Agreement with Chesapeake Utilities Corp - Maryland Division


    Exhibit
      10.2

     

    

      PRECEDENT
        AGREEMENT

      FOR
        THE FIRM TRANSPORTATION OF NATURAL GAS

      


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

      


      WITNESSETH:

      


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

      


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

      


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

      


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

      


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

      


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

      


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

            


      


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

            


      


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

            


      


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

            


      


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

      


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

      


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

      


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

      


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

      


      
        	
                5.

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

              


      

      


      
        	
                6.

              	
                Within
                  thirty (30) days after satisfaction or mutual waiver of the conditions
                  precedent set forth in Paragraph 4, Eastern Shore and Shipper shall
                  enter
                  into a firm transportation service agreement under: (i) Eastern
                  Shore’s
                  Part 284 Firm Transportation Service FT Rate Schedule, as such
                  may be
                  amended or revised from time to time, or (ii) such other new rate
                  schedule
                  as the FERC may require as a condition to the issuance of authorizations
                  required to provide the service contemplated herein, as such rate
                  schedule
                  may be amended or revised from time to time. Such firm transportation
                  service agreement shall specify Shipper’s Maximum Daily Transportation
                  Quantity (“MDTQ”) of seven thousand five hundred (7,500) dekatherms
                  (“dts”) per day and a primary term of service of twenty (20) years, as
                  detailed on Exhibit A, which is attached hereto and incorporated
                  herein.
                  Eastern Shore shall provide such firm transportation service to
                  Shipper at
                  negotiated reservation and commodity rates, as set forth in Exhibit
                  B,
                  which is attached hereto and incorporated herein.
                  

              


      

      


      
        	
                7.

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

              


      

      


      
        	
                8.

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

              


      

      


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


      


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

      


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

      


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

      


      
        	
                9.

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

              


      

      


      
        	
                10.

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

              


      

      


      
        	
                11.

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

              


      

      


      
        	
                12.

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

              


      

      


      
        	
                13.

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

              


      

      


      
        	
                14.

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

              


      

      


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

      


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

      


      


      Eastern
        Shore Natural Gas Company

      Ronald
        A.
        Craig

      Contract
        & Billing Administrator

      417
        Bank
        Lane

      Dover,
        DE
        19904

      Phone:
        (302) 734 - 6710 extension 6753

      Fax:
        (302) 734 - 6745

      Email:
        rcraig@chpk.com

      


      Chesapeake
        Utilities Corporation - Maryland Division

      Jeffery
        R. Tietbohl, Director of Regional Business & Planning

      350
        South
        Queen Street

      Dover,
        DE
        19904

      Phone:
        (302) 734-6742

      Fax:
        (302) 735-3061

      Email:
        JTietbohl@chpk.com

      


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

      


      EASTERN
        SHORE NATURAL GAS COMPANY

      


      /s/
        Elaine B. Bittner

      Elaine
        B.
        Bittner

      Vice
        President

      


      CHESAPEAKE
        UTILITIES CORPORATION 

      MARYLAND
        DIVISION

       

      /s/
        Paul M. Barbas

      Paul
        M.
        Barbas

       

      


      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        A

      


      FIRM
        TRANSPORTATION SERVICE REQUESTED BY SHIPPER

      


      Exhibit
        To The Precedent
        Agreement 

      


      Between

      


      Eastern
        Shore Natural Gas Company

      


      and

      


      Chesapeake
        Utilities Corporation - Maryland Division

      


      Dated

      


      May
        31, 2006

      


      


      


      
        	
                Commencement
                  

                Date
                  

              	
                Maximum
                  Daily Transportation Quantity 

              	
                Primary
                  Receipt Point

              	
                Primary
                  Delivery Point(s)

              	
                Termination
                  

                Date
                  

              
	
                 

                November
                  1, 2009*

              	
                 

                7,500
                  dt

              	
                 

                Cove
                  Point, MD

              	
                 

                DPA
                  10 - 3,750

                DPA
                  12 - 3,750

              	
                 

                October
                  31, 2029**

              


      

      


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

      


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

      




      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        B

      


      NEGOTIATED
        RATES

      


      Exhibit
        To The Precedent
        Agreement 

      


      Between

      


      Eastern
        Shore Natural Gas Company

      


      and
        

      


      Chesapeake
        Utilities Corporation - Maryland Division

      


      Dated

      


      May
        31, 2006

       

      Eastern
        Shore Natural Gas Company and Chesapeake Utilities Corporation - Maryland
        Division mutually agree to the following rates for the firm transportation
        service contemplated herein:

       

      


      Negotiated
        Reservation Rate

       

      The
        initial Negotiated Reservation Rate shall be $30.40 per dt applicable to
        the
        first 5,000 dts (Block One) of Maryland’s total MDTQ of 7,500 dts contemplated
        in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern
        Shore’s current estimate of the capital investment of approximately $93 million
        required to complete the Project. Eastern Shore shall revise the initial
        Negotiated Reservation Rate applicable to Block One pursuant to the Reservation
        Rate Formula below to reflect the actual capital investment required to complete
        the Project. Maryland shall pay the Negotiated Reservation Rate, as adjusted
        to
        reflect the actual capital investment, subject to the Maximum Negotiated
        Reservation Rate limitations below. In the event the revised Negotiated
        Reservation Rate is higher than the initial Negotiated Reservation Rate,
        Maryland shall pay the initial Negotiated Reservation Rate until such time
        as
        Eastern Shore revises the Negotiated Reservation Rate, and Maryland shall
        pay
        the difference between the initial and Revised Negotiated Reservation Rate
        for
        the period from the Commencement Date to the date Eastern Shore revises the
        Negotiated Reservation Rate, without interest. In the event the revised
        Negotiated Reservation Rate is lower than the initial Negotiated Reservation
        Rate, Maryland shall pay the initial Negotiated Reservation Rate until such
        time
        as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore
        shall
        refund
        the difference between the initial and revised Negotiated Reservation Rate
        for
        the period from the Commencement Date to the date Eastern Shore revises the
        Negotiated Reservation Rate, without interest.

       

      The
        Negotiated Reservation Rate applicable to the remaining 2,500 dts (Block
        Two) of
        Maryland’s total MDTQ of 7,500 dts contemplated in Exhibit A, shall be fixed at
        $7.50 per dt.

       

      Reservation
        Rate Formula

       

      Block
        One
        Negotiated Reservation Rate = $30.40 + (Cost
        - $93,000,000) 

                2,700,000

      Where,

       

      Block
        One
        Negotiated Reservation Rate = the negotiated reservation rate to be applied
        to
        the first 5,000 dts of Maryland’s total MDTQ of 7,500 dts and

       

      Cost
        =
        Actual Capital Cost of the Project.

       

      


       

      Maximum
        Negotiated Reservation Rate

      


      Unless
        otherwise agreed to in writing by both Parties, Shipper’s Negotiated Reservation
        Rate applicable to Block One (first 5,000 dts of total 7,500 dts MDTQ) shall
        not
        exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate applicable to
        Block Two (remaining 2,500 dts of total 7,500 dts MDTQ) shall not exceed
        $7.50
        per dt. 

      


      Negotiated
        Commodity Rate

      


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

      


      Fuel

      


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

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBIT
        C

      


      SERVICE
        AGREEMENT EXTENSIONS

      


      Exhibit
        to the 

      


      Precedent
        Agreement 

      


      Between

      


      Eastern
        Shore Natural Gas Company

      


      and

      


      Chesapeake
        Utilities Corporation - Maryland Division

      


      Dated

      


      May
        31, 2006

      


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

      


       

      
        
          	
                  Contract
                    No.

                	 	
                  MTDQ

                	 	
                  Termination
                    Date

                	 	
                  Extension
                    Date

                	 
	
                  010002

                	 	 	
                  4,739
                    

                	 	 	
                  March
                    31, 2010

                	 	 	
                  March
                    31, 2015

                	 
	
                  010016

                	 	 	
                  569
                    

                	 	 	
                  October
                    31, 2011

                	 	 	
                  October
                    31, 2016

                	 
	
                  010017

                	 	 	
                  442
                    

                	 	 	
                  October
                    31, 2009

                	 	 	
                  October
                    31, 2014

                	 
	
                  010018

                	 	 	
                  1,429
                    

                	 	 	
                  October
                    31, 2017

                	 	 	
                  October
                    31, 2022

                	 
	
                  010019

                	 	 	
                  3,143
                    

                	 	 	
                  October
                    31, 2009

                	 	 	
                  October
                    31, 2014

                	 
	
                  010031

                	 	 	
                  350
                    

                	 	 	
                  October
                    31, 2008

                	 	 	
                  October
                    31, 2013

                	 
	
                  010050

                	 	 	
                  300
                    

                	 	 	
                  October
                    31, 2013

                	 	 	
                  October
                    31, 2018

                	 
	
                  010053

                	 	 	
                  300
                    

                	 	 	
                  October
                    31, 2014

                	 	 	
                  October
                    31, 2019

                	 
	
                  010057

                	 	 	
                  300
                    

                	 	 	
                  October
                    31, 2015

                	 	 	
                  October
                    31, 2020

                	 
	
                  010066

                	 	 	
                  2,000
                    

                	 	 	
                  October
                    31, 2015

                	 	 	
                  October
                    31, 2020

                	 
	
                  020002

                	 	 	
                  969
                    

                	 	 	
                  March
                    31, 2010

                	 	 	
                  March
                    31, 2015

                	 
	
                  020008

                	 	 	
                  1,737
                    

                	 	 	
                  March
                    31, 2013

                	 	 	
                  March
                    31, 2018

                	 


        

      

      


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        



      


      EXHIBIT
        D

      


      PRE-CERTIFICATION
        COST RECOVERY 

      


      Exhibit
        to the 

      


      Precedent
        Agreement 

      


      Between

      


      Eastern
        Shore Natural Gas Company

      


      And

      


      Chesapeake
        Utilities Corporation - Maryland Division

      


      Dated

      


      April
        1, 2006

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      [Eastern
        Shore Natural Gas Logo]

      


      


      


      


      April
        1,
        2006

      


      


      Mr.
        Jeffrey R. Tietbohl

      Director
        of Regional Business and Planning 

      Chesapeake
        Utilities Corporation

      350
        South
        Queen Street

      Dover,
        Delaware 19904

      


      


      Re:
        Cove
        Point Project Pre-Certification Cost Recovery

      


      


      Dear
        Mr.
        Tietbohl:

      


      As
        you
        know, Chesapeake Utilities Corporation (“CUC”) and Eastern Shore Natural Gas
        Company (“Eastern Shore”) are negotiating a Precedent Agreement for the Firm
        Transportation of Natural Gas (“Precedent Agreement”) that sets forth the
        parties’ respective rights and obligations in connection with the firm
        transportation service that would be provided by the Cove Point Project,
        all as
        more fully stated therein. The parties agree that Eastern Shore should continue
        to proceed with its project activities, particularly those related to the
        Federal Energy Regulatory Commission’s (“FERC”) pre-filing NEPA and Certificate
        Application process. 

      


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

      


      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Mr.
        Jeffrey R. Tietbohl

      April
        1,
        2006

      Page
        2

      


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

      


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

      


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

       

      
_______________

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

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Mr.
        Jeffrey R. Tietbohl

      April
        1,
        2006

      Page
        3

      


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

      


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

      


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

      


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

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Mr.
        Jeffrey R. Tietbohl

      April
        1,
        2006

      Page
        4

      


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

      


      


      EASTERN
        SHORE NATURAL

        GAS
        COMPANY

      


      /s/
        Elaine B. Bittner

      


      Elaine
        B.
        Bittner

      Vice
        President

       

      


      


      


      


      AGREED
        AND ACCEPTED:

      CHESAPEAKE
        UTILITIES CORPORATION

      


      


      /s/
        Paul M. Barbas

      


      Paul
        M.
        Barbas

      Executive
        Vice President &

      Chief
        Operating Officer