<PAGE>
 
                                                                   EXHIBIT 10.18

                                                              Contract No.934001

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

WHEREAS, Algonquin Gas Transmission Company ("Algonquin"), a Delaware
Corporation, and Boston Gas Company, ("Customer"), entered into a service
agreement dated November 1, 1993, under Algonquin's Rate Schedule FTP;

WHEREAS, the Commission issued an order on July 8, 1994, approving a Stipulation
and Agreement filed on March 1, 1994, as supplemented on April 25, 1994, in
Docket Nos. RP93-14-000, et al. (the "S&A");

WHEREAS, Article III, Section 3 of the S&A provides that a customer under Rate
Schedule FTP has the option of converting such service to service under Rate
Schedule AFT-1;

WHEREAS, Article III, Section 3 of the S&A provides that such conversion to Part
284 service shall not affect the rate that the converting customer shall pay,
which shall be the rate the converting customer would otherwise have paid as a
result of the S&A, under its prior service agreement;

WHEREAS, Customer provided Algonquin with written notice of its intention to
convert to Rate Schedule AFT-1;

NOW, THEREFORE, this Agreement ("Agreement") is made and entered into this 1st
day of December, 1994, by and between Algonquin and Customer.


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 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 Quantity (MDTQ)           20,771 MMBtu
     Maximum Annual Transportation Quantity (MATQ)       7,581,415 MMBtu
<PAGE>
 
                                                              Contract No.934001

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

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.

                                  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,
     1999 ("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 specified
     under Rate Schedule AFT-1 for service resulting from the conversion of
     entitlements under former Rate Schedule FTP, nor less than the minimum rate
     under Rate Schedule AFT-1.

                                       2
<PAGE>
 
                                                             Contract No. 934001

                               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.

                                       3
<PAGE>
 
                                                             Contract No. 934001

                               SERVICE AGREEMENT
                      (APPLICABLE TO 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. 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
                      1284 Soldiers Field Road
                      Boston, MA 02135           
                      Attn:  John J. Mullaney 
                             Vice President, Marketing

     (b)  Customer:   Boston Gas Company
                      One Beacon Street
                      Boston, MA 02108
                      Attn: William R. Luthern
                            Vice President, Gas Supply and Production

or such other address as either party shall designate by formal written notice.

                                       4
<PAGE>
 
                                                             Contract No. 934001

                               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.

Service Agreement No. 934001 executed by Customer and Algonquin under Rate
Schedule FTP dated November 1, 1993.

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/ John J. Mullaney  
                          ------------------------------

                      Title:  VICE PRESIDENT, MARKETING
                              --------------------------


                      BOSTON GAS COMPANY

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

                      Title:  Vice President
                              --------------------------

                                       5
<PAGE>
 
                                                             Contract No. 934001

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

                                   EXHIBIT A
                              Point(s) of Receipt
                              -------------------

                            Dated: December 1, 1994

          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> 
Lambertville, NJ                  20,771                 At any pressure
                                                         requested by Algonquin
                                                         but not in excess of
                                                         750 Psig.
</TABLE> 


Signed for Identification

Algonquin:  /s/ John J. Mullaney
            --------------------

Customer:   /s/ Chris Gulick
            --------------------

                                       6
<PAGE>
 
                                                             Contract No. 934001

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

                            Dated: December 1, 1994

          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> 
Everett, MA
(at reduction valves)                  51                       75
 
Polaroid, Waltham, MA              10,081                Algonquin's Line
                                                         pressure as may exist
                                                         from time to time.
 
Medford, MA                        10,639                      200
</TABLE>

Signed for Identification

Algonquin:  /s/ John J. Mullaney
            -----------------------

Customer:   /s/ Chris Gulick
            -----------------------

                                       7