exv10w2



 





Confidential information has been omitted from this Exhibit and filed
separately with the Commission pursuant to a confidential treatment request
under Rule 24b-2.



Exhibit 10.2




CONFIRMATION LETTER




	 	 	 	 	 	 	 	 	 
	

	 	 	 	Kennecott #: 745
	 
	 
	 	 	 	 	 	 	 	 
	Buyer:

	 	Otter Tail Power Company,
	 	Seller:
	 	Kennecott Coal Sales Company

	

	 	A division of Otter Tail Corporation
	 	 	 	Caller Box 3009 (82717-3009)

	

	 	1012 Water Plant Road
	 	 	 	505 South Gillette Avenue

	

	 	Fergus Falls, MN 56537
	 	 	 	Gillette, WY 82716

	 
	 	 	 	 	 	 	 	 
	Attn:

	 	Stacie Hebert
	 	Attn:
	 	Matt Levar

	Phone:

	 	218-739- 8635
	 	Phone:
	 	307-687-6028	 
	Fax:

	 	218-739-8629
	 	Fax:
	 	307-687-6009	 







This Confirmation Letter (“Confirmation”) shall confirm the transaction
arranged February 2, 2004, between Otter Tail Power Company (“OTP”), a division
of Otter Tail Corporation and Kennecott Coal Sales Company (“Kennecott”)
pursuant to the Master Coal Purchase and Sale Agreement effective December 13,
2001. The terms and conditions of this transaction are as follows:



Kennecott to sell and deliver and OTP to purchase and receive.



	 	 	 
	Transaction Type:

	 	Physical Coal
	 
	 	 
	Product:

	 	Sub-Bituminous coal; (*)
Btu/Lb. and (*) Lbs. SO2/mmBtu
	 
	 	 
	Base Price:

	 	Spring Creek







	 	 	 	 	 	 	 	 	 
	Calendar Year
	 	2004
	 	2005
	 	2006
	 	2007

	Base Price per Ton

	 	(*)
	 	(*)
	 	(*)
	 	(*)







	 	 	 
	Shipment Period:

	 	July 1, 2004 through December 31, 2007
	 
	 	 
	Quantity:

	 	This is a (*) for Hoot Lake Plant with (*) of (*) tons per year for
calendar years 2005, 2006, and 2007.
	 
	 	 
	Scheduling:

	 	OTP shall provide Kennecott a good faith estimate of OTP’s annual coal
requirements, by month (“Quantity Notification”) by October 1 of the
year preceding the delivery year. At least thirty (30) days prior to
the beginning of each delivery month, OTP shall provide an updated
monthly delivery schedule for the remainder of the Contract Year.
Kennecott shall use its reasonable efforts to ship the coal under the
specified delivery schedule and OTP shall use its reasonable efforts to
receive the coal under the specified delivery schedule. Said delivery
may only be varied by mutual consent of Buyer and Seller.
	 
	 	 
	Delivery Point:

	 	FOB Railcar, Spring Creek Mine located in Big Horn County, Montana
	 
	 	 
	Substitution:

	 	If Spring Creek Mine cannot ship the full requirements of the Hoot Lake
Plant, Kennecott will provide a substitution from its Jacobs Ranch
Mine. Soda Ash will be added to the Jacobs Ranch coal to increase
Sodium percent to (*).







 









 






	 	 	 
	Substitution Price:

	 	The Base Price for Jacobs Ranch Mine coal shall be determined based on
the arithmetic average of the weekly Spot Coal Index for an (*) Btu/lb,
(*) Lbs. SO2/mmBtu coal product on a quarterly basis. The indices used
shall be the Prompt values for the applicable quarter as published in
Coal Daily by Energy Argus, Inc. [which currently begins publication
on the first Friday of the third month preceding the applicable
calendar quarter (e.g., the first Friday of October 2004 for the first
quarter of 2005)]. An example of how this quarterly pricing index
would work is set forth as Exhibit A. Seller shall be responsible for
tracking the indices and calculating the Base Price for substitution
coal from Jacobs Ranch Mine. If during the term of this Confirmation
Letter, the indices stated above is no longer available or is modified
such that it does not conform to the calculation as stated herein, the
Parties shall mutually agree on a replacement indices or a pricing
mechanism to replace such indices.
	 
	 	 
	
Spring Creek Carbone

Ranch Test Burn:

	 	

OTP may elect to test burn Spring Creek Mine Carbone Ranch coal
consisting of the following typical coal qualities. The test burn must
be completed prior to July 1, 2004.







	 	 	 
	Btu/Lb.

	 	(*)
	Ash %

	 	(*)
	Sodium %

	 	(*)
	Lbs. SO2/mmBtu

	 	(*)







	 	 	 
	

	 	If OTP deems the test burn of the Spring Creek Carbone Ranch
coal a success, OTP may elect to take delivery of the Spring
Creek Carbone Ranch coal in place of the original Spring
Creek coal. OTP must notify Kennecott, in writing, by July
1, 2004 if they choose to take delivery of the Spring Creek
Carbone Ranch coal. Such choice of coal shall remain in
effect for the entire term of this Confirmation Letter.
	 
	 	 
	Spring Creek Carbone

Ranch Base Price:

	 	
The Base Prices for the Spring Creek Carbone Ranch coal is listed below:
	 
	 	 
	

	 	Spring Creek Carbone Ranch







	 	 	 	 	 	 	 	 	 
	Calendar Year
	 	2004
	 	2005
	 	2006
	 	2007

	Base Price per Ton

	 	(*)
	 	(*)
	 	(*)
	 	(*)







	 	 	 
	2007 Test Burn

Provision:

	 	
Due to the fact that this is a (*), in Calendar year 2007, Kennecott shall allow OTP to purchase up to (*) tons
of coal from Kennecott or other sources for delivery to its Hoot Lake Plant for test burn purposes. Any such
test burn tons, whether purchased from Kennecott or another source, shall be in addition to the (*) that is
required during Calendar Year 2007 of this Confirmation Letter.
	 
	 	 
	Topsize:

	 	2” x 0” ASTM







-2-









 






	 	 	 
	Quality:

	 	The Spring Creek coal ((*) product) sold to Buyer under this Confirmation Letter shall be substantially similar
to the coal sold to Buyer during 2003.







	 	 	 	 	 
	 	 	Section 9.03 – Standard Btu and	 	Sections 6.02 & 6.04
	 	 	Sulfur for price adjustments as	 	Rejection Limits/
	 	 	set forth below:
	 	Non-Conforming Shipment

	Btu/Lb

	 	(*)
	 	(*)
	Lbs. SO2/mmBtu

	 	(*)
	 	(*)
	Sodium %

	 	(*)
	 	(*)







	 	 	 
	Btu Adjustment:

	 	To reflect the actual heat content of the coal delivered, each month the Base Price of coal will be adjusted
for any variation from the Base Btu/Lb., using the following formula:







	 	 	 
	Btu Adjustment Per Ton = P x

	 	(AR – BB)
	

	 	BB







	 	 	 	 	 	 	 	 	 
	 

	 	Where:	 	 	 	 
	

	 	 	 	P
	 	=
	 	The Base Price of coal per ton delivered during the month;
	

	 	 	 	AR
	 	=
	 	The monthly weighted average “As-Received” Btu’s per pound of the respective coal[s] delivered to OTP; and,
	

	 	 	 	BB
	 	=
	 	The Base Btu’s per pound of the respective coal[s] delivered to OTP during the month;
	

	 	 	 	 	 	 	 	        the BB value for Spring Creek = (*),
	

	 	 	 	 	 	 	 	        the BB value for Spring Creek Carbone Ranch coal = (*), and
	

	 	 	 	 	 	 	 	        the BB value for Jacobs Ranch = (*)







	 	 
	 	All shipment Btu’s and weighted average Btu’s shall be in zero decimals. All prices for Btu adjustments shall
be calculated using floating-point decimals, with the result being rounded to three decimal places as shown in
the following example:








	 	 	 
	 

	 	          Sample info: P = (*)/ton, BB = (*), AR = (*)







	 	 	 	 
	

	 	Btu adjustment per ton = (*)	 
	 
	 	 	 
	

	 	= (*)	 
	

	 	= (*)	 
	

	 	= (*)	 







	 	 	 
	Sulfur Adjustment:

	 	To reflect the actual sulfur content of Coal delivered, each month the Base Price of Coal will be adjusted
in accordance with the following formulas.
	 
	 	 
	

	 	For purposes of this adjustment, it shall be assumed that 100% of the sulfur in the Coal will be converted
to sulfur dioxide (“SO2”). The pounds SO2 per mmBtu shall be calculated in accordance with the following
formula based on Seller’s lab analysis of the percent sulfur in the Coal and the calorific value of the
Coal. All weighted average sulfur shall be in two decimals:







	 	 	 	 	 	 	 
	 

	 	Lbs. SO2/mmBtu
	 	=
	 	Monthly Weighted Average Sulfur % in Coal X 20,000
	

	 	 	 	 	 	                   Monthly Weighted Average Btu/Lb.







	 	 	 
	 

	 	All shipment sulfur percent and weighted average sulfur
percent shall be stated in two decimals. SO2 for the period
billed shall be calculated using floating-point decimals,
with the result being rounded to two decimal places as shown
in the following example:







-3-









 






	 	 	 	 	 
	 

	 	Sample info:
	 	Monthly Weighted Average Sulfur % in Coal = (*),
	

	 	 	 	Monthly Weighted Average Btu/Lb. = (*)







Lbs. SO2/mmBtu = (*)




                          Sulfur adjustment in $/ton of Coal =



	 	 	 
	 

	 	(Base Lb. SO2/mmBtu –
Actual Lb. SO2/mmBtu) X Actual Btu/Lb. X $ADI

                      
                      
                  1,000,000







	 	 	 	 	 
	 

	 	ADI =
	 	The “SO2 Monthly Average Price”
published by Air Daily for the month preceding
delivery.







	 	 	 
	 

	 	Base Lb. SO2/mmBtu for all coals from Spring Creek and Jacobs Ranch = (*)







	 	 	 
	 

	 	All shipment SO2 and weighted average SO2 shall be stated in
two decimals. All prices for sulfur adjustments are to be
calculated using floating-point decimals, with the result
being rounded to three decimal places as shown in the
following example:







	 	 	 	 	 
	 

	 	Sample info:
	 	Actual Btu = (*), Base SO2 = (*), Actual SO2 = (*),
	

	 	 	 	SO2 Allowance (ADI) = (*)







	 	 	 	 	 
	 

	 	Sulfur Adjustment in $/ton of Coal
	 	= (*) / 1,000,000

= (*)

= (*)







	 	 	 
	Credit:

	 	Should the creditworthiness or either Party’s ability to perform become unsatisfactory to the other Party, or if
situations develop where either Party could reasonably conclude that a credit downgrade or protection under bankruptcy
code is imminent, then the failing Party will provide satisfactory security or assurances.
	 
	 	 
	

	 	If a Party’s or any of its affiliates’ credit falls below investment grade (BBB- as defined by Standard & Poor’s,
Moody’s, or the equivalent), the failing Party shall provide the non-failing Party with a mutually agreed upon credit
enhancement in the form of, but not limited to, letters of credit, compressed payment terms or cash on delivery. If
the failing Party does not provide an acceptable credit enhancement within 48 hours of notice, the non-failing Party
shall have the right to suspend shipments and seek remedies as set forth in the Master Agreement.







IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR, AND EACH OF
THE PARTIES WAIVES THE RIGHT TO SEEK INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE
DAMAGES UNDER THIS AGREEMENT.



Please confirm that the terms and conditions stated herein accurately reflect
your understanding of our agreement by signing and returning to Leslie Thorn at
Seller’s address.



	 	 	 	 	 	 	 
	By:

	 	           /s/ Ward Uggerud
	 	Date: 5-26-04	 	 
	

	 	
 	 	 	 	 
	

	 	Otter Tail Power Company, a division of	 	 	 	 
	

	 	Otter Tail Corporation	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	           /s/ Kelly A. Cosgrove
	 	Date: 5/21/04	 	 
	

	 	
 	 	 	 	 
	

	 	Kennecott Coal Sales Company	 	 	 	 
	

	 	 	 	 	 	








-4-










 





Exhibit A

Page 1 of 2




Exhibit A




	 	 	 	 	 
	 

	 	Index Example
	 	KEC #745







Kennecott — Otter Tail Power

Coal Daily Index for: Powder River Basin coal — (*) Btu; (*) Lb. SO2/mmBtu



	 	 	 	 	 	 	 
	 	 	 	 	Q1
	 	 
	6-Oct-03

	 	(*)
	 	 	 	Prompt
	13-Oct-03

	 	(*)
	 	 	 	Prompt
	20-Oct-03

	 	(*)
	 	 	 	Prompt
	27-Oct-03

	 	(*)
	 	 	 	Prompt
	3-Nov-03

	 	(*)
	 	 	 	Prompt
	10-Oct-03

	 	(*)
	 	 	 	Prompt
	17-Oct-03

	 	(*)
	 	 	 	Prompt
	24-Oct-03

	 	(*)
	 	 	 	Prompt
	1-Dec-03

	 	(*)
	 	 	 	Prompt
	8-Dec-03

	 	(*)
	 	 	 	Prompt
	15-Dec-03

	 	(*)
	 	 	 	Prompt
	22-Dec-03

	 	(*)
	 	 	 	Prompt
	29-Dec-03

	 	(*)
	 	 	 	Prompt
	Q104 Price

	 	(*)	 	 	 	 







	 	 	 	 	 	 	 
	 	 	 	 	Q2
	 	 
	2-Jan-04

	 	(*)
	 	 	 	Prompt
	9-Jan-04

	 	(*)
	 	 	 	Prompt
	16-Jan-04

	 	(*)
	 	 	 	Prompt
	23-Jan-04

	 	(*)
	 	 	 	Prompt
	30-Jan-04

	 	(*)
	 	 	 	Prompt
	6-Feb-04

	 	 	 	 	 	Prompt
	13-Feb-04

	 	 	 	 	 	Prompt
	20-Feb-04

	 	 	 	 	 	Prompt
	27-Feb-04

	 	 	 	 	 	Prompt
	5-Mar-04

	 	 	 	 	 	Prompt
	12-Mar-04

	 	 	 	 	 	Prompt
	19-Mar-04

	 	 	 	 	 	Prompt
	26-Mar-04

	 	 	 	 	 	Prompt
	Q204 Price

	 	(*)	 	 	 	 







	 	 	 	 	 
	 	 	Q3
	 	 
	2-Apr-04

	 	 	 	Prompt
	9-Apr-04

	 	 	 	Prompt
	16-Apr-04

	 	 	 	Prompt
	23-Apr-04

	 	 	 	Prompt
	30-Apr-04

	 	 	 	Prompt
	7-May-04

	 	 	 	Prompt
	14-May-04

	 	 	 	Prompt
	21-May-04

	 	 	 	Prompt
	28-May-04

	 	 	 	Prompt
	4-Jun-04

	 	 	 	Prompt
	11-Jun-04

	 	 	 	Prompt
	18-Jun-04

	 	 	 	Prompt
	25-Jun-04

	 	 	 	Prompt
	Q304 Price

	 	#DIV/0!	 	 







	 	 	 	 	 
	 	 	Q4
	 	 
	2-Jul-04

	 	 	 	Prompt
	9-Jul-04

	 	 	 	Prompt
	16-Jul-04

	 	 	 	Prompt
	23-Jul-04

	 	 	 	Prompt
	30-Jul-04

	 	 	 	Prompt
	6-Aug-04

	 	 	 	Prompt
	13-Aug-04

	 	 	 	Prompt
	20-Aug-04

	 	 	 	Prompt
	27-Aug-04

	 	 	 	Prompt
	3-Sep-04

	 	 	 	Prompt
	10-Sep-04

	 	 	 	Prompt
	17-Sep-04

	 	 	 	Prompt
	24-Sep-04

	 	 	 	Prompt
	Q404 Price
	 	#DIV/0!	 	 









 









 








Exhibit A

Page 2 of 2




Kennecott — OTP

Coal Daily Index for: Powder River Basin coal — (*) Btu; (*) Lb. SO2/mmBtu



	 	 	 	 	 
	 	 	Q1
	 	 
	1-Oct-04

	 	 	 	Prompt
	8-Oct-04

	 	 	 	Prompt
	15-Oct-04

	 	 	 	Prompt
	22-Oct-04

	 	 	 	Prompt
	29-Oct-04

	 	 	 	Prompt
	5-Nov-04

	 	 	 	Prompt
	12-Nov-04

	 	 	 	Prompt
	19-Nov-04

	 	 	 	Prompt
	26-Nov-04

	 	 	 	Prompt
	3-Dec-04

	 	 	 	Prompt
	10-Dec-04

	 	 	 	Prompt
	17-Dec-04

	 	 	 	Prompt
	24-Dec-04

	 	 	 	Prompt
	31-Dec-04

	 	 	 	Prompt
	Q104 Price

	 	#DIV/0!	 	 







	 	 	 	 	 	 	 
	 	 	 	 	Q2
	 	 
	7-Jan-05

	 	(*)
	 	 	 	Prompt
	14-Jan-05

	 	(*)
	 	 	 	Prompt
	21-Jan-05

	 	(*)
	 	 	 	Prompt
	28-Jan-05

	 	(*)
	 	 	 	Prompt
	4-Feb-05

	 	(*)
	 	 	 	Prompt
	11-Feb-05

	 	 	 	 	 	Prompt
	18-Feb-05

	 	 	 	 	 	Prompt
	25-Feb-05

	 	 	 	 	 	Prompt
	4-Mar-05

	 	 	 	 	 	Prompt
	11-Mar-05

	 	 	 	 	 	Prompt
	18-Mar-05

	 	 	 	 	 	Prompt
	25-Mar-05

	 	 	 	 	 	Prompt
	Q204 Price

	 	 	 	#DIV/0!	 	 







	 	 	 	 	 
	 	 	Q3
	 	 
	1-Apr-05

	 	 	 	Prompt
	8-Apr-05

	 	 	 	Prompt
	15-Apr-05

	 	 	 	Prompt
	22-Apr-05

	 	 	 	Prompt
	29-Apr-05

	 	 	 	Prompt
	6-May-05

	 	 	 	Prompt
	13-May-05

	 	 	 	Prompt
	20-May-05

	 	 	 	Prompt
	27-May-05

	 	 	 	Prompt
	3-Jun-05

	 	 	 	Prompt
	10-Jun-05

	 	 	 	Prompt
	17-Jun-05

	 	 	 	Prompt
	24-Jun-05

	 	 	 	Prompt
	Q304 Price

	 	#DIV/0!	 	 







	 	 	 	 	 
	 	 	Q4
	 	 
	1-Jul-05

	 	 	 	Prompt
	8-Jul-05

	 	 	 	Prompt
	15-Jul-05

	 	 	 	Prompt
	22-Jul-05

	 	 	 	Prompt
	29-Jul-05

	 	 	 	Prompt
	5-Aug-05

	 	 	 	Prompt
	12-Aug-05

	 	 	 	Prompt
	19-Aug-05

	 	 	 	Prompt
	26-Aug-05

	 	 	 	Prompt
	2-Sep-05

	 	 	 	Prompt
	9-Sep-05

	 	 	 	Prompt
	16-Sep-05

	 	 	 	Prompt
	23-Sep-05

	 	 	 	Prompt
	30-Sep-05

	 	 	 	Prompt
	Q404 Price

	 	#DIV/0!	 	 






(*) Confidential information has been omitted and filed separately with the Commission pursuant to Rule 24b-2.