees that
     Customer may protest or contest the aforementioned filings, or may seek
     authorization from duly constituted regulatory authorities for such
     adjustment of Algonquin's existing FERC Gas Tariff as may be found
     necessary to assure that the provisions in (a), (b), or (c) above are just
     and reasonable.

                                  ARTICLE IV
                              POINT(S) OF RECEIPT
                                        
Natural gas to be received by Algonquin for the account of Customer hereunder
shall be received at the outlet side of the measuring station(s) at or near the
Primary Point(s) of Receipt set forth in Exhibit A of the service agreement,
with the Maximum Daily Receipt Obligation and the receipt pressure obligation
indicated for each such Primary Point of Receipt. Natural gas to be received by
Algonquin for the account of Customer hereunder may also be received at the
outlet side of any other measuring station on the Algonquin system, subject to
reduction pursuant to Section 6.2 of Rate Schedule AFT-1.

                                   ARTICLE V
                             POINT(S) OF DELIVERY
                                        
Natural gas to be delivered by Algonquin for the account of Customer hereunder
shall be delivered on the outlet side of the measuring station(s) at or near the
Primary Point(s) of Delivery set forth in Exhibit B of the service agreement,
with the Maximum Daily Delivery Obligation and the delivery pressure obligation
indicated for each such Primary Point of Delivery.
<PAGE>
 
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

Natural gas to be delivered by Algonquin for the account of Customer hereunder
may also be delivered at the outlet side of any other measuring station on the
Algonquin system, subject to reduction pursuant to Section 6.4 of Rate Schedule
AFT-1.

                                  ARTICLE VI
                                   ADDRESSES
                                        
Except as herein otherwise provided or as provided in the General Terms and
Conditions of Algonquin's FERC Gas Tariff, any notice, request, demand,
statement, bill or payment provided for in this Agreement, or any notice which
any party may desire to give to the other, shall be in writing and shall be
considered as duly delivered when mailed by registered, certified, or first
class mail to the post office address of the parties hereto, as the case may be,
as follows:

     (a)  Algonquin:  Algonquin Gas Transmission Company
                      5400 Westheimer Ct
                      Houston, TX 77056

     (b)  Customer:   Boston Gas Company
                      One Beacon Street
                      Boston, MA 02108

or such other address as either party shall designate by formal written notice.
<PAGE>
 
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

                                  ARTICLE VII
                                INTERPRETATION
                                        
The interpretation and performance of the Agreement shall be in accordance with
the laws of the Commonwealth of Massachusetts, excluding conflicts of law
principles that would require the application of the laws of a different
jurisdiction.

                                 ARTICLE VIII
                          AGREEMENTS BEING SUPERSEDED
                                        
When this Agreement becomes effective, it shall supersede the following
agreements between the parties hereto, except that in the case of conversions
from former Rate Schedules F-2 and F-3, the parties' obligations under Article
II of the service agreements pertaining to such rate schedules shall continue in
effect.

Service Agreement Nos. 93002 and 9W001 executed by Customer and Algonquin under
Rate Schedule AFT-1 both dated September 1, 1994.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective, agents thereunto duly authorized, the day and year first
above written.

                     ALGONQUIN GAS TRANSMISSION COMPANY


                     By:     /s/ Robert B. Evans
                             ----------------------------------

                     Title:  Sr. Vice President
                             ----------------------------------


                     BOSTON GAS COMPANY


                     By:     /s/ W. R. Luthern
                             ----------------------------------

                     Title:  VICE PRESIDENT
                             ----------------------------------
<PAGE>
 

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------
                                        
                                   EXHIBIT A
                              Point(s) of Receipt
                              -------------------

                            Dated:  January 1, 1998


          To the service agreement under Rate Schedule AFT-1 between 
Algonquin Gas Transmission Company (Algonquin) and Boston Gas Company (Customer)
                        concerning Point(s) of Receipt

<TABLE>
<CAPTION>
     Primary                      Maximum Daily           Maximum 
     Point of                  Receipt Obligation      Receipt Pressure
     Receipt                        (MMBtu)                (Psig)             
     -------                   ------------------      ---------------        
     <S>                       <C>                     <C>                    
     Hanover, NJ (TETCO)                               At any pressure requested
          Nov 16 - Apr 15             66,904           by Algonquin but not in 
          Apr 16 - May 31             55,488           excess of 750 Psig.     
          Jun  1 - Sep 30             32,658                                  
          Oct  1 - Nov 15             55,488                                  
                                                                              
     Lambertville, NJ                                  At any pressure requested
          Nov 16 - Apr 15             78,389           by Algonquin but not in
          Apr 16 - May 31             69,923           excess of 750 Psig.    
          Jun  1 - Sep 30             52,988                                  
          Oct  1 - Nov 15             69,923                                    
</TABLE>                                                                      
                                                                              
Signed for Identification

Algonquin:  /s/ Robert B. Evans
            -----------------------


Customer:  /s/ W. R. Luthern
           ------------------------
<PAGE>
 
                                                                          93002C

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------

                                   EXHIBIT B
                             Point(s) of Delivery
                             --------------------

                            Dated:  January 1, 1998


          To the service agreement under Rate Schedule AFT-1 between
Algonquin Gas Transmission Company (Algonquin) and Boston Gas Company (Customer)
                        concerning Point(s) of Delivery

<TABLE> 
<CAPTION> 
     Primary                            Maximum Daily               Minimum     
     Point of                        Delivery Obligation       Delivery Pressure
     Delivery                              (MMBtu)                  (Psig)     
     --------                        -------------------       -----------------
     <S>                             <C>                       <C> 
     At Customer's reduction                        
     valves located at Everett, MA                                     75
          Nov 16 - Apr 15                    53,803
          Apr 16 - May 31                    46,844
          Jun  1 - Sep 30                    32,928
          Oct  1 - Nov 15                    46,844 

     At the property line          
     on the outlet side of         
     meter stations located at:    
     Waltham, MA                                                      125
          Nov 16 - Apr 15                    21,886
          Apr 16 - May 31                    19,622
          Jun  1 - Sep 30                    15,092
          Oct  1 - Nov 15                    19,622 

     East Braintree, MA                                               125
          Nov 16 - Apr 15                    27,970
          Apr 16 - May 3l                    25,018 
          Jun  1 - Sep 30                    19,113
          Oct  1 - Nov 15                    25,018 
</TABLE> 

Signed for Identification


Algonquin:  /s/ Robert B. Evans
            ------------------------


Customer:   /s/ W. R. Luthern
            ------------------------
<PAGE>
 

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------
                                        
                                   EXHIBIT B
                             Point(s) of Delivery
                             --------------------
                                  (Continued)

                            Dated:  January 1, 1998


          To the service agreement under Rate Schedule AFT-1 between 
Algonquin Gas Transmission Company (Algonquin) and Boston Gas Company (Customer)
                        concerning Point(s) of Delivery

<TABLE> 
<CAPTION> 
     Primary                     Maximum Daily              Minimum     
     Point of                 Delivery Obligation      Delivery Pressure
     Delivery                       (MMBtu)                 (Psig)       
     --------                 -------------------      -----------------
     <S>                      <C>                      <C> 
     Weston, MA                                                100
          Nov 16 - Apr 15          2,980
          Apr 16 - May 31          2,444
          Jun  1 - Sep 30          1,372
          Oct  1 - Nov 15          2,444

     Wellesley, MA                                              60
          Nov 16 - Apr 15         37,005
          Apr 16 - May 3l         30,616
          Jun  1 - Sep 30         17,836
          Oct  1 - Nov 15         30,616

     Ponkapoag, MA                                             200
          Nov 16 - Apr 15         49,133
          Apr 16 - May 3l         47,207
          Jun  1 - Sep 30         43,356
          Oct  1 - Nov 15         47,207
</TABLE> 

Signed for Identification


Algonquin:  /s/ Robert B. Evans
            -------------------------


Customer:   /s/ W. R. Luthern
            -------------------------
<PAGE>
 

                               SERVICE AGREEMENT
                      (APPLICABLE TO RATE SCHEDULE AFT-1)
                       ---------------------------------
                                        
                                   EXHIBIT B
                             Point(s) of Delivery
                             --------------------
                                  (Continued)

                            Dated:  January 1, 1998

          To the service agreement under Rate Schedule AFT-1 between
Algonquin Gas Transmission Company (Algonquin) and Boston Gas Company (Customer)
                        concerning Point(s) of Delivery

<TABLE>
<CAPTION>
     Primary                       Maximum Daily               Minimum
     Point of                   Delivery Obligation       Delivery Pressure
     Delivery                         (MMBtu)                  (Psig)
     --------                   -------------------       -----------------
     <S>                        <C>                       <C>  
     Norwood, MA                                                 75
          Nov 16 - Apr 15                4,836          
          Apr 16 - May 31                3,930          
          Jun  1 - Sep 30                2,117          
          Oct  1 - Nov 15                3,930           
 
     Potter Street                                                              
     East Braintree, MA                                   Algonquin's line      
          Nov 16 - Apr 15               21,660            pressure as may exist 
          Apr 16 - May 3l               20,811            from time to time.    
          Jun  1 - Sep 30               19,113
          Oct  1 - Nov 15               20,811 
</TABLE> 
             
     Algonquin's Maximum Daily Delivery Obligations for the East Braintree and
     Potter Street Points of Delivery under Contract Nos. 93002C and 93002E
     shall not exceed a combined daily total equal to the aggregate of the
     former Maximum Daily Delivery Obligations at the East Braintree Point of
     Delivery under Rate Schedules AFT-1 (F-1) and AFT-E (F-1) in the amounts of
     16,948 MMBtu and 5,238 MMBtu, respectively.


Signed for Identification

Algonquin:  /s/ Robert B. Evans
            -------------------------
 
Customer:   /s/ W. R. Luthern
            -------------------------