Document:

EX-10.2

Exhibit 10.2

CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT

BY AND BETWEEN

COLUMBIA GAS TRANSMISSION CORPORATION

AND

HARDY STORAGE COMPANY, LLC

DATED NOVEMBER 12, 2004

1

TABLE OF CONTENTS

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions.

1.2. Construction.

2. RELATIONSHIP OF THE PARTIES.

2.1. Appointment as Operator.

2.2. Operator’s Authority to Execute Contracts.

3. OPERATION OF THE FACILITIES.

	 	 	 
	3.1.

3.2.

3.3.

	 	Operator’s Responsibilities.

Reasonable Efforts.

Claims.

4. EMPLOYEES, CONSULTANTS AND SUBCONTRACTORS.

	 	 	 
	4.1.

4.2.

4.3.

4.4.

	 	Operator’s Employees, Consultants and Subcontractors.

Use of Affiliates or Independent Contractors.

Standards for Operator and its Employees.

Non-Discrimination and Drugs.

5. FINANCIAL AND ACCOUNTING.

	 	 	 
	5.1.

5.2.

5.3.

5.4.

5.5.

	 	Accounting and Compensation.

Budgets and Reports.

Disputed Charges.

Rate and Tariff Reviews.

Audit and Examination.

6. INTELLECTUAL PROPERTY; LICENSE TO OPERATOR.

7. INDEMNIFICATION.

8. INSURANCE.

9. TERM.

10. SURVIVAL OF OBLIGATIONS.

11. LAW OF THE CONTRACT AND ARBITRATION.

11.1. Law of the Contract.

11.2. Arbitration.

12. SPECIAL AND CONSEQUENTIAL DAMAGES.

13. GENERAL.

	 	 	 
	13.1.

13.2.

13.3.

13.4.

13.5.

13.6.

13.7.

13.8.

13.9.

13.10.

	 	Effect of Agreement; Amendments.

Notices.

Counterparts.

Waiver.

Assignability; Successors.

Third Persons.

Laws and Regulatory Bodies.

Headings.

Severability.

Further Assurances.

Exhibit A — Accounting Procedure

2

CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT

This agreement (“CO&M Agreement”), made and entered into as of the 12th day of November 2004,
is by and between Columbia Gas Transmission Corporation, a Delaware corporation (“Operator”), and
Hardy Storage Company, LLC, a West Virginia limited liability company (“Company”).

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. The definitions used in the Operating Agreement of the Company, dated
November 12, 2004 (“Operating Agreement”), shall, except as otherwise specifically
provided below, have the same meanings in this CO&M Agreement:

	 	1.1.1.	 	“Accounting Procedure” means the accounting procedure set forth in Exhibit
A.

1.1.2. “Company” is defined in the preamble to this CO&M Agreement.

1.1.3. “CO&M Agreement” is defined in the preamble to this CO&M Agreement.

	 	1.1.4.	 	“Decision Notice” has the meaning set forth in Section 11.2.1 of this CO&M
Agreement.

	 	1.1.5.	 	“Liabilities” means actions, claims, settlements, judgments, demands,
costs, expenses (including, without limitation, expenses attributable to the
defense of any actions or claims), attorneys’ fees and liabilities.

	 	1.1.6.	 	“Month” means a period of time beginning on the first day of a calendar
month and ending at the same time on the first day of the next succeeding
calendar month.

	 	1.1.7.	 	“Operating Agreement” means the Operating Agreement of the Company, dated
November 12, 2004, as the same may be amended from time to time.

	 	1.1.8.	 	“Operation of the Facilities” means the actions required to plan, design,
construct, test, maintain, repair, replace, improve, expand and/or operate
the Facilities, including, without limitation, the duties identified in
Section 3.1 of this CO&M Agreement.

	 	1.1.9.	 	“Operator” means Columbia Gas Transmission Corporation, a Delaware
corporation, and any of its successors or assigns, pursuant to this CO&M
Agreement.

1.1.10. “Party” means the Company or the Operator.

	 	1.1.11.	 	“Pre-Arbitration Meeting” has the meaning set forth in Section 11.2.1 of
this CO&M Agreement.

	 	1.1.12.	 	“Prohibited Conduct” means any action by the Operator that constitutes
bad faith, gross negligence or willful misconduct.

	 	1.1.13.	 	“Required Accounting Practice” means the accounting rules and
regulations, if any, at the time prescribed by the regulatory bodies under
the jurisdiction of which the Company is at the time operating and, to the
extent of matters not covered by such rules and regulations, generally
accepted accounting principles applied on a consistent basis as practiced in
the United States at the time prevailing for companies engaged in a business
similar to that of the Company.

	 	1.1.14.	 	“Year” means each twelve (12) Month period beginning on the first day of
a calendar year and ending at the beginning of the first day of the next
calendar year, provided that the first year hereunder shall begin on the
date hereof, and shall end at the beginning of the first day of the
following calendar year, and further provided that the last contract year
shall end at the expiration of the term of this CO&M Agreement pursuant to
Section 9 hereof.

1.2. Construction. Whenever the context requires, the gender of all words used in this
CO&M Agreement includes the masculine, feminine and neuter. All references to Sections
refer to sections of this CO&M Agreement (unless the context clearly indicates otherwise),
and all references to Exhibits are to Exhibits attached to this CO&M Agreement, each of
which is made a part hereof for all purposes.

2. RELATIONSHIP OF THE PARTIES.

2.1. Appointment as Operator. Subject to the terms and conditions of this CO&M Agreement,
the Company hereby appoints the Operator to act hereunder, and the Operator hereby accepts
such appointment and agrees to act pursuant to the provisions of this CO&M Agreement and
the applicable provisions of the Operating Agreement. In performing services pursuant to
this CO&M Agreement, the Operator shall be an agent of the Company.

2.2. Operator’s Authority to Execute Contracts. Subject to the terms of this CO&M
Agreement, contracts in connection with the Operation of the Facilities may be negotiated
and executed or amended by the Operator as agent for the Company. Copies of all contracts
entered into by the Operator on behalf of the Company shall be provided to the Company.
All contracts and permits, if any, relating to Company business and executed by the
Operator prior to the Execution Date, to the extent assignment of such contracts and
permits is allowed by the terms of such permits and contracts, shall be assigned by the
Operator to the Company as soon as practicable after the Execution Date. If the terms of
the permits and contracts prohibit or limit assignment to the Company, the Operator shall
seek amendment of such permits and contracts to allow assignment to the Company.
Notwithstanding the foregoing, the Operator may obtain services from its Affiliates
pursuant to existing and future agreements between the Operator and such Affiliates and
shall not be required to enter into separate agreements on behalf of the Company or to
assign such agreements to the Company.

3. OPERATION OF THE FACILITIES.

3.1. Operator’s Responsibilities. The Operator shall be responsible for the Operation of
the Facilities, and, subject to the provisions of the Operating Agreement, the Operator is
authorized to undertake all activities reasonably necessary to fulfill such
responsibilities, including, but not limited to:

	 	3.1.1.	 	Prepare, file, execute and prosecute applications for the Authorizations
required by the Company and make periodic filings required of the Company by
Governmental Authorities having jurisdiction, including, without limitation,
the preparation, filing, execution and prosecution of the FERC Application
(and any amendments thereto) and the Company’s FERC tariff (and any
amendments thereto).

	 	3.1.2.	 	Provide or cause to be provided the day-to-day operating and maintenance
services, administrative liaison and related services to the Members,
Managers, Management Committee and the Company, including, but not limited
to, Customer support, regulatory matters (including rate, tariff and
Certificate filings), legal, land, accounting, electronic bulletin board
design and maintenance, capacity and informational postings, engineering,
construction, repair, replacement, abandonment, inspection, operational
planning, budgeting, tax and technical services, and insurance and
regulatory administration and compliance.

	 	3.1.3.	 	Prepare and/or cause to be prepared the engineering design and
specifications for the Facilities.

	 	3.1.4.	 	Negotiate and execute contracts for the purchase of materials, equipment,
supplies and services necessary for the Operation of the Facilities.

	 	3.1.5.	 	Prepare, negotiate, execute and relinquish in the name of the Company
rights-of-way, land in fee, permits and contracts, and initiate and
prosecute eminent domain proceedings, necessary for the Operation of the
Facilities, and resist the perfection of any involuntary liens against
Company property.

	 	3.1.6.	 	Construct and/or install, or cause to be constructed and/or installed, the
Facilities, including the negotiation and execution of contracts therefor.

	 	3.1.7.	 	Maintain accurate and itemized accounting records for the Operation of the
Facilities, together with any information reasonably required by the Company
relating to such records, consistent with the applicable provisions of
Section 11 of the Operating Agreement.

	 	3.1.8.	 	Prepare the financial and other reports set forth in Section 11 of the
Operating Agreement.

	 	3.1.9.	 	Cause the Operation of the Facilities to be in accordance with the
requirements of all Governmental Authorities having jurisdiction, including,
but not limited to, the requirements of the United States Department of
Transportation set forth in 49 CFR Parts 190, 191, 192 and 199 and in
accordance with sound and prudent natural gas pipeline industry practices,
and provide or cause to be provided such appropriate supervisory, audit,
administrative, technical and other services as may be required for the
Operation of the Facilities.

	 	3.1.10.	 	Prepare, or cause to be prepared, and file all necessary federal and
state income tax returns and all other tax returns and filings for the
Company (including making the elections set forth in Section 10.4 of the
Operating Agreement). The Company shall furnish to the Operator all
pertinent information in its possession relating to Company operations that
is necessary to enable such returns to be prepared and filed. The Operator
shall pay on behalf of the Company such taxes as are required to be paid by
the Company.

	 	3.1.11.	 	On behalf of the Company, maintain and administer bank and investment
accounts and arrangements for receipt of Company funds, draw checks and
other orders for the payment of money, and designate individuals with
authority to sign or give instructions with respect to those accounts and
arrangements. The Company’s funds shall not be commingled with funds
belonging to the Operator.

	 	3.1.12.	 	On behalf of the Company, market the Company’s services, including, but
not limited to, conducting open seasons for new services, receiving and
responding to requests for new services or changes in existing services, the
negotiation, execution and administration of precedent agreements and
Service Agreements in accordance with FERC’s policies, rules and orders and
the Company’s FERC gas tariff, and the preparation and collection of all
bills to the Customers for services rendered thereunder.

	 	3.1.13.	 	On behalf of the Company, negotiate, execute and administer contracts
with pipelines and service providers, including, but not limited to,
operational balancing agreements, capacity leases, storage and
transportation agreements and balancing agreements and to undertake such
emergency measures with third parties necessary to protect the reliability
and safety of the Company’s services.

	 	3.1.14.	 	Receive nominations for service, schedule service, issue confirmations,
and administer Customer contracts, including capacity release, in accordance
with the Company’s FERC tariff and FERC policies, rules and orders.

	 	3.1.15.	 	Establish such procedures as may be reasonable and appropriate to comply
with or to obtain an exemption from the marketing affiliate rules set forth
in the FERC Order No. 497 as the same may be amended or superseded.

	 	3.1.16.	 	Dispatch and allocate natural gas quantities to be received, stored,
transported and redelivered by means of the Facilities.

	 	3.1.17.	 	Utilize electronic flow measurement equipment for volume determinations
and natural gas chromatographs, as deemed appropriate by the Operator, for
heating value determinations as described in the Company’s FERC gas tariff.

	 	3.1.18.	 	Except as otherwise provided by applicable laws or governmental
regulations or as otherwise directed by the Company, retain all records,
books of account, Company tax returns, plans, designs, studies, reports and
other documents related to the Operation of the Facilities for three (3)
years from the date of completion of the activity to which such records
relate (or such longer period as may be required by law or the Operating
Agreement).

	 	3.1.19.	 	Report to the Company as soon as practicable all non-routine occurrences
that the Operator determines may have a significant adverse impact upon the
Operation of the Facilities, make any necessary repairs as a result of such
occurrences as the Operator reasonably deems necessary, and make a follow-up
report at an appropriate time on the Operator’s response to each non-routine
occurrence; provided, however, that the Operator shall obtain the prior
approval of the Company prior to performing repairs with an estimated cost
of over $100,000 unless the non-routine occurrence is of a nature that
immediate repair is required, in which event the Operator may make such
repair without such prior approval but shall provide a complete and accurate
report to the Company of such repair as soon as practicable thereafter.

	 	3.1.20.	 	Perform any required major equipment overhaul and replacement; provided,
however, that unless already previously approved by the Company in a budget
submitted by the Operator, the Operator shall obtain the prior approval of
the Company prior to performing such overhaul or replacement with an
estimated cost of over $100,000 unless such overhaul or replacement is of a
nature that immediate action must be taken, in which event the Operator may
perform such overhaul or replacement without such prior approval but shall
provide a complete and accurate report to the Company of all such actions as
soon as practicable thereafter.

	 	3.1.21.	 	Perform such other duties as are reasonably necessary or appropriate and
enter into such other arrangements as reasonably requested by the Company to
discharge the Operator’s responsibilities under this CO&M Agreement and the
Operating Agreement.

3.2. Reasonable Efforts. Operator agrees to design the Facilities and to use reasonable
efforts to operate the Facilities in such a manner to provide services as required in the
Service Agreements, the Company’s FERC gas tariff, and FERC’s policies, rules and orders.

3.3. Claims. Any and all claims against the Company instituted by anyone other than the
Operator arising out of the Operation of the Facilities that are not covered by insurance
in accordance with Section 8 of this CO&M Agreement shall be settled or litigated and
defended by the Operator in accordance with its best judgment and discretion except when
(a) the amount involved is stated to be (or estimated to be, as the case may be) greater
than $100,000, or (b) criminal sanction is sought. The settlement or defense of any claim
described in (a) or (b) above shall be decided by the Members pursuant to the Operating
Agreement.

4. EMPLOYEES, CONSULTANTS AND SUBCONTRACTORS.

4.1. Operator’s Employees, Consultants and Subcontractors. The Operator shall employ or
retain and have supervision over the Persons (including consultants and professional
service or other organizations) required or deemed advisable by the Operator to perform
its duties and responsibilities hereunder in an efficient and economically prudent manner.
The Operator shall pay all reasonable expenses in connection therewith, including
compensation, salaries, wages, overhead and administrative expenses incurred by the
Operator, and if applicable, social security taxes, workers’ compensation insurance,
retirement and insurance benefits and other such expenses. The compensation for the
Operator’s employees shall be determined by the Operator, provided that the amount and
terms of such compensation shall be comparable to those prevailing for the Operator’s
other employees who are not providing services to the Company. Subject to the other
provisions of this CO&M Agreement, all authorized expenses pursuant to this Section 4.1
shall be reimbursed to the Operator by the Company as provided in the Accounting
Procedure.

4.2. Use of Affiliates or Independent Contractors. The Operator may utilize, as it
reasonably deems necessary or appropriate, the services of any independent contractors or
of its or any Member’s Affiliates; provided, however, that such services of the Operator’s
or any Member’s Affiliates must be utilized on terms comparable to similar arrangements
that the Operator may have for services that are not being provided to the Company.

4.3. Standards for Operator and its Employees. The Operator shall perform its services
and carry out its responsibilities hereunder, and shall require all of its employees and
contractors, subcontractors and materialmen furnishing labor, material or services for the
Operation of the Facilities to carry out their respective responsibilities in accordance
with sound, workmanlike and prudent practices of the natural gas pipeline industry and in
compliance with the Company’s FERC gas tariff, policies, rules and orders of FERC and the
U.S. Department of Transportation and all relevant laws, statutes, ordinances, safety
codes, regulations, rules and Authorizations of Governmental Authorities having
jurisdiction applicable to the Facilities.

4.4. Non-Discrimination and Drugs. In performing under this CO&M Agreement, the Operator
shall not discriminate against any employee or applicant for employment because of race,
creed, color, religion, sex, national origin, age or disability, and will comply with all
provisions of Executive Order 11246 of September 24, 1965 and any successor order thereto,
to the extent that such provisions are applicable to the Operator or the Company. The
Company and the Operator do not condone in any way the use of illegal drugs or controlled
substances. Any Person known by the Operator to be in possession of any illegal drug or
controlled substance will be removed by the Operator and not permitted to work on or with
respect to the Facilities. In addition, the Operator shall meet all the applicable
requirements imposed by the Department of Transportation as specified in 49 C.F.R., Parts
40 and 199. Furthermore, upon request and to the extent permitted by law, the Operator
will furnish the Company copies of the records of employee drug test results required to
be kept under the provisions of 49 C.F.R. Part 199. The provisions of this Section 4.4
shall be applicable to any contractors, consultants and subcontractors retained in
connection herewith, and the Operator shall cause the agreements with any contractor,
consultant or subcontractor to contain similar language.

5. FINANCIAL AND ACCOUNTING.

5.1. Accounting and Compensation.

	 	5.1.1.	 	The Operator shall maintain accounts for the Company in accordance with
the FERC Uniform System of Accounts and other Required Accounting Practices
and shall keep a full and complete account of all costs, expenses and
expenditures incurred by it in connection with its obligations hereunder in
the manner set forth in the Accounting Procedure.

	 	5.1.2.	 	The Company will pay the Operator at the rate and in the manner set forth
in the Accounting Procedure. For any variable costs paid by the Company, the
Operator is required to keep documentation sufficient to demonstrate that
any such variable costs were reasonably incurred in connection with the
Operation of the Facilities or otherwise to fulfill the Operator’s duties
under this CO&M Agreement and the Operating Agreement. The Company is not
obligated to pay Operator for any variable costs arising out of Prohibited
Conduct or valid claims for non-payment of any and all contributions,
withholding deductions or taxes measured by the wages, salaries or
compensation paid to Persons employed by the Operator or any of its
Affiliates in connection herewith.

5.2. Budgets and Reports. The Operator shall on a timely basis prepare and deliver to the
Company for approval an annual Operating Budget pursuant to Section 7.6 of the Operating
Agreement. Such budgets shall be prepared in sufficient detail to satisfy the
requirements of any lending institution providing financing for the Facilities. The
Operator shall also prepare and deliver to each Member such forecasts, cash flow
projections and financial and operating reports with respect to the Company as from time
to time may be reasonably requested by the Company.

5.3. Disputed Charges. The Company may, within the audit period referred to in Section
5.5 hereof, take written exception to any bill or statement rendered by the Operator for
any variable costs on the ground that the same was not appropriate for reimbursement under
the terms of Section 5.1.2 above. The Company shall nevertheless pay in full when due the
amount of all statements submitted in good faith by the Operator. Such payment shall not
be deemed a waiver of the right of the Company to recoup any contested portion of any bill
or statement; provided, however, that if the amount as to which such written exception is
taken or any part thereof is ultimately determined in accordance with Section 11.2 of this
CO&M Agreement not to be appropriate for reimbursement under the terms of Section 5.1.2 of
this CO&M Agreement, such amount or portion thereof (as the case may be) shall be refunded
by the Operator to the Company, together with interest thereon at the lesser of the prime
rate of Wachovia Bank, N.A. (or its successor) as of the date on which the dispute began,
or the maximum interest rate allowed for this purpose pursuant to West Virginia law.

5.4. Rate and Tariff Reviews. The Operator shall review from time to time the rates and
fees charged for the Company’s services, and the terms and conditions for such services
and any new services deemed appropriate by the Operator and, subject to the receipt of any
required Regulatory Approvals and the terms of any Service Agreement, revise such rates,
fees, terms and conditions as the Operator may deem appropriate for the Company.

5.5. Audit and Examination. The Company or any Member whose Sharing Ratio is at least
25%, after thirty (30) days’ notice in writing to the Operator, shall have the right
during normal business hours to audit or examine, at the expense of the party requesting
the audit, all books and records maintained by the Operator, as well as the relevant books
of account of the Operator’s contractors, relating to the Operation of the Facilities;
provided, however, that the total number of full audits commenced in any Year pursuant to
this Section 5.5 shall not exceed two. Such right shall include the right to meet with
the Operator’s internal and independent auditors to discuss matters relevant to the audit
or examination. The Company shall have two Years after the close of a Year in which to
make an audit of the Operator’s records for such Year; provided, however, that any audits
relating to construction costs may be made up to two Years after the in-service date of
the Facilities (not including any Modifications) or after the date that construction of
the Modification in question was completed, as certified in writing by the Operator, in
the case of a Modification.

6. INTELLECTUAL PROPERTY; LICENSE TO OPERATOR.

Each Member hereby grants to the operator an irrevocable, royalty-free, non-exclusive and
non-assignable license to use, during the term of this CO&M Agreement, any Confidential Information
provided to the Company or the Operator by said Member and designated as such by said Member. For
purposes of this Section 6, Confidential Information shall include, but shall not be limited to,
inventions (whether patented or not) and copyrighted or copyrightable material. As a condition
precedent to the effectiveness of such license to use, the Operator hereby expressly agrees that it
will utilize such Confidential Information solely in connection with the performance of its duties
hereunder and further expressly agrees that it will be subject to and bound by the provisions set
forth in Section 4.7.2 of the Operating Agreement as if it were a Member. Upon termination of this
CO&M Agreement or its removal as Operator, such license shall terminate and, upon the request of
the Company, the Operator shall either return all Confidential Information that has been provided
to it, together with all reproductions thereof in the Operator’s possession, pursuant to such
license to use, to the Member from whom it obtained such Confidential Information or certify to
such Member that it has been destroyed.

7. INDEMNIFICATION.

The Company agrees to indemnify, hold harmless and defend the Operator and its Affiliates and their
respective officers, directors, employees and agents (but not including any Member of the Company,
in its capacity as such) from and against, and the indemnified parties shall have no liability to
the Company for, any and all Liabilities incurred arising out of or relating to this CO&M Agreement
or the Operation of the Facilities, regardless of cause; provided, however, that the Company shall
not be required to indemnify or hold harmless the indemnified parties from or against any
Liabilities attributable to the actions or omissions of Operator in maintaining and administering
accounts and arrangements as set forth in Section 3.1.11 of this CO&M Agreement; provided, further,
that the Company shall not be required to indemnify or hold harmless the indemnified parties from
or against any Liabilities attributable to Prohibited Conduct or valid claims for non-payment of
any and all contributions, withholding deductions or taxes measured by the wages, salaries or
compensation paid to Persons employed by the Operator or any of its Affiliates in connection
herewith. In the event applicable law limits in any way the extent to which indemnification may be
provided to an indemnitee, this Section 7 shall be automatically amended, in keeping with the
express intent of the parties hereto, as necessary to render all the remainder of this CO&M
Agreement valid and enforceable and to provide that the indemnifications provided herein shall
extend and be effective only to the maximum extent permitted by such law. Upon notice therefor,
the Company shall advance to the indemnified party the costs of any Liabilities for which
indemnification is to be sought hereunder upon the execution by the indemnified party of a written
undertaking to repay any costs for which indemnification pursuant to this Section 7 is determined
to be improper by mutual agreement or pursuant to the procedures set forth in Section 11.2 of this
CO&M Agreement, together with interest thereon at the Default Rate. With respect to any
Liabilities asserted against any indemnified party for which indemnification may be sought
hereunder, the Company shall not, without the indemnified party’s prior written consent, settle or
compromise such Liability or consent to entry of any judgment in respect thereof which imposes any
future obligation on the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party a release from all
Liabilities asserted by such claimant. The Company (a) shall have the right to defend, at its cost
and expense, such Liabilities in all appropriate Proceedings, and (b) shall have full control
(including choice of counsel) of such defense and Proceedings, including any compromise or
settlement thereof (subject to the foregoing provisions of this Section 7), and the indemnified
parties shall cooperate in such defense in all reasonable ways. The Company shall not be required
to provide indemnification pursuant to this Section 7 to the extent, if any, that the Liabilities
in question are not borne or incurred by the indemnified parties because of the availability of
insurance proceeds from the insurance required in Section 8.2 of this CO&M Agreement to the
indemnified parties.

8. INSURANCE.

	 	8.1.	 	During the construction of the Facilities, the Operator shall cause to be
carried and maintained, either directly or through the contractor(s) building the
Facilities, builders risk insurance, including the perils of flood and earthquake, if
available and deemed affordable, and including mutually acceptable sub-limits of
offsite storage and transit for the full replacement value of the work with all
coinsurance waived and “permission to occupy” granted. The insurance shall name the
Operator and the Company as insureds, as their respective interests may appear.

	 	8.2.	 	At all times during the Operation of the Facilities, the Operator shall
provide (a) workers’ compensation insurance granting full compensation under the
worker’s compensation law of any state in which operations are conducted, and (b)
employer’s liability insurance with limits of not less than $2,000,000 per occurrence
for all of the Operator’s employees engaged in work on the Facilities, and (c)
automobile liability insurance for all vehicles owned or used by the Operator,
covering injuries to or death of Persons and damage to property, with a combined
single limit of not less than $2,000,000 per occurrence.

	 	8.3.	 	If permitted by applicable law, the Operator may self-insure the workers’
compensation, employer’s liability insurance, and automobile liability insurance
required above and up to $1,000,000 per occurrence, or such other amounts as the
Company authorizes by Supermajority Vote, of the general liability insurance required
in Section 8.4 below.

	 	8.4.	 	To be effective as of the Execution Date, the Operator shall procure and
maintain for the benefit of the Company and the Operator general liability and/or
excess liability insurance with limits of not less than $10,000,000 per occurrence
for bodily injury and property damage combined. The Company and the Operator will be
the named insureds under such insurance policy(ies). The Operator’s parent and
Affiliates and the Members will be named as additional insureds under such insurance
policy(ies). Such insurance policy(ies) will be worded to provide primary insurance
to the named insureds and the above additional insureds with respect to the Operation
of the Facilities, and to waive any rights of subrogation against the above
additional insureds. Within fifteen (15) days after the execution of this CO&M
Agreement, and annually thereafter, Operator will have a certificate of insurance
issued evidencing this insurance upon the specific request of the Company or any
Member whose Sharing Ratio is at least 25%.

	 	8.5.	 	The Operator will procure and maintain for the benefit of and on behalf of
the Company and the Operator all-risk property insurance covering the Facilities with
no co-insurance, including coverage for boiler and machinery, business interruption
(at the Company’s option) and natural gas in the possession of the Company. This
insurance will be placed into effect simultaneously with the termination of the
builder’s risk insurance the Operator is required to maintain under Section 8.1 of
this CO&M Agreement. The Company and the Operator will be the named insureds and loss
payees under such insurance policy. This insurance policy will provide a waiver of
any rights of subrogation against the Operator’s Parent and Affiliates and the
Members. Any insurance proceeds for any losses under this policy will be applied
against the cost to repair or replace the Facilities.

	 	8.6.	 	All policies of insurance shall be written with carriers holding a current
Best’s rating of at least “A” (or if not so rated, has a creditworthiness comparable
to such an “A” rated carrier), and shall afford at least 60-days written notice in
the event of cancellation, non-renewal or material reduction in the coverage required
hereunder. The costs for premiums, deductibles and self-insured retentions for the
insurance maintained by the Operator pursuant to this CO&M Agreement shall be
reimbursable costs pursuant to Section 5 of this CO&M Agreement. In addition, in the
event the Operator self-insures the general liability insurance required above as
herein permitted, the Operator shall be reimbursed as provided in Section 3.2.7 of
the Accounting Procedure.

9. TERM.

This CO&M Agreement shall be effective as of the date hereof and shall continue for the term of the
Company as provided in the Company’s Articles of Organization; provided, however, that this CO&M
Agreement shall be terminated earlier upon the first to occur of the following: (a) the Operator’s
Affiliate (or any successor Affiliate of the Operator) that is a Member ceases to be a Member; or
(b) the Operator commits a material default under this CO&M Agreement and such material default
continues for a period of 120 days after notice thereof by the Company to the Operator (provided,
however, that no termination shall occur if the Operator has initiated action to cure such material
default but, despite its good faith efforts, it has been unable to complete such cure within such
120 day period).

10. SURVIVAL OF OBLIGATIONS.

The termination of this CO&M Agreement shall not discharge any Party from any obligation that it
owes to any other Party by reason of any transaction, commitment or agreement entered into, or any
Liabilities that shall occur or arise (or the circumstances, events or basis of which shall occur
or arise) prior to such termination. It is the intent of the Parties that any obligation owed by a
Party to the other Party (whether the same shall be known or unknown at the time of termination
hereof, or whether the circumstances, events or basis of the same shall be known or unknown at the
termination hereof) shall survive the time of termination of this CO&M Agreement.

11. LAW OF THE CONTRACT AND ARBITRATION.

11.1. Law of the Contract. THIS CO&M AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WEST VIRGINIA, EXCLUDING ANY CONFLICTS OF LAW
RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS CO&M
AGREEMENT TO THE LAW OF ANOTHER JURISDICTION.

11.2. Arbitration.

	 	11.2.1.	 	In the event that the Parties are unable to agree on any matter relating
to this CO&M Agreement, the Company or the Operator may upon notice given to
the other call for submission of such matter to arbitration. The Party
requesting arbitration shall set forth in such notice in adequate detail the
issues to be arbitrated, and within ten (10) days from the receipt of such
notice, the other Party may set forth in adequate detail additional related
issues to be arbitrated. Within ten (10) days after the giving of such
latter notice, each Party shall furnish to the other Party a notice
(“Decision Notice”) setting forth the decision (on a word-for-word basis)
that such Party wishes the arbitrator(s) to make with respect to the issues
to be arbitrated. Within ten (10) days after the giving of the latter of
the two Decision Notices, the Parties shall attend a meeting
(“Pre-Arbitration Meeting”) at a mutually acceptable time and place to
discuss fully the content of such Decision Notices and based thereon
determine whether either or both wish to modify their Decision Notices in
any way. Any such modifications shall be discussed with each other, so that
when each Party finalizes its Decision Notice, it shall do so with full
knowledge of the content of the other Party’s final Decision Notice. The
finalization of such Decision Notices and the delivery of same by each Party
to the other shall occur at the Pre-Arbitration Meeting unless by mutual
agreement they agree to have one or more additional Pre-Arbitration Meetings
for such purposes. If arbitration is invoked by either Party, the decision
of the arbitrators shall be final and binding upon all Parties, and neither
Party shall seek to have the applicable issues litigated rather than
arbitrated (except as may be otherwise required by law).

	 	11.2.2.	 	It is the intent of the Parties that, to the extent practicable, such
binding arbitration shall be conducted by a Person knowledgeable and
experienced in the type of matter that is the subject of the dispute. In
the event the Parties are unable to agree upon such Person within ten days
after the last Pre-Arbitration Meeting held pursuant to Section 11.2.1
above, then each Party shall select a Person that it believes has the
qualifications set forth above as its designated arbitrator (which selection
shall be accomplished by notifying the other Party of the identity of such
Person), and such arbitrators so designated shall mutually agree upon a
similarly qualified third Person to complete the arbitration panel;
provided, however, that if one of the Parties fails to select its designated
arbitrator as specified herein within ten (10) days of receiving notice from
the other Party that such other Party has selected its designated
arbitrator, then the arbitration provided for herein shall be conducted by
the one arbitrator so designated. In the event that the Persons selected by
the Parties are unable to agree on a third member of the panel within ten
(10) days after the selection of the latter of the two arbitrators, such
Person shall be designated by the American Arbitration Association upon
application of either Party or both Parties. Upon final selection of the
entire panel, such panel shall, as expeditiously as possible (and if
possible, within ninety (90) days after the selection of the last
arbitrator), render a decision on the matter submitted for arbitration.
Such panel shall be required to adopt either the decision set forth in the
Operator’s final Decision Notice or the decision set forth in the Company’s
final Decision Notice and shall have no power whatsoever to reach any other
result. Such panel shall adopt the decision that in its judgment is the
more fair, equitable and in conformity with this CO&M Agreement. The
arbitration shall be conducted in Charleston, West Virginia, in accordance
with the commercial arbitration rules of the American Arbitration
Association.

	 	11.2.3.	 	Upon the determination of any such dispute, the arbitrators shall bill
the costs attributable to such binding arbitration to the losing Party;
provided, however, that the arbitrators shall be empowered to apportion such
costs between the Parties if they deem it appropriate.

	 	11.2.4.	 	It is the intent of the Parties that, once arbitration is invoked by
either Party pursuant to the provisions of this Section 11, the matters set
for arbitration shall be decided as set forth herein, and they shall not
seek to have this Section 11 rendered unenforceable or to have such matter
decided in any other way; provided, however, that nothing herein shall
prevent the Parties from negotiating a settlement of any issue at any time.

	 	11.2.5.	 	Without limiting any of the foregoing, for purposes of this CO&M
Agreement an independent determination of whether an action or failure to
act constitutes Prohibited Conduct shall be made by arbitration pursuant to
this Section 11, without regard to the findings of any court or
administrative body or the settlement or compromise of any claim (other than
a settlement of the type referred to in Section 11.2.4 above).

12. SPECIAL AND CONSEQUENTIAL DAMAGES. The indemnification provided in Section 7 of this CO&M
Agreement shall include without limitation claims made by any Person for special, indirect,
consequential or punitive damages; otherwise, neither Party shall have any liability hereunder to
the other Party for any special, indirect, consequential or punitive damages.

13. GENERAL.

13.1. Effect of Agreement; Amendments. This CO&M Agreement, together with the definitions
in the Operating Agreement, constitutes the entire agreement among the Parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral and written, among the Parties with respect to the subject matter
hereof. This CO&M Agreement can be amended, restated or supplemented only by the written
agreement of the Operator and the Company.

13.2. Notices. Except as expressly set forth to the contrary in this CO&M Agreement, all
notices, requests, or consents provided for or permitted to be given under this CO&M
Agreement must be in writing. Notices and other communications will be deemed to have
been given (a) on the date when delivered by hand or by means of electronic transmission
(and followed by electronic confirmation of receipt), (b) on the date after the day when
deposited for delivery with a nationally recognized air courier, or (c) on the third
Business Day after being deposited in the United States mail, postage prepaid return
receipt requested. All notices, requests, and consents to be sent to the Operator must be
given to the Operator at the following addresses:

Columbia Gas Transmission Corporation

Post Office Box 1273

Charleston, West Virginia 25325-1273

Attention: Manager-Customer Services, if by mail

or

304-357-3527, Attn: Manager-Customer Services, if by facsimile transmission

and if regarding billing and invoicing matters to:

Columbia Gas Transmission Corporation

12801 Fair Lakes Parkway

Fairfax, VA 22033

Attn: Vice President, Marketing

if by mail

or

703-227-3377

Fax number

Attn: Vice President Marketing

if by facsimile transmission.

All notices, requests, and consents to be sent to the Company must be given to the
Management Committee at the following addresses:

Hardy Storage Company, LLC

12801 Fair Lakes Parkway

Fairfax, VA 22033

if by mail

or

703-227-3377 if by facsimile transmission.

Whenever any notice is required to be given by law or this CO&M Agreement, a written
waiver thereof, signed by the Person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.

13.3. Counterparts. This CO&M Agreement may be executed in any number of counterparts
with the same effect as if all Parties had signed the same document. Each counterpart
shall be deemed an original, but all of which together shall constitute one and the same
instrument.

13.4. Waiver. A waiver or consent, expressed or implied, to or of any breach or default
by any Person in the performance by the Person of its obligations with respect to the
Company or the Operator is not a consent or waiver to or of any other breach or default in
the performance by that Person of the same or any other obligations of that Person with
respect to the Company or the Operator. Failure on the part of a Person to complain of
any act of any Person or to declare any Person in default with respect to the Company or
the Operator, irrespective of how long that failure continues, does not constitute a
waiver by the Person of its rights with respect to that default until the applicable
statute-of-limitations period has run.

13.5. Assignability; Successors. This CO&M Agreement may not be assigned by either Party
without the written consent of the other Party; provided, however, that such consent shall
not be withheld unreasonably; provided, further, that this CO&M Agreement may be pledged
by the Company without the consent of the Operator in connection with any Financing
Commitment ; provided, further, that this CO&M agreement may be assigned by the Company to
a corporate entity formed pursuant to Section 4.1.1(ii) of the Operating Agreement. This
CO&M Agreement and all of the obligations and rights herein established shall extend to
and be binding upon and shall inure to the benefit of the respective successors and
permitted assigns of the respective Parties hereto. Unless otherwise agreed, any
assignment of this CO&M Agreement shall not relieve the assigning Party of any of its
obligations hereunder.

13.6. Third Persons. Except as expressly provided in this CO&M Agreement, nothing in this
CO&M Agreement shall provide any benefit to any third party or entitle any third party to
any claim, cause of action, remedy or right of any kind, it being the intent of the
Parties that this CO&M Agreement shall not be construed as a third party beneficiary
contract. In the specific event that the Operator’s affiliates own fifty percent (50%) or
more of the Membership Interests in the Company, any other Member of the Company that
holds more than forty-five percent (45%) of the Membership Interests in the Company may
independently invoke arbitration against the Operator pursuant to Section 11.2 regarding
any breach of this CO&M Agreement by the Operator if such Member first makes written
demand on the Company to invoke arbitration with respect to the breach of this CO&M
Agreement by the Operator specified in such demand letter and within thirty (30) days
after such demand, the Company fails to take action to cause the Operator to cure such
breach of this CO&M Agreement or to invoke arbitration to enforce the Company’s rights
against the Operator for such breach of this CO&M Agreement. In the event the Company
invokes arbitration, the Company shall diligently pursue such proceeding and shall not
agree to a dismissal or settlement of such proceeding without the written consent of the
Member who requested the institution of arbitration.

13.7. Laws and Regulatory Bodies. This CO&M Agreement and the obligations of the Parties
hereunder are subject to all applicable laws, rules, orders and regulations of
Governmental Authorities having jurisdiction, and to the extent of conflict, such laws,
rules, orders and regulations of governmental authorities having jurisdiction shall
control.

13.8. Headings. Headings and captions are for reference purposes only and shall not
affect the meaning or interpretation of this CO&M Agreement.

13.9. Severability. If any provision of this CO&M Agreement or the application thereof to
any Person or circumstance is held invalid or unenforceable to any extent, the remainder
of this CO&M Agreement and the application of that provision to other Persons or
circumstances are not affected thereby and that provision shall be enforced to the
greatest extent permitted by law.

13.10. Further Assurances. In connection with this CO&M Agreement and the transactions
contemplated hereby, each Party shall execute and deliver any additional instruments and
documents and perform any acts and things as may be necessary or appropriate to effectuate
and perform the terms and provisions of this CO&M Agreement and those transactions.

IN WITNESS WHEREOF, the Parties have caused this CO&M Agreement to be executed by their duly
authorized representatives as of the date first above written.

	 	 	 	 	 
	 
	 	COMPANY:

	 
	 	Hardy Storage Company, LLC

	 
	 	By each of its Members:

	 
	 	COLUMBIA HARDY

	 
	 	By:  /s/ Glen L. Kettering

	 
	 	Name: Glen L. Kettering

	 
	 	Title: President

	OPERATOR:
	 	 	—	 
	Columbia Gas Transmission Corporation
	 	PIEDMONT HARDY

	By: /s/ Glen L. Kettering
	 	By:   /s/ Kevin M. O’Hara

	 
	 	 	 	 
	Name: Glen L. Kettering
	 	Name: Kevin M. O’Hara

	 
	 	 	 	 
	Title: President
	 	Title: Vice President

	 	 	 

3

EXHIBIT A

TO

CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT

ACCOUNTING PROCEDURE

1. GENERAL PROVISIONS

	 	1.1.	 	Statements and Billings. Commencing on the twentieth Business Day of the first full
Month after the Execution Date, the Operator shall bill the Company on the twentieth
Business Day of each Month or as soon as practicable thereafter for the variable costs and
the fixed fee for the preceding Month, including any adjustment that may be necessary to
correct prior billings. If requested by the Company, the Operator will promptly provide
reasonably sufficient support for the variable costs included on a bill. The bills for the
variable costs will be summarized by appropriate classifications indicative of the nature
thereof and will be accompanied by such detail and supporting documentation as the Company
may reasonably request.

	 	1.2.	 	Payment by Company. The Company shall pay all bills presented by the Operator as
provided in the CO&M Agreement and the Operating Agreement on or before the fifteenth
(15th) Day after the bill is received. If payment is not made within such time, the
unpaid balance shall bear interest until paid at the Default Rate.

	 	1.3.	 	Financial Records. The Operator shall maintain accurate books and records in
accordance with Required Accounting Practice covering all of the Company’s activities and
the Operator’s actions under the CO&M Agreement.

	 	1.4.	 	Interest-Bearing Account. To the extent practicable, the funds of the Company will
be held in one or more interest-bearing accounts.

2. CAPITAL ITEMS

	 	2.1.	 	Transferred Property. To the extent the Operator or any of its Affiliates owns real
and/or personal property necessary or desirable for the Operation of the Facilities, the
Operator or such Affiliate may transfer such property to the Company in accordance with
the provisions of the Operating Agreement and, if such property may be capitalized under
Required Accounting Practice, then the Operator will do so on the books of the Company.

	 	2.2.	 	Natural Gas. The cost of natural gas utilized for installation, purging, testing,
storage field base gas (whether injected or purchased in place) and natural gas used for
line pack of the Facilities shall be a capital item.

	 	2.3.	 	Information Systems. Any major modification to information systems requiring
information processing and/or programming services shall be a capital item.

3. COSTS AND EXPENSES

Subject to the limitations hereafter prescribed and the provisions of the CO&M Agreement, the
Operator shall charge the Company for all costs and expenses provided for in Section 5.1.2 of the
CO&M Agreement, including, but not limited to, the following items:

	 	3.1.	 	Fixed Costs. For each full month for which Operator sends the Company a bill, it
will bill the Company the sum of $41,677 for the first twelve months following the date of
the CO&M Agreement, and for each partial month a prorated amount. The amount to be billed
under this Section 3.1 will escalate at the rate of 3% annually for each subsequent
twelve-month period. The amounts billed under this Section 3.1 are designed to cover the
following costs and expenses incurred by Operator:

	 	3.1.1.	 	Rentals. All allocations made by the Operator’s Affiliates for space occupied by
the Operator’s employees who are primarily dedicated to the Operation of the
Facilities.

	 	3.1.2.	 	Administrative Services. All costs incurred by Operator with respect to services
that do not relate specifically to the field operations of the Company, including:

	 	3.1.2.1.	 	Executive, Financial, Human Resources, Information Technology, In-house Legal,
Community and Government Affairs, Regulatory Affairs and Strategic Planning
Services;

	 	3.1.2.2.	 	Commercial, Gas Control, Rates, Facility Planning, Marketing and Price Desk
Services;

	 	3.1.2.3.	 	Engineering, Land, and general management of the Field Services personnel
whose services are included in 3.2 below.

	 	3.1.3.	 	Services. The cost of contract services, including audit fees, and utilities
procured from outside sources and not related to actual field operations.

	 	3.1.4.	 	Other Costs. All other costs incurred by Operator to provide the services required
under the CO&M Agreement and not specifically addressed in 3.2 below.

	 	3.2.	 	Variable Costs. On a monthly basis, Operator will bill the Company for the actual
costs incurred in the prior month for the following categories of costs and expenses:

	 	3.2.1.	 	Purchase of Materials. It is contemplated that most material, equipment and
supplies will be owned by the Company and purchased or furnished for its account. So
far as is reasonably practical and consistent with efficient, safe and economical
operation as determined by the Operator, only such material shall be obtained for the
Facilities as may be required for the prudent and reliable operation of the
Facilities, including a reasonable supply of spare parts, and the accumulation of
surplus stock shall be avoided. To the extent reasonably possible, the Operator shall
take advantage of discounts available by early payments and pass such benefits on to
the Company. However, Company may purchase material, equipment and supplies from
Operator or Operator’s Affiliates, in which case the price to be charged the Company
will equal the cost to Operator or its Affiliate, plus an appropriate purchasing and
stores overhead ordinarily in use by the Operator or Affiliate

	 	3.2.2.	 	Labor Costs. A prorated portion of the following labor costs for employees of
Operator or Operator’s Affiliates who provide actual field operation services for
Company, based on time sheets prepared by those employees:

	 	3.2.2.1.	 	Salaries and wages, which shall be loaded to include the Operator’s actual
costs of bonuses, holiday, vacation, sickness and jury service benefits and other
customary allowances for time not worked and training required under Federal or
state regulations or by company policy;

	 	3.2.2.2.	 	Expenditures or contributions made pursuant to assessments imposed by a
Governmental Authority that are applicable to salaries, wages and costs,
including, but not limited to, FICA taxes and federal and state unemployment
taxes; and

	 	3.2.2.3.	 	The costs of plans incurred by or on behalf of the Operator for workers’
compensation, employers’ group life insurance, hospitalization, disability,
pension, retirement, savings and other benefit plans.

	 	3.2.3.	 	Reimbursable Expenses of Employees. Reasonable personal expenses of employees of
Operator or Operator’s Affiliates, whose labor costs are chargeable to Company under
3.2.2 above. As used herein, the term “personal expenses” shall mean out-of-pocket
expenditures incurred by Operator’s or Operator’s Affiliate’s employees in the
performance of their duties and for which such employees are reimbursed. The Operator
shall maintain documentation for such expenses in accordance with the standards of the
Internal Revenue Service.

	 	3.2.4.	 	Transportation. Transportation of employees, equipment and material and supplies
necessary for the Operation of the Facilities.

	 	3.2.5.	 	Legal Expenses and Claims. All third party costs and expenses of handling,
investigating and settling litigation or claims arising by reason of the Operation of
the Facilities or necessary to protect or recover any Facilities or property,
including, but not limited to, attorney’s fees, court costs, costs of investigation or
procuring evidence and any judgments paid or amounts paid in settlement or
satisfaction of any such litigation or claims. All judgments received or amounts
received in settlement of litigation with respect to any claim asserted on behalf of
the Company shall be for the benefit of and shall be remitted to the Company.

	 	3.2.6.	 	Taxes. All taxes (except those measured by income) of every kind and nature
assessed or levied upon or incurred in connection with the Operation of the Facilities
or on the Facilities or other property of the Company and which taxes have been paid
by the Operator for the benefit of the Company, including charges for late payment
arising from extensions of the time for filing that are caused by the Company, or that
result from the Operator’s good faith efforts to contest the amount or application of
any tax.

	 	3.2.7.	 	Insurance. Net of any returns, refunds or dividends, all premiums, deductibles and
self insured retentions paid and expenses incurred for insurance required to be
carried under this CO&M Agreement.

	 	3.2.8.	 	Permits, Licenses and Bond. Cost of permits, licenses and bond premiums necessary
in the performance of the Operator’s duties.

	 	3.2.9.	 	Storage Well Leases. Costs associated with the maintenance of underground storage
lease rights and payments for storage well rentals.

	 	3.2.10.	 	Equipment Rentals. Costs associated with periodic rental of equipment for the
Operator to perform its operations and maintenance duties under the CO&M Agreement.

	 	3.2.11.	 	Outside Services. Cost associated with utilizing outside services as permitted by
Section 4.2 of the CO&M Agreement to assist with the operation and maintenance of the
storage facilities, rights-of-ways and fluid disposal.

	 	3.2.12.	 	Special Purpose Vehicles. Costs associated with the operation of special purpose
vehicles to assist with the operation and maintenance of the storage facilities,
rights-of-ways and fluid disposal.

	 	3.2.13.	 	General Tools. Costs associated with the general equipment tools utilized by the
Operator’s personnel and that are necessary for the Operation of the Facility.

	 	3.2.14.	 	Process Energy Used. Costs associated with the non-prime mover electrical power
used for the Operations of the Facility.

4EX-10.3

Exhibit 10.3

Operating Agreement

of

Hardy Storage Company, LLC

Dated as of November 12, 2004

The Membership Interests represented by this Agreement have been acquired for investment and
were issued without registration under the Securities Act of 1933, as amended (the “Securities
Act”), or under the securities laws of any state. Membership Interests may not be sold, pledged,
hypothecated, or otherwise transferred at any time except (i) in accordance with the restrictions
contained in this Agreement, as amended from time to time, and (ii) pursuant to an effective
registration statement or exemption from registration under the Securities Act and any applicable
state securities laws.

1

Operating Agreement

of

Hardy Storage Company, LLC

Table of Contents

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions

1.2 Construction.

2. FORMATION AND PURPOSE OF THE COMPANY.

	 	 	 
	2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

	 	Formation.

Name.

Registered Office, Registered Agent.

Offices.

Purposes.

Foreign Qualification.

Term.

No State Law Partnership.

3. MEMBERSHIP; DISPOSITION OF INTERESTS.

	 	 	 
	3.1

3.2

3.3

3.4

	 	Initial Members.

Restrictions on the Disposition of an Interest.

Additional Members.

Limit on Encumbrances.

4. COVENANTS, REPRESENTATIONS AND WARRANTIES; INFORMATION.

	 	 	 
	4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

	 	Commitment to Construct the Facilities.

Development of a Modification.

Commitment to Construct a Modification.

General Representations and Warranties.

Regulatory Status.

Governmental Applications.

Information.

Liability to Third Parties.

Withdrawal.

Lack of Authority.

Reasonable and Necessary Efforts.

No Personal Gain to Members.

5. CAPITAL CONTRIBUTIONS.

5.1 Pre-Execution Date Expenditures.

5.2 Required Capital Contributions.

5.3 Failure of a Member Other than Operator’s Affiliate to Make Required Capital Contributions.

	 	 	 
	5.4

5.5

5.6

5.7

5.8

	 	Failure of the Affiliate of Operator to Make a Required Capital Contribution.

Loans.

Voluntary Contributions.

Return of Contributions.

Capital Accounts.

6. ALLOCATIONS AND DISTRIBUTIONS.

	 	 	 
	6.1

6.2

6.3

6.4

	 	Allocations of Profits and Losses.

Tax Allocations.

Withholding.

Distributions.

7. MANAGEMENT.

	 	 	 
	7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

	 	Voting by Members and Management Committee.

Removal, Resignation and Replacement of Managers.

Meetings by the Management Committee.

Action by Written Consent or Telephone Conference.

Compensation.

Operating Budgets.

Financing Committee.

Conflicts of Interest.

8. OPERATION OF THE FACILITIES.

8.1 Operator.

9. INDEMNIFICATION.

	 	 	 
	9.1

9.2

9.3

9.4

9.5

9.6

9.7

9.8

9.9

	 	Right to Indemnification.

Advance Payment.

Indemnification of Agents.

Indemnification by the Members.

Appearance as a Witness.

Nonexclusivity of Rights.

Insurance.

Member Notification.

Savings Clause.

10. TAXES.

	 	 	 
	10.1

10.2

10.3

10.4

	 	Tax Returns.

Tax Status.

Tax Matters.

Tax Elections.

11. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS.

	 	 	 
	11.1

11.2

11.3

11.4

11.5

11.6

11.7

11.8

11.9

11.10

11.11

	 	Maintenance of Books and Records.

Accounting Basis.

Financial Reports.

Fiscal Year.

Record of Capital Accounts.

Other Notices.

Governmental Reports.

Cost of Preparing and Distributing Reports.

Accounts.

Annual Field Performance Review.

Annual Stored Natural Gas Inventory Integrity Analysis.

12. INSPECTION.

12.1 Inspection of Facilities and Records.

13. BANKRUPTCY OF A MEMBER.

13.1 Bankrupt Members.

14. DISSOLUTION, LIQUIDATION, AND TERMINATION.

	 	 	 
	14.1

14.2

14.3

14.4

	 	Dissolution.

Liquidation and Termination.

Deficit Capital Accounts.

Articles of Termination.

15. GENERAL PROVISIONS.

	 	 	 
	15.1

15.2

15.3

15.4

15.5

15.6

15.7

15.8

15.9

15.10

15.11

15.12

15.13

15.14

15.15

	 	Offset.

Notices.

Entire Agreement.

Effect of Waiver or Consent.

Amendment or Modification.

Binding Effect.

Specific Performance and Injunctive Relief.

Governing Law; Severability.

No Third Party Beneficiaries.

Creditors.

Further Assurances.

Notice to Members of Provisions of this Agreement.

Press Releases.

Counterparts.

Repurchase Rights under Section 4.1.2 (xiii).

Appendix A – Articles of Organization

Appendix B – Sharing Ratios

Appendix C – Description of Initial Facilities

Appendix D – Pre-Execution Date Expenditures

Appendix E – Phase I Capital Budget

Appendix F – Phase II Capital Budget

Appendix G – Phase III Capital Budget

Appendix H – CO&M Agreement

Appendix I – Corporation Documents

2

This Operating Agreement (“Agreement”) of Hardy
Storage Company, LLC, a West Virginia limited liability company (“Company”), is executed and agreed
to by the Members (as defined below) as of November 12, 2004.

1. DEFINITIONS AND CONSTRUCTION.

The terms defined in this Section 1 shall, for all purposes of this Agreement, have the
meanings set forth below:

1.1 Definitions

	 	1.1.1.	 	“Act” means the West Virginia Uniform Limited Liability Company Act, as
amended, or any successor or replacement statute.

	 	1.1.2.	 	“Additional Necessary Regulatory Approvals” means all Authorizations (but
excluding Authorizations of a nature not customarily obtained prior to
commencement of construction of facilities similar to the Modification in
question) as may be required in connection with (a) the ownership, construction
and operation of a Modification and (b) the receipt, injection, storage,
withdrawal or delivery of the natural gas in connection with such Modification.

	 	1.1.3.	 	“Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in such Member’s Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:

	 	(a)	 	such Capital Account shall be deemed to be
increased by any amounts that such Member is obligated to restore to
the Company (pursuant to this Agreement or otherwise) or is deemed to
be obligated to restore pursuant to (i) the sentence that on the
Execution Date appears as the penultimate sentence of Treasury
Regulations Section 1.704-2(g)(1), or (ii) the sentence that on the
Execution Date appears as the penultimate sentence of Treasury
Regulations Section 1.704-2(i)(5); and

	 	(b)	 	such Capital Account shall be deemed to be
decreased by the items described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).

	 	1.1.4.	 	“Affiliate” means with respect to a Member, any Person which is (a) a Parent
of a Member; or (b) a corporation as to which a majority of the voting
securities are (directly or through any number of wholly-owned subsidiaries)
owned by a Member or a Parent of such Member.

	 	1.1.5.	 	“AFUDC” means allowance for funds used during construction as determined in
accordance with the FERC’s Uniform System of Accounts.

1.1.6. “Agreement” is defined in the Preamble.

	 	1.1.7.	 	“Articles of Organization” means the Articles of Organization filed with the
West Virginia Secretary of State pursuant to the Act on March 12, 2004 and
attached to this Agreement as Appendix A.

	 	1.1.8.	 	“Authorizations” means all licenses, certificates, permits, orders,
approvals, determinations and authorizations from Governmental Authorities
having jurisdiction.

	 	1.1.9.	 	“Available Interest” means all or any portion of a Membership Interest of
which a Member wishes to Dispose.

	 	1.1.10.	 	“Business Day” means a day, other than Saturday or Sunday, on which
commercial banks are open for the transaction of business in New York, New
York.

	 	1.1.11.	 	“Capital Account” means a book account to be established and maintained by
the Company for each Member as computed from time to time in accordance with
the capital account maintenance rules set forth in Treasury Regulations Section
1.704-1(b)(2)(iv) and the following provisions:

	 	(a)	 	to each Member’s Capital Account there shall be
credited (i) such Member’s Capital Contributions, (ii) such Member’s
distributive share of Profits and any items in the nature of income or
gain that are allocated to such Member pursuant to Section 6.1, and
(iii) the amount of any Company liabilities assumed by such Member or
which are secured by any asset of the Company distributed to such
Member;

	 	(b)	 	to each Member’s Capital Account there shall be
debited (i) the amount of money and the Gross Asset Value of any asset
of the Company distributed to such Member, (ii) such Member’s
distributive share of Losses and any items in the nature of expenses or
losses which are allocated to such Member pursuant to Section 6.1, and
(iii) the amount of any liabilities of such Member assumed by the
Company or which are secured by any asset contributed by such Member to
the Company;

	 	(c)	 	in the event that any Membership Interest is
Disposed of or transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the Membership Interest
involved; and

	 	(d)	 	in determining the amount of any liability for
purposes of subparagraphs (a) and (b) above, there shall be taken into
account Section 752(c) of the Code and any other applicable provisions
of the Code and Treasury Regulations.

The foregoing provisions and the other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with Treasury
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Treasury Regulations. In the event the
Management Committee shall determine that it is prudent to modify the manner
in which the Capital Accounts, or any debits or credits thereto, are
computed in order to comply with such Treasury Regulations, the Management
Committee may make such modification, provided that it is not likely
to have a material effect on the amounts distributed to any Person pursuant
to Section 14 hereof upon the dissolution of the Company.

	 	1.1.12.	 	“Capital Contribution” means, with respect to any Member, the amount of
money and the initial Gross Asset Value of any property (other than money)
contributed to the Company with respect to the Membership Interest held by such
Member pursuant to the terms of this Agreement.

	 	1.1.13.	 	“Capital Defaulting Member” means a Member who fails to make any required
Capital Contribution to the Company when due (including without limitation any
Loan in lieu of a Capital Contribution as determined by the Management
Committee).

	 	1.1.14.	 	“Capital Non-Defaulting Member” means any Member who has made all of its
Capital Contributions to the Company when due (including without limitation any
Loan in lieu of a Capital Contribution as determined by the Management
Committee).

	 	1.1.15.	 	“Certificate” means the certificate(s) of public convenience and necessity
to be issued by the FERC pursuant to the FERC Application.

	 	1.1.16.	 	“Certified Public Accountants” means the firm of nationally recognized
independent certified public accountants selected from time to time by the
Operator on behalf of the Company pursuant to Section 7.1.4 of this Agreement.

	 	1.1.17.	 	“Code” means the Internal Revenue Code of 1986, as amended, or any successor
or replacement statute.

1.1.18. “Columbia Hardy” means Columbia Hardy Corporation, a Delaware corporation.

1.1.19. “Company” is defined in the preamble to this Agreement.

	 	1.1.20.	 	“Company Minimum Gain” means the same as the term “partnership minimum gain”
in Section 1.704-2(b)(2) and (d) of the Treasury Regulations.

	 	1.1.21.	 	“CO&M Agreement” means the Construction, Operation and Maintenance Agreement
between the Company and the Operator.

	 	1.1.22.	 	“Confidential Information” means the unique and specific information about
the Facilities, this Agreement, a Member, the Company, rate strategies or
marketing strategies that is not generally available to the public and, in case
of a Member or the Company, that such Member or the Company has designated as
confidential. Upon the filing of the FERC Application, the terms and
conditions of this Agreement and any information about the Facilities disclosed
in the FERC Application (except for any terms and conditions or information for
which confidential treatment may have been requested and not refused by the
FERC) shall be deemed to be generally available to the public and shall not be
considered Confidential Information.

	 	1.1.23.	 	“Customer” means a Person who has entered into a Service Agreement with the
Company (or, where applicable, a precedent agreement relating thereto) for the
receipt, injection, storage, withdrawal and delivery of natural gas by means of
the Facilities.

	 	1.1.24.	 	“Default Rate” means an interest rate equal to the lesser of (a) two percent
(2%) per annum over the prime rate of Wachovia Bank, N.A. (or its successor) as
of the date on which the default began, or (b) the maximum interest rate
allowed for this purpose pursuant to West Virginia law.

	 	1.1.25.	 	“Depreciation” means, for each Fiscal Year or part thereof, an amount equal
to the depreciation, amortization or other cost recovery deduction allowable
for federal income tax purposes with respect to an asset for such Fiscal Year
or part thereof, except that if the Gross Asset Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
Fiscal Year, the depreciation, amortization, or other cost recovery deduction
for such Fiscal Year or part thereof shall be an amount which bears the same
ratio to such Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Fiscal Year or part
thereof bears to such adjusted tax basis.

	 	1.1.26.	 	“Dispose, Disposing or Disposition” means a sale, assignment, transfer,
exchange or other disposition (including, without limitation, by operation of
law), or the acts thereof.

	 	1.1.27.	 	“Estimated Cost of Modification” means, with respect to any Modification, an
estimate determined by the Operator of the total costs and expenses, including
without limitation AFUDC, to be borne by the Operator or the Company for the
(a) acquisition, planning, design, engineering, financing, administration,
construction, start-up, operation and maintenance of such Modification, and (b)
securing all Authorizations required for the foregoing.

1.1.28. “Execution Date” means November 12, 2004.

	 	1.1.29.	 	“Facilities” means the Initial Facilities together with any and all
Modifications.

	 	1.1.30.	 	“FERC” means the Federal Energy Regulatory Commission or any commission,
agency or other governmental body succeeding to the powers of such commission.

	 	1.1.31.	 	“FERC Application” means the documents pursuant to which application for a
certificate(s) of public convenience and necessity is made to FERC by the
Company for authority to construct, own, lease and operate the Initial
Facilities and to receive, inject, store, withdraw and deliver natural gas by
means of the Initial Facilities.

	 	1.1.32.	 	“Financing Commitment” means the agreements between one or more financial
institutions or other Persons and the Company or the Financing Corporation
pursuant to which such financial institutions or other Persons agree, subject
to the conditions set forth therein, to lend money to, or purchase securities
of, the Company or the Financing Corporation, the proceeds of which shall be
used to finance all or a portion of the Facilities.

	 	1.1.33.	 	“Financing Committee” means the committee of Member representatives
established pursuant to Section 7.7.

	 	1.1.34.	 	“Financing Corporation” means a corporation or trust wholly owned by the
Company that may be organized for the purpose of issuing securities, the
proceeds from which are to be advanced directly or indirectly to the Company to
finance all or a portion of the Facilities.

	 	1.1.35.	 	“Fiscal Year” means the fiscal year adopted by the Company from time to
time.

	 	1.1.36.	 	“GAAP” means generally accepted accounting principles as applied in the
United States of America.

	 	1.1.37.	 	“Governmental Authority” means any court, agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
any governmental or quasi-governmental unit, whether federal, state, parish,
county, district, municipality, city, political subdivision or otherwise,
domestic or foreign, whether now or hereafter in existence.

	 	1.1.38.	 	“Gross Asset Value” means, with respect to any asset of the Company, the
adjusted tax basis of such asset as of the relevant date for federal income tax
purposes, except as follows:

	 	(a)	 	the initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market
value of such asset as determined by the Management Committee;

	 	(b)	 	the Gross Asset Values of all Company assets
(including intangible assets such as goodwill) shall be adjusted to
equal their respective gross fair market values (taking into account
Section 7701(g) of the Code) as determined by the Management Committee
as of the following times:

	 	(i)	 	the acquisition after the date
hereof of an additional Membership Interest in the Company by
any new or existing Member in exchange for more than a
de minimis Capital Contribution;

	 	(ii)	 	the distribution by the Company
to a Member of more than a de minimis amount of
money or Company property as consideration for a Membership
Interest in the Company; and

	 	(iii)	 	the liquidation of the Company
within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g);

provided that an adjustment pursuant to clauses (i) and (ii)
above shall be made only if the Management Committee reasonably
determines that such adjustment is necessary to reflect the relative
economic interests of the Members in the Company;

	 	(c)	 	the Gross Asset Value of any item of Company
assets distributed to any Member shall be adjusted to equal the gross
fair market value (taking into account Section 7701(g) of the Code) of
such asset on the date of distribution as determined by the Management
Committee;

	 	(d)	 	the Gross Asset Values of all Company assets
(including intangible assets such as goodwill) shall be adjusted to
reflect any adjustments to the adjusted basis of such assets pursuant
to Sections 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are required to be taken into account in determining
Capital Accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m) and subparagraph (d) of the definition of
“Profits” and “Losses” provided that Gross Asset Values shall
not be adjusted pursuant to this subparagraph (d) to the extent that
the Management Committee determines that an adjustment pursuant to
subparagraph (b) is required in connection with a transaction that
would otherwise result in an adjustment pursuant to this subparagraph
(d); and

	 	(e)	 	if the Gross Asset Value of an asset has been
determined or adjusted pursuant to subparagraphs (b) or (d) above, such
Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing
Profits and Losses and other items allocated pursuant to Section 6.1 of
this Agreement.

	 	1.1.39.	 	“Initial Facilities” means the real, personal, mixed and contractual
property (whether tangible or intangible) to be owned and operated by the
Company for the receipt, injection, storage, withdrawal and delivery of natural
gas, all as more fully described in Appendix C (not including any
Modification but including any changes in size, design capacity and location as
may be approved by the Members prior to the issuance of the Certificate).

1.1.40. “Initial Members” has the meaning set forth in Section 3.1.

	 	1.1.41.	 	“In-Service Date” means the date on which the Initial Facilities have been
constructed and placed in service.

1.1.42. “Loan” means any loan made by a Member to the Company.

1.1.43. “Losses” has the meaning set forth in Section 1.1.70.

	 	1.1.44.	 	“Manager” means the individual designated by a Member as its representative
on the Management Committee.

	 	1.1.45.	 	“Management Committee” means the management committee through which the
Members shall manage the Company’s business in accordance with this Agreement.

	 	1.1.46.	 	“Member” means any Person executing this Agreement on the Execution Date or
who is hereafter admitted to the Company as a Member as provided in this
Agreement, but does not include any Person who has ceased to be a Member of the
Company.

	 	1.1.47.	 	“Membership Interest” means all of a Member’s rights in the Company,
including, without limitation, the Member’s share of Profits and Losses of the
Company, the right to receive distributions of the Company’s assets, any right
to vote, and any right to participate in the management of the Company.

	 	1.1.48.	 	“Member Nonrecourse Debt” means the same as the term “partner nonrecourse
debt” in Treasury Regulations Section 1.704-2(b)(4).

	 	1.1.49.	 	“Member Nonrecourse Debt Minimum Gain” means the same as the term “partner
nonrecourse debt minimum gain” in Section 1.704-2(i)(2) and (3) of the Treasury
Regulations.

	 	1.1.50.	 	“Member Nonrecourse Deductions” means the same as the term “partner
nonrecourse deductions” in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the
Treasury Regulations.

	 	1.1.51.	 	“Member Transferee” means any Member who has directly or indirectly received
its Membership Interest through a Disposition from another Member.

	 	1.1.52.	 	“Modification” means any additions or modifications to the Facilities
approved after the issuance of the Certificate installed (a) to modify,
improve, expand or increase the design capacity or scope of the Facilities or
any portion thereof (except in connection with customary maintenance) or (b) to
provide a new point of delivery or receipt of natural gas for the Facilities.

	 	1.1.53.	 	“Necessary Regulatory Approvals” means all Authorizations (but excluding
Authorizations of a nature not customarily obtained prior to commencement of
construction of storage facilities similar to the Initial Facilities) as may be
required in connection with (a) the construction and operation of the Initial
Facilities, (b) the formation of the Company, and (c) the receipt, injection,
storage, withdrawal and delivery of natural gas under the Service Agreements.

	 	1.1.54.	 	“Non-Offering Member” means a Member who is not attempting to Dispose of an
Available Interest.

	 	1.1.55.	 	“Offering Member” means a Member who desires to Dispose of an Available
Interest other than to an Affiliate.

	 	1.1.56.	 	“Offer Notice” means a written notice from an Offering Member to all
Non-Offering Members stating the terms for the proposed Disposition of the
Available Interest and the Offering Member’s intent to Dispose of the Available
Interest on such terms.

	 	1.1.57.	 	“Offer Period One” means the thirty (30) calendar day period following the
Non-Offering Member’s receipt of an Offer Notice.

	 	1.1.58.	 	“Offer Period Two” means the thirty (30) calendar day period following the
expiration of Offer Period One.

	 	1.1.59.	 	“Operating Budget” means an annual operating budget and related operating
plan, which shall include, for each Fiscal Year, one and three year projections
showing (a) projected capital expenditures of the Company, (b) projected
working capital and reserves that will be maintained or funded, (c) projected
revenues, (d) projected operating expenses broken down in reasonable detail
satisfactory to the Management Committee and the Members, (e) projected general
and administrative expenses of the Company, (f) projected capitalization and
indebtedness of the Company and the debt service payable thereon, and (g) all
significant assumptions used to make such projections.

	 	1.1.60.	 	“Operator” means Columbia Gas Transmission Corp., a Delaware corporation,
and any of its successors or assigns, pursuant to the CO&M Agreement.

	 	1.1.61.	 	“Original Transferring Member” means the Member from whom a Member
Transferee directly or indirectly received its Membership Interest.

	 	1.1.62.	 	“Parent” means any Person who directly or indirectly owns more than fifty
percent (50%) of the outstanding voting stock of a Member.

	 	1.1.63.	 	“Person” means an individual, a trust, an estate, a domestic corporation, a
foreign corporation, a professional corporation, a partnership, a limited
partnership, a limited liability company, a foreign limited liability company,
an unincorporated association, or another entity.

	 	1.1.64.	 	“Phase I Capital Budget” means the capital budget for the period from the
Execution Date until the filing of the FERC Application, as set forth in
Appendix E.

	 	1.1.65.	 	“Phase II Capital Budget” means the capital budget for the period from the
filing of the FERC Application to the issuance of the Certificate as set forth
in Appendix F.

	 	1.1.66.	 	“Phase III Capital Budget” means the capital budget for the period from the
issuance of the Certificate to the In-Service Date, including (a) the costs of
restoration activities and settlements with landowners, whether or not incurred
prior to the In-Service Date and (b) the costs associated with purchasing base
gas for the Facility during the three-year period following the In-Service
Date, as set forth in Appendix G.

	 	1.1.67.	 	“Piedmont Hardy” means Piedmont Hardy Storage Company, LLC, a North Carolina
limited liability company.

	 	1.1.68.	 	“Pre-Execution Date Expenditures” means expenditures made and costs incurred
by any Member or any of its Affiliates prior to the Execution Date, if approved
by the Members pursuant to Section 5 if required to be so approved, including,
but not limited to, expenditures made in the course of activities reasonably
related to preparing this Agreement, the CO&M Agreement with regard to the
Company’s interest in that agreement, the precedents agreements, and other
agreements related to the formation of the Company, marketing, planning and
designing the Facilities, acquiring rights of way, preparing the FERC
Application and obtaining the Necessary Regulatory Approvals. Pre-Execution
Expenses include only internal and external expenditures, including legal fees,
made and costs incurred on behalf of the Company, including the preparation and
review of the above-referred to agreements by counsel for the initial Members,
and do not include any internal and external expenditures made or costs
incurred by a Member or any of its Affiliates for the purpose of (i) evaluating
the Member’s investment in the Company or its use of any services to be
provided by the Company, (ii) obtaining the permission of any Governmental
Authority or other Person to participate as a Member or as a subscriber of any
such services, or (iii) any other expenditures made or costs incurred by a
Member or its Affiliates for the benefit of a Member and not for the direct
benefit of the Company.

	 	1.1.69.	 	“Proceeding” means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative.

	 	1.1.70.	 	“Profits” and “Losses” mean, for each Fiscal Year or part thereof, the
taxable income or loss, if any, of the Company for such Fiscal Year determined
in accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income), with the
following adjustments (without duplication):

	 	(a)	 	any income of the Company that is exempt from
federal income tax shall be added to such taxable income or loss;

	 	(b)	 	any expenditures of the Company described in
Section 705(a)(2)(B) of the Code or treated as such pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i) shall be subtracted
from such taxable income or loss;

	 	(c)	 	in the event the Gross Asset Value of any
Company asset is adjusted pursuant to subparagraphs (b) or (c) of the
definition of Gross Asset Value, the amount of such adjustment shall be
taken into account as gain (if the adjustment increases the Gross Asset
Value of the asset) or loss (if the adjustment decreases the Gross
Asset Value of the asset) from the disposition of such asset solely for
purposes of computing Profits and Losses;

	 	(d)	 	gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed with reference to the
Gross Asset Value of the property disposed of, rather than the adjusted
tax basis of such property;

	 	(e)	 	in lieu of the depreciation, amortization or
other cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation
for such Fiscal Year or part thereof, computed in accordance with the
definition of Depreciation; and

	 	(f)	 	to the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Sections 734(b) or 743(b) of the
Code is required to be taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) as a result of a distribution other than in
liquidation of a Member’s Membership Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis) from the disposition of the asset and shall be taken into
account for purposes of computing Profits and Losses.

	 	1.1.71.	 	“Purchase Notice” means a written notice given with the approval of a
majority of the Capital Non-Defaulting Members to any Capital Defaulting Member
that the Capital Non-Defaulting Members intend to purchase the entire Capital
Defaulting Member’s Membership Interest.

	 	1.1.72.	 	“Regulatory Allocations” means the allocations set forth in Sections
6.1.2(a)-(g) of this Agreement.

	 	1.1.73.	 	“Service Agreements” means the service agreement(s) by and between the
Company and the Customers for the receipt, injection, storage, withdrawal and
delivery of natural gas by means of the Facilities.

	 	1.1.74.	 	“Sharing Ratio” means with respect to any Member, the fraction (expressed as
a percentage) set forth on Appendix B, as such fraction may be adjusted
pursuant to any other Section of this Agreement (including without limitation,
Sections 4.1, 5.3 and 15.15.).

	 	1.1.75.	 	“Supermajority Vote” means the affirmative vote of those Members
representing not less than seventy-five percent (75%) of the Sharing Ratios of
all Members.

	 	1.1.76.	 	“Tax Matters Partner” means the same as that term in Section 6231(a)(7) of
the Code and is Columbia Hardy.

	 	1.1.77.	 	“Treasury Regulations” means the Treasury Regulations issued and in effect
under the Code, as may be amended from time to time.

1.2 Construction. Whenever the context requires, the gender of all words used in
this Agreement includes the masculine, feminine and neuter. All references to
Sections refer to sections of this Agreement (unless the context clearly indicates
otherwise), and all references to Appendices are to Appendices attached to this
Agreement, each of which is made a part hereof for all purposes.

2. FORMATION AND PURPOSE OF THE COMPANY.

2.1 Formation. The Company has been organized as a West Virginia limited liability
company by the filing of the Articles of Organization pursuant to the Act with the
West Virginia Secretary of State.

2.2 Name. The name of the Company is “Hardy Storage Company, LLC.”

2.3 Registered Office, Registered Agent. The registered agent and office shall be
as set forth in the Articles of Organization or as subsequently designated by the
Company, subject to the requirements of the Act.

2.4 Offices. The principal offices of the Company shall be at such place as the
Members may from time to time determine. Notice of any change in such offices shall
be given to each Member by the Management Committee. The Company may have such
other offices as the Members may designate from time to time.

2.5 Purposes. The purposes of the Company shall be to plan, design, develop,
construct, own, lease and provide for the operation and maintenance of the
Facilities and conduct such business activities that are necessary or incidental in
connection therewith.

2.6 Foreign Qualification. To the extent required by law, the Members shall cause
the Company to qualify to transact business in any jurisdictions in which such
qualification may be required. At the request of the Management Committee, each
Member shall execute, acknowledge, swear to, and deliver all certificates and other
instruments conforming with this Agreement that are necessary or appropriate to
qualify, continue, and terminate the Company as a foreign limited liability company
in all such jurisdictions.

2.7 Term. The Company commenced on March 12, 2004 and shall continue in existence
until the latest date on which the Company is to dissolve as may be provided in the
Articles of Organization or until such earlier date as the Company may be dissolved
as provided in this Agreement.

2.8 No State Law Partnership. The Members intend that (a) the Company shall not be
a partnership (including, without limitation, a limited partnership) or joint
venture other than for federal or state income tax purposes, (b) no Member or
Manager shall be a partner or joint venturer of any other Member or Manager as a
result of this Agreement for any purposes other than federal and state tax purposes,
and (c) this Agreement shall not be construed to suggest otherwise.

3. MEMBERSHIP; DISPOSITION OF INTERESTS.

3.1 Initial Members. The initial Members of the Company are Columbia Hardy and
Piedmont Hardy.

3.2 Restrictions on the Disposition of an Interest.

	 	3.2.1.	 	Supermajority Vote. Except as specifically provided below in this Section
3.2, a Disposition of a Membership Interest shall not occur without a
Supermajority Vote of the Members. Any attempted Disposition of a Membership
Interest, or a part thereof, other than in accordance with Section 3.2 shall be
null and void ab initio.

	 	3.2.2.	 	Transfer to an Affiliate. Notwithstanding any other provisions of Section
3.2, a Member may Dispose of its entire Membership Interest without the consent
of the other Members if the Disposition of the entire Membership Interest is to
a single Affiliate of such Member.

3.2.3. Transfers Generally.

	 	(a)	 	Subject to Section 3.2.4, if a Member wishes to
Dispose of an Available Interest to a Person other than an Affiliate of
the Member, the following procedures shall apply. After receiving a
bona fide purchase offer from such Person for the Available Interest,
the Offering Member holding the Available Interest shall send an Offer
Notice to all Non-Offering Members.

	 	(b)	 	Each Non-Offering Member shall have the first
right, exercisable by giving written notice to all Members during Offer
Period One to purchase a pro rata portion of the entire Available
Interest, based on the respective Sharing Ratios of all Non-Offering
Members.

	 	(c)	 	If at least one, but less than all, of the
Non-Offering Members exercises its respective purchase right during
Offer Period One, each of the Non-Offering Members who exercised such
right shall have the further right, exercisable by giving written
notice to all Members during Offer Period Two, to purchase a pro rata
portion of the entire remaining Available Interest, based on the
respective Sharing Ratios of those Non-Offering Members who actually
exercise such purchase right.

	 	(d)	 	If a Member elects to purchase an Available
Interest or portion thereof pursuant to Section 3.2.3(b) or (c), but
does not receive Authorization to purchase all of the Available
Interest or portion thereof, then such Member shall be allowed to
purchase the maximum amount of the Available Interest which it is
permitted to purchase hereunder and under such Authorization, and the
portion of such Available Interest which such Member is unable to
purchase shall be purchased by the other Non-Offering Members in
accordance with Section 3.2.3(c).

	 	(e)	 	Any purchase under the preceding paragraphs
shall occur on the terms and conditions set forth in the bona fide
offer, except as set forth below. At closing, each purchasing Member
shall make a cash payment for its proportionate amount of the total
purchase price for the Available Interest, which total price shall be
equal to the product of (x) the price set forth in the bona fide offer
and (y) 90%. Closing on all purchases shall occur on a date and at the
location mutually agreed by the purchasing Non-Offering Members, but
shall be no later than thirty (30) calendar days after the later of (x)
the expiration of Offer Period Two, or (y) the date the last
Authorization was obtained. If any Member who purchases an Available
Interest at the price provided in this Section 3.2.3(e) shall sell any
interest within twelve (12) months of the closing of such purchase at a
price greater than the price paid for such Available Interest, it shall
pay to the original Offering Member from whom such Available Interest
was purchased such amount of the excess of the subsequent purchase
price over the purchase price paid to the original Offering Member as
necessary to enable the original Offering Member to receive 100% of the
price set forth in the bona fide offer to the original Offering Member.

	 	(f)	 	If for any reason as a result of this process,
the Non-Offering Members do not agree to purchase the entire Available
Interest, then the Offering Member shall be free to complete the
Disposition of the entire Available Interest to the Person making the
bona fide offer on the terms and conditions thereof. If the
Disposition to the Person making the bona fide offer is not consummated
within ninety (90) calendar days after the later of (x) the expiration
of Offer Period Two, or (y) the date the last Authorization was
obtained, such Disposition by the Offering Member shall not be made
without again complying with the procedures of this Section 3.2.3.

3.2.4. Transfers by Member Transferees.

	 	(a)	 	Notwithstanding the terms of Section 3.2.3, if
a Member Transferee wishes to Dispose of an Available Interest to a
Person other than its Affiliate, the following procedures shall apply.
After receiving a bona fide purchase offer from such Person, the Member
Transferee shall give an Offer Notice to the Original Transferring
Member. The terms of this Section 3.2.4 shall not apply if the
Original Transferring Member is no longer a Member of the Company.

	 	(b)	 	Upon receipt of the Offer Notice, the Original
Transferring Member shall have the first right, exercisable by giving
written notice to all Members within thirty (30) calendar days after
receipt of the Offer Notice, to purchase the entire Available Interest.
Any decision by the Original Transferring Member not to exercise this
right shall not limit its rights under the following provisions.

	 	(c)	 	If the Original Transferring Member does not
give written notice to exercise its purchase right as provided in
Section 3.2.4(b), the Disposition shall be subject to the procedures in
Section 3.2.3, but Offer Period One will be deemed to have commenced on
the expiration of the period during which the Original Transferring
Member’s right to purchase the Available Interest expired.

	 	3.2.5.	 	Change in Control. If (a) Piedmont Hardy shall cease to be controlled
directly or indirectly by Piedmont Natural Gas Company, Inc. or (b) Columbia
Hardy shall cease to be controlled directly or indirectly by Columbia Energy
Group or (c) any other Member shall cease to be controlled directly or
indirectly by the same Persons who control it as of the date of that Member’s
admission to the Company, then Piedmont Hardy, Columbia Hardy or such other
Member, as the case may be, shall provide written notice thereof to each of the
other Members. On or before the expiration of the thirty (30) day period after
the required notice is received by the other Members, such other Members shall
have the option to buy the Membership Interest of the Member affected by the
change of control at a purchase price equal to the balance in that Member’s
Capital Account on the date the option is exercised, according to the
procedures set forth in Section 3.2.3 above. If more than one of such other
Members wishes to exercise such option, they shall exercise such option on the
same date and share in such purchase on a pro rata basis based on their
respective Sharing Ratios. This paragraph shall not apply to a change in
control that results from the merger or consolidation of a Parent of a Member
with another corporation or the sale of all or substantially all of the assets
of such Parent if, in each such case, (a) such Parent shall not have been
formed for the principal purpose of directly or indirectly controlling the
Member, (b) the Membership Interest does not represent substantially all of the
assets of such Parent, and (c) either (i) such Parent shall be the continuing
corporation and shall continue to directly or indirectly control the Member, or
(ii) the successor corporation (if other than such Parent) shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof or the District of Columbia and such successor
corporation shall continue to be in substantially the same business as such
Parent.

	 	3.2.6.	 	General Admission Requirements. No Person (who is not already a Member)
shall be admitted to the Company as a Member, whether through issuance of a
Membership Interest by the Company or Disposition of a Membership Interest by a
Member, unless all of the following occur: (a) such Person executes this
Agreement, makes any required Capital Contributions in full, and provides all
information reasonably requested by the Company in connection with its identity
and the terms of any Disposition of a Membership Interest to such Person; (b)
such issuance or Disposition of a Membership Interest is registered under the
Securities Act of 1933, as amended, and any applicable state securities laws,
or the Company receives an opinion from the Company’s legal counsel,
satisfactory to the Company in form and substance, confirming that such
issuance or Disposition is exempt from registration under those laws; and (c)
the Company receives an opinion from the Company’s legal counsel, satisfactory
to the Company in form and substance, confirming that such issuance or
Disposition would not result in the termination of the Company for tax or other
purposes. The Company may waive the requirements of an opinion from legal
counsel, or may limit the scope and subject matter of such opinion, based upon
the determination of the Management Committee.

	 	3.2.7.	 	Reimbursement Upon Admission. The Member effecting a Disposition and any
Person admitted to the Company in connection therewith shall pay, or reimburse
the Company for, all costs incurred by the Company in connection with the
Disposition or admission (including, without limitation, the legal fees
incurred in connection with the legal opinions referred to in Section 3.2.6) on
or before the 30th day after the receipt by such Member or
transferee of the Company’s invoice for the amount due. If payment is not made
by the date due, the Person owing that amount shall pay interest on the unpaid
amount from the date due at the Default Rate.

3.3 Additional Members. Any Person who receives a Membership Interest pursuant to
Section 3.2.2, 3.2.3, or 3.2.4 shall be admitted to the Company as a Member upon
consummation of such transfer. Except as set forth in the previous sentence, no
Person shall be admitted to the Company as a Member, and Membership Interests shall
not be created or issued for such purpose, unless such admission is approved by the
Supermajority Vote of all then existing Members and is followed by compliance with
Section 3.2.6. Any admission shall become effective only after the new Member has
executed and delivered to the other Members a document including the new Member’s
notice address, its agreement to be bound by this Agreement and its representation
and warranty that the representations and warranties in Section 4.4 are true and
correct with respect to the new Member.

3.4 Limit on Encumbrances. Except as may be required by the lenders in connection
with the Financing Commitment, each Member shall be prohibited from pledging,
granting a security interest in, or otherwise encumbering its Membership Interest or
granting any option or contingent right of purchase with respect thereto, whether in
whole or in part, without the prior written approval of the Members by Supermajority
Vote.

4. COVENANTS, REPRESENTATIONS AND WARRANTIES; INFORMATION.

4.1 Commitment to Construct the Facilities.

	 	4.1.1.	 	By executing this Agreement, the Members are (a) agreeing to file the FERC
Application, (b) approving and agreeing to fund the Phase I Capital Budget, (c)
approving and agreeing to fund the Phase II Capital Budget, and (d) approving
the Phase III Capital Budget. No later than March 15, 2005, the Initial
Members shall vote on whether the Company should file the FERC Application as
an entity taxed for federal income tax purposes as (x) a partnership under
Sub-Chapter K of the Internal Revenue Code and the Treasury Regulations
relating thereto or (y) a corporation under Sub-Chapter C of the Internal
Revenue Code and the Treasury Regulations relating thereto.

	 	(i)	 	If both of the Initial Members agree to file
the FERC Application as an entity taxed as a partnership, then the
Company will file the FERC application in that manner.

	 	(ii)	 	Unless both of the Initial Members agree to
file the FERC Application as an entity taxed as a partnership, then the
Members agree to reform the Company as a corporation and to adopt and
execute the documents attached to this Agreement as Appendix I and the
Company will file the FERC Application as a corporation and the CO&M
Agreement will be amended to substitute the name of the corporate
entity for the name of the Company.

	 	4.1.2.	 	Not less than ten (10) days prior to the date specified in the FERC’s
regulations for acceptance of the Certificate (whether as a result of an
original order or an order on rehearing), the Initial Members shall vote on
whether the Company shall (a) accept the Certificate and commit to construct
the Initial Facilities, (b) seek rehearing of the order issuing the Certificate
and, nevertheless, commit to construct the Initial Facilities, (c) seek
rehearing of the order issuing the Certificate without committing to construct
the Initial Facilities, or (d) reject the Certificate.

	 	(i)	 	If both of the Initial Members vote to accept
the Certificate and commit to construct the Initial Facilities, such
vote shall also be a vote to fund the Phase III Capital Budget.

	 	(ii)	 	If Columbia Hardy votes to accept the
Certificate and commit to construct the Initial Facilities and Piedmont
Hardy votes to seek rehearing of the FERC order issuing the Certificate
but begin or continue construction of the Initial Facilities, such vote
shall be considered a vote to fund the Phase III Capital Budget, and
the Company will seek rehearing of the FERC order issuing the
Certificate and begin or continue construction of the Initial
Facilities.

	 	(iii)	 	If Columbia Hardy votes to accept the
Certificate and commit to construct the Initial Facilities and Piedmont
Hardy votes to seek rehearing of the FERC order issuing the Certificate
and delay construction of the Initial Facilities, Columbia Hardy shall
have the option (which must be exercised within seven (7) days of such
vote) to either (a) agree to seek rehearing and delay construction of
the Initial Facilities pending a decision of the FERC on the petition
for rehearing or (b) to purchase Piedmont Hardy’s Membership Interest
for an amount equal to 100% of the Piedmont Capital Account on the date
of the vote.

	 	(iv)	 	If Columbia Hardy votes to accept the
Certificate and commit to construct the Initial Facilities and Piedmont
Hardy votes to reject the Certificate for good cause, then Columbia
Hardy shall be obligated to purchase Piedmont Hardy’s Membership
Interest for an amount equal to 100% of the Piedmont Capital Account on
the date of the vote. If Piedmont Hardy votes to reject the
Certificate other than for good cause, then Piedmont Hardy will be
deemed to have surrendered its Membership Interest to the Company for
no consideration.

	 	(v)	 	If Piedmont Hardy votes to accept the
Certificate and commit to construct the Initial Facilities and Columbia
Hardy votes to seek rehearing of the FERC order issuing the Certificate
but begin or continue construction of the Initial Facilities, such vote
shall be considered a vote to fund the Phase III Capital Budget, and
the Company will seek rehearing of the FERC order issuing the
Certificate and begin or continue construction of the Initial
Facilities.

	 	(vi)	 	If both Columbia Hardy and Piedmont Hardy vote
to seek rehearing but begin construction, such vote shall be considered
a vote to fund the Phase III Capital Budget, and the Company will seek
rehearing of the FERC order issuing the Certificate and begin or
continue construction of the Initial Facilities.

	 	(vii)	 	If Columbia Hardy votes to seek rehearing of
the FERC order issuing the Certificate but begin or continue
construction of the Initial Facilities and Piedmont Hardy votes to seek
rehearing of the FERC order issuing the Certificate and delay
construction of the Initial Facilities, the Company will seek rehearing
of the FERC order and Columbia Hardy shall have the option (which must
be exercised within thirty (30) days of such vote) to either (a) agree
to delay construction of the Initial Facilities pending a decision of
the FERC on the petition for rehearing or (b) purchase Piedmont Hardy’s
Membership Interest for an amount equal to 100% of the Piedmont Capital
Account on the date of the vote.

	 	(viii)	 	If Columbia Hardy votes to seek rehearing of the FERC order issuing
the Certificate but begin or continue construction of the Initial
Facilities and Piedmont Hardy votes to reject the Certificate for good
cause, then Columbia Hardy shall be obligated to purchase the
Membership Interest of Piedmont Hardy for an amount equal to one
hundred percent (100%) of Piedmont Hardy’s Capital Account on the date
of the vote. If Piedmont Hardy votes to reject the Certificate other
than for good cause, then Piedmont Hardy will be deemed to have
surrendered its Membership Interest to the Company for no
consideration.

	 	(ix)	 	If Columbia Hardy votes to seek rehearing of
the FERC order issuing the Certificate and delay construction of the
Initial Facilities and Piedmont Hardy votes to accept the Certificate,
the Company will seek rehearing of the FERC order issuing the
Certificate and construction of the Initial Facilities will be delayed
pending a decision of the FERC on the petition for rehearing.

	 	(x)	 	If Columbia Hardy votes to seek rehearing of
the FERC order issuing the Certificate and delay construction of the
Initial Facilities and Piedmont Hardy votes to seek rehearing of the
FERC order issuing the Certificate and begin construction of the
Initial Facilities, the Company will seek rehearing of the FERC order
issuing the Certificate and construction of the Initial Facilities will
be delayed pending a decision of the FERC on the petition for
rehearing.

	 	(xi)	 	If both Columbia Hardy and Piedmont Hardy vote
to seek rehearing of the FERC order issuing the Certificate and delay
construction of the Initial Facilities, the Company will seek rehearing
of the FERC order issuing the Certificate and construction of the
Initial Facilities will be delayed pending a decision of the FERC on
the petition for rehearing.

	 	(xii)	 	If Columbia Hardy votes to seek rehearing of
the FERC order issuing the Certificate and delay construction of the
Initial Facilities and Piedmont Hardy votes to reject the Certificate,
the Company will seek rehearing of the FERC order issuing the
Certificate and construction of the Initial Facilities will be delayed
pending a decision of the FERC on the petition for rehearing.

	 	(xiii)	 	If Columbia Hardy votes to reject the certificate other than for good
cause and Piedmont Hardy votes to accept the certificate, then Columbia
Hardy shall be obligated to purchase the Membership Interest of
Piedmont Hardy for an amount equal to ninety percent (90%) of Piedmont
Hardy’s Capital Account on the date of the vote. If Columbia Hardy
votes to reject the Certificate for good cause, then the Company shall
proceed under (xvi) below.

	 	(xiv)	 	If Columbia Hardy votes to reject the
Certificate and Piedmont Hardy votes to seek rehearing of the FERC
order issuing the Certificate but begin or continue construction of the
Initial Facilities, the Company will seek rehearing of the FERC order
issuing the Certificate and construction of the Initial Facilities will
be delayed pending the FERC order on rehearing.

	 	(xv)	 	If Columbia Hardy votes to reject the
Certificate and Piedmont Hardy votes to seek rehearing of the FERC
order issuing the Certificate and delay construction of the Initial
Facilities, the Company will seek rehearing of the FERC order issuing
the Certificate and construction of the Initial Facilities will be
delayed pending the FERC order on rehearing.

	 	(xvi)	 	If both Columbia Hardy and Piedmont Hardy vote
to reject the Certificate, the Company shall be dissolved as soon as
reasonably practicable in accordance with Section 14, subject to any
necessary approvals from any Governmental Authority.

In any case in which Columbia Hardy’s initial vote under this Section 4.1.2 would
require it to purchase the Membership Interest of Piedmont Hardy, Columbia Hardy
shall have the right within seven (7) days following the initial vote to change its
vote to agree with the vote of Piedmont Hardy. In any case in which Piedmont
Hardy’s initial vote under this Section 4.1.2 would require it to surrender its
Membership Interest to Columbia Hardy, Piedmont Hardy shall have the right within
seven (7) days following the initial vote to change its vote to agree with the vote
of Columbia Hardy. In the event Columbia Hardy shall be obligated under (iv) or
(viii) of this Section 4.1.2 or elects under (iii) or (vii) of this Section 4.1.2 to
purchase the Membership Interest of Piedmont Hardy, then as of the date of the vote
which resulted in the event, Columbia Hardy will be deemed to have succeeded to all
of the rights of Piedmont Hardy under this Agreement, other than the right to pro
rata payments upon a dissolution prior to the In-Service Date, and Columbia Hardy
will have the obligation to purchase Piedmont Hardy’s Membership Interest for the
purchase price specified, which purchase price will be paid at closing. Closing on
such purchase shall occur, if and only if the In-Service Date occurs, and will take
place on the date and at the location mutually agreed, but in no event more than
twenty-one (21) calendar days after the In-Service Date. In the event Columbia
Hardy shall be obligated under (xiii) of this Section 4.1.2 to purchase the
Membership Interest of Piedmont Hardy, then as of the date of the vote which
resulted in the event, Columbia Hardy will be deemed to have succeeded to all of the
rights of Piedmont Hardy under this Agreement and Columbia Hardy will have the
obligation to purchase Piedmont Hardy’s Membership Interest for the purchase price
specified, which purchase price will be paid at closing. Closing on such purchase
shall occur on the date and at the location mutually agreed, but in no event more
than one year after the date of the vote which resulted in Columbia Hardy’s
obligation to purchase Piedmont Hardy’s Membership Interest. At any closing under
this Section 4.1.2, in addition to the purchase price payable by Columbia Hardy,
Columbia Hardy will also pay Piedmont Hardy interest on the purchase price from the
date of the vote to the date of payment at a rate equal to the prime rate (as the
same may change from time to time) of Wachovia Bank, N.A. (or its successor). At
any closing under this Section 4.1.2, Piedmont Hardy will deliver to Columbia Hardy
its Membership Interest free and clear of all liens. Upon the occurrence of a final
vote which requires Columbia Hardy to purchase Piedmont Hardy’s Membership Interest
under this Section 4.1.2, then, as of the date of such final vote, Columbia Hardy’s
Sharing Ratio will be adjusted to include Piedmont Hardy’s Sharing Ratio for all
purposes other than a dissolution that occurs before the In-Service Date and a new
Appendix B shall be provided to the Members. Columbia Hardy’s obligation under this
provision to buy Piedmont Hardy’s Membership Interest will be considered a capital
contribution obligation of Columbia Hardy for purposes of that certain Equity
Contribution Agreement of even date herewith between the Parents of the Initial
Members.

4.2 Development of a Modification.

	 	4.2.1.	 	Any Member whose Sharing Ratio exceeds 25% and who desires the Company to
construct a Modification shall notify the other Members and the Operator of the
nature of the proposed Modification, including such details as are then
available, and shall provide a detailed explanation of the reasons why such
Modification is being requested. Promptly, but in no event later than one
hundred fifty (150) calendar days from the date requested to do so by such
Member, the Operator shall prepare and provide to each Member a detailed
description of the proposed Modification and an estimate of the cost thereof,
appropriate rate information and the proposed financing therefor.

	 	4.2.2.	 	Within sixty (60) calendar days after the information described in Section
4.2.1 has been received by each Member, the Members shall vote on whether to
proceed with the development of such proposed Modification. Upon the
Supermajority Vote to proceed with the development of such proposed
Modification, the Company shall proceed with such development, including, but
not limited to, the acquisition of Additional Necessary Regulatory Approvals
and the Financing Commitment. A vote to proceed with the development of a
Modification shall be without prejudice to the vote on whether the Company
shall be committed to construct such Modification under Section 4.3.2.

4.3 Commitment to Construct a Modification.

	 	4.3.1.	 	Except upon approval by a Supermajority Vote, the Company shall not incur
material costs or obligations with respect to a Modification or be obligated
under any Financing Commitment relating to a Modification until (a) the
Additional Necessary Regulatory Approvals have been obtained and accepted, (b)
such Financing Commitment, if any, as may be required in the opinion of the
Members for such Modification has been negotiated and is ready for acceptance
by the Company (with the Management Committee to decide whether such Financing
Commitment utilizes a Financing Corporation), (c) if applicable, the Service
Agreements for the use of substantially all of the capacity created by the
Modification have been executed by the Company and by one or more Customers
pursuant to the Company’s FERC tariff, (d) the Estimated Cost of Modification
has been determined and (e) the Members have approved a commitment to construct
such Modification as provided in Section 4.3.2.

	 	4.3.2.	 	Immediately following the last to occur of the events referred to in Section
4.3.1(a), (b) and (d) (provided that the condition that the event referred to
in Section 4.3.1(a) shall have occurred may be waived by the Supermajority Vote
of the Members), and if the Modification will create additional capacity, the
satisfaction or waiver by the applicable Customers of all conditions set forth
in the precedent agreements for execution of the Service Agreements by
substantially all of the Customers that will utilize the capacity to be created
by the Modification (other than the vote of the Members to commit to construct
the Modification), or at such later time as agreed by the Members, the Members
shall vote on whether the Company shall be committed to construct the
Modification (which commitment to construct shall constitute an acceptance of
the Financing Commitment, if any).

	 	4.3.3.	 	If the proposal to construct the Modification is approved by a Supermajority
Vote of the Members, the costs of such Modification and related Capital
Contribution requirements shall be divided among all Members in proportion to
their respective Sharing Ratios.

	 	4.3.4.	 	After the Members vote to commit the Company to construct a Modification,
except with the approval by a Supermajority Vote, the Company shall not incur
any material costs or obligations with respect to such Modification until all
conditions precedent to the obtaining by the Company of funds pursuant to a
Financing Commitment (if any) relating to such Modification have been satisfied
or waived.

4.4 General Representations and Warranties. Each Member hereby represents and
warrants to the Company and to each other Member that as of the date of its
admission as a Member:

	 	(a)	 	if such Member is an organization, it is duly
organized, validly existing, and in good standing under the law of its
state of incorporation or organization and that it has full
organizational power to execute and agree to this Agreement and to
perform its obligations under this Agreement;

	 	(b)	 	such Member is acquiring its Membership
Interest for such Member’s own account as an investment and without an
intent to distribute the interest;

	 	(c)	 	such Member acknowledges that such Membership
Interests have not been registered under the Securities Act of 1933 or
any state securities laws and may not be resold or transferred by the
Member without appropriate registration or the availability of an
exemption from such requirements;

	 	(d)	 	such Member, by itself or together with its
advisors, is experienced in making investments comparable to its
investment in the Company and is capable of judging for itself the
risks inherent in such investment;

	 	(e)	 	such Member has the financial capacity to hold
its investment in the Company for an indefinite period of time and to
meet its obligations to make Capital Contributions under this
Agreement, and acknowledges that the disposition of such investment is
restricted both pursuant to federal and state securities laws and
pursuant to the terms of this Agreement;

	 	(f)	 	such Member acknowledges that it has received
access to all information that it deems necessary in order to make its
decision to invest in the Company;

	 	(g)	 	this Agreement has been duly executed and
delivered by it and constitutes its valid and binding obligation,
enforceable in accordance with its terms;

	 	(h)	 	neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
nor compliance by it with any provisions hereof (1) conflicts with, or
results in a breach or contravention of, or in a default or the
creation of any lien under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement, or other
instrument or obligation to which it is a party or by which it or its
properties are bound or (2) violates any law, order, writ, injunction
or decree applicable to it or any of its properties;

	 	(i)	 	except for the Necessary Regulatory Approvals,
no consent, approval or other action by any court, governmental
authority or third party is required in connection with its execution,
delivery and performance of this Agreement; and

	 	(j)	 	there are no lawsuits or contested
administrative proceedings against the Member that would have a
material adverse effect on the Member’s ability to perform its
obligations as a Member under this Agreement.

4.5 Regulatory Status. Each Member acknowledges that the Company will be a “natural
gas company” under the Natural Gas Act and that the Company will be subject to all
applicable laws, rules, regulations and orders of any regulatory authority having
jurisdiction.

4.6 Governmental Applications. Each Member agrees to support the Company in
securing the Necessary Regulatory Approvals, including, without limitation,
preparing, filing and prosecuting the FERC Application.

4.7 Information.

	 	4.7.1.	 	In addition to the other rights specifically set forth in this Agreement,
each Member is entitled to all information to which that Member is entitled to
have access pursuant to Section 31B-4-408 of the Act under the circumstances
and subject to the conditions therein stated. The Members agree, however, that
the Management Committee from time to time may determine, due to contractual
obligations, business concerns, or other considerations, that certain
information regarding the business, affairs, properties, and financial
condition of the Company should be kept confidential and disclosed to a Member
only with the understanding that such information constitutes Confidential
Information under Section 4.7.2.

	 	4.7.2.	 	Each Member acknowledges that, from time to time, it may receive Confidential
Information for or regarding the Company or a Member the release of which may
be damaging to the Company, Persons with whom the Company does business or the
Member. Each Member will hold in strict confidence any Confidential
Information it receives and may not disclose such Confidential Information to
any Person other than another Member, except for disclosures (a) compelled by
law (but the Member must notify the other Members promptly of any request for
that information, before disclosing it, if practicable), (b) to advisers or
Managers of the Member or Persons to which that Member’s Membership Interest
may be Disposed as permitted by this Agreement, but only if the recipients have
agreed to be bound by the provisions of this Section 4.7.2, or (c) of
information that Member also has received from a source independent of the
Company or a Member that the Member reasonably believes obtained that
information without breach of any obligation of confidentiality. Each Member
acknowledges that breach of the provisions of this Section 4.7.2 may cause
irreparable injury to the Company for which monetary damages are inadequate,
difficult to compute, or both. Accordingly, each Member agrees that provisions
of this Section 4.7.2 may be enforced by specific performance.

	 	4.7.3.	 	A Member that subsequently ceases to be a Member shall promptly destroy (and
provide a certificate of destruction to the Company with respect to), or return
to the Company, all Confidential Information in its possession.

4.8 Liability to Third Parties. No Member or Manager shall be liable for the debts,
obligations or liabilities of the Company by reason of being a Member or Manager or
both, and does not become so liable by participating, in whatever capacity, in the
management or control of the business of the Company.

4.9 Withdrawal. A Member does not have the right or power to unilaterally withdraw
from the Company.

4.10 Lack of Authority. Except as otherwise specifically provided herein, no Member
or Manager has the authority or power to act for or on behalf of the Company, to do
any act that would be binding on the Company, or to incur any expenditures on behalf
of the Company.

4.11 Reasonable and Necessary Efforts. Each Member shall devote such efforts as
shall be reasonable and necessary to develop and promote the business of the
Company, taking into account its respective Sharing Ratio, resources and expertise.

4.12 No Personal Gain to Members. The credit and the assets of the Company shall be
used solely for the benefit of the Company and shall not be used to further the
personal gain of any Member. No asset of the Company shall be transferred or
encumbered for, or in payment of, any individual obligation of a Member.

5. CAPITAL CONTRIBUTIONS.

5.1 Pre-Execution Date Expenditures.

	 	5.1.1.	 	Set forth on Appendix D are the dollar cost amounts of Pre-Execution
Date Expenditures that have been incurred with respect to each Member, all of
which are hereby approved.

	 	5.1.2.	 	If any Member, or Affiliate thereof, has made Pre-Execution Date Expenditures
during the period preceding the Execution Date that are not set forth in
Appendix D, such Member shall have the right to request approval
thereof by Supermajority Vote as soon as practicable after the Execution Date
(but not later than ninety (90) calendar days after the Execution Date). All
Pre-Execution Date Expenditures approved pursuant to Sections 5.1.1 and 5.1.2
shall be so credited as of the Execution Date.

	 	5.1.3.	 	After all Pre-Execution Date Expenditures to be considered under Section
5.1.2 have been approved or disapproved by the Members the applicable Members
shall, within fifteen (15) days after such approval or disapproval, make cash
Capital Contributions to the Company pro rata in proportion to their Sharing
Ratios, in an amount equal to the Pre-Execution Date Expenditures approved
under Sections 5.1.1 or 5.1.2.

	 	5.1.4.	 	The assets, if any, acquired by means of the Pre-Execution Date Expenditures
of the Members shall be and are hereby contributed to the Company. All
applicable Members agree to execute and deliver any and all assignments and
conveyances as may be necessary or appropriate to evidence such contribution.

5.2 Required Capital Contributions.

	 	5.2.1	 	(a) The Members hereby agree and obligate themselves to fund
the Phase I Capital Budget. On the first day of each month during each Fiscal
Year covered by the Phase I Capital Budget, each Member shall make a Capital
Contribution equal to (x) its Sharing Ratio times (y) the total amount that is
anticipated to be expended through the end of that month, provided that such
amount is not more than 110% of the amount that was expected to be expended
under the Phase I Capital Budget through such date, after giving credit for any
prior Capital Contributions made under this Section 5.2.1(a). All amounts
received by the Company during a quarter pursuant to this Section 5.2.1(a),
whether received prior to, on or after the first day of that quarter, shall be
credited to the respective Member’s Capital Account as of the first day of that
quarter.

(b) The Members hereby agree and obligate themselves to fund the Phase II
Capital Budget. On the first day of each month during each Fiscal Year
covered by the Phase II Capital Budget, each Member shall make a Capital
Contribution equal to (x) its Sharing Ratio times (y) the total amount that
is anticipated to be expended through the end of that month, provided that
such amount is not more than 110% of the amount that was expected to be
expended under the Phase II Capital Budget through such date, after giving
credit for any prior Capital Contributions made under this Section 5.2.1(b).
All amounts received by the Company during a quarter pursuant to this
Section 5.2.1(b), whether received prior to, on or after the first day of
that quarter, shall be credited to the respective Member’s Capital Account
as of the first day of that quarter.

(c) If the Initial Members agree to fund the Phase III Capital Budget
pursuant to Section 4.1.2, then, on the first day of each month during each
Fiscal Year covered by the Phase III Capital Budget, each Member shall make
a Capital Contribution equal to (x) its Sharing Ratio times (y) the total
amount that is anticipated to be expended through the end of that month,
provided that such amount is not more than 110% of the amount that was
expected to be expended under the Phase III Capital Budget through such
date, after giving credit for any prior Capital Contributions made under
this Section 5.2.1(c). All amounts received by the Company in a quarter
pursuant to this Section 5.2.1(c), whether received prior to, on or after
the first day of that quarter, shall be credited to the respective Member’s
Capital Account as of the first day of that quarter.

(d) With respect to any Capital Contributions not provided for in Sections
5.2.1(a), (b) or (c), the Members by Supermajority Vote shall issue or cause
to be issued a written request to each Member for the making of Capital
Contributions at such times and in such amounts as the Members shall so
approve. All amounts received by the Company pursuant to this Section
5.2.1(d), whether received prior to, on or after the date specified in
Section 5.2.2(d), shall be credited to the respective Member’s Capital
Account as of such specified date.

(e) All amounts received from a Member after the date specified in this
Section 5.2 shall be accompanied by interest on such overdue amounts (and
the default shall not be cured unless such interest is also received by the
Company), which interest shall be payable to the Company and shall accrue
from and after such specified date at the Default Rate. Any such interest
paid with respect to a Capital Contribution shall be credited to the
respective Capital Accounts of the Members, on a pro rata basis in
proportion to their respective Sharing Ratios as of the date such payment is
made to the Company after giving effect to the payment of that Capital
Contribution with respect to which such interest accrued.

	 	5.2.2	 	Each written request issued pursuant to Section 5.2.1(d) shall
include the following information:

	 	(a)	 	The total amount of Capital Contributions
requested from all Members;

	 	(b)	 	The amount of Capital Contribution requested
from the Member to whom the request is addressed, such amount to be in
accordance with the Sharing Ratio of such Member;

	 	(c)	 	The purpose for which the funds are to be
applied in such reasonable detail as the Management Committee shall
direct;

	 	(d)	 	The date on which payments of the Capital
Contribution shall be made (which date shall not be less than thirty
(30) calendar days following the date the request is given, unless an
earlier date is approved by a Supermajority Vote) and the method of
payment, provided that such date and method shall be the same
for each of the Members; and

	 	(e)	 	Evidence that the Members have approved the
request in accordance with Section 5.2.1(d).

5.3 Failure of a Member Other than Operator’s Affiliate to Make Required Capital
Contributions. If one or more Members other than the Operator’s Affiliate becomes a
Capital Defaulting Member, the Company, the Operator or any Capital Non-Defaulting
Member shall be entitled to give written notice of default to the Capital Defaulting
Members, with a copy to all Capital Non-Defaulting Members. If there are any
Capital Defaulting Members other than the Operator’s Affiliate who do not pay all
amounts due within ten (10) calendar days after such notice is given, the Operator
(who shall be deemed to have authority from the Management Committee) shall be
entitled to take any of the following actions (separately or in combination, to the
extent that combination of actions is not inconsistent):

	 	5.3.1.	 	Cause the Company to apply any distributions otherwise payable to the Capital
Defaulting Members hereunder to the payment of unpaid Capital Contributions,
plus interest thereon at the Default Rate;

	 	5.3.2.	 	Transfer any and all voting and approval rights of the Capital Defaulting
Members to the Capital Non-Defaulting Members in proportion to the respective
Sharing Ratios of the Capital Non-Defaulting Members.

	 	5.3.3.	 	With the approval of Members representing a majority of the Sharing Ratios of
the Capital Non-Defaulting Members, cause the Capital Non-Defaulting Members to
make aggregate Loans to the Company in the amount of such required and unpaid
Capital Contributions in proportion to the respective Sharing Ratios of the
Capital Non-Defaulting Members. In such event, (a) such Loans shall accrue
interest at the Default Rate from the date of the Loans; (b) repayment of the
Loans to the Capital Non-Defaulting Members shall have priority over any other
distributions to be made hereunder; and (c) the amount of interest paid by the
Company for any such Loans shall be deducted from any distribution otherwise
owed to the Capital Defaulting Members. Upon the making of any such Loans to
the Company, the Company shall be deemed to have simultaneously made loans in
the same aggregate amount and at the same interest rate to the Capital
Defaulting Members, and such loans by the Company shall be due and payable upon
demand by the Operator;

	 	5.3.4.	 	With the approval of Members representing a majority of the Sharing Ratios of
the Capital Non-Defaulting Members, cause the Capital Non-Defaulting Members to
Contribute to the Company the required and unpaid portion of the Capital
Contributions due from the Capital Defaulting Members. In such case the
Sharing Ratios of the Capital Defaulting Members shall be reduced, as to each
Capital Defaulting Member, by the percentage equivalent of a fraction, the
numerator of which is twice the amount of the required and unpaid Capital
Contribution due from such Capital Defaulting Member, and the denominator of
which is the sum of all previous Capital Contributions made by such Capital
Defaulting Member. The Sharing Ratios of the Capital Non-Defaulting Members
shall be proportionately increased, provided such reduction and
increase do not violate any law or a regulatory requirement. The Members shall
be provided a revised Appendix B reflecting the adjusted Sharing
Ratios;

	 	5.3.5.	 	At any time before a default is fully cured by a Capital Defaulting Member or
any Loans are made in accordance with Section 5.3.3, a majority of the Capital
Non-Defaulting Members may send a Purchase Notice to any Capital Defaulting
Member indicating that they intend to purchase the entire Membership Interest
of such Capital Defaulting Member in proportion to the respective Sharing
Ratios of the Capital Non-Defaulting Members. The purchase price shall be
equal to the lesser of the fair market value of the Membership Interest of such
Capital Defaulting Member, as determined by an appraiser retained by the
Company, or seventy five percent (75%) of the Capital Account of such Capital
Defaulting Member as of the date of such default. If such purchase right is
exercised, the closing shall take place on the date specified by the Capital
Non-Defaulting Members, which date shall be not sooner than fifteen (15)
calendar days and not later than thirty (30) calendar days after the date the
Purchase Notice is given. At such closing, the purchase price shall be payable
in cash and the Capital Defaulting Member will deliver its Membership Interest
to the purchasing Capital Non-Defaulting Members, free and clear of all liens.
The Members shall be provided a revised Appendix B reflecting the
adjusted Sharing Ratios; or

	 	5.3.6.	 	Sue to enforce the obligations of the Capital Defaulting Members to pay the
required and unpaid portion of their Capital Contributions, together with
interest thereon at the Default Rate.

5.4 Failure of the Affiliate of Operator to Make a Required Capital Contribution.
If an Affiliate of the Operator becomes a Capital Defaulting Member, any Capital
Non-Defaulting Member shall be entitled to give written notice of default to the
Capital Defaulting Members, with a copy to all Capital Non-Defaulting Members. If
there are any Capital Defaulting Members in addition to the Affiliate of the
Operator, the Capital Non-Defaulting Members may take any of the actions permitted
under Section 5.3 with respect to the Capital Defaulting Members who are not
Affiliates of the Operator. In addition, if the Operator’s Affiliate does not pay
all amounts due within ten (10) calendar days after such notice is given, the
Capital Non-Defaulting Members shall be entitled to take any of the following
actions (separately or in combination, to the extent that combination of actions is
not inconsistent) with respect to the Capital Defaulting Member that is an Affiliate
of the Operator:

	 	5.4.1.	 	Cause the Company to apply any distributions otherwise payable to such
Capital Defaulting Member hereunder to the payment of unpaid Capital
Contributions, plus interest thereon at the Default Rate;

	 	5.4.2.	 	With the approval of Members representing a majority of the Sharing Ratios of
the Capital Non-Defaulting Members, cause the Capital Non-Defaulting Members to
make aggregate Loans to the Company in the amount of such required and unpaid
Capital Contributions in proportion to the respective Sharing Ratios of the
Capital Non-Defaulting Members. In such event, (a) such Loans shall accrue
interest at the Default Rate from the date of the Loans; (b) repayment of the
Loans to the Capital Non-Defaulting Members shall have priority over any other
distributions to be made hereunder; and (c) the amount of interest paid by the
Company for any such Loans shall be deducted from any distribution otherwise
owed to the Capital Defaulting Member that is an Affiliate of the Operator.
Upon the making of any such Loans to the Company, the Company shall be deemed
to have simultaneously made loans in the same aggregate amount and at the same
interest rate to such Capital Defaulting Member, and such loans by the Company
shall be due and payable upon demand by the Operator;

	 	5.4.3.	 	With the approval of Members representing a majority of the Sharing Ratios of
the Capital Non-Defaulting Members, cause the Capital Non-Defaulting Members to
Contribute to the Company the required and unpaid portion of the Capital
Contributions due from the Capital Defaulting Member that is an Affiliate of
the Operator. In such case the Sharing Ratios of such the Capital Defaulting
Member shall be reduced by the percentage equivalent of a fraction, the
numerator of which is the amount of the required and unpaid Capital
Contribution due from such Capital Defaulting Member, and the denominator of
which is the sum of all previous Capital Contributions made by such Capital
Defaulting Member. The Sharing Ratios of the Capital Non-Defaulting Members
shall be proportionately increased, provided such reduction and
increase do not violate any law or a regulatory requirement. The Members shall
be provided a revised Appendix B reflecting the adjusted Sharing
Ratios; or

	 	5.4.4.	 	Sue to enforce the obligations of such Capital Defaulting Member to pay the
required and unpaid portion of its Capital Contributions, together with
interest thereon at the Default Rate.

5.5 Loans.

	 	5.5.1.	 	At any time after the Capital Contributions referred to in Section 5.1.3 have
been made that the Members determine that the Company needs funds, rather than
calling for Capital Contributions, the Members may issue or cause to be issued
a written request to each Member for the making of Loans or advances to the
Company at such times and in such amounts as the Members shall approve, by a
Supermajority Vote, provided that the Members shall not call for Loans
or advances rather than Capital Contributions if doing so would breach any
Financing Commitment or other agreement of the Company. All amounts received
from a Member after the date specified in Section 5.5.2(d) by the Company
pursuant to this Section 5.5 shall be accompanied by interest on such overdue
amounts (and the default shall not be cured unless such interest is also
received by the Company), which interest shall be payable to the Company and
shall accrue from and after such specified date at the Default Rate. Any such
interest paid shall be credited to the respective Capital Accounts of all the
Members, on a pro rata basis in proportion to their respective Sharing Ratios
as of the date such payment is made to the Company, but shall not be considered
part of the principal of the loan.

	 	5.5.2.	 	Each written request issued pursuant to Section 5.5.1 shall include the
following information:

	 	(a)	 	The total amount of Loans or advances requested
from all Members;

	 	(b)	 	The amount of the Loans or advances requested
from the Member to whom the request is addressed, such amount to be in
accordance with the Sharing Ratio of such Member;

	 	(c)	 	The purpose for which the funds are to be
applied in such reasonable detail as the Members shall direct;

	 	(d)	 	The date on which the Loans or advances to the
Company shall be made (which date shall not be less than thirty (30)
calendar days following the date the request is given, unless an
earlier date is approved by a Supermajority Vote) and the method of
payment, provided that such date and method shall be the same
for each of the Members;

	 	(e)	 	All terms relating to such Loans, including the
terms of repayment, provided that such terms shall be the same
for each of the Members; and

	 	(f)	 	Evidence that the Members have approved the
request in accordance with Section 5.5.1.

5.6 Voluntary Contributions. No Member shall be required or permitted to make any
Capital Contributions or Loans to the Company except pursuant to this Section 5.

5.7 Return of Contributions. A Member is not entitled to the return of any part of
its Capital Contributions or to be paid interest in respect of either its Capital
Account or its Capital Contributions. An unreturned Capital Contribution is not a
liability of the Company or of any Member. A Member is not required to contribute
or to lend any cash or property to the Company to enable the Company to return a
Member’s Capital Contributions.

5.8 Capital Accounts. A Capital Account shall be established and maintained for
each Member in accordance with the Code and the Treasury Regulations. A Member that
has more than one Membership Interest shall have a single Capital Account that
reflects all of its Membership Interests, regardless of any class of Membership
Interests owned by that Member and regardless of the time or manner in which those
Membership Interests were acquired.

6. ALLOCATIONS AND DISTRIBUTIONS.

6.1 Allocations of Profits and Losses.

	 	6.1.1.	 	In General. Profits and Losses shall be allocated among the Members ratably
in proportion to their respective Sharing Ratios.

	 	6.1.2.	 	Special Rules. Notwithstanding the general allocation rules set forth in
Section 6.1.1, the following special allocation rules shall apply under the
circumstances described:

	 	(a)	 	Limitation on Loss Allocations. The Losses
allocated to any Member pursuant to Section 6.1.1 with respect to any
Fiscal Year shall not exceed the maximum amount of Losses that can be
so allocated without causing such Member to have an Adjusted Capital
Account Deficit at the end of such Fiscal Year. All Losses in excess
of the limitation set forth immediately above shall be allocated (i)
first, to those Members who will not be subject to this limitation, in
the ratio that their Sharing Ratios bear to each other, and (ii)
second, any remaining amount to the Members in the manner required by
the Code and Treasury Regulations.

	 	(b)	 	Qualified Income Offset. If in any Fiscal Year
a Member unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such adjustment, allocation
or distribution causes or increases an Adjusted Capital Account Deficit
for such Member, then, before any other allocations are made under this
Agreement or otherwise, such Member shall be allocated items of income
and gain (consisting of a pro rata portion of each item of Company
income, including gross income and gain) in an amount and manner
sufficient to eliminate such Adjusted Capital Account Deficit as
quickly as possible, provided that an allocation pursuant to
this Section 6.1.2(b) shall be made if and only to the extent that the
Member has an Adjusted Capital Account Deficit after all other
allocations provided in this Section 6.1 have been tentatively made as
if this Section 6.1.2(b) were not in this Agreement.

	 	(c)	 	Company Minimum Gain Chargeback. If there is a
net decrease in Company Minimum Gain during any Fiscal Year, then,
except as provided in Treasury Regulations Section 1.704-2(f), each
Member shall be allocated items of income and gain for such Fiscal Year
(and, if necessary, for subsequent Fiscal Years) in proportion to, and
to the extent of, such Member’s share of the net decrease in Company
Minimum Gain during such Fiscal Year as determined in accordance with
Section 1.704-2(g). This Section 6.1.2(c) is intended to comply with
the minimum gain chargeback requirement in Treasury Regulations Section
1.704-2(f) and shall be applied and interpreted in accordance with such
Treasury Regulations.

	 	(d)	 	Member Nonrecourse Debt Minimum Gain
Chargeback. If there is a net decrease in Member Nonrecourse Debt
Minimum Gain during any Fiscal Year, then, except as provided in
Treasury Regulations Section 1.704-2(i)(4), each Member shall be
allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, such Member’s share of the net decrease in Member
Nonrecourse Debt Minimum Gain during such Fiscal Year. This Section
6.1.2(d) is intended to comply with the minimum gain chargeback
requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be
applied and interpreted in accordance with such Treasury Regulations.

	 	(e)	 	Member Nonrecourse Deductions. Member
Nonrecourse Deductions shall be allocated among the Members in
accordance with the ratios in which the Members share the economic risk
of loss for the Member Nonrecourse Debt that gave rise to those
deductions. This allocation is intended to comply with the
requirements of Treasury Regulations Section 1.704-2(i) and shall be
interpreted and applied consistent therewith.

	 	(f)	 	Company Nonrecourse Deductions. Nonrecourse
deductions that are not related to Member Nonrecourse Debt shall be
allocated to the Members in proportion to their Sharing Ratios.

	 	(g)	 	Curative Allocations. Any allocations of items
of income, gain, or loss pursuant to Sections 6.1.2(a)-(f) hereof shall
be taken into account in computing subsequent allocations pursuant to
this Section 6, so that the net amount of any items so allocated and
the income, losses, and other items allocated to each Member pursuant
to this Section 6 shall, to the extent possible, be equal to the net
amount that would have been allocated to each Member had no allocations
ever been made pursuant to Sections 6.1.2(a)-(f).

	 	(h)	 	Change in Treasury Regulations. If the
Treasury Regulations that are incorporated in the Regulatory
Allocations are hereafter changed or if new Treasury Regulations are
hereafter adopted, and such changed or new Treasury Regulations, in the
opinion of tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in
order to avoid a significant risk that a material portion of any
allocation set forth in this Section 6 would not be respected for
federal income tax purposes, the Members shall make such reasonable
amendments to this Agreement as, in the opinion of such counsel, are
necessary or desirable, taking into account the interests of the
Members as a whole and all other relevant factors, to avoid or reduce
significantly such risk to the extent possible without materially
changing the amounts allocable and distributable to any Member pursuant
to this Agreement.

	 	(i)	 	Change in Members’ Interests. In the event of
a Disposition of a Membership Interest or a change in a Member’s
Sharing Ratio during any Fiscal Year, allocations among the Members
shall be made in accordance with their Sharing Ratios from time to time
during such Fiscal Year in accordance with Code Section 706,
provided that in the event of a sale or other Disposition of a
Member’s entire Membership Interest, allocations of income, gain, loss,
deductions and credits with respect to such Member shall be computed
precisely by an interim closing of the Company’s books as of the date
of such sale or other Disposition in accordance with Treasury
Regulations Section 1.706-1(c)(2)(ii).

	 	(j)	 	Excess Nonrecourse Liabilities. For purposes
of calculating Members’ shares of “excess nonrecourse liabilities” of
the Company (within the meaning of Treasury Regulations Section
1.752-3), the Members intend that they be considered as sharing profits
of the Company in proportion to their respective Sharing Ratios.

6.2 Tax Allocations.

	 	6.2.1.	 	In General. Except as set forth in Section 6.2.2, allocations for tax
purposes of items of income, gain, loss, deduction, and credits, shall be made
in the same manner as the applicable allocation of Profit or Loss set forth in
Section 6.1. Allocations pursuant to this Section 6.2 are solely for purposes
of federal, state and local income taxes and shall not affect, or in any way be
taken into account in computing, any Member’s Capital Account or share of
Profits, Losses, other items or other distributions pursuant to any provision
of this Agreement.

6.2.2. Special Rules.

	 	(a)	 	Elimination of Book/Tax Disparities. In
determining a Member’s allocable share of Company taxable income or tax
loss, the Member’s allocable share of each item of income, gain, loss
and deduction shall be properly adjusted to reflect the difference
between such Member’s share of the adjusted tax basis and the Gross
Asset Value of each of the Company assets used in determining such
item. With respect to depreciation, for example, in determining the
taxable income or tax loss allocable to a Member, Profits and Losses
allocable to that Member shall be adjusted by eliminating Depreciation
allocable to that Member and substituting therefor tax depreciation,
amortization or other cost recovery deduction allocable to that Member
determined by reference to that Member’s share of the tax basis of
Company assets. This provision is intended to comply with the
requirements of Code Section 704(c) and Treasury Regulations Section
1.704-1(b)(2)(iv)(f)(4) and shall be interpreted in conformity
therewith. Any elections or other decisions relating to such tax
allocations shall be made by the Management Committee.

	 	(b)	 	Tax Credits. Any tax credits shall be
allocated among the Members in accordance with Treasury Regulations
Section 1.704-1(b)(4)(ii), unless the applicable Code provision shall
otherwise require.

	 	6.2.3.	 	Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 6.2 and hereby agree to be
bound by the provisions of this Section 6.2 in reporting their shares of
Company profits, gains, income, losses, deductions, credits and other items for
income tax purposes.

6.3 Withholding. The Company is authorized to withhold from distributions to a
Member, or with respect to allocations to a Member, and to pay over to a federal,
state or local government, any amounts required to be withheld pursuant to the Code,
or any provisions of any other federal, state or local law. Any amounts so withheld
shall be treated as having been distributed to such Member pursuant to this Section
6 for all purposes of this Agreement, and shall be offset against the current or
next amounts otherwise distributable to such Member.

6.4 Distributions.

	 	6.4.1.	 	From time to time (but at least once each calendar quarter) the Managers
shall determine in their reasonable judgment to what extent (if any) the
Company’s cash on hand exceeds its current and anticipated needs, including,
without limitation, for operating expenses, debt service, acquisitions, and a
reasonable contingency reserve. If such an excess exists, the Managers, by
majority vote, shall cause the Company to distribute to the Members, in
accordance with their Sharing Ratios, an amount in cash equal to that excess.

	 	6.4.2.	 	Notwithstanding any language in Section 6.4.1 to the contrary, the Company
shall also distribute, to the extent funds are available, to each Member, with
respect to each Fiscal Year within seventy-five (75) days after the end of such
Fiscal Year, an amount of cash or cash equivalents equal to (x) the amount of
the Company’s positive federal taxable income allocated to each Member for such
Fiscal Year, multiplied by (y) 40%; provided, however, that this specific
distribution for any Fiscal Year may be reduced or eliminated on a pro rata
basis among the Members if and to the extent determined by all of the Members.

	 	6.4.3.	 	From time to time the Members also may cause property of the Company other
than cash to be distributed to the Members, which distribution must be made in
accordance with their Sharing Ratios and may be made subject to existing
liabilities and obligations.

7. MANAGEMENT.

7.1 Voting by Members and Management Committee.

	 	7.1.1.	 	Except as otherwise provided in this Agreement, the vote of the Members
necessary for a matter to be approved by Members shall be a majority of the
total Sharing Ratios of the Members. If the requisite majority of Sharing
Ratios is not voted in favor of a matter being voted on, then the matter shall
be deemed to be denied. Furthermore, unless otherwise provided herein, if the
matter being voted on provides for more than two alternatives and no
alternative receives the requisite majority approval, then no alternative shall
be selected.

	 	7.1.2.	 	The Members shall manage the Company’s business through the Management
Committee in accordance with this Agreement. The acts of the Management
Committee in accordance with its authority shall be binding upon all of the
Members and the Company. The Management Committee shall consist of one
individual Manager appointed by each Member. Each Member shall also designate
an alternate for its Manager. Each alternate shall have all of the powers of
the regular Manager in the regular Manager’s absence, declination or inability
to serve from time to time. On all matters decided by the Management
Committee, each Manager or its alternate shall have voting power equal to the
Sharing Ratio of the Member represented by such Manager. Whenever in this
Agreement action by the Members as a group is contemplated, action by the
Management Committee shall constitute the action of the Members as a group.

	 	7.1.3.	 	Subject to the other terms of this Agreement, the Management Committee, by
majority vote of the Managers, may make all decisions and take all actions for
the Company not otherwise provided for in this Agreement or in the CO&M
Agreement, including, without limitation, the following:

	 	(a)	 	Delegating management authority to the Operator
under the CO&M Agreement; provided, however, that the Management
Committee may not delegate to the Operator the right to take any action
that would require a Supermajority Vote under Section 7.1.4 unless such
action has been approved by a Supermajority Vote or is provided for in
the CO&M Agreement;

	 	(b)	 	Entering into, making and performing contracts,
agreements, and other undertakings binding the Company that may be
necessary, appropriate, or advisable in furtherance of the purposes of
the Company and making all decisions and waivers thereunder;

	 	(c)	 	Opening and maintaining bank and investment
accounts and arrangements, drawing checks and other orders for the
payment of money, and designating individuals with authority to sign or
give instructions with respect to those accounts and arrangements.

	 	(d)	 	Maintaining the assets of the Company in good
order;

(e) Collecting sums due the Company;

	 	(f)	 	To the extent that funds of the Company are
available therefor, paying debts and obligations of the Company;

	 	(g)	 	Subject to the provisions of Section 7.1.4(s),
acquiring, utilizing for Company purposes, and disposing of any asset
of the Company;

	 	(h)	 	Subject to the provisions of Section 7.1.4(h),
selecting, removing and changing the authority and responsibility of
contractors and other advisers and consultants;

(i) Obtaining insurance for the Company;

	 	(j)	 	Determining distributions of Company cash and
other property as provided in Section 6.4;

(k) Establishing a corporate seal for the Company;

	 	(l)	 	Appointing and removing any officers of the
Company and establishing the authority and duties thereof;

(m) Investing funds of the Company;

	 	(n)	 	Determining the accounting methods and
conventions to be used in preparation of the Company’s financial
statements (consistent with GAAP) and tax returns and making any and
all elections under any applicable tax laws (consistent with the
requirements of this Agreement);

	 	(o)	 	Obtaining all necessary permits and
governmental approvals regarding the business or operations of the
Company; and

	 	(p)	 	Engaging in any other activity and performing
and carrying out contracts of any kind which may be necessary or
appropriate to conduct the Company’s business and accomplish its
purposes, as may be lawfully carried on or performed by a limited
liability company under the laws of the State of West Virginia and the
laws of the states and municipalities in which the Company conducts
business.

	 	7.1.4.	 	Notwithstanding anything in Section 7.1.3 above, the Management Committee may
not cause the Company to do any of the following without the Supermajority Vote
of the Members:

	 	(a)	 	Filing an application with FERC in connection
with any Modification;

	 	(b)	 	Approving a sale or abandonment of all or a
major portion of the Facilities;

	 	(c)	 	Amending, modifying, changing or otherwise
altering this Agreement or taking any action in contravention of this
Agreement;

(d) Electing to dissolve the Company;

	 	(e)	 	Borrowing money or otherwise committing the
credit of the Company for Company activities and voluntary prepayments
or extensions of debt;

(f) Approving any matter pursuant to Section 3.3;

(g) Approving any matter pursuant to Section 5.1.2;

	 	(h)	 	Selecting, removing and changing auditors or
lawyers or the authority or responsibility of auditor or lawyers,
provided, however, that the initial auditors shall be the Certified
Public Accountants selected by the publicly-held parent of the Operator
on the Execution Date to audit such parent’s own financial statements;
and provided, further, that should the publicly-held parent of the
Operator change the Certified Public Accountants selected by it to
audit its own financial statements and the Operator recommends that the
Company change its auditors to such new Certified Public Accountants,
no Member will unreasonably withhold approval of such change in
auditors for the Company;

	 	(i)	 	Entering into, amending, modifying, or
terminating any contract or commitment to acquire or transfer any asset
not provided for in the approved Phase I Capital Budget, Phase II
Capital Budget, or Phase III Capital Budget, the cost of which exceeds
by more than ten percent (10%) the amount budgeted therefor;

	 	(j)	 	Requesting that Loans (rather than Capital
Contributions) be made to the Company pursuant to Section 5.5.1;

	 	(k)	 	Delegating any authority to any committee,
Manager or agent of the Company to take any action that requires more
than a majority vote of Members under this Section 7.1.4;

	 	(l)	 	Causing any Financing Commitment or causing any
financing (whether or not pursuant to a Financing Commitment) to be
issued on which there is recourse to a Person other than the Company;

	 	(m)	 	Approving any capital expenditures in excess of
$250,000 in the aggregate in any fiscal year that are not included in
an approved Capital Budget;

	 	(n)	 	Indemnifying any officer, employee, agent or
any other Person except as specifically provided herein or in the CO&M
Agreement;

	 	(o)	 	Executing or otherwise entering into, or
amending, modifying, or terminating, any employment agreement with an
officer of the Company or similarly compensated or situated person
employed by the Company, the election or removal of any officer of the
Company or the hiring or firing of any other similarly compensated or
situated person employed by the Company with or without cause;

	 	(p)	 	Setting or amending the compensation level of
any officer of the Company or other similarly compensated or situated
person employed by the Company;

	 	(q)	 	Revaluing any property or asset outside of the
normal course of business;

	 	(r)	 	Executing or otherwise entering into, or
amending, modifying, or terminating (other than in accordance with, or
pursuant to, the terms of such agreement), any agreement, other than a
Service Agreement, with a Member, an officer or employee of the
Company, an Affiliate of a Member, or a person related by blood or
marriage to an officer or employee of the Company, involving aggregate
consideration (including assumed actual and contingent liabilities) or
fair market value or actual or contingent liability in excess of
$100,000;

	 	(s)	 	Transferring all or substantially all of the
assets of the Company;

	 	(t)	 	The filing of a petition as debtor in a United
States Bankruptcy Court or taking any material affirmative act that
would result in the Company’s bankruptcy;

	 	(u)	 	Merging or consolidating the Company with or
into any other Person;

(v) Changing the name of the Company;

	 	(w)	 	Changing the designation or the terms of
Membership Interests which the Company has authorized or is authorized
to issue;

	 	(x)	 	Increasing the size of the Management Committee
or changing the provisions of Section 7.1.2 regarding the composition
of the Management Committee;

	 	(y)	 	Authorizing any distribution, dividend or
transfer of Company assets;

	 	(z)	 	Approving any agreement by the Tax Matters
Partner to an extension of the statute of limitations for making
assessments on behalf of the Company or changing the tax elections
provided in Section 10.4;

	 	(aa)	 	Voting at a meeting of the Management Committee
on a matter not on the agenda for the meeting referred to in Section
7.3 or shortening the ten (10) day notice requirement of Section 7.3;

	 	(bb)	 	Amending, modifying, changing or otherwise
altering the CO&M Agreement; or

	 	(cc)	 	Taking any other action as to which a
Supermajority Vote is required under this Agreement.

7.2 Removal, Resignation and Replacement of Managers. Each Member, in its sole
discretion, may at any time and for any reason remove or replace any Manager
(including an alternate) appointed by it. Each Manager shall hold office for the
term for which he or she is appointed and thereafter until his or her successor
shall have been appointed and qualified, or until his or her earlier death,
resignation or removal. A Manager may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or if no
time be specified, at the time of its receipt by the remaining Managers. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation. Upon the resignation of a Manager, the
Member appointing that Manager shall have the right to designate another Manager.
Managers need not be residents of West Virginia.

7.3 Meetings by the Management Committee. The Management Committee shall meet at
least quarterly. Special meetings of the Management Committee may be called from
time to time by any Manager, and the Manager who does so shall be responsible for
the agenda and minutes of such meeting. Except as otherwise provided in this
Agreement, or as waived in writing by the Managers, each Manager shall be given at
least ten (10) calendar days prior written notice of any meeting of the Management
Committee. Such notice shall contain the time and place of such meeting, along with
an agenda of items to be discussed and/or voted on at such meeting. A quorum shall
consist of Managers or their alternates representing at least two (2) Members and a
majority of the Sharing Ratios of the Members.

7.4 Action by Written Consent or Telephone Conference. Any action permitted or
required by the Act, the Articles of Organization or this Agreement to be taken at a
meeting of the Members or the Management Committee may be taken without a meeting if
a consent in writing, setting forth the action to be taken, is signed by all the
Members or the Managers, as the case may be. Such consent shall have the same force
and effect as a unanimous consent at a meeting and may be stated as such in any
document or instrument filed with the Secretary of State of West Virginia, and the
execution of such consent shall constitute attendance or presence in person at a
meeting of the Members or Management Committee, as the case may be. Subject to the
requirements of the Act, the Articles of Organization or this Agreement for notice
of meetings, unless otherwise restricted by the Articles of Organization, Members or
the Management Committee, may participate in and hold a meeting of the Members or
Management Committee, as the case may be, by means of a conference telephone or
similar communications equipment by means of which all Persons participating in the
meeting can hear each other, and participation in such meeting shall constitute
attendance and presence at such meeting, except where a Person participates in the
meeting for the express purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.

7.5 Compensation. A Manager shall receive no compensation for services rendered to
the Company in that capacity. Officers and agents of the Company shall receive such
compensation as approved by the Management Committee.

7.6 Operating Budgets. The Management Committee shall cause the Operator, under the
CO&M Agreement, to annually prepare an Operating Budget. In the event that a
subsequent Operating Budget is not approved in its entirety, any approved line items
of such Operating Budget shall go into effect, all other line items shall be deemed
to be increased by the lesser of the percentage that is agreed upon by the
Management Committee or three percent (3%) from the level specified in the prior
Operating Budget, with the exception of Capital Contributions which shall not
automatically increase, and such prior Operating Budget, as so adjusted pursuant to
the terms of this sentence, shall be effective until the end of the Fiscal Year to
which it applies.

7.7 Financing Committee. Within 30 days after the execution of this Agreement, each
Initial Member shall designate a representative to serve on the Financing Committee.
The Financing Committee shall arrange for the Financing Commitment and present it to
the Management Committee for consideration. Within thirty (30) days after the
presentation of the proposed Financing Commitment, the Management Committee shall
vote on whether to accept or reject it.

7.8 Conflicts of Interest. Except as otherwise provided in this Agreement, each
Member at any time and from time to time may engage in and possess interests in
other business ventures of any and every type and description, independently or with
others, including business ventures in competition with the Company, with no
obligation to offer to the Company or any other Member the right to participate
therein. The Company may enter into the CO&M Agreement and, in addition, may
transact business with any Member or Affiliate thereof provided that without the
approval of the Management Committee the aggregate cost to the Company of such
business transaction shall not exceed $100,000 annually.

8. OPERATION OF THE FACILITIES.

8.1 Operator. The Company intends to enter into a CO&M Agreement with the Operator
in the form attached hereto as Appendix H. The Members may, at any time,
upon a Supermajority Vote, agree to an amendment to the CO&M Agreement
provided that the Operator concurs therewith. In the event that such CO&M
Agreement is terminated pursuant to the terms thereof or the Operator ceases to
serve as Operator in accordance with the terms of the CO&M Agreement, Piedmont
Hardy, if it is still a Member, may designate its Affiliate the successor Operator.
If neither Columbia Hardy or its Affiliate, nor Piedmont Hardy or its Affiliate is
still a Member, the Members may, upon a Supermajority Vote, appoint a successor
Operator. Any successor Operator selected pursuant to this Agreement shall execute
and be bound by an agreement substantially in the form of the CO&M Agreement
existing immediately prior to such execution.

9. INDEMNIFICATION.

9.1 Right to Indemnification. Subject to the limitations and conditions as provided
in Section 9, each person who was or is made a party or is threatened to be made a
party to or is involved in any Proceeding, or any appeal in such a Proceeding or any
inquiry or investigation that could lead to such a Proceeding, by reason of the fact
that he or she, or a Person of whom he or she is legal Manager, is or was a Manager
of the Company or while Manager of the Company is or was serving at the request of
the Company as a Manager, director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic limited
liability company, corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise shall be indemnified by the Company
to the fullest extent permitted by the Act, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than said
law permitted the Company to provide prior to such amendment) against judgments,
penalties (including excise and similar taxes and punitive damages), fines,
settlements and reasonable expenses (including, without limitation, attorneys’ fees)
actually incurred by such Person in connection with such Proceeding, and
indemnification under Section 9 shall continue as to a Person who has ceased to
serve in the capacity which initially entitled such Person to indemnity hereunder.
The rights granted pursuant to Section 9 shall be deemed contract rights and no
amendment, modification or repeal of Section 9 shall have the effect of limiting or
denying any such rights with respect to actions taken or Proceedings arising prior
to any such amendment, modification or repeal. It is expressly acknowledged that
the indemnification provided in Section 9 could involve indemnification for
negligence or under theories of strict liability.

9.2 Advance Payment. The right to indemnification conferred in Section 9 shall
include the right to be paid or reimbursed by the Company the reasonable expenses
incurred by a Person of the type entitled to be indemnified under Section 9.1 who
was, is or is threatened to be made a named defendant or respondent in a Proceeding
in advance of the final disposition of the Proceeding and without any determination
as to the Person’s ultimate entitlement to indemnification, provided that
the payment of such expenses incurred by any such Person in advance of the final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Person of his or her good faith belief that he or she
has met the standard of conduct necessary for indemnification under Section 9 and a
written undertaking, by or on behalf of such Person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified Person is not
entitled to be indemnified under Section 9 or otherwise.

9.3 Indemnification of Agents. The Company, by adoption of a resolution of the
Management Committee, may indemnify and advance expenses to an agent of the Company
to the same extent and subject to the same conditions under which it may indemnify
and advance expenses to Managers under Section 9; and, the Company may indemnify and
advance expenses to Persons who are not or were not Managers or agents of the
Company but who are or were serving at the request of the Company as a Manager,
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic limited liability company,
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him or her
and incurred by him or her in such a capacity or arising out of his or her status as
such a Person to the same extent that it may indemnify and advance expenses to
Managers under Section 9.

9.4 Indemnification by the Members. To the fullest extent permitted by law, each
Member shall indemnify the Company, each Manager and each other Member and hold them
harmless from and against all losses, costs, liabilities, damages, and expenses
(including, without limitation, costs of suits and attorney’s fees) they may incur
on account of any breach by that Member of this Agreement.

9.5 Appearance as a Witness. Notwithstanding any other provisions of Section 9,
upon approval by the Members, the Company shall pay or reimburse expenses incurred
by a Member in connection with that Member or Member’s Manager or other employee’s
appearance as a witness or other participation in a Proceeding at a time when that
Member or Member’s Manager is not a named defendant or respondent in the Proceeding.

9.6 Nonexclusivity of Rights. The right to indemnification and the advancement and
payment of expenses conferred in Section 9 shall not be exclusive of any other right
which a Manager or other Person indemnified pursuant to Section 9.3 may have or
hereafter acquired under any law (common or statutory), provision of the Articles of
Organization or this Agreement, other agreements, votes of Members or otherwise.

9.7 Insurance. Unless the Members otherwise determine by Supermajority Vote, each
Member shall maintain its own insurance for the benefit of any Member or any Manager
acting in his or her capacity as a Member or Manager, and the Company shall not be
required to obtain any such insurance for the benefit of any Member or any Manager
acting in his or her capacity as a Member or Manager.

9.8 Member Notification. To the extent required by law, any indemnification of or
advance of expenses to a Manager in accordance with Section 9 shall be reported in
writing to the Members with or before the notice or waiver of notice of the next
Members’ meeting or with or before the next submission to Members of a consent to
action without a meeting and, in any case, within the 12 month period immediately
following the date of the indemnification or advance.

9.9 Savings Clause. If Section 9 or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall nevertheless
indemnify and hold harmless each Manager or any other Person indemnified pursuant to
Section 9 as to costs, charges and expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to the full
extent permitted by any applicable portion of Section 9 that shall not have been
invalidated and to the full extent permitted by applicable law.

10. TAXES.

10.1 Tax Returns. The Tax Matters Partner shall supervise the preparation and
filing of all tax and information returns which the Company may be required to file
and shall, on behalf of the Company, make such tax elections and determinations as
are reasonably necessary, appropriate or desirable and consistent with Section 10.4.
Each Member shall furnish to the Company all pertinent information that is in the
possession of such Member and is necessary to enable such returns to be prepared and
filed. Copies of the tax returns, together with any schedules or other information
that each Member may require in connection with preparation of such Member’s own tax
affairs, shall be furnished to the Members within ninety (90) calendar days after
the end of each Fiscal Year. The Company shall bear the costs of preparing, filing
and distributing any tax returns.

10.2 Tax Status. Unless the Initial Members vote pursuant to Section 4.1.1 to file
the FERC Application as an entity taxed as a partnership, then by no later than
March 15, 2005, the Members agree that they will reform the Company as a corporation
and adopt and execute the corporate documents attached as Appendix I to this
Agreement.

10.3 Tax Matters. The Tax Matters Partner shall provide each Member with prompt
notice of the initiation of all tax examinations or proceedings, shall thereafter
promptly provide copies of all written information issued by or delivered to
Governmental Authorities in connection with any such examinations or proceedings,
and shall further provide each Member with prompt, reasonable, and continuous
opportunity to review and provide comment with respect to the subject matter of each
such examination or proceedings. Each Member agrees to cooperate fully with the Tax
Matters Partner and to do or refrain from doing any and all things reasonably
required by the Tax Matters Partner to conduct such proceedings. Subject to the
terms hereof, the Tax Matters Partner shall not have the right to settle any audit
or examination without first consulting with and receiving approval of a majority of
the Members.

10.4 Tax Elections.

The Company shall make the following elections on the appropriate tax returns for
income tax purposes:

	 	(a)	 	to adopt the calendar year as the Company’s tax
year for federal and state income tax purposes;

	 	(b)	 	to adopt the accrual method of accounting and
to keep the Company’s books and records on the method of accounting
required by the Code; and

	 	(c)	 	any other elections not inconsistent with the
above that the Management Committee may deem appropriate.

11. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS.

11.1 Maintenance of Books and Records. The Company shall maintain the following
accurate and complete records at the Principal Office or at such other locations as
may be provided by the Members:

	 	(a)	 	a current list of the full name and last known
business address of each Member;

	 	(b)	 	a copy of the Articles of Organization and all
amendments thereto;

	 	(c)	 	copies of each of the Company’s Federal, state
and local tax returns and reports, as filed, for the last seven taxable
periods;

	 	(d)	 	copies of this Agreement, including all
amendments thereto;

	 	(e)	 	Company audited financial statements for the
last seven Fiscal Years;

(f) books and records of the Company; and

	 	(g)	 	minutes of meetings of the Management
Committee.

The Company shall delegate responsibility for maintaining such records to the
Operator pursuant to the CO&M Agreement.

11.2 Accounting Basis. Books and records of the Company shall be maintained on an
accrual accounting basis, and (except for federal and state income tax purposes) the
Company’s net profit or net loss shall be determined on the basis of the Fiscal Year
and in accordance with GAAP consistently applied.

11.3 Financial Reports. The Management Committee shall cause the following
financial statements to be prepared, in each case in accordance with GAAP
consistently applied on a consolidated and consolidating (i.e., by line of business)
basis, but unaudited except in the case of the reports called for in Section
11.3(d), and shall cause to be delivered to each Person who was a Member during the
applicable period described below:

	 	(a)	 	a balance sheet and statement of income,
statement of cash flow and Member’s capital account as of the end of or
for, as the case may be, each month, each within fifteen (15) days
after the end of each month;

	 	(b)	 	(i) a balance sheet as of the end of each of
the first three fiscal quarters of each year of the Company; (ii) an
income statement for such quarters and year-to-date; (iii) a statement
of each Member’s Capital Account as of the end of such quarters; and
(iv) a statement of cash flows for such quarter and year-to-date
(including sufficient information to permit the Members to calculate
their tax accruals), each within twenty-five (25) days after the end of
such quarters (or more frequently if agreed by the Management
Committee);

	 	(c)	 	(i) a balance sheet as of the end of each
Fiscal Year of the Company; (ii) an income statement for such fiscal
years; (iii) a statement of each Member’s Capital Account as of the end
of such fiscal years; (iv) a statement of cash flows for such fiscal
years, each within thirty (30) days after the end of such fiscal years;
and

	 	(d)	 	audited annual financial statements prepared by
the Certified Public Accountants within forty-five (45) days after the
end of each Fiscal Year of the Company. These financial statements must
be accompanied by a report of the Certified Public Accountants
certifying the statements and stating that (a) their examination was
made in accordance with auditing standards generally accepted in the
United States of America and, in their opinion, the financial
statements present fairly, in all material respects, the financial
position, results of operations, and changes in Members’ capital in
accordance with GAAP and (b) if requested by a single Member, in making
the examination and reporting on the financial statements described
above, nothing came to their attention that caused them to believe that
(i) the income and revenues were not paid or credited in accordance
with the financial and accounting provisions of this Agreement, (ii)
the costs and expenses were not charged in accordance with the
financial and accounting provisions of this Agreement, or (iii) the
Members or any Member failed to comply in any material respect with the
financial and accounting provisions of this Agreement, or if they do
conclude that a Member so failed, specifying the nature and period of
existence of the failure.

11.4 Fiscal Year. The Fiscal Year of the Company shall end on December 31 unless
otherwise required by the Code or approved by a Supermajority Vote of the Members.

11.5 Record of Capital Accounts. The Company shall maintain a record of each
Member’s Capital Account in accordance with Section 5.8.

11.6 Other Notices. The Company shall notify each Member in writing of any of the
following immediately upon learning of the occurrence thereof, describing the same
and, if applicable, the steps being taken by the Company with respect thereto:

	 	(a)	 	the occurrence of the default by the Company
under any material note, indenture, loan agreement, mortgage, lease,
deed or other material similar agreement to which the Company is a
party or by which it is bound;

	 	(b)	 	the institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Company, whether or
not considered to be covered by insurance, if the damages being sought
in such litigation exceed $100,000 or, if not specified in such
litigation, could reasonably be expected to exceed $100,000;

	 	(c)	 	the entry of any judgment or decree against the
Company, if the amount of such judgment exceeds $100,000; and

	 	(d)	 	the occurrence of a material adverse change in
the business, operations, assets, condition (financial or otherwise) or
prospects of the Company.

11.7 Governmental Reports. The Operator shall prepare and file, or cause to be
prepared and filed, all reports prescribed or required by the FERC or any other
Governmental Authority having jurisdiction over the Company.

11.8 Cost of Preparing and Distributing Reports. The Company shall bear the costs
of (1) preparing and distributing the tax returns described in Section 10.1 and any
reports required or permitted in Sections 11.3 and 11.7, and (2) legal, accounting,
and other fees and expenses reasonably incurred by the Tax Matters Partner.

11.9 Accounts. The Management Committee shall cause to be established and
maintained one or more separate bank and investment accounts and arrangements for
Company funds in the Company’s name with financial institutions and firms that the
Management Committee determines. The Company’s funds may not be commingled with the
funds of any Member.

11.10 Annual Field Performance Review. Not later than June 15 of each year, the
Operator shall prepare and deliver to each Member a report on the Facilities’
performance during the prior injection and withdrawal seasons.

11.11 Annual Stored Natural Gas Inventory Integrity Analysis. Not later than March
15 of each year, the Operator shall prepare and deliver to each Member a report and
analysis of the results of the Facilities’ semi-annual shut-in pressure tests. The
Operator shall include in the analysis an evaluation of the integrity of the stored
natural gas inventory.

12. INSPECTION.

12.1 Inspection of Facilities and Records. Subject to the provisions of Section
4.7, each Member shall have the right at all reasonable times during usual business
hours upon providing reasonable notice to the Operator to inspect the Facilities and
other properties of the Company and to audit, examine and make copies of the books
of account and other records of the Company. Such right may be exercised through
any agent or employee of such Member designated in writing by it or by an
independent public accountant, engineer, attorney or other consultant so designated.
The Member making the request shall bear all reasonable costs and expenses incurred
by such Member, the Company or the Operator in connection with any inspection,
examination or audit made on such Member’s behalf.

13. BANKRUPTCY OF A MEMBER.

13.1 Bankrupt Members. If any Member takes or becomes subject to any of the actions
described in Section 31B-6-601(7) of the Act, that Person ceases to be a Member of
the Company. The successor in interest to that Person holds that Person’s
Membership Interest in the capacity of a non-Member with none of the rights and
powers of a Member except the right to such Person’s Profits, Losses and
Distributions.

14. DISSOLUTION, LIQUIDATION, AND TERMINATION.

14.1 Dissolution. The Company shall dissolve and its affairs shall be wound up on
the first to occur of the following:

(a) the unanimous written consent of the Members;

(b) the time, if any, specified in the Articles of Organization;

(c) under the circumstances specified in Section 4.1.2;

(d) pursuant to Section 7.1.4(d); and

	 	(e)	 	entry of a decree of judicial dissolution of the Company under
Section 31B-8-801(5) of the Act.

14.2 Liquidation and Termination. On dissolution of the Company, the Members shall
act as liquidator or may appoint one or more Members as liquidator. The liquidator
shall proceed diligently to wind up the affairs of the Company and make final
distributions as provided herein and in the Act. The costs of liquidation shall be
borne as a Company expense. Until final distribution, the liquidator shall continue
to operate the Company properties with all of the power and authority of the
Members. The steps to be accomplished by the liquidator are as follows:

	 	(a)	 	as promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Certified Public Accountants of the Company’s assets, liabilities, and
operations through the last day of the calendar month in which the dissolution
occurs or the final liquidation is completed, as applicable;

	 	(b)	 	Profits or Losses from the sale or distribution of Company
property incurred upon or during liquidation and termination of the Company
shall be allocated among the Members as provided in Section 6; and

	 	(c)	 	the liquidator shall distribute the Company’s assets in the
following manner, subject to the Act:

	 	(i)	 	First, to satisfy debts and obligations of the
Company, including those owed to Members or their Affiliates;

	 	(ii)	 	Second, to fund any reserves deemed appropriate
by the Management Committee; and

	 	(iii)	 	Third, to the Members in accordance with the
positive balance in their Capital Accounts, after giving effect to all
contributions, distributions and allocations for all periods.

The distribution of cash and/or property to a Member in accordance with the
provisions of this Section 14.2 constitutes a complete return to the Member of its
Capital Contributions and a complete distribution to the Member of its Membership
Interest and all the Company’s property and constitutes a compromise to which all
Members have consented. To the extent that a Member returns funds to the Company,
it has no claim against any other Member for those funds.

14.3 Deficit Capital Accounts. Notwithstanding anything to the contrary contained
in this Agreement, and notwithstanding any custom or rule of law to the contrary, to
the extent that the deficit, if any, in the Capital Account of any Member results
from or is attributable to deductions and Losses of the Company (including non-cash
items such as depreciation), or distributions of money pursuant to this Agreement to
all Members in proportion to their respective Sharing Ratios, upon dissolution of
the Company such Members shall not be obligated to contribute such amount to the
Company to bring the balance of such Member’s Capital Account to zero.

14.4 Articles of Termination. On completion of the distribution of Company assets
as provided herein, the Company is terminated, and the Company will file articles of
termination with the West Virginia Secretary of State as permitted by Section
31B-8-805 of the Act, cancel any other filing made pursuant to Sections 2.3 or 2.6,
and take such other actions as may be necessary to terminate the Company.

15. GENERAL PROVISIONS.

15.1 Offset. Whenever the Company is to pay any sum to any Member, any amounts that
Member owes the Company may be deducted from that sum before payment.

15.2 Notices. Except as expressly set forth to the contrary in this Agreement, all
notices, requests, or consents provided for or permitted to be given under this
Agreement must be in writing. Notices and other communications will be deemed to
have been given (a) on the date when delivered by hand or by means of electronic
transmission (and followed by electronic confirmation of receipt), (b) on the date
after the day when deposited for delivery with a nationally recognized air courier,
or (c) on the third Business Day after being deposited in the United States mail,
postage prepaid return receipt requested. All notices, requests, and consents to be
sent to a Member must be sent to or made at the addresses given for that Member on
the signature pages of this Agreement, or such other address as that Member may
specify by notice to the other Members. Any notice, request, or consent to the
Company must be given to the Management Committee at the address designated by the
Company pursuant to Section 2.4. Whenever any notice is required to be given by
law, the Articles of Organization or this Agreement, a written waiver thereof,
signed by the Person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.

15.3 Entire Agreement. This Agreement constitutes the entire agreement of the
Members and their Affiliates relating to the Company and supersedes all prior
contracts or agreements with respect to the Company, whether oral or written.

15.4 Effect of Waiver or Consent. A waiver or consent, express or implied, to or of
any breach or default by any Person in the performance by that Person of its
obligations with respect to the Company is not a consent or waiver to or of any
other breach or default in the performance by that Person of the same or any other
obligations of that Person with respect to the Company. Failure on the part of a
Person to complain of any act of any Person or to declare any Person in default with
respect to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default until
the applicable statute-of-limitations period has run.

15.5 Amendment or Modification. This Agreement may be amended or modified from time
to time only by a written instrument adopted by at least a Supermajority Vote of the
Members, provided that no amendment or modification having a material affect
on the rights or obligations of a Member shall be adopted without the written
consent of such Member. No amendment or modification of this Agreement shall be
deemed to exist as the result of any oral statement, action, waiver or delay by a
Member or group of Members on any occasion(s).

15.6 Binding Effect. Subject to the restrictions on Dispositions set forth in this
Agreement, this Agreement is binding on and inures to the benefit of the Members and
their respective heirs, legal Managers, successors and assigns.

15.7 Specific Performance and Injunctive Relief. The parties acknowledge and agree
that any breach or violation of this Agreement has the potential to cause
irreparable and continuing harm that cannot be adequately cured or remedied by
monetary damages alone. In recognition of the foregoing, the parties hereby agree
that the remedies for breach or violation of this Agreement shall include, without
limitation, the remedies of specific performance and injunctive relief. In any
action, suit or other proceeding involving the enforcement of this Agreement, each
party hereby waives all rights to claim or assert that monetary damages alone
constitute a sufficient remedy, or that specific performance or injunctive relief
should be denied. Each party agrees that the preceding waiver is irrevocable and
unconditional, and shall have the broadest possible scope and application.

15.8 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF WEST VIRGINIA, EXCLUDING ANY
CONFLICTS-OF-LAW RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE
CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event of
a direct conflict between the provisions of this Agreement and (a) any provision of
the Articles of Organization, or (b) any mandatory provision of the Act, the
applicable provision of the Articles of Organization or the Act shall control. If
any provision of this Agreement or the application thereof to any Person or
circumstance is held invalid or unenforceable to any extent, the remainder of this
Agreement and the application of that provision to other Persons or circumstances is
not affected thereby and that provision shall be enforced to the greatest extent
permitted by law.

15.9 No Third Party Beneficiaries. Except for the right of Persons to seek
indemnification under Section 9 of this Agreement, nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the Members
that this Agreement shall not be construed as a third party beneficiary contract.

15.10 Creditors.

None of the provisions of this Agreement shall be for the benefit of or shall be
enforceable by any Person in its capacity as a creditor of the Company.

15.11 Further Assurances. In connection with this Agreement and the transactions
contemplated hereby, each Member shall execute and deliver any additional documents
and instruments and perform any additional acts that may be necessary or appropriate
to effectuate and perform the provisions of this Agreement and those transactions.

15.12 Notice to Members of Provisions of this Agreement. By executing this
Agreement, each Member acknowledges that it has actual notice of (a) all of the
provisions of this Agreement, including, without limitation, the restrictions on the
transfer or Disposition of Membership Interests set forth in Section 3 and (b) all
of the provisions of the Articles of Organization. Each Member hereby agrees that
this Agreement constitutes adequate notice of all such provisions, and each Member
hereby waives any requirement that any further notice thereunder be given.

15.13 Press Releases. Prior to the filing of the FERC Application, without first
obtaining the agreement of the other Members by Supermajority Vote, no Member shall
make any press release or public statement about the Company, the business of the
Company, the transactions or operations contemplated hereby, unless legal counsel
for such Member determines that such statement is required by law. At any time
subsequent to the filing of the FERC Application, no Member may make a press release
or public statement disclosing Confidential Information without first obtaining the
agreement of the Company unless legal counsel for such Member determines that such
statement is required by applicable law, in which event, such Member may issue a
statement to the extent legally required; provided, however, prior to the In-Service
Date, the disclosing Member shall give the other Members the opportunity to review a
copy of such statement and consult with such Member prior to the release thereof.

15.14 Counterparts. This Agreement may be executed in any number of counterparts
with the same effect as if all signing parties had signed the same document. All
counterparts shall be construed together and constitute the same instrument.

15.15 Repurchase Rights under Section 4.1.2 (xiii).

If Columbia Hardy should purchase the Membership Interest of Piedmont Hardy pursuant
to the provisions of Section 4.1.2 (xiii) and at any time within twelve (12) months
of any such purchase, Columbia Hardy should make a decision to construct the
Facilities, it will take the following action: notify Piedmont Hardy in writing of
its intent to construct the Facilities. Such notice shall provide the terms and
conditions upon which Columbia Hardy proposes to construct the Facilities,
including, without limitations, (a) a Phase II Capital Budget, (b) a Phase III
Capital Budget, (c) a reasonably detailed construction schedule, (d) a schedule
showing all significant regulatory filings and estimated decision dates, and (e) a
list of persons who have executed a precedent agreement or service agreement or
otherwise indicated their intent to purchase services from the Facilities. Within
sixty (60) days after receipt of such notice, Piedmont Hardy shall have the right to
repurchase from Columbia Hardy the Membership Interest previously sold to Columbia
Hardy. Such repurchase shall be on the same terms and conditions as were applicable
to the purchase of Piedmont Hardy’s Membership Interest by Columbia Hardy, except
that the purchase price will be 90% of the Capital Account of the Membership
Interest being purchased as of the date of the closing on that purchase by Piedmont
Hardy. Upon the completion of such repurchase, the repurchased Membership Interest
shall entitle Piedmont Hardy to the same Sharing Ratio as existed before the
purchase by Columbia Hardy of Piedmont Hardy’s Membership Interest.

IN WITNESS WHEREOF, the Members have executed this Agreement as of the date first set forth
above.

MEMBERS:

Columbia Hardy Corporation

By: /s/Glen L. Kettering

	 	 	 	Name: Glen L. Kettering

Title: President

Address: 12801 Fair Lakes Parkway

Fairfax, VA 22033

Piedmont Hardy Storage Company, LLC

By: /s/Kevin M. O’Hara

	 	 	 	Name: Kevin M. O’Hara

Title: Vice President

Address: Piedmont Natural Gas Company

P.O. Box 33068

Charlotte, NC 28233

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}]]