Energy Contracting & Negotiation-7

CHAPTER 7

Transportation Agreements (Pipelines) In India Demand for transporting petroleum products over long distances is expected to total 54.6 million tonnes in 2001-2002 and around 87.3 million tonnes in 2006-07. Pipeline transportation is the most efficient way of moving petroleum products across long distances. In India, barely 25 percent of long distance movement of petroleum products is by pipelines. In contrast, in the developed countries almost all such movement is through pipelines. Around Rs. 30,000 crore is expected to be invested over the next decade in setting up pipeline networks. Globally,Pipeline transactions face unique and complex challenges that bring to bear an unusually broad array of legal specialties. In addition to the usual commercial and contractual issues that arise in virtually any transaction, pipeline deals often involve such distinct practice areas as the following: 1.Common carrier regulation in the countries 2.Economic regulation by state agencies in multiple states 3.Antitrust review by the government department 4.Pipeline safety regulation of the government 5.Right-of-way issues governed by state and International laws 6.Tax issues specifically applicable to the various kinds of pipeline entities

7.Negotiating transportation agreements for the transmission of crude oil, natural gas, refined petroleum products, and various petrochemicals 8.Handling contractual arrangements by pipeline, marine vessels, or rail cars 9.Rate development and rate design issues 10.Fuel requirements International pipeline transactions raise a host of additional issues, by allowing unrestricted entry under a well-defined policy framework for the setting up and operation of pipelines , Set up new pipelines for products under the common carrier principle and place an even greater premium on experience and in-depth knowledge.

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FORM OF FIRM TRANSPORTATION AGREEMENT TRANSPORTATION AGREEMENT FOR FIRM TRANSPORTATION OF NATURAL GAS ALLIANCE PIPELINE L.P. Firm Transportation Agreement No. _______ This TRANSPORTATION AGREEMENT FOR FIRM TRANSPORTATION OF NATURAL GAS ("Firm Transportation Agreement” or “Agreement") is made and entered into this ___ day of ______________, 20___, between: ALLIANCE PIPELINE L.P., ("Transporter"), and __________________________________________, ("Shipper"). Witnesseth: That in consideration of the mutual covenants contained herein the parties agree as follows: Section 1. Service to be Rendered Transporter shall perform and Shipper shall receive Firm Transportation Service in accordance with the provisions of Transporter's effective Rate Schedule FT-1 and the applicable General Terms and Conditions (GTC) of Transporter's FERC Gas Tariff on file with the Federal Energy Regulatory Commission ("Commission") as the same may be amended or superseded in accordance with the Rules and Regulations of the Commission. Section 2. Term This Agreement shall be effective as of the date first written above, for a term of ______ years. Shipper may extend the term of this Agreement for a minimum of _______________ upon ___________ prior written notice of the extension. Pregranted abandonment of service shall apply upon termination of this agreement. Section 3. Rates [Shipper shall pay the currently effective Rate Schedule FT-1 Recourse Rates set forth at Sheet No. 10 of Transporter’s Tariff, as such rates may be revised and superseded, subject to Commission approval, from time to time, unless Shipper has executed a Negotiated Rate Agreement in accordance with Section 39 of the GTC.] OR [Negotiated Rate] Section 4. Notices Notices to Transporter under this Agreement shall be addressed to: Alliance Pipeline L.P. 6385 Old Shady Oak Road Eden Prairie, MN 55344 Attention: Manager, Tariff Administration Fax: (612) 944-9166 Section 5. Superseded Agreements This Firm Transportation Agreement supersedes and cancels as of the effective date hereof the following agreements:

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__________, ___________. IN WITNESS WHEREOF, the Parties have duly executed this Firm Transportation Agreement in several counterparts by their duly authorized officers with effect as of the day first above written. ALLIANCE PIPELINE L.P. by its Managing General Partner, ALLIANCE PIPELINE INC. [Date of Execution] Per: _______________________ Per: _______________________ [SHIPPER] [Date of Execution] Per: _______________________ Per: _______________________ APPENDIX A TO TRANSPORTATION AGREEMENT NO. [TA Contract No] BETWEEN ALLIANCE PIPELINE L.P. and [COMPANY FULL NAME] CONTRACTED CAPACITY AND PRIMARY DELIVERY POINTS Contracted Capacity __________ MMcf/day

Primary Delivery Point Primary Delivery Point(s) Capacity (MMcf/day) Total Primary Delivery Point Capacity (Not to exceed 150% of Contracted capacity) Agreement No. -------APPENDIX B RATE PRINCIPLES 1) Subject to the incentive provisions, the reservation rates will be calculated on a per unit-of-capacity basis to provide for the recovery by the Transporter of all of the fixed costs of providing service. In addition, Shippers will pay a commodity or usage charge for volumes actually shipped, plus fuel. 2) A deemed capital structure of 70% debt and 30% equity for the primary term and any extension of the primary term of the Firm Transportation Agreement. 3) A cost of debt calculated using a rate of interest equal to the weighted average of the interest rates borne by Transporter’s debt. Changes in 453

Transporter’s actual weighted average cost of debt will be reflected in Transporter’s negotiated rates from time to time. 4) Return on Equity 1. Base rate of return on equity of 12%. 2. Base rate of return on equity to be subject to an incentive adjustment. The resulting return on equity will apply for the primary term and any extension of the primary term of the Firm Transportation Agreement. 3. The base rate of return on equity will be increased or decreased inversely with increases or decreases in the actual capital cost versus the estimated capital cost of the Alliance Pipeline L.P. system. The adjustment formula will be linear so that any variations between actual and estimated capital cost will be reflected in the adjusted rate of return on equity. For example, a 10% increase in the actual capital cost, versus the estimated capital cost, would result in a decrease of 0.5% (50 basis points) in the base rate of return on equity. Similarly, a 20% decrease in the actual capital cost versus the estimated capital cost would result in an increase in the base rate of return on equity of 1.0% (100 basis points). The incentive rate of return increase or decrease will be limited to a maximum of 2% (200 basis points). 4. If (i) Transporter's facilities are not completed, tested and available to provide the service contemplated herein; or (ii) Transporter has not been granted permission to commence service by the Commission on or before November 1, 2001, then Transporter's return on equity shall be reduced by one percent (100 basis points) for the primary term set forth in section 2 of this Firm Transportation Agreement; provided, however, that Transporter's return on equity shall not be reduced if the delay beyond November 1, 2001 is attributable to (i) a Force Majeure event as defined in Transporter's FERC Gas Tariff; or (ii) a failure by Shipper to satisfy its obligations under this Firm Transportation Agreement. 5) Income taxes will be calculated on a normalized basis, utilizing the federal and state corporate tax rates on income derived from pipeline operations for the primary term and any extension of the primary term of the Firm Transportation Agreement. 6) The depreciation on transmission plant used for purposed of deriving rates will be calculated annually in accordance with Table 1. If, at any point, a Shipper elects not to exercise its rolling right to extend the primary term of its Firm Transportation Agreement, then during the final five (5) years of this Firm Transportation Agreement, that Shipper's rates will be adjusted so that the average depreciation rate over the term of the Firm Transportation Agreement is 4%.

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7) The rate base will include, among other things, actual capital costs. 8) The actual reservation rates will be calculated based upon the higher of the sum of all of the Contracted Capacities or 1325 MMcfd, for the primary term and any extension of the primary term of the Firm Transportation Agreement. 9) There will be a commodity or usage charge which will recover all of those costs that vary with volumes actually shipped, for the primary term and any extension of the primary term of the Firm Transportation Agreement. 10) Fuel will be recovered on an actual tracked basis. 11) The estimated capital cost of the Alliance Pipeline L.P. system, excluding AFUDC and at a system design of 1325 MMcfd, is U.S.$1,235,163,000 ($1235.2 million). 12) Changes in Transporter's operating costs will be reflected in its rates from time to time, for the primary term and any extension of the primary term of the Firm Transportation Agreement. 13) The rate for Authorized Overrun Service will be the negotiated commodity charge, plus fuel, for the primary term and any extension of the primary term of the Firm Transportation Agreement.

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Table 1 Depreciation Rate 0.290% 0.751% 1.212% 1.673% 2.134% 2.595% 3.056% 3.517% 3.978% 4.439% 4.900% 5.361% 5.822% 6.283% 6.744% 4.725% 4.725% 4.725% 4.725% 4.725% 4.725% 4.725% 4.725% 4.725% 4.725%

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