December 22, 1994
Mr. David J. Tudor
Executive Vice President
Vesta Natural Gas Company
320 ONEOK Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Dear David:
This letter (the "Settlement Letter") states the principles of the agreement
between Vesta Natural Gas Company ("VNG") and Laclede Gas Company
("Laclede") to resolve their respective present disputes, claims or causes
of action arising out of or related to the subject matter (the "Subject
Matter") of the November 1, 1990 Gas Purchase and Sales Agreement (the
"Agreement") by and between Laclede and ESCO Energy, Inc. (now known as
Vesta Natural Gas Company).
Effective November 1, 1990 Laclede and VNG entered into the Agreement,
pursuant to which Laclede was to purchase up to 55,000 MMBtu/day of natural
gas from VNG and VNG was to sell the same to Laclede for a term beginning
November 1, 1990 and for a primary term ending October 31, 2000. Laclede
and VNG have conducted natural gas business pursuant to the Agreement since
November 1, 1990.
The Agreement contains a section (Article VI, paragraph 3), which Laclede
and VNG have referred to as the "Pricing Cap Provision." The Pricing Cap
Provision delineates a method pursuant to which the "Contract Year" total
aggregate price paid by Laclede to VNG is limited to the cost Laclede
". . . would have incurred during the same period had all Base Volumes been
purchased from MRT under its Rate Schedule CD-1." The initials MRT refer to
Mississippi River Transmission Corporation which is an interstate pipeline
company that delivers gas to Laclede.
On November 1, 1993 MRT revised its interstate pipeline tariff pursuant to
Federal Energy Regulatory Commission Order No. 636 ("FERC Order 636"). The
revised tariff does not reflect an "MRT Rate CD-1." FERC Order 636
prohibits an interstate natural gas pipeline from establishing or charging a
rate in the nature of the MRT Rate CD-1, which was a "bundled rate."
Laclede and VNG have asserted differing opinions about the effect of FERC
Order 636 on the Pricing Cap Provision. VNG has asserted that the
prohibition of a "bundled rate" has removed the MRT Rate CD-1 and therefore
the Pricing Cap Provision no longer is applicable. Laclede has asserted
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the Pricing Cap Provision is still applicable, however that a "restructured"
Pricing Cap must be applied. Laclede and VNG also differ on their
respective obligations under the Agreement (Article VI, paragraph 6)
regarding transportation under the Agreement on and after November 1, 1996.
Throughout the course of such disputes, assertions have arisen as to other
claims or causes of action related to the Subject Matter.
In consideration of the mutual promises and other considerations stated
herein, Laclede and VNG have agreed to settle their Pricing Cap Provision
dispute and other present disputes, claims or causes of action of any kind
in any way related to the Subject Matter in accordance with the following
terms and conditions:
1. This Settlement Letter is specifically contingent upon the
"Closing" of the Missouri Pipeline Company and Missouri Gas Company
asset sale to Utilicorp United, Inc., as addressed in Missouri
Public Service Commission Case No. GM-94-252, in which Laclede is
an Intervenor (the "Closing"). In the event the Closing does not
occur on or before 5:00 P.M., C.S.T., January 31, 1995, then this
Settlement Letter shall be deemed null and void and neither VNG nor
Laclede shall be bound by the terms and conditions set forth
herein.
2. As final and total settlement of VNG's refund obligation under the
Agreement through October 31, 1994, VNG agrees to pay Laclede and
Laclede agrees to accept $2,410,000 (the "Settlement Payment").
The Settlement Payment shall be paid by wire transfer to be
received by Laclede within one business day after the date of
"Closing".
3. Effective November 1, 1994, Article VI of the Agreement shall be
revised as follows:
a) Amend paragraph 3 to limit VNG's refund obligations for the
contract years beginning November 1, 1994 and November 1, 1995 to $2.1
million and $2.0 million respectively.
b) Amend paragraph 3 to provide that the calculation and comparison of
costs required by such paragraph 3 shall be made comparing:
(i) Laclede's actual gas costs for delivery of gas from the MRT
system, calculated in accordance with the method reflected in
Amended Schedule II (which is attached and replaces Schedule II
attached to the Agreement);
with
(ii) the annual calculation of Seller's charges to Buyer
calculated in accordance with Schedule I attached to the
Agreement.
Each contract quarter, Laclede shall be required to provide VNG with
comparison of cost data and such other information as may be reasonably
necessary for VNG to ascertain the then current status of any refund
exposure. Upon reasonable notice, and no more than once a year, VNG
shall have the right to audit reasonably Laclede's records to verify
the accuracy of data supporting the comparison calculations, including,
but not limited to, gas purchase costs and MRT pipeline statements.
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Such audit right may be exercised only by VNG utilizing a third party
mutually agreeable to VNG and Laclede. Any costs related to such
audit will be borne by VNG.
c) Amend paragraph 3 to provide that refunds for contract years
beginning November 1, 1994 and November 1, 1995 shall be accomplished
by the application of an invoice credit, equal to the total refund due
for the contract year, to the invoices presented to Laclede by VNG for
October 1995 and October 1996 deliveries, respectively. Paragraph 3
shall be further amended to provide that Laclede shall have the right
to set off any such refunds against amounts due on any invoices
received by Laclede under the Agreement in the event VNG violates the
Agreement, ceases to be engaged in the natural gas marketing business,
is placed into a judicially administered receivership, files for
bankruptcy, or is determined to be bankrupt by a Court of competent
jurisdiction at any time before the invoice for October, 1996 becomes
due and payable.
d) Amend paragraph 1 to reflect Laclede's agreement to pay VNG 2.0
cents per MMBtu in addition to the charges set forth in such
paragraph. The additional fee shall become effective November 1,
1994. Such additional charges shall not be included in the
calculation and comparison of costs required by Article VI, paragraph
3, but will be included in VNG's monthly invoice to Laclede.
e) Amend paragraph 6 to provide that in the event the parties are,
for any reason whatsoever, unable to agree on price redetermination
within the period specified therein, Laclede shall have no further
purchase or transportation obligations under the Agreement on or after
November 1, 1996, and VNG shall have no further sales or
transportation obligations to Laclede under the Agreement on or after
November 1, 1996.
4. VNG commits to Laclede: (a) that VNG's firm transportation on
Missouri Pipeline Company through October 31, 1996 is to be provided
at rates no greater than those reflected in the tariffs filed with the
Missouri Public Service Commission as of November 1, 1994; and (b)
that through October 31, 1996, VNG's transportation service on
Panhandle Eastern Pipe Line Company ("PEPL") is to be provided under
PEPL's Rate Schedule EFT. During such time, Laclede's charges for
base volumes under the Agreement attributable to Panhandle services
shall not exceed $7.7 million annually, including surcharges and
exclusive of fuel. If the rates billed VNG by Panhandle result in
total charges of less than $7.7 million for base volumes, VNG will
reduce the rates billed Laclede to reflect the lower total charges, as
required by the existing Agreement.
5. Laclede agrees not to seek judicial review of the Missouri Public
Service Commission's October 12, 1994 Report and Order in Case No. GM-
94-252 if the Closing occurs as provided for in paragraph number 1
hereof and the payment of $2,410,000 is received by Laclede in
accordance with paragraph 2 hereof. Until such time as the Closing
occurs and the Settlement Payment has been received by Laclede,
Laclede may proceed with such filings and/or procedural actions,
including administrative rehearing and judicial review, as are
necessary to protect its previously asserted legal positions. In the
event such
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filings are made, Laclede agrees to withdraw the same and to seek
termination of the proceedings upon receipt of the Settlement
Payment.
6. This Settlement Letter is a compromise and settlement of all
present disputes, claims or causes of action between VNG and Laclede
related to the entire Subject Matter. It is not intended to be, nor
shall it be construed as, an admission on the part of either party
that its respective interpretations were or are incorrect, or
otherwise an admission of liability regarding any dispute, claim or
cause of action between them related to the Subject Matter.
7. The Agreement shall be amended as specifically set forth in this
Settlement Letter. All other provisions of the Agreement shall remain
in full force and effect.
8. Laclede, VNG, and their respective successors and assigns, shall
be bound by this letter unless and until it is expressly superseded by
a more formal amendment to the Agreement, and any provisions of this
Settlement Letter not expressly superseded by such formal amendment to
the Agreement shall survive.
Please indicate VNG's agreement with the above by signing this letter on the
line below.
VESTA NATURAL GAS COMPANY LACLEDE GAS COMPANY
By: DAVID J. TUDOR By: KENNETH J. NEISES
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David J. Tudor Kenneth J. Neises
Executive Vice President Senior Vice President
Federal Regulatory Affairs
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