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EXHIBIT 10.02
ELECTRIC SERVICE AGREEMENT
BETWEEN
EASTALCO ALUMINUM COMPANY
AND
THE POTOMAC EDISON COMPANY
---------------------------------
DATED NOVEMBER 11, 1994
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ELECTRIC SERVICE AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS ......................................................... 1
2. TERM OF AGREEMENT..................................................... 1
3. SALE AND PRICE OF SYSTEM CAPACITY..................................... 2
3.1. SALE OF SYSTEM CAPACITY ......................................... 2
3.2. PRICE OF SYSTEM CAPACITY ........................................ 2
3.2.1. CAPACITY CHARGE .......................................... 2
3.2.2. BILLING CAPACITY ......................................... 2
3.3. REACTIVE KILOVOLT-AMPERE CHARGE ................................. 3
3.4. UNDERMODULATION CHARGE .......................................... 4
3.4.1. DETERMINATION OF UNDERMODULATION CHARGE .................. 4
3.4.2. DETERMINATION OF LOAD MODULATION ......................... 4
3.4.3. BILLING OF UNDERMODULATION CHARGE ........................ 4
4. SALE AND PRICE OF ENERGY ............................................. 4
4.1. SALE OF CONTRACT ENERGY ......................................... 4
4.2. SYSTEM ENERGY ................................................... 4
4.2.1. DEFINITION OF SYSTEM ENERGY .............................. 4
4.2.2. PRICE OF SYSTEM ENERGY ................................... 5
4.2.3. OTHER ENERGY RATE COMPONENTS ............................. 5
4.3. PRICE OF OFF-SYSTEM ENERGY ...................................... 6
4.4. PROFIT SHARING SURCHARGE ........................................ 6
4.4.1. PROFIT SHARING RATE ...................................... 6
4.4.2. MAXIMUM PROFIT SHARING RATE .............................. 6
4.4.3. LOWER TRIGGER PRICE ...................................... 6
4.4.4. UPPER TRIGGER PRICE ...................................... 7
5. MINIMUM LOAD CHARGE .................................................. 7
6. SALE OF IDLE CAPACITY ................................................ 8
7. LOAD REDUCTION PERIOD ................................................ 8
7.1. DEFINITION OF LOAD REDUCTION PERIOD ............................. 8
7.2. NOTICE OF REDUCE LOAD ........................................... 9
7.3 OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD ......... 9
8. POTENTIAL PEAK HOURS ................................................. 9
8.1. DEFINITION OF POTENTIAL PEAK HOURS .............................. 9
8.2. NOTICE OF POTENTIAL PEAK HOURS .................................. 10
8.3. LOAD MODULATION ................................................. 10
9. EMERGENCIES .......................................................... 10
9.1. GENERAL EMERGENCIES .................................................. 10
9.1.1. EMERGENCY OPERATIONS .......................................... 10
9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY ................ 11
9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES .............. 11
9.1.4. RESTORATION TO NORMAL OPERATIONS .............................. 11
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9.2. FIRM LOAD EMERGENCY ........................................... 11
9.2.1. DEFINITION OF FIRM LOAD EMERGENCY ...................... 11
9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY ..................... 12
9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES .... 12
9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM
ENERGY ................................................. 12
10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES .. 12
10.1. OBLIGATION OF POTOMAC ......................................... 12
10.2. PRICING ....................................................... 13
10.3. INSUFFICIENT POWER ............................................ 13
11. BILLING ............................................................. 13
11.1. INVOICES AND PAYMENT .......................................... 13
11.2. LETTER OF CREDIT .............................................. 14
11.2.1. TERMS OF LETTER OF CREDIT ............................. 14
11.2.2. PAYMENT OF BILLS ...................................... 14
11.3. LATE PAYMENT CHARGES .......................................... 14
11.3.1. LATE PAYMENTS ......................................... 14
12. FORCE MAJEURE ....................................................... 15
12.1. DEFINITION OF FORCE MAJEURE EVENT ............................. 15
12.2. EXCUSE FROM PERFORMANCE ....................................... 15
12.3. NOTICE OF FORCE MAJEURE ....................................... 15
12.4. ELIMINATION OF FORCE MAJEURE .................................. 15
12.5. EXEMPTION DURING FORCE MAJEURE ................................ 15
12.5.1. GENERAL EXEMPTION ..................................... 15
12.5.2. EXEMPTION FOR COAL STRIKE ............................. 16
12.6. ALTERNATIVE POWER DURING FORCE MAJEURE ........................ 16
13. PROVISIONS RELATING TO SERVICE ...................................... 17
13.1. METERING ...................................................... 17
13.1.1. METERING EQUIPMENT .................................... 17
13.1.2. TESTING OF METERS ..................................... 17
13.1.3. INACCURATE METERING ................................... 17
13.2. FACILITIES AND EQUIPMENT ...................................... 18
13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL .................. 18
13.3.1. OWNERSHIP OF FACILITIES ............................... 18
13.3.2. RIGHT OF REMOVAL ...................................... 18
13.4. RIGHTS OF WAY ................................................. 18
13.5. ENTRY OF PREMISES ............................................. 18
13.6. ELECTRICAL REQUIREMENTS ....................................... 19
13.6.1. ELECTRICAL DISTURBANCES ............................... 19
13.6.2. POWER FACTOR .......................................... 19
13.7. RESALE OF POWER ............................................... 19
14. MISCELLANEOUS ....................................................... 19
14.1. JURISDICTION OF REGULATORY AUTHORITIES ........................ 19
14.2. INDEMNIFICATION ............................................... 19
14.2.1. LIABILITY OF THE PARTIES .............................. 19
14.2.2. INDEMNIFICATION BY EASTALCO ........................... 19
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14.2.3. INDEMNIFICATION BY POTOMAC ........................... 20
14.2.4. ATTORNEY'S FEES ...................................... 20
14.2.5. CONSEQUENTIAL DAMAGES ................................ 20
14.3. TERMINATION .................................................. 20
14.3.1. TERMINATION BY EASTALCO .............................. 20
14.3.2. TERMINATION BY POTOMAC ............................... 21
14.4. ASSIGNMENT ................................................... 21
14.5. AMENDMENT .................................................... 21
14.6. ENTIRE AGREEMENT ............................................. 21
14.7. INTERPRETATION ............................................... 22
14.8. GOVERNING LAW ................................................ 22
14.9. NOTICES ...................................................... 22
14.10. SEVERABILITY ................................................. 22
14.11. CONSTRUCTION ................................................. 23
14.12. WAIVER ....................................................... 23
14.13. THIRD PARTY BENEFICIARIES .................................... 23
14.14. COOPERATION OF THE PARTIES ................................... 23
14.15. APPLICATION FOR CHANGE IN RATES .............................. 23
15. DEFINITIONS ......................................................... 23
15.1. "Actual Cost" ................................................ 24
15.2. "Additional Capacity" ........................................ 24
15.3. "Additional Capacity Charge" ................................. 24
15.4. "Allegheny" .................................................. 24
15.5. "Allegheny System" ........................................... 24
15.6. "Alumax" ..................................................... 24
15.7. "Aluminum Price" ............................................. 24
15.8. "Annual Aluminum Price" ...................................... 24
15.9. "Bank" ....................................................... 24
15.10. "Base Energy" ................................................ 24
15.11. "Base Energy Charge" ......................................... 24
15.12. "Bath County Surcharge" ...................................... 24
15.13. "Billing Capacity ............................................ 25
15.14. "Billing Period" ............................................. 25
15.15. "CAA" and "CAAA" ............................................. 25
15.16. "Capacity Charge" ............................................ 25
15.17. "Capacity Revenues" .......................................... 25
15.18. "Contract Energy" ............................................ 25
15.19. "Effective Cost of Power" .................................... 25
15.20. "Effective Date" ............................................. 25
15.21. "Escalated" .................................................. 25
15.22. "Failure of Service" ......................................... 26
15.23. "Firm Load Emergency" ........................................ 26
15.24. "Force Majeure Event" ........................................ 26
15.25. "General Emergency" .......................................... 26
15.26. "Incremental Energy" ......................................... 26
15.27. "Incremental Energy Charge" .................................. 26
15.28. "Load Modulation" ............................................ 26
15.29. "Load Reduction Period" ...................................... 26
15.30. "Lower Trigger Price" ........................................ 26
15.31. "Material Modification" ...................................... 26
15.32. "Maximum Demand" ............................................. 27
15.33. "Maximum Instantaneous Demand" ............................... 27
15.34. "Maximum Profit Sharing Rate" ................................ 27
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15.35. "Meters" ..................................................... 27
15.36. "Minimum Load" ............................................... 27
15.37. "Minimum Load Charge" ........................................ 27
15.38. "Monthly Peak" ............................................... 27
15.39. "Off-System Capacity" ........................................ 27
15.40. "Off-System Energy" .......................................... 27
15.41. "Off-System Power" ........................................... 27
15.42. "Operating Flexibility" ...................................... 27
15.43. "Payment Month" .............................................. 28
15.44. "Point of Delivery" .......................................... 28
15.45. "Potential Peak Hours" ....................................... 28
15.46. "Price Deflator Index" ....................................... 28
15.47. "Profit Sharing Rate" ........................................ 29
15.48. "Profit Sharing Surcharge" ................................... 29
15.49. "Reactive Kilovolt-Ampere Capacity" .......................... 29
15.50. "Reactive Kilovolt-Ampere Charge" ............................ 29
15.51. "Recovery Period" ............................................ 29
15.52. "Sabotage" ................................................... 29
15.53. "Schedule PP Customers" ...................................... 29
15.54. "Spring/Fall Months" ......................................... 29
15.55. "Strikes" .................................................... 29
15.56. "Summer Months" .............................................. 29
15.57. "System Capacity" ............................................ 29
15.58. "System Demand" .............................................. 30
15.59. "System Energy" .............................................. 30
15.60. "Undermodulation Charge" ..................................... 30
15.61. "Upper Trigger Price" ........................................ 30
15.62. "Winter Months" .............................................. 30
SIGNATURE PAGE ........................................................... 30
SCHEDULE A
EFFECTIVE COST OF POWER CALCULATION
SCHEDULE B
BASE RATE REVENUE CALCULATION
SCHEDULE C
SURVEY OF CURRENT BUSINESS
SCHEDULE D (with Exhibit A)
STIPULATION REGARDING THE ESTABLISHMENT OF RATES UNDER THE POWER CONTRACT
BETWEEN POTOMAC EDISON AND EASTALCO
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ELECTRIC SERVICE AGREEMENT
This AGREEMENT made this 11th day of November, 1994, between EASTALCO
ALUMINUM COMPANY, a Delaware corporation and a wholly-owned subsidiary of Alumax
Inc. ("Eastalco") and THE POTOMAC EDISON COMPANY, a Maryland and Virginia
corporation and a wholly-owned subsidiary of Allegheny Power System, Inc.
("Potomac").
RECITALS
1. Potomac is a public utility engaged in the production, transmission,
distribution and sale of electric power and energy in Maryland.
2. Eastalco operates an aluminum reduction facility near Buckeystown Station,
Frederick County, Maryland.
3. Eastalco has purchased electric power and energy for such facility from
Potomac since March 1, 1970 under the terms of electric service agreements, the
most recent of which is dated February 25, 1993, (the "Existing Agreement"). The
Existing Agreement is subject to termination on March 1, 1995 upon 24 months
prior written notice.
4. Potomac desires to continue selling power and energy to Eastalco, and
Eastalco desires to continue purchasing power and energy from Potomac under the
terms of this Agreement after March 1, 1995.
1. DEFINITIONS.
In addition to the terms defined above, the terms capitalized below, which
are not defined below, shall have the meaning set forth in Paragraph 15.
2. TERM OF AGREEMENT.
This Agreement shall become effective upon approval by the Maryland Public
Service Commission. The initial term of this Agreement shall be for a period of
seven years commencing on the Effective Date of April 1, 1993. This Agreement
shall be renewed automatically for a first subsequent term of eighteen months
which would expire September 30, 2001, unless either party gives written notice
of cancellation prior to April 1, 1998. Thereafter, this Agreement shall be
renewed automatically for additional subsequent terms of one year each, unless
either party gives written notice of cancellation at least thirty months prior
to the expiration of any subsequent term.
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3. SALE AND PRICE OF SYSTEM CAPACITY.
3.1. SALE OF SYSTEM CAPACITY.
Potomac shall make available to Eastalco the following number of
kilowatts of System Capacity:
3.1.1. 210,000 kilowatts during Load Reduction Periods of the Summer
Months and Winter Months,
3.1.2. 310,000 kilowatts during Monthly Peak hours of the
Spring/Fall Months,
3.1.3. 350,000 kilowatts during all other hours.
3.2. PRICE OF SYSTEM CAPACITY.
3.2.1. CAPACITY CHARGE.
3.2.1.1. The Capacity Charge effective July 1, 1993 shall be
$10.24 per kilowatt per month. The Capacity Charge consists of a base rate. Any
change in the base rate or any additional charges or surcharges determined by
the Maryland Public Service Commission to be applicable to Eastalco after
December 31, 1987 and not included in Sub-Paragraph 4.2.3. hereof shall be
reflected by Potomac in this Capacity Charge, and shall be subject to the
provisions of Sub-Paragraph 14.3.1. The Capacity Charge shall be applied to all
kilowatts of System Demand.
3.2.l.2. An Additional Capacity Charge of $2.00 per kilowatt
shall be added to the Capacity Charge and this sum shall be applied to
Additional Capacity in excess of System Demand. Additional Capacity shall mean
all Billing Capacity kilowatts determined to be in excess of System Demand as
the result of the application of Sub-Paragraphs 3.2.2.1.2 through 3.2.2.1.5. or
Sub-Paragraphs 3.2.2.2.2. through 3.2.2.2.6. below, except that no Additional
Capacity Charge shall be payable for kilowatts in excess of System Demand if
that Additional Capacity results from the application of Sub-Paragraphs
3.2.2.1.5. or 3.2.2.2.6. when triggered by Sub-Paragraphs 3.2.2.1.1. or
3.2.2.2.1. Also the Additional Capacity Charge shall not apply in any Billing
Period during which no electrolysis occurs and no molten metal is produced in
Eastalco's potlines.
3.2.2. BILLING CAPACITY.
Billing Capacity shall be equal to the result of the
following:
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3.2.2.1. For the Summer Months and Winter Months, Billing Capacity
shall be the greatest of:
3.2.2.1.1. The System Demand; or,
3.2.2.1.2. .45 times (the sum of System Energy and Off-System
Energy divided by the number of hours in the Billing Period); or,
3.2.2.1.3. .30 times the Maximum Instantaneous Demand; or,
3.2.2.1.4. 130,000 kilowatts; or,
3.2.2.1.5. The highest result established by the application
of Sub-Paragraphs 3.2.2.1.1. through 3.2.2.1.4. above during (i) the three
preceding Summer Months if the computation of Billing Capacity is being made for
a Summer-Month; or, (ii) the three preceding Winter Months if the computation of
Billing Capacity is being made for a Winter Month.
3.2.2.2. For the Spring/Fall Months, Billing Capacity shall be the
greatest of:
3.2.2.2.1. The System Demand; or,
3.2.2.2.2. .80 times (the sum of System Energy and Off-System
Energy divided by the number of hours in the Billing Period); or,
3.2.2.2.3. .40 times the Maximum Instantaneous Demand; or,
3.2.2.2.4. (System Energy plus Off-System Energy divided by
the number of hours in the Billing Period) less 40,000 kilowatts; or,
3.2.2.2.5. 200,000 kilowatts; or,
3.2.2.2.6. The highest result established by the application
of Sub-Paragraphs 3.2.2.2.1. through 3.2.2.2.5. above during the three preceding
Spring/Fall Months.
3.3. REACTIVE KILOVOLT-AMPERE CHARGE.
The Reactive Kilovolt-Ampere Charge shall be the price payable for
reactive kilovolt-amperes and shall be equal to the result of the following
formula:
$0.15 x (Reactive Kilovolt-Ampere Capacity -
25% of Billing Capacity)
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3.4. UNDERMODULATION CHARGE.
3.4.1. DETERMINATION OF UNDERMODULATION CHARGE.
If Eastalco fails to modulate its load under Sub-Paragraph
8.3 by at least an average of 65,000 kilowatts at the time of Potomac's Monthly
Peak during the Spring/Fall Months, it shall pay an Undermodulation Charge of
$5.00 per kilowatt for each kilowatt by which the total number of kilowatts of
such modulation by Eastalco in the Spring/Fall Months of each calendar year is
less than the product of 65,000 times the number of Spring/Fall Months in the
calendar year for which the calculation is made. The Undermodulation Charge
shall not apply to the Summer Months and Winter Months.
3.4.2. DETERMINATION OF LOAD MODULATION.
The amount of Load Modulation for a Spring/Fall Month shall
be equal to the difference between: (i) the sum of Eastalco's System Demand and
any Off-System Capacity purchased during the hour of the System Demand for such
month; and (ii) the sum of System Energy and Off-System Energy for such month
divided by the number of hours in the Billing Period; provided, however, that
for purposes of this Sub-Paragraph 3.4, (a) if System Demand during a
Spring/Fall Month is 200,000 kilowatts or less, the amount of Load Modulation
shall not be less than 65,000 kilowatts; and, (b) the amount of Load Modulation
in any Spring/Fall Month shall not be less than 40,000 kilowatts.
3.4.3. BILLING OF UNDERMODULATION CHARGE.
The billing of the Undermodulation Charge shall be determined
annually and shall be billed on the December Billing Period invoice for each
calendar year during the term hereof, or on the final invoice upon termination
of this Agreement.
4. SALE AND PRICE OF ENERGY.
4.1. SALE OF CONTRACT ENERGY.
The Eastalco facility requires an average of 310,000 kilowatt-hours
per hour in order to operate at full production. Potomac shall make available
System Energy and, in accordance with Sub-Paragraph 10.1, shall use its best
efforts to make available sufficient Off-System Energy so that the combined
availability of System Energy plus Off-System Energy averages 310,000
kilowatt-hours per hour, which shall be the Contract Energy.
4.2. SYSTEM ENERGY.
4.2.1. DEFINITION OF SYSTEM ENERGY.
For purposes of this Agreement, System Energy shall mean the
kilowatt-hours recorded during the Billing Period
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on the Meters as delivered to Eastalco, less any Off-System Energy purchased
during the Billing Period. System Energy shall be comprised of Base Energy and
Incremental Energy defined as follows:
4.2.1.1. Base Energy shall be the lesser of:
4.2.1.1.1. The System Energy; or,
4.2.1.1.2. The product of the Billing Capacity and the
number of hours in the Billing Period.
4.2.1.2. Incremental Energy shall be the amount of System Energy
in excess of the Base Energy, if any.
4.2.2. PRICE OF SYSTEM ENERGY.
The price payable for System Energy shall be the sum of:
4.2.2.1. The Base Energy multiplied by the Base Energy Charge
which shall mean the rate payable pursuant to Potomac's fuel rate (or any cost
recovery method which may take its place) then in effect as approved by the
Maryland Public Service Commission, and adjusted for applicable siting charges;
plus,
4.2.2.2. The Incremental Energy multiplied by the Incremental
Energy Charge which shall mean the greater of: (i) the hourly incremental Actual
Cost of energy to Potomac, before sales to non-affiliated utilities, incurred
during the hours of Incremental Energy use during the Billing Period, plus l
mill per kilowatt-hour, adjusted for Maryland gross receipts tax and applicable
siting charges, or, (ii) the Base Energy Charge; plus,
4.2.3. OTHER ENERGY RATE COMPONENTS.
If the Maryland Public Service Commission adopts a rate charge or
adjustment which did not exist on December 31, 1987 that is to be collected on a
per kilowatt-hour basis from Potomac's customers, such charge may be applied to
the Base Energy and the Incremental Energy subject to such limits on its
applicability as are adopted by such Commission, except that such charges which
are directly related to the cost of fuel for Potomac may be applied to the Base
Energy only. Examples for purposes of illustration only are the Maryland Energy
Facility Siting Tax, which could be applied to both the Base and Incremental
Energy, and the Deferred Fuel Accounting Surcharge, which could be applied only
to the Base Energy.
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4.3. PRICE OF OFF-SYSTEM ENERGY.
The price payable for Off-System Energy shall be as set forth in
Sub-Paragraph 10.2.
4.4. PROFIT SHARING SURCHARGE.
The Profit Sharing Surcharge shall be the product of the Profit
Sharing Rate and the System Energy.
4.4.1. PROFIT SHARING RATE.
The Profit Sharing Rate shall be equal to the following:
4.4.1.1. If the Aluminum Price is less than or equal to the Lower
Trigger Price, the Profit Sharing Rate shall be zero.
4.4.1.2. If the Aluminum Price is greater than the Lower Trigger
Price and less than the Upper Trigger Price, the Profit Sharing Rate shall be
the product of the Maximum Profit Sharing Rate, calculated to five decimal
places, and the ratio R, where
R equals (Aluminum Price - Lower Tricker Price
---------------------------------------
(Upper Trigger Price - Lower Trigger Price)
4.4.1.3. If the Aluminum Price is equal to or greater than the
Upper Trigger Price, the Profit Sharing Rate shall be the Maximum Profit Sharing
Rate.
4.4.2. The Maximum Profit Sharing Rate initially shall be $0.004
per kilowatt-hour until March 1, 2000. After February 29, 2000 the Maximum
Profit Sharing Rate shall be reviewed in a good faith negotiation. The
adjustment in the Maximum Profit Sharing Rate would reflect the change in price
levels for the types of production plant related to compliance with Phase II of
the CAAA and the relative amount of investment in production plant for
compliance with Phase II as compared to Phase I of the CAAA. The relative amount
of investment would be computed as the ratio of the investment in production
plant for compliance with Phase II of the CAAA to the investment in production
plant for compliance with Phase I of the CAAA, with both investments adjusted to
dollars of the same year using appropriate inflation indices. As an example, if
the change in price levels was twenty percent (20%) and the investment for
compliance with Phase II was one half the investment for compliance with Phase
I, after adjustment for inflation, then the Maximum Profit Sharing Rate would
increase by approximately ten percent (10%).
4.4.3. The Lower Trigger Price initially shall be seventy cents (70.0
(cent)) per pound of aluminum. On March 1, 1995 and each March 1 thereafter, the
Lower Trigger Price shall be re-
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established to the nearest tenth of a cent as the result of the following
formula:
Lower Trigger Price = 70.0(cent) x 1/2 x (Price Ratio +
Escalation Ratio)
where
4.4.3.1. The Price Ratio is the ratio:
Annual Aluminum Price for the most recent calendar year)
--------------------------------------------------------
(Annual Aluminum Price for calendar year 1993)
4.4.3.2. The Escalation Ratio is the ratio:
(Price Deflator Index for the fourth quarter of the most
recent calendar Year)
--------------------------------------------------------
(Price Deflator Index for the fourth quarter of 1993)
4.4.4. The Upper Trigger Price initially shall be one hundred twenty
cents (120.0(cent)) per pound of aluminum. On March 1, 1995 and each March 1
thereafter, the Upper Trigger Price shall be re-established to the nearest tenth
of a cent as the result of the following formula:
Upper Trigger Price = 120.0(cent) x 1/2 x (Price Ratio +
Escalation Ratio)
5. MINIMUM LOAD CHARGE.
In addition to the amounts payable under Paragraphs 3 and 4, if the sum of
the System Energy and Off-System Energy used in a Billing Period is less than
the Minimum Load, Eastalco shall pay a Minimum Load Charge for System Power,
which shall be equal to
5.1. the lesser of:
5.1.1. 21,900,000 kilowatt-hours, or,
5.1.2. the difference between:
5.1.2.1. the Minimum Load, less,
5.1.2.2. the sum of the System Energy and Off-System Energy
purchased by Eastalco,
5.2. multiplied by the quotient of (i) the sum of the amount payable for
Base Energy in accordance with Sub-Paragraph 4.2.2.1. and the amount payable for
Incremental Energy in accordance with Sub-Paragraph 4.2.2.2. divided by (ii) the
number of kilowatt-hours of System Energy.
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5.3. Paragraph 5 shall not apply in any Billing Period during which no
electrolysis occurs and no molten metal is produced in Eastalco's potlines.
6. SALE OF IDLE CAPACITY.
When Eastalco's Maximum Demand is expected to be below 240,000 kilowatts,
Eastalco may give notice to Potomac that for a specified period, Eastalco will
not use all or a portion of the System Capacity below 240,000 kilowatts. The
period specified shall be at least one week and the amount of System Capacity
specified shall be at least 10,000 kilowatts. Potomac will use its best efforts
to sell such System Capacity for the period specified in the notice; provided,
that such sale would not interfere with potential sales of capacity by Potomac
or Allegheny that could have been made if Eastalco was using suchSystem
Capacity. Eastalco will receive a credit not to exceed $500,000 per calendar
month for the proceeds of any sale by Potomac equal to the lesser of:
6.1. 90% of the Capacity Revenues from such sale; or,
6.2. In the Winter Months and Summer Months, an amount equal to the sum of:
(i) 130,000 kilowatts less the Maximum Demand (if that difference is greater
than zero) times the Capacity Charge, and (ii) the Minimum Load Charge; or,
6.3. In the Spring/Fall Months, an amount equal to the sum of: (i) 200,000
kilowatts less the Maximum Demand (if that difference is greater than zero)
times the Capacity Charge, and (ii) the Minimum Load Charge.
7. LOAD REDUCTION PERIOD.
7.1. DEFINITION OF LOAD REDUCTION PERIOD.
Potomac may designate as a Load Reduction Period between one and
eighteen hours during any day of the Summer Months or Winter Months that Potomac
reasonably believes will be the day that Potomac's monthly maximum demand will
occur; provided that the total number of Load Reduction Period hours shall not
exceed (i) 850 hours during the twelve month period commencing October 1, 1990
and ending September 30, 1991 or any 12 month period thereafter, during the term
of this Agreement, which commences on October 1 of a calendar year and ends on
September 30 of the succeeding calendar year, or (ii) upon notice of the
termination of this Agreement, the sum of 170 hours times the number of Winter
Months and 85 hours times the number of Summer Months from the September 30
immediately preceding termination to the date of termination.
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7.2. NOTICE TO REDUCE LOAD.
Preliminary notice of a Load Reduction Period shall be given by Potomac to
Eastalco no later than 4:00 P.M. of the day preceding the Load Reduction Period.
A confirmation of the occurrence of a Load Reduction Period will be given no
later than 6:00 A.M. of the day of a Load Reduction Period occurring during the
Winter Months and 8:00 A.M. of the day of a Load Reduction Period occurring in
the Summer Months. Notwithstanding the foregoing, and subject to the limitations
set forth in SubParagraph 7.1., Potomac may extend an existing Load Reduction
Period or designate a new Load Reduction Period after 6:00 A.M. in the Winter
Months or after 8:00 A.M. in the Summer Months upon as much notice to Eastalco
as is reasonably practicable. The parties may agree mutually in writing to a
change in the time by which a confirmation of the occurrence of a Load Reduction
Period must be given.
7.3. OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD.
Potomac will use its best efforts to limit the duration and frequency of
any Load Reduction Period hours while not unreasonably increasing the risk that
Potomac's monthly maximum demand will occur outside a Load Reduction Period. If
subsequent to the designation of a Load Reduction Period: (i) Potomac's load
does not materialize for the Load Reduction Period day so that Potomac no longer
reasonably believes that one or more hours of the Load Reduction Period will be
the hour(s) in which Potomac's monthly maximum demand will occur; and, (ii)
there are no abnormal operating conditions on Potomac's system which require
retention of such hours in the Load Reduction Period, Potomac shall remove as
many hours as possible from the Load Reduction Period and give Eastalco prompt
notice thereof; provided, however, that Eastalco may elect to retain such hours
in the Load Reduction Period if it already has incurred any costs for such hours
in connection with Off-System Power that would not be avoided or refunded if
such hours are not retained in the Load Reduction Period.
8. POTENTIAL PEAK HOURS.
8.1. DEFINITION OF POTENTIAL PEAK HOURS.
Potomac may designate as Potential Peak Hours either one or two
periods of between one and eight consecutive hours during any day of the term
hereof that Potomac reasonably believes will be the day that Potomac's monthly
maximum demand
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will occur; provided that (i) the total number of Potential Peak Hours shall not
exceed 8 in any calendar day, (ii) no Potential Peak Hours may be designated on
Sunday, and (iii) during the Summer Months and Winter Months, Potential Peak
Hours shall be designated only within Load Reduction Periods.
8.2. NOTICE OF POTENTIAL PEAK HOURS.
Preliminary notice of Potential Peak Hours shall be given by Potomac
no later than 4:00 P.M. of the day preceding the Potential Peak Hours. Notice of
Potential Peak Hours and a confirmation of the occurrence of the Potential Peak
Hours shall be given no later than 6:00 A.M. of the day the Potential Peak Hours
are to occur in the Winter Months and no later than 8:00 A.M. of the day the
Potential Peak Hours are to occur during all other months. Notwithstanding the
foregoing, and subject to the limitations set forth in Sub-Paragraph 8.1.,
Potomac may extend existing Potential Peak Hours or designate new Potential Peak
Hours after 6:00 A.M. in the Winter Months or after 8:00 A.M. in the Summer
Months upon as much notice to Eastalco as is reasonably practicable. The parties
may agree mutually in writing to a change in the time by which a confirmation of
the occurrence of Potential Peak Hours must be given.
8.3. LOAD MODULATION.
Eastalco will use its best efforts to modulate its load during all
Potential Peak Hours. Load Modulation shall mean a temporary reduction in
Eastalco's plant load in order to assist Potomac in reducing the magnitude of
Potomac's monthly maximum demand. Eastalco agrees to modulate through changes
not exceeding 50 megawatts every ten minutes, unless requested by Potomac to
modulate in larger blocks. Such best efforts obligation shall not obligate
Eastalco, in its opinion, to jeopardize the stability of its plant operations.
Eastalco shall be permitted to make up the energy consumption foregone during
such reduction as soon as practical, subject to the terms of this Agreement and
the ability of Eastalco's facility to make up such energy consumption.
9. EMERGENCIES
9.1. GENERAL EMERGENCIES.
9.1.1. EMERGENCY OPERATIONS
Electric service provided under this Agreement is subject to
interruption at any time in compliance with the provisions of the Potomac Edison
EHV Emergency Voltage Control Program or The Potomac Edison Company/Allegheny
Power System Emergency Operation Plan as in effect and as amended from time to
time, copies of which have been supplied to Eastalco.
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9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY.
With Eastalco's prior consent, Potomac may interrupt up to
400,000 kilowatt-hours of Off-System Power, System Demand and System Energy if
any emergency occurs which Potomac believes is a threat to the overall integrity
of its operating system.
9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES.
Potomac will use its best efforts to limit the duration and
frequency of any emergency described in this Sub-Paragraph 9.1. and to give
Eastalco as much advance notice as possible of the occurrence of any such
emergency. In the event of an emergency under this Sub-Paragraph 9.1., Potomac
will use its best efforts to interrupt service only to Eastalco's potlines and
continue uninterrupted service to Eastalco's auxiliary equipment. If possible,
Potomac shall give Eastalco the opportunity to reduce its load prior to any such
interruption.
9.1.4. RESTORATION TO NORMAL OPERATIONS.
In the event of any emergency under this Sub-Paragraph 9.1.,
a Recovery Period shall be established for the lesser of (i) 48 hours, or (ii)
48 hours multiplied by the ratio of (a) the number of kilowatt-hours by which
Eastalco's load since the 7:00 AM immediately preceding the beginning of the
emergency is less than the product of its average load for the preceding week
multiplied by the number of hours from the 7:00 AM immediately preceding the
beginning of the emergency to the cessation of the emergency, to (b) 800,000
kilowatt-hours. In order to provide Eastalco an opportunity to attempt to
restore the stability of its operations after an emergency, Potomac shall not
declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it
declare another emergency under Sub-Paragraph 9.1.2. or 9.2; however, Potomac
may declare Load Reduction Periods that include hours in a Recovery Period.
Potomac and Eastalco shall cooperate to the extent possible to restore normal
operations, and as part of such cooperation, Eastalco shall inform Potomac of
the amounts and timing of its proposed increases in load during the Recovery
Period, and Potomac shall use its best efforts to supply Eastalco with the
service requested. Potomac may also request that Eastalco reduce load during a
Recovery Period and Eastalco will comply with such request if, in Eastalco's
opinion, the stability of its plant operations will not be jeopardized.
9.2. FIRM LOAD EMERGENCY.
9.2.1. DEFINITION OF FIRM LOAD EMERGENCY.
Potomac shall have the right to require Eastalco to reduce
purchases of System Capacity and System Energy hereunder for a Firm Load
Emergency which shall mean a mechanical
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breakdown, failure or operating condition in the Allegheny System generation or
transmission system that makes it necessary for Eastalco to reduce purchases of
System Capacity and System Energy in order for Potomac to meet its obligations
to its firm power Customers.
9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY.
Potomac may designate a Firm Load Emergency at any time
during the term of this Agreement that Eastalco is not purchasing Off-System
Power.
9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES.
Potomac will use its best efforts to limit the duration and
frequency of any Firm Load Emergencies. If subsequent to the designation of a
Firm Load Emergency, Potomac's operating conditions change so that continuance
of the Firm Load Emergency no longer is reasonably required, Potomac shall give
Eastalco prompt notice of ability to resume purchasing System Capacity and
System Energy; provided, however, that Eastalco may elect to continue purchasing
Off-System Capacity and Off-System Energy if, for this occurrence, it already
has incurred any costs in connection with such purchases not yet delivered,
which would not be avoided or refunded if Eastalco elects to resume purchasing
System Capacity and System Energy.
9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM
ENERGY.
Notice of a Firm Load Emergency shall be given by Potomac no
later than 30 minutes prior to the commencement of the Firm Load Emergency.
10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES.
Eastalco shall use its best efforts to reduce its load to a level of
not more than 200,000 kilowatt-hours per hour and maintain its load at such
level for the duration of any Load Reduction Period or Firm Load Emergency. Such
best efforts obligation shall not obligate Eastalco, in its opinion, to
jeopardize the stability of its plant operations.
10.1. OBLIGATION OF POTOMAC.
During a Load Reduction Period or a Firm Load Emergency, Potomac
shall purchase and deliver to Eastalco Off-System Power in accordance with the
following provisions, if requested to do so by Eastalco and if Off-System Power
is available, and can be delivered, from other sources not then committed to
serve Potomac's load or pass-through obligations. Potomac agrees to use its best
efforts to furnish Eastalco the amount of Off-System Power requested by Eastalco
to replace up to 100,000 kilowatt-hours per hour of the difference between
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Eastalco's average load of the previous week and 200,000 kilowatt-hours per
hour.
10.2. PRICING.
Potomac agrees to furnish Eastalco with the least cost
Off-System Power available. The price payable by Eastalco for Off-System Power
during Load Reduction Periods shall be the Actual Cost to Potomac plus 2 mills
per kilowatt-hour. The price payable by Eastalco for Off-System Power during a
Firm Load Emergency shall be Potomac's Actual Cost. The price in either event
shall include gross receipts tax, if applicable. Potomac shall furnish Eastalco
with an estimate of such price at the same time it gives notice of a Load
Reduction Period under Sub-Paragraph 7.2 or a Firm Load Emergency under
Sub-Paragraph 9.2.4.
10.3. INSUFFICIENT POWER.
If the amount of Off-System Power delivered to Eastalco during a
Firm Load Emergency in accordance with SubParagraph 9.2. is less than the amount
requested by Eastalco under Sub-Paragraph 10.1., and Eastalco reduced its load
at least to the level requested by Potomac, then a Recovery Period shall be
established for the lesser of (i) 20 hours, or (ii) 20 hours times the quotient
of the difference between the kilowatt-hours of Off-System Power requested by
Eastalco and the kilowatt-hours of Off-System Power delivered to Eastalco,
divided by 200,000 kilowatt-hours. In order to provide Eastalco an opportunity
to attempt to restore the stability of its operations after an emergency,
Potomac shall not declare any hour in a Recovery Period to be a Potential Peak
Hour nor shall it declare another emergency under Sub-Paragraph 9.1.2. or 9.2;
however, Potomac may declare Load Reduction Periods that include hours in a
Recovery Period. Potomac and Eastalco shall cooperate to the extent possible to
restore normal operations, and as part of such cooperation, Eastalco shall
inform Potomac of the amounts and timing of its proposed increases in load
during the Recovery Period, and Potomac shall use its best efforts to supply
Eastalco with the service requested. Potomac may also request that Eastalco
reduce load during a Recovery Period and Eastalco will comply with such request
if, in Eastalco's opinion, the stability of its plant operations will not be
jeopardized.
11. BILLING.
11.1. INVOICES AND PAYMENT.
During the first week of the calendar month succeeding a Billing
Period, Potomac shall provide Eastalco with a bill supported by calculations for
all amounts payable during such Billing Period. Such bill will be due and
payable in accordance with the provisions of this Paragraph 11, on or before the
last business day of the month immediately succeeding the Billing
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Period which shall be the Payment Month. In order not to delay Eastalco's normal
billing, the Incremental Energy Charge will be billed based on estimated
incremental costs. Such estimate will be corrected to reflect actual incremental
costs in the following month's bill. Eastalco will establish and maintain for
the benefit of Potomac during the term of this Agreement at its expense an
irrevocable, stand-by letter of credit as more particularly described below.
During the term hereof, the parties may agree mutually upon an alternative to
the letter of credit described below that would guarantee payment of Eastalco's
bills to Potomac.
11.2. LETTER OF CREDIT.
Eastalco shall maintain at its expense an irrevocable
stand-by letter of credit in favor of Potomac in the amount of $10,000,000 in
order to guarantee payment of amounts due hereunder ("Letter of Credit") at the
Bank, which shall mean a bank that (i) is selected by Eastalco and approved by
Potomac, which approval shall not be withheld unreasonably; and, (ii) is rated
by rating agencies Moodys and Standard & Poors not less than Single A, if a
domestic bank, and not less than Double A if a foreign bank.
11.2.1. TERMS OF LETTER OF CREDIT.
The Letter of Credit shall be payable on presentation and
remain in effect for the term of this Agreement. Eastalco agrees that the Letter
of Credit shall not be encumbered further or made subject to any other lien,
security interest or like instrument.
11.2.2. PAYMENT OF BILLS.
On or before the payment due date described in Sub-Paragraph
11.1, Eastalco shall pay Potomac the amount due and payable. If Eastalco fails
to pay such amount, Potomac shall be entitled to draw on the Letter of Credit.
11.3. LATE PAYMENT CHARGES.
11.3.1. LATE PAYMENTS.
Payments required to be made under Sub-Paragraph 11.1, which
are not received by Potomac on or before the last business day of the month
immediately succeeding the Billing Period shall be subject to the penalty set
forth in the Rules and Regulations of the Potomac Edison Company applicable to
industrial customers filed with and approved by the Maryland Public Service
Commission, currently in effect and as amended from time to time.
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12. FORCE MAJEURE.
12.1. DEFINITION OF FORCE MAJEURE EVENT.
For purposes of this Agreement a Force Majeure Event shall mean
any or all of the following events or occurrences and the effects thereof which
are beyond the reasonable control of the party claiming the occurrence: Acts of
God or the public enemy, flood, earthquake, storm, hurricane, tornado,
lightning, fire, epidemic, war, embargoes, riot, civil disturbances, Strikes,
Sabotage, orders or temporary or permanent injunctions of any duly constituted
court of general jurisdiction or any administrative agency or officer provided
by law; acts of government or any subdivision thereof; Failure of Service, or
any other cause beyond the reasonable control of the party claiming the
occurrence, whether or not similar to the causes or occurrences enumerated
above.
12.2. EXCUSE FROM PEFORMANCE.
If a Force Majeure Event prevents or interrupts either party from
performing any obligation under this Agreement, both parties shall be excused
from performing hereunder to the extent that the Force Majeure Event prevents
such performance and for the period required to restore the affected party's
operations to their condition prior to the occurrence of the Force Majeure
Event.
12.3. NOTICE OF FORCE MAJEURE.
The party affected by a Force Majeure Event shall give prompt
written notice thereof to the other party of the probable extent to which the
affected party will be unable to perform or will be delayed in performing its
obligations hereunder.
12.4. ELIMINATION OF FORCE MAJEURE.
The affected party shall exercise due diligence to eliminate or
remedy the cause and the effects of the Force Majeure Event and to return to
normal operations as quickly as is reasonably possible and shall give the other
party prompt notice when that has been accomplished.
12.5. EXEMPTION DURING FORCE MAJEURE.
12.5.1. GENERAL EXEMPTION.
Each month during the period of the Force Majeure Event
including the period required to restore the affected party's operations to
their condition prior to the occurrence of the Force Majeure Event, Eastalco
shall pay only for power and energy actually furnished and used by it at the
rates set forth herein, and the provisions of this Agreement or of any power
schedule made a part of this Agreement relating to any minimum payment for power
or energy, including without limitation the minimum Billing Capacity and the
minimum load Charge, shall not apply. During the Billing Period that the
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Force Majeure Event occurs and the Billing Period in which Eastalco returns to
normal operations, the minimum Billing Capacity and the Minimum Load Charge
shall not apply for those days of the Billing Period in which the Force Majeure
Event was in effect and the Capacity Charge shall be reduced by the ratio of the
number of days of the Billing Period in which the Force Majeure Event was in
effect to the total number of days of the Billing Period.
12.5.2. EXEMPTION FOR COAL STRIKE.
Notwithstanding the provisions of Sub-Paragraph 12.5.1.,
the payment exemption during a Force Majeure Event shall not be applicable to
any curtailment or interruption in service to Eastalco caused by a coal strike
that prevents Potomac from serving Eastalco's load, when such curtailment or
interruption in service by Potomac occurs pursuant to orders issued by the
Maryland Public Service Commission or other governmental authority that result
in a request for curtailment or interruption of other large industrial customers
or Schedule PP customers of Potomac as well in accordance with the Fuel Shortage
Section of The Potomac Edison Company/Allegheny Power System Emergency Operation
Plan. For purposes of this Agreement, other large industrial customers or
Schedule PP customers of Potomac shall not be considered curtailed or
interrupted if (i) service to such customers is not requested to be curtailed or
interrupted pursuant to such order; or, (ii) any of such other customers
receives a payment exemption from any of its minimum payment obligations for
power or energy during such curtailment or interruption. If service to such
other large industrial customers or Schedule PP customers is restored, but
service to Eastalco either is not restored or, Eastalco is then unable to
operate or receive service as a result of such curtailment or interruption, such
occurrence shall be considered to be a Force Majeure Event to which the billing
exemption set forth in Sub-Paragraph 12.5.1. shall apply during the period
required for Eastalco to restore its facility to full operation, such period
not to exceed eight (8) weeks. During such period Eastalco shall pay the lesser
of: (i) the amount payable under Sub-Paragraph 12.5.1. for power and energy
actually furnished and used by Eastalco plus a Capacity Charge for 30,000
kilowatts of System Demand, or (ii) the amount payable pursuant to Sub-
Paragraphs 3.2., 3.3., 4.2., and 4.3.
12.6. ALTERNATIVE POWER DURING FORCE MAJEURE.
If a Force Majeure Event prevents Potomac from delivering
power and energy hereunder or significantly increases the price of Potomac's
power and Eastalco is capable of receiving power and energy hereunder, Potomac
shall use its best efforts to obtain from third parties and deliver any power
required by Eastalco up to the System Capacity and System Energy then in effect.
The price of such power and energy to Eastalco shall be
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determined in accordance with the provisions of this Agreement or Potomac's
Actual Cost, whichever is greater.
13. PROVISIONS RELATING To SERVICE.
13.1. METERING.
13.1.1. METERING EQUIPMENT.
Deliveries of System Capacity, System Energy and Off-System Power
to Eastalco's substation shall be metered by Potomac at the Point of Delivery.
Meters shall mean metering equipment suitable for billing with a system accuracy
of plus or minus eight tenths of one percent (+ or - 0.8%) which shall be
installed and owned by Potomac and shall be used in determining the quantities
for billing. Eastalco has installed its own metering equipment, at its own cost.
13.1.2. TESTING OF METERS.
Potomac at its own expense shall test its Meters at least once
every year and if requested to do so by Eastalco shall make additional tests or
inspections of such Meters, the expense of which shall be paid by Eastalco,
unless such additional tests or inspections show the Meters to be inaccurate by
more than one half of one percent (0.5%), in which case Potomac shall pay for
such test. Eastalco shall have the right to witness each testing of Potomac's
Meters. Meters found to be defective or inaccurate shall be adjusted, repaired
or replaced by Potomac.
13.1.3. INACCURATE METERING.
If the Meters of Potomac fail to register or if the measurement
made by such Meters during the test varies by more than one half of one percent
(0.5%) from the measurement made by the standard meter used in such testing,
calculated adjustments shall be made correcting the measurements made by the
inaccurate Meters for the actual period during which such inaccurate
measurements were made if such period can be determined, or if not, for the
period immediately preceding the test of the Meters which is equal to one-half
(1/2) the time from date of the immediately preceding test and validation of
accuracy of the Meters or for a period of thirty (30) days, whichever is less.
Should Potomac's Meters fail to register for any period, demand and energy usage
during such period shall be determined by Potomac and Eastalco utilizing
Eastalco's meter readings, adjusted by the normal difference in meter readings
between Eastalco's meters and Potomac's Meters. Should the meters of both
Potomac and Eastalco fail during any period, power and energy usage during such
period shall be determined by computing the number of kilowatts and
kilowatt-hours which are necessary to produce the tons of aluminum actually
produced during such period
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or by any more accurate measure of demand and energy usage acceptable to both
parties.
13.2. FACILITIES AND EQUIPMENT.
The following equipment has been supplied and installed by Potomac,
is owned by Potomac and will be operated and maintained by Potomac:
13.2.1. Two two hundred thirty kilovolt transmission circuits and
related switch gear connecting Potomac's Doubs Substation with Eastalco's
Substation;
13.2.2. Metering, relaying, control and communication equipment
necessary for the operation and protection of Potomac's equipment and billing
under this Agreement.
13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL.
13.3.1. OWNERSHIP OF FACILITIES.
Any and all equipment installed by either party on the
premises of the other party shall be and remain the property of the party owning
and installing such equipment regardless of the manner of attachment to the real
property of the other party.
13.3.2. RIGHT OF REMOVAL.
Upon termination of this Agreement, the owner of the
equipment shall have the right to enter the premises of the other party and,
within a reasonable time and in a reasonable manner, shall remove such equipment
and all concrete and appurtenances relating thereto, and with all due diligence
at the owner's sole cost and expense, repair any damage to the other party's
property and fill all holes caused by such removal.
13.4. RIGHTS OF WAY.
Eastalco agrees to convey to Potomac for the term of this
Agreement and without charge, all easements and other rights of way reasonably
necessary for the operation, maintenance, replacement and removal of facilities
upon, across or within Eastalco's property for the purpose of providing service
under this Agreement, provided, however, that upon the termination of this
Agreement any such easements and rights of way shall revert automatically to
Eastalco.
13.5. ENTRY OF PREMISES.
Potomac shall have the right to enter Eastalco's premises
to read, maintain and test Potomac's Meters, poles, conductors, appurtenances,
and other equipment located thereon provided that the business of Eastalco shall
not be interfered with unreasonably and provided further that such right of
entry shall be restricted to (i) normal office hours, except in the case of an
emergency; (ii) those areas of Eastalco's facility
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where Potomac's equipment is located; and (iii) those employees, agents,
borrowed crews or contractors of Potomac who are necessary and authorized to
perform such work or inspection; provided, however, that no contractor of
Potomac may enter Eastalco's premises without the prior written consent of
Eastalco, which consent shall not be unreasonably withheld.
13.6. ELECTRICAL REQUIREMENTS.
13.6.1. ELECTRICAL DISTURBANCES.
Eastalco shall not deliberately operate any apparatus or
deliberately use System Capacity, System Energy or Off-System Power in any
manner that would be detrimental to Potomac's service to Eastalco or other
customers.
13.6.2. POWER FACTOR.
Eastalco shall not operate its facility with a leading power
factor without Potomac's prior written consent.
13.7. RESALE OF POWER.
System Capacity, System Energy and Off-System Power shall not be
resold hereunder, except as otherwise provided by Paragraph 6.
14. MISCELLANEOUS.
14.1. JURISDICTION OF REGULATORY AUTHORITIES..
This Agreement shall be subject to the approval of the Maryland
Public Service Commission. Service hereunder is subject to the Rules and
Regulations Covering the Supply of Electric Service, and the Rules and
Regulations for Meter and Service Installations that have been filed by Potomac
with the Maryland Public Service Commission, or any other regulatory authority
having jurisdiction over the subject matter hereof.
14.2. INDEMNIFICATION.
14.2.1. LIABILITY OF THE PARTIES.
The electric energy supplied under this Agreement is
supplied on the following express conditions: (i) after it passes the Point of
Delivery, it becomes the property of Eastalco, (ii) prior to the time it passes
the Point of Delivery, it is the property of Potomac, (iii) neither party, its
servants or employees, shall be liable, except in the case of negligence, for
loss, injury, or damage to any person or property whatsoever, resulting directly
or indirectly from the use, misuse, or presence of such electric energy, on the
other party's side of the Point of Delivery.
14.2.2. INDEMNIFICATION BY EASTALCO.
Eastalco shall indemnify and save harmless Potomac
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from all claims, liability and expense arising out of any bodily injury, death,
or damage to property other than any caused by the negligence of Potomac, its
servants or employees, occurring in or about property or facilities owned or
controlled by Eastalco and situated on Eastalco's side of the Point of Delivery,
except that Potomac shall be responsible for all claims of its own employees,
agents and servants under any Worker's Compensation statute or similar law.
14.2.3. INDEMNIFICATION BY POTOMAC.
Potomac shall indemnify and save harmless Eastalco from all
claims, liability and expense arising out of any bodily injury, death, or damage
to property other than any caused by the negligence of Eastalco, its servants or
employees, occurring in or about property or facilities owned or controlled by
Potomac and situated on Potomac's side of the Point of Delivery, except that
Eastalco shall be responsible for all claims of its own employees, agents and
servants under any Worker's Compensation statute or similar law.
14.2.4. ATTORNEY'S FEES.
Without limiting the generality of the foregoing, the indemnifying
party agrees, at the other party's request, to defend any such claim, demand or
the like brought against the other party based on any such failure, injury,
death, loss, destruction or damage, and to pay all costs and expenses including
attorney's fees, in connection with such defense provided that the other party
gives the indemnifying party prompt notice of the nature of such claim or demand
and provides such assistance, at the indemnifying party's costs, in connection
therewith as the indemnifying party reasonably may request. The obligations
hereunder shall survive the termination of this Agreement.
14.2.5. CONSEQUENTIAL DAMAGES.
Nothing in this Sub-Paragraph 14.2. or elsewhere in this Agreement
shall make any party liable for consequential damages or loss of profits.
14.3. TERMINATION.
14.3.1. TERMINATION BY EASTALCO.
This Agreement may be terminated in whole or in part by Eastalco
upon nine months prior written notice, given in accordance with Sub-Paragraph
14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the
Maryland Public Service Commission or any other governmental or regulatory
agency having jurisdiction makes a Material Modification to this Agreement. If
Eastalco expects to terminate this Agreement, it shall give notice thereof
within 28 days of the date of issuance of any decision that would result in a
Material Modification of this Agreement. Eastalco then shall give either a final
notice
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of termination or notice that it does not intend to terminate this Agreement
within 60 days of the date of issuance of any such decision. Upon any such
termination, Eastalco shall have no further liability or obligation whatsoever
to Potomac by reason of or resulting from such termination, except to pay
Potomac for amounts then due hereunder for System Capacity, System Energy and
Off-System Power previously furnished by Potomac hereunder.
14.3.2. TERMINATION BY POTOMAC.
This Agreement may be terminated in whole or in part by Potomac
upon nine months prior written notice, given in accordance with Sub-Paragraph
14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the
Maryland Public Service Commission, Environmental Protection Agency, duly
constituted court, legislature, or any other governmental or regulatory agency
having jurisdiction issues an order or takes any other action which requires
Potomac to incur any material, additional capital or operating costs or
otherwise materially affects Potomac's ability to provide service under the
terms and conditions set forth herein. If Potomac expects to terminate this
Agreement, it shall give notice thereof within 30 days of the date of issuance
of any such order. Potomac then shall give either a final notice of termination
or notice that it does not intend to terminate this Agreement within 60 days of
the date of issuance of any such order. This Agreement may not be terminated by
Potomac under this Sub-Paragraph due to an increase in Potomac's costs
associated with the growth of the Allegheny System loads or other normal
operating circumstances.
14.4. ASSIGNMENT.
Neither party may assign this Agreement or any right or obligation
hereunder without the prior written consent of the other party, provided,
however, that without such consent, Eastalco may assign this Agreement to Alumax
or a joint venture organized for the purpose of operating the Eastalco facility
in which Alumax or Eastalco has an interest of 50% or more. In the event of any
assignment, the assigning party first shall provide to the other party a written
agreement whereby the assignee accepts such assignment and undertakes to be
bound by the terms of this Agreement.
14.5. AMENDMENT.
This Agreement shall not be amended except by a writing duly
executed by Eastalco and Potomac, subject to the approval of any regulatory
agencies having jurisdiction.
14.6. ENTIRE AGREEMENT.
For the purposes herein, the term, "Agreement" shall include this
Agreement and the schedules and other documents to be attached hereto, each of
which shall be incorporated herein for all purposes by this reference. This
Agreement contains all of the terms and conditions agreed upon by the parties
relating to the subject matter of this Agreement and supersedes all prior
21
27
and contemporaneous agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting the subject matter
hereof.
14.7. INTERPRETATION.
In the event of a conflict or inconsistency between the terms of
this Agreement and the Schedules attached hereto, the terms of this Agreement
shall govern.
14.8. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance
with the laws of the State of Maryland.
14.9. NOTICES.
All notices, requests, demands and other communications made in
connection with this Agreement shall be in writing and shall be deemed to have
been duly given on the date of delivery, if delivered to the person identified
below, or three days after mailing if mailed by certified or registered mail,
postage prepaid, return receipt requested, or if sent by receipted private mail
carrier, addressed as follows:
IF TO EASTALCO: Eastalco Aluminum Company
5601 Manor Woods Road
Frederick, Maryland 21701
Attention: Sr. Vice-President, Works
Manager
WITH A COPY TO: Alumax Inc.
400 South El Camino Real
San Mateo, California 94402
Attention: President, Primary
Division
IF TO POTOMAC: The Potomac Edison Company
Downsville Pike
Hagerstown, Maryland 21740
Attention: President
WITH A COPY TO: Allegheny Power System
Cabin Hill
Greensburg, Pennsylvania 15601
Attention: Director, Rates
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this PARAGRAPH.
14.10. SEVERABILITY.
If any provision of this Agreement is held to be unenforceable
for any reason, it shall be adjusted rather than voided, if possible, in order
to achieve the intent of the parties to this Agreement to the full extent
possible. In any
22
28
event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
14.11. CONSTRUCTION .
No provision of this Agreement shall be construed against any
party on the ground that the party or its counsel drafted the provision. The
headings and captions contained herein are for the convenience of the parties
and shall not be deemed to govern the substantive rights and duties of the
parties hereto. When the terms of this Agreement provide for an action to be
made or the existence of a condition to be established based upon the judgment
or determination of either party, such judgment shall be exercised in good
faith, without discrimination, and in accordance with prudent utility practice,
when applicable, and shall not be arbitrary or capricious.
14.12. WAIVER.
No party shall be deemed to have waived any right, power or
privilege under this Agreement or any portion hereof unless such waiver shall
have been duly executed in writing and acknowledged by the party to be charged
with such waiver. The failure of any party hereto to enforce at any time any of
the provisions of this Agreement in no way shall be construed to be waiver of
any such provision, nor in any way to affect the validity of this Agreement or
any part hereof, or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
14.13. THIRD PARTY BENEFICIARIES.
Nothing in this Agreement shall confer any rights upon any person
or entity, which is not a party to this Agreement.
14.14. COOPERATION OF THE PARTIES.
Each party hereto shall use its best good faith efforts to
fulfill all of the conditions set forth in this Agreement over which it has
control or influence. Each party covenants and agrees to cooperate in good faith
to carry out the intent and purposes of this Agreement.
14.15. APPLICATION FOR CHANGE IN RATES.
Subject to the parties' obligations under this Agreement, either
Potomac or Eastalco may apply unilaterally at any time to any regulatory agency
having jurisdiction for a change in the rates to be charged hereunder.
15. DEFINITIONS.
The following terms, whenever capitalized and used herein shall have
the following meanings:
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29
15.1. "Actual Cost" shall mean the cost to Potomac of any capacity or
energy produced or purchased by it for the use of Eastalco, and shall include
line losses and any other costs incurred by Potomac to deliver such capacity or
energy to Eastalco.
15.2. "Additional Capacity" shall have the meaning set forth in Sub-
Paragraph 3.2.1.2.
15.3. "Additional Capacity Charge" shall have the meaning set forth in
Sub-Paragraph 3.2.1.2.
15.4. "Allegheny" shall mean Allegheny Power System, Inc., a Maryland
corporation and the parent corporation of Potomac.
15.5. "Allegheny System" shall mean the service territory of Allegheny
including the customer loads and the distribution, transmission and generating
facilities owned, operated or contracted for the purpose of serving electric
loads in such territory. The service territory of the Allegheny System is
comprised of the service territories of Allegheny's wholly-owned subsidiaries
Potomac, the Monongahela Power Company and the West Penn Power Company.
15.6. "Alumax" shall mean Alumax Inc., a Delaware corporation and the
parent corporation of Eastalco.
15.7. "Aluminum Price" shall mean the average monthly Midwest Market
Price for Aluminum in cents per pound, expressed to the nearest tenth of a cent,
during the preceding month, as published by Metals Week.
15.8. "Annual Aluminum Price" shall mean the average annual Midwest
Market Price for Aluminum in cents per pound, expressed to the nearest tenth of
a cent, during the calendar year as published by Metals Week, but not less than
sixty cents (60.0(cents)) per pound.
15.9. "Bank" shall have the meaning set forth in Sub-Paragraph 11.2.
15.10. "Base Energy" shall have the meaning set forth in Sub-Paragraph
4.2.1.
15.11. "Base Energy Charge" shall have the meaning set forth in Sub-
Paragraph 4.2.2.1.
15.12. "Bath County Surcharge " shall mean the surcharge in effect and
approved by the Maryland Public Service Commission for Allegheny's pumped
storage facility located in Bath County, Virginia.
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30
15.13. "Billing Capacity" shall have the meaning set forth in Sub-
Paragraph 3.2.2.
15.14. "Billing Period" shall mean a calendar month.
15.15. "CAA" and "CAAA" shall mean the Clean Air Act, 42 U.S.C. Section
7401 et seq., and the Clean Air Act Amendment, respectively. The Clean Air Act
Amendment is P. L. 101-549, the amendment to Title IV of the CAA enacted
November 15, 1990. Phase I and Phase II shall have the meanings set forth in the
CAAA.
15.16. "Capacity Charge" shall have the meaning set forth in Sub-
Paragraph 3.2.1.
15.17. "Capacity Revenues" shall mean (i) the amount received from the
purchaser of idle capacity, less the cost of producing the energy delivered,
including unreimbursed losses, or (ii) the amount identified by the parties to
the sale of idle capacity as the price of capacity, if such identified amount
reasonably represents a computation similar to (i) above, or (iii) the increase
in the amount received by Potomac in excess of its costs from any non-affiliated
transaction when such increase is due to Eastalco's idle System Capacity.
15.18. "Contract Energy" shall have the meaning set forth in Sub-
Paragraph 4.1.
15.19. "Effective Cost of Power" shall mean the quotient of (i) the sum
of all charges by Potomac that Eastalco reasonably would have incurred for one
year of operation at an average plant load of 305,000 kilowatts, including the
Capacity Charge, Base Energy Charge, Incremental Energy Charge, Bath County
Surcharge, and Reactive Kilovolt-Ampere Charge, divided by (ii) 305,000 times
the number of hours in the year less 34 million kilowatt-hours. The
calculation of Effective Cost of Power shall be made in accordance with the
formula set forth in Schedule A attached hereto. If any new charges, other than
deferred charges or deferred surcharges, are made applicable to Eastalco by
the Maryland Public Service Commission, the charges shall be included in the
calculation.
15.20. "Effective Date" shall have the meaning set forth in Paragraph 2.
15.21. "Escalated" shall mean multiplying the number to be escalated by
the quotient derived by dividing (i) the Price Deflator Index for the most
immediately available month at the time the decision of the Maryland Public
Service Commission referred to in Sub-Paragraph 14.3.1. is made, by (ii) the
quarterly Price Deflator Index for the fourth quarter of 1987.
25
31
15.22. "Failure of Service" shall mean breakdowns, destruction or
failure of any kind of equipment or facilities of Potomac necessary for
performance hereunder arising from any cause whatsoever, including
transportation delays, reductions, shortages, curtailment or cessation of
supplies, materials, equipment, facilities, labor, transportation or other
factors of production or delays of suppliers.
15.23. "Firm Load Emergency" shall have the meaning set forth in Sub-
Paragraph 9.2.1.
15.24. "Force Majeure Event" shall have the meaning set forth in Sub-
Paragraph 12.1.
15.25. "General Emergency" shall have the meaning set forth in Sub-
Paragraph 9.1.
15.26. "Incremental Energy" shall have the meaning set forth in Sub-
Paragraph 4.2.1.
15.27. "Incremental Energy Charge" shall have the meaning set forth in
Sub-Paragraph 4.2.2.
15.28. "Load Modulation" shall have the meaning set forth in Sub-
Paragraph 8.3 .
15.29. "Load Reduction Period" shall have the meaning set forth in Sub-
Paragraph 7.1.
15.30. "Lower Trigger Price" shall have the meaning set forth in Sub-
Paragraph 4.4.3.
15.31. "Material Modification" shall mean any change to this Agreement
which (i) causes the Effective Cost of Power to Eastalco to be higher than the
Effective Cost of Power that would have occurred if the rate adjustment were
made in accordance with the Stipulation attached hereto as Schedule D; or (ii)
decreases Eastalco's Operating Flexibility from the amount provided under this
Agreement; or (iii) changes in any substantive manner the Force Majeure
provision set forth in Paragraph 12; or (iv) makes any other material change to
this Agreement, which increases Eastalco's business risks, including, without
limitation, Eastalco's costs.
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32
15.32. "Maximum Demand" shall mean the maximum integrated kilowatt
demand over a clock hour recorded on the Meters during a specified period.
15.33. "Maximum Instantaneous Demand" shall mean the maximum
instantaneous kilowatt demand during any clock hour recorded on the Meters
during the Billing Period.
15.34. "Maximum Profit Sharing Rate" shall have the meaning set forth in
Sub-Paragraph 4.4.2.
15.35. "Meters" shall mean the metering equipment more particularly
described in Paragraph 13.
15.36. "Minimum Load" shall mean 240,000 kilowatts times the number of
hours in the Billing Period.
15.37. "Minimum Load Charge" shall have the meaning set forth in
Paragraph 5.
15.38. "Monthly Peak" shall mean the highest integrated clock hour
kilowatt demand on Potomac's system during a Potential Peak Hour of a Billing
Period.
15.39. "Off-System Capacity" shall mean three-phase, three-wire, 230,000
volts (nominal), 60 cycle alternating current electric service furnished by
Potomac under Paragraph 10.
15.40. "Off-System Energy" shall mean the kilowatt-hours associated with
Off-System Capacity.
15.41. "Off-System Power" shall mean the least cost power available to
Potomac after the regular loads of the Allegheny Power System have been
supplied. The regular loads of the Allegheny Power System are the firm and
interruptible loads including suspense account and previously existing OVEC
supplemental power transactions on any of Allegheny's operating companies'
systems.
15.42. "Operating Flexibility" shall mean Eastalco's ability to reduce
its level of operation or modify its operation without incurring charges or
increases in charges for capacity, energy or reactive power except as set forth
in Paragraphs 4 or 5 or Sub-Paragraph 3.2.2. Without limiting the generality of
the foregoing, the following are examples of changes in this Agreement that
would reduce Operating Flexibility:
27
33
15.42.1. Any change to Sub-Paragraph 3.2.2. which increases the Billing
Capacity that would be computed using any of the alternative computations set
forth therein, without regard to whether the specific computation has
established Billing Capacity for any Billing Period during the term of this
Agreement, or is anticipated to establish Billing Capacity for any future
Billing Period;
15.42.2. Any change to Paragraph 5 that would increase the amount that
Eastalco would pay at any level of energy consumption as a result of the
application of Paragraph 5;
15.42.3. Any change to the months included in the Summer Months, Winter
Months or Spring/Fall Months;
15.42.4. Any change to Paragraph 7 or 8 that results in the reduction of
Eastalco's ability to modulate load while maintaining its desired level of
operation;
15.42.5. Any change to Paragraph 6 that results in reducing the recovery
that Eastalco otherwise reasonably could expect to receive under Paragraph 6.
15.43. "Payment Month" shall have the meaning set forth in Sub-Paragraph
11.1.
15.44. "Point of Delivery" shall mean the point at the Eastalco facility
at which Potomac's conductors connect with Eastalco's 230 kilovolt ring bus.
15.45. "Potential Peak Hours" shall have the meaning set forth in Sub-
Paragraph 8.1.
15.46. "Price Deflator Index" shall mean a figure derived from the
Implicit Price Deflator of the Gross National Product (1982 = 100), which is set
forth in the Survey of Current Business, as published and seasonally adjusted by
the Bureau of Economic Analysis of the Department of Commerce. A copy of such
index for the base period of the fourth quarter of 1987 is attached hereto as
Schedule C. From time to time the Bureau of Economic Analysis revises the
Implicit Price Deflator. The revised Implicit Price Deflator as published for
the fourth quarter of 1987 and the current month shall be used to derive the
Price Deflator Index. If the revised Implicit Price Deflator is not published
for the fourth quarter of 1987, then Potomac and Eastalco shall mutually agree
on the appropriate value for the fourth quarter of 1987.
28
34
15.47. "Profit Sharing Rate" shall have the meaning set forth in Sub-
Paragraph 4.4.1.
15.48. "Profit Sharing Surcharge" shall have the meaning set forth in
Sub-Paragraph 4.4.
15.49. "Reactive Kilovolt-Ampere Capacity" shall mean the greatest
reactive kilovolt-ampere demand integrated over a clock hour during the Billing
Period.
15.50. "Reactive Kilovolt-Ampere Charge" shall have the meaning set
forth in Sub-Paragraph 3.3.
15.51. "Recovery Period" shall mean a period commencing at the
cessation of an emergency under Sub-Paragraph 9.1 or 9.2, extending not less
than the number of hours established under the applicable formula set forth in
Sub-Paragraph 9.1.4. or 10.3. and ending at the end of a clock hour.
15.52. "Sabotage" shall mean any act of sabotage except any
intentional damage occurring during a strike at Eastalco's facility (i) to
Eastalco's facility, or (ii) to Potomac's transmission line between Doubs
Substation and Eastalco's facility.
15.53. "Schedule PP Customers" shall mean the customers of Potomac
purchasing power and energy pursuant to Potomac's Schedule PP, as approved by
the Maryland Public Service Commission, or any succeeding schedule that
supersedes and replaces such schedule.
15.54. "Spring/Fall Months" initially shall mean the months of March,
April, May, June, October and November. Beginning January 1, 1994 "Spring/Fall
Months" shall mean the months of April, May, June, September, October and
November.
15.55. "Strikes" shall mean strikes, picketing, lockouts or other
labor disputes or disturbances, including threats of imminent strikes or work
stoppages that reasonably require Potomac to restrict or terminate its
operations or interrupt electric service to Eastalco.
15.56. "Summer Months" initially shall mean the months of July, August
and September. Beginning January l, 1994 "Summer Months" shall mean the months
of July and August.
15.57. "System Capacity" shall mean three-phase, three-wire, 230,000
volts (nominal), 60 cycle alternating current electric service furnished by
Potomac in accordance with Sub-Paragraph 3.1., not including any Off-System
Power.
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35
15.58. "System Demand" shall mean the integrated kilowatt demand
recorded on the Meters during the Monthly Peak, less any Off-System Capacity
purchased during such hour.
15.59. "System Energy" shall have the meaning set forth in Sub-
Paragraph 4.2.1.
15.60. "Undermodulation Charge" shall have the meaning set forth in
Sub-Paragraph 3.4 hereof.
15.61. "Upper Trigger Price" shall have the meaning set forth in Sub-
Paragraph 4.4.4.
15.62. "Winter Months" initially shall mean the months of January,
February and December. Beginning January 1, 1994 "Winter Months" shall mean the
months of January, February, March and December.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first set forth above.
WITNESS: THE POTOMAC EDISON COMPANY
/s/ T. J. Kloc /s/ James D. Latimer
- ---------------------- ------------------------------------
T. J. Kloc, Comproller By: James D. Latimer, Vice President
WITNESS: EASTALCO ALUMINUM COMPANY
/s/ Oatha D. Marken /s/ Alan J. Scheib
- ---------------------- ------------------------------------
Oatha D. Marken By: Alan J. Scheib,
MIS Area Manager Vice President and Controller
30
36
SCHEDULE A
EFFECTIVE COST OF POWER CALCULATION
The Effective Cost of Power as referred to in Subparagraph 15.16 for one year
at an average plant load of 305,000 kilowatts equals Annual Cost divided by
Annual Kilowatt-hours, where:
A) Annual Cost is calculated as the sum of
Winter/Summer Demand Charges of (6 Mos.) (165,000 kW)(Capacity Charge),
Spring/Fall Demand Charges of (6 Mos.) (265,000 kW)(Capacity Charge),
Winter/Summer Bath County Charges of (165,000 kW)(4,374 Hrs.)(Bath Surcharge),
Spring/Fall Bath County Charges of (265,000 kW)(4,392 Hrs.)(Bath Surcharge),
Winter/Summer Base Energy Charges of (165,000 kW)(4,374 Hrs.)(Base Energy Charge)
Spring/Fall Base Energy Charges of (265,000 kW)(4,392 Hrs.)(Base Energy Charge)
Winter/Summer Incremental Energy Charges of [(305,000 kW-165,000 kW)(4,374 Hrs.
34,000,000 kWh][Average Increments
Energy Charge (1)),
Spring/Fall Incremental Energy Charges of (305,000 kW-265,000 kW)(4,392 Hrs.)
(Average Incremental Energy Charge) (1)
Winter/Summer Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25)
(165,000 kW)] (Reactive Kilovolt-Ampere Charge), and
Spring/Fall Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25)(265,000
(Reactive Kilovolt-Ampere Charge); and
B) Annual Kilowatt-hours is calculated as
(305,000 kW)(8,766 Hrs.) - 34,000,000 kWh = 2,639,630,000 kWh
(1) For the latest twelve months, the quotient derived by dividing the
sum of the charges billed for Incremental Energy (adjusted if necessary for a 1
mill per kilowatt-hour adder) by the sum of the kilowatt-hours of Incremental
Energy.
37
SCHEDULE A
----------
PAGE 2
COMPUTATION OF EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987
--------------------------------------------------------------
DEMAND CHARGE $ 7,000 /KW-MONTH
BATH COUNTY SURCHARGE 2.72 MILLS/KWH
BASE ENERGY CHARGE 12.44 MILLS/KWH
INCREMENTAL ENERGY CHARGE 15.017 MILLS/KWH
KVAR CHARGE $ 0.10 /KVAR-NORTH
KVAR BILLING OVER 25.001 OF BILLING DEMAND
PROJECTED OFF-SYSTEM ENERGY 34,000,000 KWH per YEAR
AVERAGE ENERGY LOAD 305,000 KW
PROJECTED KVAR DEMAND 183,000 (0.60 times AVERAGE ENERGY LOAD)
BILLING NUMBER TOTAL TOTAL ANNUAL
UNITS OF RATE CHARGE CHARGE
DEMAND CHARGE REVENUE KW MONTHS $/KW $ $
WINTER/SUMMER 165,000 6 7,000 6,930,000
SPRING/FALL 265,000 6 7,000 11,130,000
TOTAL 18,060,000
BATH COUNTY SURCHARGE REVENUE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 165,000 4,374 721,710,000 0.00272 1,963,051
SPRING/FALL 265,000 4,392 1,163,380,000 0.00272 3,165,754
TOTAL 5,123,905
BASE ENERGY CHARGE REVENUE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 165,000 4,374 721,710,000 0.01244 8,978,072
SPRING/FALL 265,000 4,392 1,163,880,000 0.01244 14,478,667
TOTAL 23,456,740
INCREMENTAL ENERGY CHARGE AVERAGE KW HOURS KWH $/KWH
WINTER/SUMMER 140,000 4,374 612,360,000
(34,000,000)
378,360,000 0.015017 8,685,232
SPRING/FALL 40,000 4,392 175,680,000 0.015017 2,638,187
TOTAL 11,323,419
KVAR BILLING
KVAR REVENUE DEMAND KVAR MONTHS $/KVAR
WINTER/SUMMER 183,000 -141,750 6 0.100 85,050
SPRING/FALL 183,000 116,750 6 0.100 70,050
TOTAL 155,100
-----------
TOTAL REVENUE EXCLUDING OFF-SYSTEM $38,124,063
===========
AVERAGE KW HOURS KWH
TOTAL KWH 305,000 8,766 2,673,630,000
LESS OFF-SYSTEM ENERGY (34,000,000)
-------------
TOTAL KWH EXCLUDING OFF-SYSTEM 2,639,630,000 KWH
=============
EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987
TOTAL REVENUE EXCLUDING OFF-SYSTEM
================================== EQUALS
TOTAL KWH EXCLUDING OFF-SYSTEM $0.02202 /KWH OR
22.02 MILLS/KWH
========
38
SCHEDULE B
BASE RATE REVENUE CALCULATION
For the purpose of determining whether a material modification to this
agreement has occurred as described in Subparagraph 15.27:
1) Base rate revenue shall be calculated utilizing the billing determinants of
the year used for rate design by the Commission's order.
2) Eastalco's base rate revenue shall equal Eastalco's total annualized
revenue, including Incremental Energy revenue but excluding any amounts paid
for Off-System Power, Bath Surcharge, and any Fuel-Related Surcharge, less
the product of the System Energy multiplied by the Maryland Fuel Rate
effective for Eastalco immediately preceding the Commission's order.
3) The base rate revenue of Schedule PP Customers shall equal that rate
schedule's total annualized revenue excluding any revenue due to the
Maryland Fuel Rate, the Bath Surchage, or any Fuel-Related Surcharge.
39
SCHEDULE C
SURVEY OF CURRENT BUSINESS
TABLE 7.4 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT
[TABLE OMITTED]
TABLE 7.5 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY MAJOR TYPE
OF PRODUCT
[TABLE OMITTED]
TABLE 7.6 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY SECTOR
[TABLE OMITTED]
TABLE 7.7 - IMPLICIT PRICE DEFLATORS FOR THE RELATION OF GROSS NATIONAL
PRODUCT, NET NATIONAL PRODUCT AND NATIONAL INCOME
[TABLE OMITTED]
TABLE 7.8 - IMPLICIT PRICE DEFLATORS FOR COMMAND-BASIS GROSS NATIONAL PRODUCT
[TABLE OMITTED]
TABLE 7.9 - FIXED WEIGHTED PRICE INDEXES FOR PERSONAL CONSUMPTION EXPENDITURES
BY MAJOR TYPE OF PRODUCT 1982 WEIGHTS
[TABLE OMITTED]
TABLE 7.14 - FIXED WEIGHTED PRICE INDEXES FOR EXPORTS AND IMPORTS OF GOODS AND
SERVICES, 1982 WEIGHTS
[TABLE OMITTED]
40
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Sixteenth Revision of
Original Page No. 5
Canceling
Fifteenth Revision of
Original Page No. 5
================================================================================
FUEL RATE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
RATE FOR THE COST OF FUEL
Effective with all bills rendered on and after February 4. 1994 there
shall be a fuel rate of 1.363 cents per kilowatthour which shall be billed under
all Rate Schedules and contracts served at voltages of less than 230.000 volts
at 1.390 cents per kilowatthour and under contracts served at 230.000 volts at
1.287 cents per kilowatthour. This currently effective rate will be applied each
month until changed as prescribed by procedures approved by the Public Service
Commission of Maryland. All bills rendered shall include an amount equal to the
Fuel Rate times the kilowatthours used in the billing period. The resulting
charge is in addition to any minimum charge set out in the Rate Schedule and is
added to the Customer's bill after any revenue surcharge and before any tax
surcharge is levied against the Customer's total bill.
CALCULATION OF CHANGES IN THE COST OF FUEL
The fuel rate per kilowatthour taken to the nearest 0.001 cent. shall
be calculated each month on Maryland P. S. C. Form 1 in accordance with
Commission Orders No. 63304 and 63456 in Case No. 7241 and Orders No. 65827 and
65849 in Case No. 7604. The rate so calculated shall be modified to recognize
taxes by application of the following formula.
1
-----
A - Fc x 1 - T
A = Fuel rate in cents per kilowatthour.
Fc = The amount designated as "Fuel Cost Per Kwh Sold" on Maryland
P.S.C. Form 1 for the period ending with the second preceding
month.
T = The Gross Receipts Tax rate in effect during the billing month
expressed as a decimal.
The fuel rate calculated in this manner shall be adjusted by
the following factor "L" to determine the amount to be billed
to Customers.
L = Adjustment factor for transmission line delivery efficiency.
For service at 230.000 volts L - 0.944
For service at lower voltages L - 1.020
For bimonthly bills the A factor shall be the average of the factor for
the month in which the bill is rendered and the factor for the preceding month.
================================================================================
ISSUED BY ALAN J. NOIA. PRESIDENT
Issued February 1, 1994 Effective with February cycle
bills rendered on and after
February 4, 1994 subject to refund
Issued under Order No. 70989 of the Public Service Commission
in Case No. 8523J
41
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Fourth Revision of
Original Page No. 5A
Canceling
Third Revision of
Original Page No. 5A
================================================================================
DEFERRED FUEL COST SURCHARGE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
DEFERRED FUEL COST SURCHARGE
Effective for all bills rendered on and after January 6, 1994 there
shall be a deterred fuel cost surcharge of 0.062 cents per kilowatthour which
shall be billed under all Rate Schedules and special contracts served at
voltages of less than 230.000 volts at 0.063 cents per kilowatthour and under
special contracts served at 230.000 volts at 0.059 cents per kilowatthour. This
deterred fuel cost surcharge will be applied each month until terminated at the
earliest of (1) the first day of the first January billing cycle in January
1996. (2) the first date of the first billing cycle after collection of a total
of $9.232.675. or (3) the first day of the first billing cycle following the
actual underrecovery balance in the deferred fuel account falling below $0. This
charge is in addition to any minimum charge set out in the Rate Schedule and is
added to the Customer's bill before any tax surcharge is levied against the
Customer's total bill.
CALCULATION OF DEFERRED FUEL COST SURCHARGE
A = DFC 1
-------------- -------
S x 1 - T
A = Deferred fuel cost surcharge in cent per kilowatthour.
DFC = $9,232,675 of dollars of deferred fuel costs.
S = 15,211,936 kilowatthours of jurisdictional sales for the period.
T = The Gross Receipts Tax rate in effect during the billing month
expressed as a decimal. (.02).
The Deferred Fuel Cost Surcharge calculated in this manner shall be
adjusted by the following factor "L" to determine the amount to be billed to
Customers.
L = Adjustment factor for transmission line delivery efficiency.
For service at 230,000 volts L = 0.944
For service at lower voltages L = 1.020
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued January 5, 1994 Effective with bills rendered
on and after January 6, 1994
Issued in accordance with PSC letter dated 1/4/94 in Case No. 8523I
42
THE POTOMAC EDISON COMPANY Electric P.S.C. Md. No. 53
Fourth Revision of
Original Page No. 50
Canceling
Third Revision of
Original Page No. 50
================================================================================
CLEAN AIR ACT RECOVERY SURCHARGE
APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS
Rate to Recover Costs Associated with the Compliance with the Clean
Air Act Amendments of 1990
Effective with bills rendered on and after November 11. 1994 there will
be a surcharge at 0.00% to be billed under all rate schedules and special
contracts to recover the Commission approved costs incurred by the Company in
compliance with the Clean Air Act Amendments of 1990. This surcharge will be
applied each month until changed by the Public Service Commission of Maryland.
All bills rendered shall include as a separate line item an amount equal to the
Clean Air Act Recovery Surcharge (CAARS) rate times total revenue exclusive of
taxes. The resulting charge is in addition to any minimum charge set out in the
rate schedule or special contract and is added to the Customer's bill before any
tax surcharge is levied against the Customer's total bill. Amounts billed
hereunder shall be subject to late pay charges.
================================================================================
ISSUED BY JAMES D. LATIMER, EXECUTIVE VICE PRESIDENT
Issued November 1, 1994 To become effective on
all bills rendered on
and after November 11, 1994
Issued under Order No. 71465 in Case No. 8652
43
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Third Revision of
Original Page No. 5E
Canceling
Second Revision of
Original Page No. 5E
================================================================================
ENERGY CONSERVATION SURCHARGE
APPLIES TO DESIGNATED RATE SCHEDULES
Effective with bills rendered on and after July 7, 1994, there shall be
a surcharge as set forth below to recover the cost associated with
Company-sponsored programs which promote conservation and efficient use of
energy and such other programs as recommended by The Collaborative and approved
by the Commission. The Energy Conservation Surcharge (ECS) is applied to
designated Rate Schedules to recover eligible costs applicable to that Rate
Schedule. These charges will be applied each month until changed by the
Commission. Applicable bills rendered shall include an amount equal to either
the ECS Residential rate times the number of kilowatthours used in the billing
period, or the ECS Commercial and Industrial revenue percentage rate times the
total revenue exclusive of taxes, whichever is specified. The resulting charge
is in addition to any minimum charge set out in the Rate Schedule and is added
to the Customer's energy charge or bill before any tax surcharge is levied
against the Customer's total bill. Amounts billed hereunder shall be subject to
late pay charges.
CALCULATION OF SURCHARGE
The Surcharge is calculated for the 12-month period beginning January
1. For the Residential class, the Surcharge is $0.00029 per kilowatthour and is
calculated by dividing the eligible costs expected to be allocated to that
Customer class for the period by the kilowatthour sales expected for that
schedule over the same period. For the Commercial and Industrial class, the
Surcharge is 3.48% of total revenue exclusive of taxes and is calculated by
dividing the eligible costs expected to be allocated to that Customer class for
the period by the total expected annual revenue from that Customer class. The
calculation includes an adjustment for gross receipts tax. Eligible costs will
be based on program descriptions filed with the Commission by November 1 of the
previous year, which will be consistent with the Long Range Plan filed
previously during the same year. An estimated Surcharge will be filed with the
Commission on February 1. The formal ECS will be filed March 1 to become
effective April 1 for the next twelve months. Upon determination that an ECS, if
left unchanged, would result in a material over/undercolection, the Company may
file a proposed interim revision of the ECS for Commission approval.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
44
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Second Revision of
Original Page No. 5E-1
Canceling
First Revision of
Original Page No. 5E-1
================================================================================
For ECS calculation and application purposes, the costs and revenues
for each of the rate schedules will be combined into Rate Schedule Groupings as
follows:
ENERGY CONSERVATION SURCHARGE EFFECTIVE JULY 7, 1994
RATE SCHEDULE RATE PER KWH PERCENT OF REVENUE
------------- ------------ ------------------
Residential
R $0.00029 N/A
Commercial and Industrial
C N/A 3.48%
G N/A 3.48%
C-A N/A 3.48%
CSH N/A 3.482
PH N/A 3.48%
PP N/A 3.48%
Eastalco N/A N/A
Lighting
OL N/A N/A
AL N/A N/A
MSL N/A N/A
SL N/A N/A
Frederick/Hagerstown N/A N/A
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
45
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Second Revision of
Original Page No. 5E-2
Canceling
First Revision of
Original Page No. 5E-2
================================================================================
ELIGIBLE COSTS
Costs eligible for recovery through the ECS are approved by the Commission
and include:
Program Costs -- Program Costs are the estimated costs for
research, development, implementation and operation of
experimental and pilot programs and of programs approved by
the Commission to be incurred by the Company during the 12
month period commencing each January 1, net of program amounts
presently included in base rates. Program costs include, but
are not limited to Company labor, rebates, payments to third
parties for program implementation direct marketing costs
incurred by the Company, market research costs, experimental
and pilot program development, consultant fees, applicable
software licenses, program measurement and monitoring
hardware, and all other administrative activities associated
with program development and implementation such as
advertising, program management, research and development
activities, experimental and pilot program development, and
monitoring and evaluation. All program costs for Residential
Class programs will be deferred and amortized (straight line)
over five years. All program costs associated with Commercial
and Industrial Class programs will be deferred and amortized
(straight line) over seven years. Beginning in 1995 the ECS
for residential programs will be calculated on a basis which
amortizes program costs over seven years. Unamortized balances
will accrue interest monthly at the rate of return (adjusted
for taxes) allowed in the Company's last Maryland rate
proceeding.
Lost Revenues -- Lost revenues are base rate revenues,
including surcharges that do not have a true-up provision, not
billed because of lost sales from approved conservation
programs. They are determined prospectively for the 12 month
period commencing each January 1. The estimates of lost
revenue are prepared on a program basis by Rate Schedule. Lost
revenues are calculated as decremental demand and energy per
participant or measure installed times appropriate base rate
demand and energy charges, net of gross receipts tax. The
estimates are based on "best available" demand and energy
savings data and the latest available measurement and
evaluation information. Lost revenues are calculated monthly
and deferred with interest until recovered in revenue, unless
the earnings test is not satisfied. Reconciliation of lost
revenues is based upon actual program participation or number
of measures installed. There is no retroactive adjustment for
changes in the per unit demand and energy savings estimates.
Lost revenues accrue between base rate cases except when the
earnings test is not satisfied.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 23, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
46
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
First Revision of
Original Page No. 5E-3
Canceling
Original Page No. 5E-3
================================================================================
ELIGIBLE COSTS (Continued)
Performance-Based Shared Savings Incentive -- The Company can
earn an incentive if it attains specified goals. Goals are
established as a part of each program approved by the
Commission. Achievement will be based on the aggregate energy
saved by all active, approved programs. The energy saved per
measure or participant will not be adjusted retroactively. The
number of measures, units, or participants will be the actual
number attained. The amount of the incentive will be based on
a share of the net savings from each program as calculated
using the Total Resource Cost Test (TRC) filed by the Company
and approved by the Commission. The aggregate goals and the
Company's shared savings amounts are:
% Goal Achieved % TRC
--------------- -----
Less than 80% 0%
80% - 99% 6%
100% - 119% 7.5%
120% & Over 10%
The highest percent incentive determined above applies
uniformly to the aggregate total of all net savings of all of
the programs used in establishing the goal. The incentive will
be grossed-up for all relevant taxes. Recovery of any
incentive awarded through the ECS will be based on the actual
amount earned in the previous year.
Reconciliation Factor -- The reconciliation factor corrects
for over/undercollection of program costs, lost revenues,
interest, and incentives. The differences between the
prospective estimates of program costs, lost revenues,
incentives, and interest included in the current year ECS and
the actual costs determined at the end of the year are
included in the ECS reconciliation factor. The reconciliation
factor is debited or credited against the costs eligible for
recovery through the ECS during the next year. Interest is
included in the reconciliation factor on the
over/undercollection at the rate of return, adjusted for
taxes, allowed in the Company's last Maryland rate proceeding.
Interest shall apply to the over/undercollection as recorded
in the deferred accounts and will be compounded semi-annually.
The factor is adjusted for gross receipts taxes.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued April 7, 1994 To become effective on
all service rendered on
or after May 5, 1994
Approved at Public Service Commission's Administrative Meeting of April 6, 1994
47
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
First Revision of
Original Page No. 5E-4
Canceling
Original Page No. 5E-4
================================================================================
COST ALLOCATION
Eligible costs will be allocated to the Rate Schedules participating in
specific programs as follows:
Program Costs:
(a) Direct program costs will be assigned to specified
approved programs.
(b) Common costs will be allocated to each approved
program in proportion to assigned program costs.
(c) If a single program involved more than one Rate
Schedule Grouping, the total assigned program costs
will be allocated to the Rate Schedules participating
in the programs by ratio of the number of
participants or measures in the individual schedules.
Cost Based Shared Savings Incentive -- Earned incentive costs
are allocated to the Rate Schedules and Rate Schedule
Groupings participating in proportion to the allocation of
total assigned program costs for the year in which the
incentive was earned.
Lost Revenues and Reconciliation Factor -- Any such eligible
costs or credits are directly assigned to the schedule of
origin.
EARNINGS TEST
The ECS is subject to an earnings test. The test is performed by the
Company on the first day of the month using the Company's most recent quarterly
financial results on file with the Commission. The earnings test is passed when
the Company's actual rate of return, on a Commission-adjusted basis, including
adjustments for the ECS costs, is equal to or below the rate of return allowed
in the Company's last Maryland rate proceeding. The earnings test is failed when
the actual rate of return exceeds the return allowed in the Company's last
Maryland rate proceeding.
During periods in which the Company fails the earnings test (1) the
Commission approved ECS, as revised each April 1, will continue unadjusted, and
(2) incentives previously earned and approved by the Commission, as well as
program costs, will be unaffected by the earnings test, and (3) no further lost
revenues will be deferred. The portion of the ECS related to lost revenues
recovery will be applied to reduce the balance of the deferred costs during such
periods. Deferred costs earn interest compounded semi-annually at the rate of
return (adjusted for taxes) allowed in the Company's last Maryland rate
proceeding.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued June 29, 1994 To become effective on
all bills rendered on
or after July 7, 1994
Approved at Public Service Commission's Administrative Meeting of June 29, 1994
48
THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53
Original Page No. 5F
================================================================================
COGENERATION PURPA PROJECT SURCHARGE
Effective with service rendered on and after January 5, 1994 through
January 4, 1996, there shall be a surcharge per KWH at rates set forth below to
recover costs associated with COGENERATION PURPA PROJECTS approved by the
Maryland Public Service Commission. These rates will be applied each month until
changed by the Commission. Applicable bills rendered shall include an amount
equal to the surcharge rate times the number of kilowatthours used in the
billing period. The resulting charge is in addition to any minimum charge set
out in the Rate Schedule and is added to the Customer's energy charge before any
tax surcharge is levied against the Customer's total bill. Amounts billed
hereunder shall be subject to late pay charges.
COGENERATION PURPA SURCHARGE
---------------------------------------------
Schedule Rate Per KWH
-------- ------------
R $0.00026
C 0.00023
G 0.00023
C-A 0.00031
CSH 0.00031
PH 0.00021
PP 0.00018
Eastalco 0.00009
OL 0.00003
AL 0.00003
MSL 0.00003
SL 0.00003
Fred/Hag 0.00003
Rates for service under each of the Company's Rate Schedules are subject to this
surcharge.
================================================================================
ISSUED BY ALAN J. NOIA, PRESIDENT
Issued December 28, 1993 To become effective on all service
rendered on or after January 5, 1994
through January 4, 1996
Approved at Public Service Commission's Administrative Meeting of
December 22, 1993
49
STIPULATION REGARDING THE ESTABLISHMENT OF
RATES UNDER THE POWER CONTRACT BETWEEN POTOMAC
EDISON AND EASTALCO
PARTIES
The parties to this stipulation are:
The Potomac Edison Company
Eastalco Aluminum Company
Maryland People's Counsel
Staff of the Maryland Public Service Commission
Westvaco Corporation
TERM OF THIS STIPULATION
This stipulation shall be effective upon the approval by the Public Service
Commission of Maryland of the new power contract between The Potomac Edison
Company and Eastalco, which is attached hereto. This stipulation shall remain
effective until the earlier of (i) the date that the contract terminates or
(ii) the effective date of a further amendment to that contract that is
inconsistent with this stipulation.
COST OF SERVICE ALLOCATION
As part of any application for a change in base rates, Potomac Edison shall
prepare and present a 6 CP - Defined Months cost of service allocation study
which allocates costs between Eastalco and all other customer classes based on
the six coincident peaks of each customer class in the months defined as Winter
Months and Summer Months in the power contract between Potomac Edison and
Eastalco. Such cost allocation study shall be substantially the same as the
cost allocation study included as Part 2 of Exhibit FDS-2 in the Direct
Testimony and Exhibits of Francis D. Stillman, Potomac Edison Exhibit No. 5 in
Case Number 8469, except that the 12 CP cost allocator labelled D1, Demand at
Generation Level (ACP), shall be replaced by the 6 CP - Defined Months
allocator.
In particular, all cost of service allocations related to production and
transmission plant will use the 6 CP - Defined Months allocator. This includes
the investment in CAA related capital plant for compliance with Phase I and
Phase II OF THE CAAA.
1
50
STIPULATION (Continued) - June 15, 1993
RATES TO EASTALCO
Subject only to the Rate Shock Provision, the base rates to Eastalco shall be
established to produce an indexed rate of return of not less than 0.995 nor
more than 1.005 based on the 6 CP-Defined Months cost of service allocation
normalized as discussed below.
RATE SHOCK PROVISION
In order to avoid rate shock to any customer class, in each base rate
proceeding the base rates to Eastalco shall be established to produce an
indexed rate of return as close as possible to 1.0 based on the 6 CP - Defined
Month allocation subject to the following:
If Potomac Edison receives a base rate increase, the percentage
increase in base rates to Eastalco shall not be less than twenty-five
percent (25%) nor more than one hundred seventy-five percent (175%) of
the percentage increase in jurisdictional base revenues.
If Potomac Edison receives a base rate decrease, the percentage
decrease in base rates to Eastalco shall not be less than twenty-five
percent (25%) nor more than one hundred seventy-five percent (175%) of
the percentage decrease in jurisdictional base revenues.
NORMALIZATION PROVISION
Potomac Edison shall make a normalization adjustment to remove any Profit
Sharing Surcharge revenue from the 6 CP - Defined Month cost of service study.
If Potomac Edison believes that reductions in Eastalco System Demands were less
than normal during the test year, or that there were increases in revenues from
Eastalco that were caused by Eastalco's failure to reduce System Demand to a
normal level, then Potomac shall use its best efforts to make adjustments to
normalize the 6 CP - Defined Month cost of service study. A normalization
adjustment for the winter/summer time period may only occur if Eastalco's
System Demand is greater than 10 MW from the average of the winter/summer
months of the cost of service study year and the previous year. A normalization
adjustment to eliminate ratchet revenues for the spring/fall time period may
only occur if Eastalco's System Demand is greater than the billing capacity
2
51
STIPULATION (Continued) - June 15, 1993
calculated according to the Eastalco Contract, Subparagraph 3.2.2.2.4. The
adjustment could reduce Eastalco's revenues to the level which would have
occurred if the billing capacity calculated in Subparagraph 3.2.2.2.4 had been
used in the monthly bill calculation.
Such normalization adjustments may include but are not limited to: (i) revenue
from the operation of the ratchet provisions in the Eastalco Contract
(Subparagraphs 3.2.2.1.5 and 3.2.2.2.6) may be removed from the 6 CP - Defined
Month allocation study; (ii) billing demands shall be recomputed as if normal
reductions in Eastalco's System Demands had occurred in the study period and
revenue reduced accordingly; and (iii) the 6 CP allocation factor shall be
determined based on normal reductions in Eastalco's System Demands.
RATES TO OTHER CUSTOMERS
Except as set forth below under "allocation of profit sharing revenues" the
allocation of the remaining revenues, costs and rate base to customer classes
other than Eastalco and the design of rates to recover such costs from all
customer classes other than Eastalco shall not be affected by this stipulation.
The cost allocation will be a two-step process. The 6 CP-Defined Month cost
of service study used to establish rates to Eastalco will be the first step.
The second step will be a cost of service study for all other customers. All
costs, revenues and rate base related to Eastalco as determined in the 6 CP-
Defined Months cost of service study, will be removed from the second cost of
service study.
NO PRECEDENTS
This stipulation represents a compromise among the parties in recognition of
Eastalco's separate class status, its unique contract, manner of usage of
electrical energy, and usage of electricity as a production process raw
material. Agreement to the terms of this stipulation does not mean that any
party supports the application of rate allocations and principles in this
stipulation outside of the specific context of this stipulation. No party shall
cite this agreement in any tribunal for any purpose outside of this
stipulation. This stipulation is not evidence of acceptance or rejection of any
rate allocation or rate design principle by any party. Moreover, the parties
agree that this agreement shall be of no precendential value and is in no way
3
52
STIPULATION (Continued) - June 15, 1993
intended to influence Commission decisions regarding proper cost allocation or
rate design except as specifically agreed herein.
ALLOCATION OF PROFIT SHARING REVENUES
Under conditions set forth in the new Subparagraph 4.4 of the Eastalco power
contract, Eastalco will pay a profit sharing surcharge to Potomac Edison. The
revenue from the profit sharing surcharge shall be distributed by Potomac
Edison to all its Maryland jurisdiction customer classes other than Eastalco.
The timing of distributions and the allocation of profit sharing revenues among
customer classes other than Eastalco shall be done in accordance with Exhibit
A, "Procedures for Refund of Eastalco 'Profit Sharing' Revenues to Potomac
Edison's Other Maryland Jurisdictional customers," which is attached hereto and
made a part of this stipulation.
ADJUSTMENT OF PROFIT SEARING
The formulas set forth in the Electric Service Agreement between Eastalco and
Potomac Edison for the Lower Trigger Price and the Upper Trigger Price have
been developed based on the best information and projections of inflation and
aluminum prices currently available. The intent of these formulas is that
during periods of strong aluminum markets there should be some revenues from
the Profit Sharing Surcharge. Potomac and Eastalco shall review these formulas
prior to June 1, 1996, and each three years thereafter, to determine whether
they are working as intended and report to the Commission their determination.
If, after review of the report, any party determines that the formulas are
operating in such a manner that the amount of revenue from the Profit Sharing
Surcharge is higher than intended or lower than intended, taking into account
the conditions of the aluminum market, the parties agree to negotiate in good
faith modifications to the formulas or this stipulation. The intent of such
negotiations would be to reestablish the benefits to all parties intended to be
achieved by this stipulation.
OTHER MATTERS
The parties acknowledge that Eastalco's load and its load modulation activities
have a significant effect on Maryland demand and generation resources required.
4
53
STIPULATION (Continued) - June 15, 1993
They further acknowledge that notifications required from Eastalco to the
Company as regards contract extension or termination are an important factor in
effective least cost planning for its Maryland customers.
The parties also acknowledge that Eastalco's load for planning purposes is
about 140 MW of Potomac Edison's total estimated demand in the year 2000 and
that Eastalco's presence or absence beyond the initial contract term thus
creates a significant planning uncertainty.
The parties will not challenge the prudence of any plant that, at the time
construction began, was prudent to build, even though, after construction
started, or was completed, the plant served to provide excess capacity due
solely to the absence of Eastalco as a 140 MW customer. This does not limit the
rights of any party to challenge whether the plant construction was
accomplished in a prudent manner or whether the Company proceeded with the
start or continuation of construction at a time when the Company had actual
knowledge that Eastalco would no longer continue as a 140 MW customer and
actual knowledge that such additional plant was not needed for service to other
customers. This agreement also does not restrict or diminish the parties'
rights to raise any issues regarding whether any portion of the Company's rates
are "just and reasonable."
5
54
STIPULATION (Continued) - June 15, 1993
REQUEST FOR APPROVAL
The parties jointly request that the Commission approve the amendment to the
contract between Potomac Edison and Eastalco and this stipulation.
The Potomac Edison Company Eastalco Aluminum Company
By /s/ Thomas J. By /s/ Alan J. Scheil
------------------------------- ------------------------------
Comptroller Vice-president and Controller
Date 6/15/93 Date June 16, 1993
----------------------------- -----------------------------
Maryland Office of People's Staff, Public Service Commission
Counsel of Maryland
By /s/ By /s/ Allen N. Freifield
------------------------------- ------------------------------
Date 2/ /93 Date 6/21/93
----------------------------- ---------------------------
Westvaco Corporation joins in this stipulation excepting only to the "Other
Matters " section.
Westvaco Corporation
By /s/
---------------------
Date 6-17-93
-------------------
6
55
EXHIBIT A
PROCEDURES FOR REFUND OF EASTALCO "PROFIT
SHARING" REVENUES TO POTOMAC EDISON'S OTHER
MARYLAND JURISDICTIONAL CUSTOMERS
1) Potomac Edison will track the profit sharing revenues received from
Eastalco on a monthly basis and accumulate them in a deferred account.
2) The balance in the deferred account will earn interest, compounded
semi-annually, at the rate of return allowed in the Company's last
Maryland base rate proceeding.
3) Once each year, Potomac Edison will examine the account for refund to
Maryland jurisdictional customers other than Eastalco.
A) The deferred account will be examined each November to include any
profit sharing revenues resulting from Eastalco's billings through
October. The Rate Adjustment Credit for the following year will
commence with customer bills for the first billing cycle in
January.
B) If the balance in the deferred account equals or exceeds
$1,000,000, a credit will be determined for the next calendar
year. This credit, in cents/kWh or $/kWh, will be applied to
customer bills for the ensuing 12-month calendar period as a Rate
Adjustment Credit (RAC).
C) If the balance is less than $1,000,000, no credit will be
calculated. The balance will carry over into the following year
and continue to earn interest as described above until the next
review. If, however, the balance is less than $1,000,000 and an
existing "RAC" is in effect, the existing "RAC" will continue
until the month prior to when the account would reach a zero
balance.
D) The balance to be returned to other customers will be allocated
among the rate schedules in accordance with the demand allocation
method approved in Potomac Edison's last Maryland base rate case.
Once the amounts have been allocated by cost of service study rate
schedule groupings, the "RAC" will be calculated by dividing the
schedule's allocated dollars by its projected kWh for the next
calendar year.
4) Potomac Edison will track the credits made to customer bills and reduce
the balance in the deferred account on a monthly basis by the amount of
those credits throughout the refund year.
5) Any over or under refund will be reflected in the deferred account balance
for the following annual review.
7